SAMARKAND REGIONAL STATE UNITARY ENTERPRISE "SUVOKOVA" FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 Samarkand RSUE %Suvokovap Financial statements for the year ended 31 December 2018 Contents MANAGEMENT RESPONSIBILITY 2 INDEPENDENT AUDITORS' REPORT 3 STATEMENT OF FINANCIAL POSITION 7 STATEMENT OF COMPREHENSIVE INCOME 8 STATEMENT OF CHANGES IN EQUITY 9 STATEMENT OF CASH FLOWS 10 NOTES TO THE FINANCIAL STATEMENTS 11 1. Main activity of the Company 11 2. New and Revised International Financial Reporting Standards 14 3. Significant Accounting Policies 20 4 Property, plant and equipment 31 5. Investments in the Suvakava District 33 6 Deferred expenses 33 7 Inventories 33 8 Trade receivables and other receivables 33 9 Cash and cash equivalents 34 10 Chartered capital 35 11 Borrowings 35 12 Other long - term borrowings 36 13 Restricted capital 36 14 Trade payables and other payables 36 15 Revenues 36 16 Cost of sales 37 17 Administrative and other operating expenses 37 18 Government Grant 38 19 Other operating income 38 20 Financial expenses and incomes 39 21 Income Taxes 39 22 Contingent liabilities 39 23 Related Party Transactions 40 24 Segment Information 41 25 Fair value 41 26 Risk Management 42 27 Subsequent events 46 MANAGEMENT RESPONSIBILITY The management of Samarkand RSUE oSuvokovao (hereinafter referred to as the "Company") is responsible for the preparation of the financial statements, that fairly present, in all material respects, financial position of the Company as at December 31, 2018, and the results of its operations, cash flows and changes in equity for the year then ended, in accordance with International Financial Reporting Standards (hereinafter - "IFRS"). In preparing the financial statements, management is responsible for: - selecting of proper accounting principles and its consistent application; - presenting information, including accounting policies, in a manner that provides relevance, reliability, comparability and understandability of such information; - using of reasonable and appropriate estimates and assumptions; - providing additional disclosures when compliance with the requirements of IFRS is insufficient for users of the financial statements to understand the impact of particular transactions, as well as other events and conditions on the financial position and financial results of the Company's operation; and - assessment of the Company's ability to continue as a going concern in the foreseeable future. Management is also responsible for: - designing, implementing and maintaining the effective and reliable functionality of the internal control system; - maintaining adequate accounting system, allowing the preparation of information about the Company's financial position at any time with reasonable accuracy, and to ensure compliance of financial statements with IFRS; - maintaining accounting records in accordance w%ith the legislation of the Republic of Uzbekistan; - adopting measures within its competence to safeguard assets of the Company; and - detecting and preventing fraud and other irregularities. I he financial statements for the year ended December 31, 2018 were approved by management of the Copa1n31.11y on June 28, 2019. Disrector K Yusupov I.SH. Chief accountant Kolesnikov D.A. O GrantThornton An instinct for growth AO 000 *Grant Thortons Pecny6JN1Ka Y36MCTaH, 100128, TauxesT, yn. A6am. 1A Ten.: +998 (71) 230-4543 OaKc: +998 (71) 24447-43 INDEPENDENT AUDITORS' REPORT "Grant Thomton" AO LLC 1A. Abay Str., To the owner and management of Samarkand Tashkent. 100128, Regional State Unitary Enterprise Republic of Uzbekistan ((Suvokova~> Tel: +998 (71) 230-45-43 Fax: +998 (71) 244-4743 W: www.grantthomton.uz Disclaimer of opinion We do not express an opinion on the accompanying financial statements of the Samarkand Regional State Unitary Enterprise "Suvokova". Because of the significance of the matters described in the "Basis for disclaimer of opinion" section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements. We were engaged to audit the financial statements of the Samarkand State Unitary Enterprise "Suvokova" (hereinafter - the "Company"), which comprise the statement of financial position as at 31 December 2018 and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information. Basis for disclaimer of opinion 1. As it is disclosed in Note 4 to the accompanying financial statements, as at 31 December 2018 the net carrying value of the property, plant and equipment amounts UZS 157 560 703 thousand (2017: UZS 126 651 078 thousand), representing 82% of the Company's assets (2017: 86% of the Company's assets). Based on the audit procedures performed we identified certain indicators for impairment of these assets as of the reporting date, such as: a) the Company incurred loss from its operations for 2018 in the amount of UZS 154 778 665 thousand and as at 31 December 2018 the accumulated losses amount UZS 384 033 319 thousand; b) the Company's net assets amount UZS 366 316 246 thousand and are below its share capital in the amount of UZS 379 364 599 thousand; and c) there are indications that some of the property, plant and equipment are obsolete or physically damaged. However, the Company has not carried out an impairment review on the property, plant and equipment as at 31 December 2018 required by the accepted accounting policy disclosed in note 3 in order to determine whether adjustments are needed to be made to the carrying amount of the property, plant and equipment. Due to the nature and complexity of these assets, we were not able to make our own estimate and to determine the value of impairment provision on the carrying value of the Company's property, plant and equipment as at 31 December 2018. Member of Grant Thornton International VC GrantThornton An instinct for growth" 2. Furthermore, based on the audit procedures performed, we have identified that the data in the accounting records are not reconciled with the Registry of property, plant and equipment as at 31 December 2018, for which we did not obtain sufficient relevant data and information. Due to the nature and complexity of these assets, we were not able to make our own estimate and to determine if any adjustment should be made of the Company's property, plant and equipment as at 31 December 2018. Consequently, we are not in a position to obtain reasonable assurance regarding the completeness of the Company's property, plant and equipment as at 31 December 2018. 3. As it is disclosed in Note 7 to the accompanying financial statements, as at 31 December 2018, the balance of Company's inventories amounts UZS 2 034 000 thousand (2017: UZS 1 605 373 thousand). Inventories are carried at cost. Based on the audit procedures performed we identified cases of inventory' obsolesce and physical damage. The Company's management did not assess the net realizable value of its inventories as of the reporting date. Owing to the nature and complexity of these assets we were not able to make our own estimates and to determine whether adjustment to the carrying amount of the inventories are needed as at 31 December 2018. 4. As it is disclosed in Note 15 to the accompanying financial statements, for the year ended 31 December 2018 revenues are in the amount of UZS 50 839 423 thousand. Based on the audit procedures performed, we have identified that the data in the billing system for individuals is based on budgetary norms for the use of the sewage system per person, while the actual use of sewerage by individuals may differ materially. Due to the lack of sufficient appropriate data and supporting documents, we were not able to obtain reasonable assurance with the completeness and accuracy of revenues and related receivables from individuals for the year ended 31 December 2018. Furthermore, as it is disclosed in note 15 to the accompanying financial statements, the technical efficiency of the billing system is limited by branches. Due to the lack of reliable data and supporting documents, we were not able to obtain sufficient audit evidence to confirm the completeness and accuracy of the proceeds from individuals. We were unable to determine the need to adjust the revenue or receivables from individuals. 5. As it is disclosed in note 23 to the accompanying financial statements, for the year ended 31 December 2018 the Company did not disclose nature, type and amounts of its transactions with related parties and key management personnel compensation in accordance with note 3 to the financial statements and International Financing Reporting standards. We were not provided with sufficient appropriate information on nature, type and amounts of its transactions with related parties and key management personnel compensation. Accordingly, we were not able to determine the nature, type and amounts of its transactions with related parties and key management personnel compensation that should be disclosed in the Company's financial statements as of and for the year ended 31 December 2018. 6. As it is disclosed in the note 11 to the accompanying financial statements, for the year ended 31 December 2018 indicates that long-term borrowings amount to UZS 436 352 452 thousand. However, we were not presented with a letter of confirmation on the balance of the long - term borrowings. Based on the audit procedures carried out, due to the lack of sufficient relevant data and supporting documents, we were unable to obtain reasonable assurance with completeness and accuracy of the long- term borrowings for the year ended December 31, 2018. O GrantThornton An instinct for growth- Material Uncertainty Related to Going Concern We draw attention to Note 3 of the accompanying financial statements, which indicates that the Company incurred a net loss of UZS 154 778 665 thousand for the year ended 31 December 2018 and, accumulated losses at that date amounted to UZS 384 033 319 thousand. As further indicated in Note 3 to the accompanying financial statements, these events or conditions indicate that there is a substantial uncertainty that may raise serious doubts in the Company's ability to continue working as a going concern. Our opinion is not modified in respect of this matter. Responsibiliv of management and those charged with governance for the linancial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Management and those charged with governance are responsible for overseeing the Company's financial reporting process. Auditorl responsibility for the audit of financial statements Our responsibility is to conduct an audit of the Company's financial statements in accordance with International Standards on Auditing and to issue auditor's opinion. However, because of the matters described in the Basis for Disclaimer of Opinion section of our report, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements and have fulfilled our other responsibilities under those ethical requirements. Engagement Partner: N Karimiov Audit manager N.N. Yulchiev 28 June, 2019 Tashkent, Uzbekistan Samarkand RSUE vSuvokovaD Financial statements for the year ended 31 December 2018 (in thousands of UZS) STATEMENT OF FINANCIAL POSITION As at 31 December As at 31 December 2018 2017 Assets Non-current assets Property, plant and equipment 4 157 560 703 126 651 078 Total Non-current assets 157 560 703 126 651 078 Current assets Inventories 7 2034000 1605373 Trade and other receivables 8 30501 646 19226315 Cash and Cash Equivalents 9 1 402 262 454 192 Total Current assets 33 937 908 21 285 880 Total Assets 191498611 147 936 957 Liabilities Current Liability Accounts Payables 14 25216208 25377025 Current portion of long-term liability 11 5242 155 1 924 900 Total Current Liability 30 458 363 27301 925 Long term liability Long-term borrowings 11 436 352 452 285 987 134 Other long-term liabilities 12 91 004 042 46 183822 Total long term liability 527 356 494 332 170 956 Total Liability 557814857 359472881 Equity Charter capital 10 13048353 13048353 Restricted Capital 13 4668719 4668719 Accumulated loss (384 033 319) (229 252 996) Total Equity (366 316 246) (211 535 923) Total Liability and Equity 191498611 147936957 Approvedand signed on behalf of the C mpany's management: Chief Accountant Kolesnikov D.A. 28June, 2019 Thc accoipanyiw notus on pages 11 47 arc an intCgral part Of thV. CUf%Vlt filanClI tatiMVntII 7 Samarkand RSUE tSuvokovao Financial statements for the year ended 31 December 2018 (in thousands of UZS) STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December Note For the year ended 31 For the year ended 31 December 2018 December 2017 Revenue 15 50839423 44728 175 Cost of sales 16 (39 554 9) (32961 951) Gross Profit 128445 11766224 Administrative expense 17 (9370655) (9 602 906) Write off I Provision for impairment of trade receivables (1 054 117) (3282 705) Government Grant 18 46331769 5409479 Other income 19 10086297 2850209 Operating profit 57277760 7140301 Finance cost 20 (219 664 695) (201510 081) Finance income 20 7706960 1560150 Loss before tax (154 679 975) (192 809 630) Income tax expences 21 (98 690) (60 835) Loss for the year (154 778 665) (192 870 464) on beh of the Company's management. D .Chief Accountant Yusup lSH" Kolesnikov DA, 28 June, 2019 Samarkand RSUE aSuvokovav Financial statements for the year ended 31 December 2018 (in thousands of UZS) STATEMENT OF CHANGES IN EQUITY For the year ended 31 December Charter capital Restricted capital Retained earnings Total Balance at January 12017 13 048 353 3959507 (31 811 946) (14 804 086) Net loss for the year - (192 870 464) (192 870 484) Contribution of the Government of the Republic of Uzbekistan in kind - 709 212 709212 Other changes - (4 570 585) (4570 585) Balance at December 31 2017 13 048 353 4668 719 (229 252 996) (211 535 923) Effect on impact of IFRS 9 (843) (843) Net loss for the year - (154 778 665) (154 778 6685) Contribution of the Government of the Republic of Uzbekistan in kind - - Other changes - (815) (815) Balance at December 31 2018 13 048353 4668 719 (384 033 319) (366 316 248) Appro 11) 4i#)ed on behalf of the Company's management: Directo, Chief Accountant Yus Kolesnikov D.A. 28June, 2019 Thc. .cco mpanking #~ II IA L h i~ii 'f t U t I LI ,If.m 9 Samarkand RSUE cSuvokovaD Financial statements for the year ended 31 December 2018 (in thousands of UZS) STATEMENT OF CASH FLOWS For the year ended 31 December Note 31 December 2018 31 December 2017 Operating activities Loss for the year before taxation (154 778 665) (192 870 464) Non-cash adjustments Depreciation 4 9935204 4662882 Net book value of written offisold assets 4 235 589 211159 Write off I Provision for impairment of trade receivables 1 054 117 3282 705 Government grant 18 (46 331 769) (5409479) Effect from IFRS 9 2 (843) - Adjustment from prior years (815) (4570585) Exchange rate differences, net amount 20 211 957 735 197 422 484 Net cash from operating activities 26454206 10665627 Increase in trade receivables and other receivables (12 329 448) 3214 948 Change in inventories (428 628) 465 755 Decrease / increase in accounts payable on operating 44 659 404 1 861 703 activities and other payables Change in working capital 58355535 16208033 Investing activities Purchase of fixed assets (41 080 419) (30469 775) Government grants 46331 769 5409479 Net cash used in investing activities 5251 350 (29 760 563) Financing activities Receipt of borrowed funds (61592417) 16053745 Payment of borrowed funds 3317255 (38110) Interest paid 20 (4383653) (2527447) Net cash from financing activities (62658815) 13488188 Net (decrease) in cash and cash equivalents 948 070 (64 342) 9 454192 518534 Cash and cash equivalents at the beginning of the year Cash and cash equivalents, end of year 9 1 402 262 454 192 Approvd and sif d of the Company's management Directo Chief Accountant Yusupov K.S1I Kolesnikov D.A. 28 June, 2019 Th onpn ingnt"i 4) a" It 47 are an integral jvArt offlic cuti-c maoi rcw 10 Samarkand RSUE 4Suvokova) Financial statements for the year ended 31 December 2018 (in thousands of UZS) NOTES TO THE FINANCIAL STATEMENTS 1. Main activity of the Company The state unitary enterprise "Suvokava" (hereinafter referred to as the Company) is a commercial organization that was formed by the orders of the Cabinet of Ministers of the Republic of Uzbekistan No. 215 dated October 16, 2015 and No. 306 of October 30, 2015 "On Measures for Implementing the Main Directions for the Development of Water Supply and Sewerage Organizations". According to the proposal of the Cabinet of Ministers of the Republic of Karakalpakstan, regional khokimiyats, the Ministry of Economy, the Ministry of Finance of the Republic of Uzbekistan, the Uzbek agency "Uzkommunkhizmat", a single state unitary enterprise "Suvokova" was established with branches in cities and regions on the basis of operating organizations of water supply and sewerage (hereinafter - Company). In accordance with the proposal, the standard structures of the state unitary enterprises of Suvokova, as well as their city and regional branches, integrated measures to ensure the implementation of priority tasks for the development and modernization of drinking water supply and sewerage systems, improving the system for connecting business entities to water supply networks and sanitation on a turnkey basis. The enterprise has the rights of an independent economic enterprise and is managed in accordance with the legislation of the Republic of Uzbekistan. Being a member of the khokimiyat of the Samarkand region, and being the assignee of the Regional Production Enterprise "Suvokova" of the Samarkand region, reorganized into the State Unitary Enterprise "Suvokova" is considered a defendant in all parameters of legal and financial and economic activities. The Company operates in Samarkand city and is wholly owned by the Communal Service Department on behalf of the Government of the Republic of Uzbekistan and has social and economic importance to Samarkand region. The capability of the Company to continue as a going concern depends on continuous support of the Government of Uzbekistan. The main activities of the Company are: 4 Implementation of the government policy on water supply, implementation of plans and tasks + Construction of facilities on the basis of funds allocated by the state + Monitoring and improvement of the activities of branches under the order of the organization + The use of existing sewerage lines, the development of the company's lines, for the continuous provision of water supply to the population, organizations, institutions and enterprises, improvement, as well as providing water supply in an amount sufficient for firefighting. + Treatment of sewage waste and constant agitation in the provision of water supply + Participation in the development of annual and long-term plans for the development of the water sector of the region + Monitoring of the development of the billing system in cities and regions + Ensuring the implementation of foreign investments aimed at the development of water supply and sewage systems in accordance with the state program. The total number of employees as at 31 December, 2018 was 265 people (2017: 246 people). The legal address of the Company: Republic of Uzbekistan, Samarkand, 104147, Uzbekistan Street, 114-A. In addition to the nature and objectives of the Company's activities, it plays a significant role in the ongoing social and economic reforms implemented in the Republic of Uzbekistan. Consequently, the Company's activities are strictly controlled by the state authorities, and, in accordance with the resolution of the Public Utilities Department No.01-8 of January 9, 2011, utilities like the Company are allowed to have a maximum gross margin of 10%. The Government of the Republic of Uzbekistan has accepted the Project on reconstruction of sewage treatment plants in the cities of Bukhara and Samarkand on the basis of a loan agreement No. 4633-UZ dated November 26,2009 between the International Development Agency (IDA) and the Republic of Uzbekistan 11 Samarkand RSUE KSuvokova)o Financial statements for the year ended 31 December 2018 (in thousands of UZS) 1. Main activities of the Company (continued) Consequently, the Company's activities are strictly controlled by state authorities and, in accordance with the Utilities Administration Directive No. 01-8 ofJanuary 9, 2011, utilities similar to the Company are allowed to have a maximum gross margin of 10%. In accordance with the Agreement on Additional Financing No. 5698-UZ and 5699-UZ dated July 12, 2016 between the International Development Association (hereinafter - IDA) and the Republic of Uzbekistan, Bukhara Samarkand Sewerage and Water Supply Project (hereinafter - Project). The objectives of this Project are: (a) to reduce the harmful effects of wastewater collection on the environment; (b) improving the efficiency and sustainability of sewage systems in the Bukhara RSUE "Suvokova"(hereinafter - BVK) and Samarkand RSUE "Suvokova" (hereinafter - SVK). The total amount of funding for the project is estimated at $ 105 million. The project is funded by the IDA with a loan of 74,700,000 Special Drawing Rights (equivalent to US $ 105.0 million), with an interest rate of 1.25% of the principal amount under standard conditions (IDA 5698-UZ) and 1.83% for solid conditions (IDA 5699-UZ). The maintenance fee in respect of the withdrawn and outstanding part of the sub-loan is 0.75% per annum. The interest rate on obligations in the amount of 0.5% per annum should be paid on the unused loan amounts. The principal amount of the loan must be repaid every six months for 25 years, including 5 years of the grace period, starting from the date of approval by the Board of Directors of the World Bank. This Project is extended to 30June 2019. The Ministry of Finance of the Republic of Uzbekistan is responsible for repaying the loan on behalf of the Republic of Uzbekistan in accordance with the Loan Agreement ofJuly 12,2016 No. MAR 5698-UZ and MAR 5699-UZ between MAP and the Republic of Uzbekistan. However, there are sub-credit agreements between the Ministry of Finance of the Republic of Uzbekistan and 100 and ICS on the acceptance of obligations specified in the Loan Agreement. The project includes the following parts (components): Part A: Institutional Strengthening and Capacity Building 1. Institutional strengthening and capacity building of BVK and local communities through, inter alia: (a) provision of staff training in utility management with an emphases on improving general management, water and wastewater systems operation, and consumer orientation; (b) design and implementation of public awareness raising campaigns and customer satisfaction surveys; and (c) improvement of internal control and accountability systems; (d) enhancement of the accounting establishment of BVK; and (e) establishment of a pilot SCADA. 2. Institutional strengthening and capacity building of SVK and local communities through, inter alia: (a) provision of staff training in utility management with an emphases on improving general management, water and wastewater systems operation, and consumer orientation; (b) design and implementation of public awareness raising campaigns and customer satisfaction surveys; and (c) improvement of internal control and accountability systems; (d) enhancement of the accounting establishment of SVK; and (e) establishment of a pilot SCADA. 3. Institutional strengthening of the Recipient's water sector services through the provision of technical assistance to review, inter alia: (a) the strategy for the management and development of water sector services at the national level; (b) the technical standards applied in the supply of water sector services; and (c) the price-setting policies for said services. 4. Financing of feasibility studies for future priority (non-Project) investments in the water supply and sanitation sector of the Recipient. Part B: Physical Investments 1. Rehabilitation of Samarkand Sewerage and Water Supply System, including, inter alia: (a) replacement of existing sewers; (b) rehabilitation of existing wastewater pumping stations and construction of an additional wastewater pumping station; (c) construction of new sewers; (d) completion of the rehabilitation of Samarkand Wastewater Treatment Plant, (e) provision of operational equipment; and (f) provision of technical assistance required therefor. 12 Samar*and RSUE oSuvokovai Financial statements for the year ended 31 December 2018 (in thousands of UZS) 1. Main activities of the Company (continued) 2. Rehabilitation of Samarkand Sewerage System, including inter alia- (a) replacement of existing sewers; (b) rehabilitation of existing wastewater pumping stations and construction of an additional wastewater pumping station; (c) construction of new sewers; (d) completion of the rehabilitation and upgrading of the Samarkand main wastewater treatment plant; (e) provision of operational equipment; and (f) provision of technical assistance required therefor; and (g) construction of a new wastewater treatment plant located in Farhad. Part C: Project Management Strengthening the PCG's and the respective PIU's Project management, monitoring and coordination capacity through the provision of goods and consultant services (including Project auditing services), Training, and Operating Costs. The economic environment in which the Company operates The economy of the Republic of Uzbekistan continues to show some features of the developing market. The government develops the legislative, tax and regulatory framework required in a market economy, and also conducts significant economic and social changes. The future stability of the Uzbek economy largely depends on the ongoing reforms and transformations, as well as on the effectiveness of economic, financial and monetary measures undertaken by the Government. In view of the fact that the reform process is still incomplete, the operations conducted in Uzbekistan involve risks that are not typical for economically developed countries. Among them, in particular, the inconvertibility of UZS in most countries outside the Republic of Uzbekistan, there is a low level of liquidity in the debt securities market and the capital market, as well as continuing inflation. According to the Decree of the President of the Republic of Uzbekistan No. UP-49474 dated February 7, 2017 "On the strategy for further development of the Republic of Uzbekistan", an Action Strategy for the priority areas of the Republic of Uzbekistan in 2017-2021 was approved, providing for the Action Strategy in five priority areas, one of which is the development and liberalization of the economy, including monetary and tax liberalization. According to the Decree of the President of the Republic of Uzbekistan No. UP-5177 dated September 2, 2017, "On Priority Measures to Liberalize Monetary Policy," legal entities are free to purchase foreign currency to pay for current operations (import of goods and services, repayment of loans, travel expenses and etc.) in commercial banks from September 5, 2017. Obligatory sale of foreign currency received from exports to the Government was also cancelled, which in the past was 50% and then 25%. This means that the monetary policy of a country that has been very restrictive for many years is now liberalized significantly. Also, Presidential Decree No. UP-5468 "On the Concept of Improving the Tax Policy of the Republic of Uzbekistan" dated June 29, 2018 provides for a consistent reduction of the tax burden, simplification of the tax system and improvement of tax administration, which are essential conditions for accelerated economic development and improving the country's investment attractiveness . The document provides for January 1, 2019: + reducing the tax burden on the wage fund; 4 improvement of the taxation of taxpayers of generally established and simplified taxes with the optimization of taxes on turnover, as well as the criteria for the transition to a simplified tax regime; measures are being implemented to reduce the negative impact of improving tax policy on taxpayers of the simplified tax regime; and + The procedure for calculating and paying value added tax and excise tax is being improved The following refinancing rates were set by the Central Bank of the Republic of Uzbekistan: 13 Samarkand RSUE aSuvokovao Financial statements for the year ended 31 December 2018 (in thousands of UZS) The economic environment in which the Company operates (continued) Refinancing rate from 01.01.2017 to 27.06.2017 9% from 28.06.2017 to 24.09.2018 14% from 25.09.2019 16% The state of the economy of the Republic of Uzbekistan is characterized by a relatively average inflation rate. During 2018, the inflation rate was 14.3 percent (in 2017: 14.4 percent). Growth and macroeconomic stability are ensured in Uzbekistan. The GDP growth in Uzbekistan in 2018 was 5.1 percent (in 2017: 5.3 percent). The following table shows the official exchange rate of the UZS of Uzbekistan (hereinafter referred to as "UZS") to one US dollar (hereinafter referred to as the "US dollar") established by the Central Bank of the Republic of Uzbekistan in relation to the indicators of the previous year: exchange rate change (%) 31 December2018 8339,55 3% 31 December2017 8120,07 151% According to Presidential Decree No. UP-5177 "On Priority Measures to Liberalize Monetary Policy" dated September 2, 2017, the country's monetary policy was liberalized and on September 5, 2017, the exchange rate of 1 US dollar was increased from 4,210.35 soums to 8 100 sum. 2. New and Revised International Financial Reporting Standards Standards and interpretadons adopted this year The accounting policy adopted in the preparation of the financial statements is consistent with that applied in the preparation of the Company's financial statements for the year ended December 31, 2017, except for the newly adopted standards and interpretations effective as at January 1, 2018. The Company has not early adopted any other standard, interpretation or amendment that has been issued but not yet effective. The Company first applies IFRS 15 Revenue under contracts with customers and IFRS 9 Financial Instruments, which require a recalculation of previously presented financial statements. The nature and impact of these changes is disclosed below. The Company also applied some other amendments and clarifications for the first time in 2018, but they did not have a material impact on its financial statements. IFRS 15 "Re roivm Contracis with Customerx" IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance standard, including LAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018.IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. It requires revenue to be recognised when (or as) control of a good or service transfers to a customer at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and 14 Samarkand RSUE oSuvokova* Financial statements for the year ended 31 December 2018 (in thousands of UZS) 2. New and Revised International Financial Reporting Standards (continued) the costs directly related to fulfilling a contract. In addition, the standard requires enhanced and extensive disclosures about revenue to help investors better understand the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. The Company has applied the standard in preparing the financial statements for the year ended 31 December 2018. The Company's revenue from contracts with customers comprises one main stream being the sale of drinking water and collection of waste water. The Company undertook a comprehensive analysis of the impact of the new revenue standard based on a review of the contractual terms of its principal revenue stream with the primary focus being to understand whether the timing and amount of revenue recognised could differ under IFRS 15. For the Company's revenue stream, the nature and timing of satisfaction of the performance obligations, and, hence, the amount and timing of revenue recognised under IFRS 15, is the same as that under IAS 18. IFRS 9 "Financial Instruments" IFRS 9, replaces the existing guidance in lAS 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 calculation of 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. The Company has applied IFRS 9 retrospectively, with the initial application date of 1 January 2018 and has adjusted the comparative information for the period beginning 1 January 2018. There were no impacts on the comparative balances other than a change in classification and measurement of receivables and liabilities. The adoption of IFRS 9 has impacted the following areas: * the classification and measurement of the Company's financial assets are reviewed based on the new criteria that consider the assets' contractual cash flows and the business model in which they are managed. An expected credit loss-based impairment will need to be recognized on the Company's trade and other receivables in accordance with the new criteria. * the impairment of financial assets applying the expected credit loss model. This affects the Company's trade and other receivables measured at amortized cost. For contract assets arising from IFRS 15 and trade receivables, the Company applies a simplified model of recognizing lifetime expected credit losses as these items do not have a significant financing component. * the classification and measurement of the Company's financial liabilities are reviewed based on the new criteria and accounted for at amortized cost using the effective interest rate method as previously by IAS 39. 15 Samarkand RSUE aSuvokova)t Financial statements for the year ended 31 December 2018 (in thousands of UZS) 2. New and Revised International Financial Reporting Standards (continued) The reclassification and effect from the adoption of IFRS 9 on the Company's statement of financial position decrease as at January 1, 2018 is as follows: in thousand UZS Measurement Category Carrying amount Original LAS 39 New IFRS 9 Closing balance Adoption of Opening balance 31 December 1 January 2018 Category Category 2017 (LAS 39) IFRS 9 (FRS 9) Financial Assets Trade and other receivables Amortlized cost Amortized cost 19226 315 - 19 226 315 Cash and cash equivalents Amortized cost Amortized cost 454 192 (843) 453 350 19680507 (843) 19 679 664 Financial Liabilities Borrowings Amortized cost Amortized cost 287 912 034 - 287 912 034 Other Financial Uabilities Amortized cost Amortized cost 46 183 822 46 183822 Trade and other payables Amortized cost Amortized cost 25377025 - 25377025 359472881 - 359472881 IFRIC Intepretation 22 Foregn Ckrrny Transactions and Advance Considerations The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which, Company initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the date of the transactions for each payment or receipt of advance consideration. This interpretation does not have any impact on the Company's financial statements. Amendments to l4S 40 Transfers of himestment Pmpeuty The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management's intentions for the use of a property does not provide evidence of a change in use. These amendments do not have any impact on the Company's financial statements. Amendments to IFRS 2 Classfication and Meamrement of Share-based Payment Transactions The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. These amendments are not applicable to the Company. Amendments to IFRS 4 Appling IFRS 9 Financial Instrumenis with IFRS 4 Insurance Contracts The amendments address concerns arising from implementing the new financial instruments standard, IFRS 9, before implementing IFRS 17 Insurance Contracts, which replaces IFRS 4. The amendments introduce two options for entities issuing insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach. These amendments are not applicable to the Company. 16 Samarkand RSUE aSuvokovan Financial statements for the year ended 31 December 2018 (in thousands of UZS) 2. New and Revised International Financial Reporting Standards (continued) Amendments to LAS 28 Insiments in Asrociates and Joint Ventures - Clarnficain that measming inestees at fair w1ue thro,gh pofit or loss ir an inesment-by-instment choia The amendments clarify that an entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. These amendments are not applicable to the Company. New and revised IFRS - issued, but not effective The Company did not adopt the following new and revised IFRS and Interpretations (issued, but not yet effective): IFRS 16 'teases" IFRS 16 will replace 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. It completes the IASB's long running project to overhaul lease accounting. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low- value' assets and short-term leases. IFRS 16 is effective from periods beginning on or after 1 January 2019. Early adoption is permitted; however, the Company have decided not to early adopt. The Company is planning to adopt IFRS 16 on 1 January 2019 using the Standard's modified retrospective approach. Under this approach the cumulative effect of initially applying IFRS 16 is recognized as an adjustment to equity at the date of initial application. The Company assessed the effect from the adoption and concluded that the effect from the adoption of IFRS 16 on the Company's financial statements is not significant. Thus, the comparative information will not be restated. IFRS 17 Insurance Contracts In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. This standard is not applicable to the Company. IFRIC Interpretaion 23 Uncertainty over Inome Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of LS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: 17 Samarkand RSUE oSuvokova* Financial statements for the year ended 31 December 2018 (in thousands of UZS) 2. New and Revised International Financial Reporting Standards (continued) * Whether an entity considers uncertain tax treatments separately-, * The assumptions an entity makes about the examination of tax treatments by taxation authorities; * How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; * How an entity considers changes in facts and circumstances. IFRIC Interpretation 23 Uncrtainty oer Income Tax Treatment (coxtined) An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Company will apply the interpretation from its effective date. Amendmentr to IFRS 9: Pnpayment Featires with Negativ Compenration Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are 'solely payments of principal and interest on the principal amount outstanding' (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of the event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract. The amendments should be applied retrospectively and are effective from 1 January 2019, with earlier application permitted. These amendments have no impact on the financial statements of the Company. Amendments to IFRS 10 and AS 28: Sale or Contriibuion ofAssets between an Imestor and its As 4ociate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors' interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. These amendments are not applicable to the Company. Amendments to IAS 19. Plan Amendment, Curtailment or Settlement The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to: * Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; * Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to remeasure that net defined benefit liability (asset). 18 Samarkand RSUE *Suvokovax Financial statements for the year ended 31 December 2018 (in thousands of UZS) 2. New and Revised International Financial Reporting Standards (continued) The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019, with early application permitted. These amendments will apply only to any future plan amendments, curtailments, or settlements of the Company. Amendments to LAS 28 Long-term interests in associates andjoint sniturs The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in IFRS 9 applies to such long-term interests. The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying LAS 28 Investments in Associates and Joint Ventures. The amendments should be applied retrospectively and are effective from 1 January 2019, with early application permitted. Since the Company does not have such long-term interests in any associate and joint venture, the amendments will not have an impact on its financial statements. Annual Improvements 2015-2017 Cycle (issued in December 2017) IFRS 3 Business Combinations The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. The amendments will not have an impact on the Company's financial statements. IFRS 1Joint Arrangements A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured. An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments are currently not applicable to the Company but may apply to future transactions. IAS 12 Income Taxes The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application is permitted. When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognized on or after the beginning of the earliest comparative period. The Company does not expect significant effect on its financial statements. 19 Samarkand RSUE aSuvokova* Financial statements for the year ended 31 December 2018 (in thousands of UZS) 2. New and Revised International Financial Reporting Standards (continued) L4S 23 Bormwing Costs The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. The Company does not expect significant effect on its financial statements. 3. Significant Accounting Policies Statement of compliance The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. Basis of preparation The financial statements have been prepared on the historical cost basis except for certain financial instruments initially recognized at fair value. The financial statements of the Company arc presented in Uzbek Soums (hereinafter - "UZS"). The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The functional and presentation currency of the financial statements of the Company is UZS. All amounts in these financial statements are rounded to thousand unless otherwise stated. Going concern basis These financial statements reflect the current assessment by the management of the Company of the impacts that affect the operations and financial position of the Company. The future development of the economy of the Republic of Uzbekistan largely depends on the effectiveness of the measures taken by the Government of the Republic of Uzbekistan and other factors, including legislative and political events that are not controlled by the Company. The Company's management is not in a position to predict the effects of these factors on the financial condition in the future. Management believes that the Company will continue to operate as going concern basis. In making this decision, management had in mind the current intent and continued support of the State. Management believes that the State will enable the Company to fulfill its obligations in the future. Accrual basis These financial statements were prepared on the accrual basis. The accrual basis assumes ensures recognition of the results of business operations, as well as events when they occurred, regardless of the time of payment. Transactions and events are recorded in the accounting and included in the financial statements for the periods to which they relate. 20 Samarkand RSUE 4Suvokovao Financial statements for the year ended 31 December 2018 (in thousands of UZS) 3. Significant Accounting Policies (continued) Recognition of the elements of financial statements These financial statements include all assets, liabilities, equity, income and expenses, which are the elements of the financial statements. All elements of the financial statements are presented on a linear basis. The inclusion of several elements of the financial statements into a single item is made taking into account their characteristics (functions) in the Company's operations. Each material class of similar items is presented separately in the financial statements. Items of a dissimilar nature or function are presented separately unless they are immaterial. Foreign currency translation In preparing the financial statements, transactions in foreign currencies other than the functional currency (foreign currency) are carried at the exchange rates prevailing as at the transaction date. Monetary items denominated in foreign currencies are translated at the exchange rates prevailing as at the reporting date. Non-monetary items denominated in foreign currencies that are measured at fair value are translated at the exchange rates prevailing at the date of determination of fair value Non-monetary items measured at historical cost, denominated in foreign currency, are not retranslated. Exchange differences on monetary items, which arise as a result of changes in the exchange rates, are recognized in profit or loss in the period when they arise. The Uzbek sum was chosen as the functional currency, as well as the currency in which these financial statements are presented. All financial statement data has been rounded to the nearest thousand. Foreign currencies, especially the US dollar and the Euro, play a significant role in determining the economic parameters of many business transactions in the Republic of Uzbekistan. The table below shows the rates of Uzbek Som against the US dollar and Euro, established by the Central Bank of Uzbekistan: USD Dollar Euro 31 December, 2018 8 339.55 9479.57 31 December, 2017 8 120,07 9 624,72 According to the Decree of the President of the Republic of Uzbekistan "On Priority Measures for the Liberalization of Monetary Policy" No. 5177 dated September 2, 2017, in order to increase the efficiency of foreign exchange flows based on market principles, create a favorable investment and business climate to attract foreign investment, as well as increase the stimulating the role of monetary policy in foreign trade, the rate of national currency in relation to foreign currencies is established at the interbank electronic trading of the foreign exchange lyuchitelno based on supply and demand. Since September 5, 2017, the national currency of the UZS has been devalued, the rate of I (one) US dollar is equal to 8,100 UZS (before the devaluation of 4,210.35 UZS). 21 Samarkand RSUE gSuvokova* Financial statements for the year ended 31 December 2018 (in thousands of UZS) 3. Significant Accounting Policies (continued) Property, plant and equipment An item is recognized as property, plant and equipment when it is highly probable that future economic benefits associated with the item will flow to the Company, and the actual acquisition cost of the asset can be measured reliably. Historical cost of property, plant and equipment includes the purchase price as well as import duties and other non -recoverable taxes, borrowing costs, which are directly attributable to construction of long-term projects if recognition criteria are met, and also direct costs attributable to bringing the asset to the working condition and delivery to the place of its intended use. Subsequent costs incurred after the entry of property, plant and equipment into operations, such as repair and maintenance costs are usually recognized as an expense in the period in which these costs are incurred. Costs, which result in an increase in the expected future economic benefits embodied in the asset beyond its originally assessed performance are capitalized as an additional cost of property, plant and equipment. All other costs are recognized as expenses in the reporting period when they incurred. After initial recognition as an asset, the item of property, plant and equipment is stated at historical cost less depreciation and impairment losses, if any. The useful life of property, plant and equipment is determined taking into account the expected use of an asset and may be shorter than its economic life. The useful life of property, plant and equipment is a matter of judgment based on the experience with similar assets. The Company determines the following useful lives for property, plant and equipment: Category of property, plant and equipment Useful life Buildings and constructions 30 years Machinery and equipment 8-12 years Vehicles 5 years Other 5-7 years The useful life of items of property, plant and equipment and their residual value may be revised by management as necessary, considering all factors, which influence future economic benefits and the Company's intentions with respect to the use of property, plant and equipment. Depreciation of property, plant and equipment is recognized in the statement of comprehensive income and is calculated using the straight-line method over the expected useful lives of the assets. Upon sale or disposal of assets, its cost and accumulated depreciation are eliminated from the respective accounts, and any gain or loss resulted from its disposal is included in the statement of comprehensive income. Impairment of non-financial assets An assessment is made at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, Management estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or a cash-generating unit's (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of 22 Samarkand RSUE oSuvokovav Financial statements for the year ended 31 December 2018 (in thousands of UZS) 3. Significant Accounting Policies (continued) assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. Uncertain tax positions Management reassesses the Company's uncertain tax positions at the end of each reporting period. Obligations are recorded for those income tax positions, which, according to management, are likely to result in additional tax charges in case of disputing these positions by the tax authorities. Such an assessment is performed on the basis of the interpretation of tax legislation in force or substantively enacted at the end of the reporting period and any known court order or other decision on similar matters. Liabilities for fines, penalties and taxes, except for income tax, are recorded based on managements best estimate of the expenditure required to settle the obligations at the end of the reporting period. Inventories Inventories are initially recognized at purchase cost, which includes the purchase price, import duties and other non-recoverable taxes, and transportation expenses, handling and other costs directly attributable to the purchase of inventories. Weighted average costing method is used for measuring cost of inventories, under which the cost of each item is determined from the weighted average cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average amount is calculated on a periodic basis, as each additional shipment is received. After initial recognition, inventories are measured at the lower of cost or net realizable value. Recognition of revenue and expenses Rerume Revenue recognition Revenue comprises of revenue from sale of drinking water and usage of sewage system. Revenue from major products and services is shown in note 14. Revenue is measured at the fair value of the consideration received or receivable and represents amount receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. To determine whether to recognize revenue from services, the Company follows a 5-step process: 1 Identifying the contract with a customer 2 Identifying the performance obligations 3 Determining the transaction price 4 Allocating the transaction price to the performance obligations 5 Recognizing revenue when/as performance obligation(s) are satisfied 23 Samarkand RSUE aSuvokovaD Financial statements for the year ended 31 December 2018 (in thousands of UZS) 3. Significant Accounting Policies (continued) Revenue is recognized either at a point in time or over time, when (or as) the Company satisfies performance obligations by transferring the promised goods or services to its customers. Fixess.es Expenses are recognized at the moment of actual receipt of relevant goods or services, regardless of when cash was paid and are recorded in financial statements in the period to which they relate. Trade and and other receivables Trade and other receivables are carried at amortized cost using the effective interest method. Prepayment Prepayments are recorded at historical cost less allowance for impairment. Prepayments are classified as long- term if the expected receipt of goods or services relating to it exceeds one year, or if the prepayment relates to an asset that will be recorded as non-negotiable at initial recognition. The prepayment amount for the purchase of an asset is included in its carrying amount upon receipt The company has control over this asset and the likelihood that future economic benefits associated with it will be received by the Company. Other prepayment is charged when goods or services related to it are received. If there is an indication that the assets, goods or services related to the prepayment will not be received, the carrying amount of the prepayment is subject to a decrease and the corresponding impairment loss is recorded in the statement of comprehensive income. Cash and cash equivalents Cash includes cash and bank accounts. Cash equivalents include short-term financial assets that can be easily converted into cash and have a maturity of not more than three months. Restricted cash includes cash balances and cash equivalents that cannot be used for purposes other than those provided for in the terms of loans or in accordance with banking legislation. Restricted cash is not included in the cash flow statement. Income taxes Income taxes are recognized in the financial statements in accordance with the requirements of Uzbek law, effective or substantively enacted at the balance sheet date. Income tax expense comprises current and deferred taxes and is recognized in the statement of comprehensive income unless they are to be recognized in other comprehensive income or equity because they are related to transactions that are also recognized in other comprehensive income or capital in the same or in any other reporting period. Current tax is the amount that is expected to be paid or recovered from the budget in respect of taxable profit or loss for the current and previous periods. Taxable profits or losses are calculated on the basis of an assessment if the financial statements are approved before the filing of the relevant tax returns. Taxes other than income tax are included in general and administrative expenses. 24 Samarkand RSUE aSuvokova)) Financial statements for the year ended 31 December 2018 (in thousands of UZS) 3. Significant Accounting Policies (continued) Deferred income taxes are calculated using the balance sheet method for carrying forward tax losses and temporary differences arising between the tax base of assets and liabilities and their carrying amount in the financial statements. The carrying amount of deferred tax is calculated at the tax rates that are expected to apply during the period restoration of temporary differences or use carried forward for future tax loss periods at the tax rates, in full or in the principal moments adopted at the balance sheet date. Deferred tax assets for deductible temporary differences and deferred tax losses are recognized only if there is a high probability of future taxable profits, which can be reduced by the amount of such deductions. Uncertain tax positions Management reassesses the Company's uncertain tax positions at the end of each reporting period. Liabilities are recorded for those positions of income tax, which, according to the management, are likely to lead to additional tax charges in case of challenging these positions by the tax authorities. Such an assessment is carried out on the basis of interpretation of the tax legislation that was in effect or substantially entered into force at the end of the reporting period and any known court decision or other decision on such matters. Liabilities for fines, penalties and taxes, other than income tax, are recorded on the basis of managements best estimate of the costs required to settle liabilities at the end of the reporting period. Value added tax (VAT) VAT related to sales is payable to the Uzbekistan budget when goods are shipped, or services are rendered. Purchase VAT is generally recoverable against sales VAT upon the receipt of a tax invoice from a supplier. Tax legislation permits the settlement of VAT on a net basis. Accordingly, VAT related to sales and purchases unsettled at the reporting date is stated in the statement of financial position on a net basis. Single tax Funds of credit institutions are recorded from the moment funds are provided to the Bank or other assets by counterparty banks. These non-derivative financial liabilities are carried at amortized cost. Capitalization of borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset whose preparation for its intended use or for sale necessarily requires considerable time (an asset that meets certain requirements) are included in the cost of this asset. Capitalization of borrowing costs begins when: * the Company bears costs for the qualifying asset; * the Company bears borrowing costs; * the Company shall take the necessary steps to prepare the asset for use or sale. The Company capitalizes borrowing costs that could have been avoided if it had not made capital expenditures on qualifying assets. Capitalized borrowing costs are calculated on the basis of the average cost of the Company's assets (weighted average interest expenses apply to expenses for qualifying assets), except when the funds are borrowed for the acquisition of a qualifying asset. Trade payables and other payables Trade and other payables is accrued upon the fact of the counterparty's performance of its contractual obligations and is accounted for at amortized cost using the effective interest method. 25 Samarkand RSUE aSuvokovax Financtal statements for the year ended 31 December 2018 (in thousands of UZS) 3. Significant Accounting Policies (continued) Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligations, and a reliable estimate of the amount can be made. Where there are a number of similar obligations, the likelihood, that an outflow will be required in setdement, is determined by considering the class of obligation as a whole. A provision is recognized even if the likelihood of an amount of outflow with respect to any one item included in the same of class of obligation may be small. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost. Deductions from employees' remuneration Employees remuneration is made in accordance with the Labor Code of the Republic of Uzbekistan on the basis of a signed labor contract. On the territory of the Republic of Uzbekistan, the Company makes deductions for the unified social tax. These deductions are also recorded on an accrual basis. The unified social tax includes contributions to the Pension Fund. The Company does not have its own pension scheme. Wages, salaries, contributions to the state pension and social insurance funds, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued as the relevant services are provided by the Company's employees. Financial instruments Key meaurement tenms Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories: * amortised cost; * fair value through profit or loss (FVTPL); * fair value through other comprehensive income (FVOCI). Financial instruments of the Company include financial assets and financial liabilities which are carried at amortised cost as described below. Amrtised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for expected impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the statement of financial position. The effecive interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. 26 Samarkand RSUE