ARMENIAN TERRITORIAL DEVELOPMENT FUND FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT for the year ended 31 December 2018 TABLE OF CONTENT Page Independent Auditor's Report . .....................,..., ,..- ,..,-,.... 3 Sta em ent of finan ia position ..,,.................. .. .. . .................,........, 5 Sta mernent Of comprehensive incom e ................, ..... --..., ..............., 6 Statemrent of changes ir equity - -, -. ................. . . . ,........,,,... 7 Statem ent of cash flow s...., -.. -...... ....,.. ........... ........., ............... ... , - Notes to the financial statements ........................,, - ....... .. ... ... ,,,,, 9 Fund address: 31 K. Ulnetsi Street, Yerevan, 0037, Republic of Arrnenia Legal form: Foundation Principal activities The principal activitie5 of the Foundation is presented in the 1I note Executive dllrector Ashot Krakosyan Tsl +374 W4 S199q 23/5, Davit 0zhagt IB D O Ealil: bd&0ldbarMW1""Un It., Uth Fw offim 7 ____wwwm.bdoseeFa.am YvravAsi, Anrnop4 INDEPENDENT AUDITOR'S REPORT To the Management of the Armenian Territorial Development Fund Opinion We have audited the accompanying financial statements of "Armenian Territorial Development Fund" (IATOF" or "Fund") which comprise the statement of (inancial position as at 31 December 2018, the statemrnt of comprehensive income, statement of changes in equity and statement of cash flows for the year ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the ATDF as at 31 December 2018, and its financial performance and its cash flows for the year ended In accordance with International Financial Reporting Standards (IFRs), Basis for Opinion We conducted our audit in accotdance with international Standards on Auditing (ISAs) as issued by International Auditing and Assurance Standards Board (IAA5B) of the International Federation of Accountants (IFAC), Our responsibilities under those standards are further described in the Auditor's ResosibF ties for the Audit of the Financil Statements section of our report. We are independent of the ATOF in accordance with the Internationad Ethics Standards Board for Accountants' Code of Ethics for Professkonal Accountants lE56A Code), and we have fulfilled our other ethical requirements in accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of the Management for the Financial Statffments Management of the ATDF is responsible for the preparation and fair presentation of the financial statements in accordance with [FRSs, and for such internal control as management determins 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 Fund's ability to continue as 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 Fund or to cease operation, or has wo realistic alternative but to do so. Auditor's ResponsIbility for the Audit of the Financtl Statements Our objectives are to obtain reasonable assurance about whether the financiat statenerts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that Includes our opinion. Reasonable assurance is high level of assurance, but is not a guaranty that an audit conducted in accordance with SAS wilt always detect a material misstatement when it exists. 0D Ansib cjc, is a m~r f 100 Iftnt UimaUff I Weapa by prftw. Sun wt h a a netwa - - ~h Misstatements arise from fraud and error and are considered material if, individuaLy or ii the aggregate, they could reasonabLy be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgernent and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financiaL statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion The risk of not detecti ng a material misstatement resuLting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internaL controL * Obtain an understanding of internal contro relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * ConcLude on the appropriateness of management's use of going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists reLated to events or conditions that may cast significant doubt on the Fund's ability to continue as a going concer. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financia statements or, if such discLosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Fund to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the financia statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presenrtation. We Communicate with management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify dur ing our audit. "BDO Armenia' CJSC 27 June 2019 - Vaba Sahakyan, FCCA GTeL Khachatryan, FCCA M ng Partner Engagement Partner BDO Armenian Territorial Development Fund Statement of financial position As at 31 December 2015 Note As at As at 31.12.2018 31,1 2 2017 USD USD ASSETS Non-current assets Property and equipment 3 1 26,972 14B,702 Funds receivable 4 163,679,456 177,901,454 Total non-current assets 163,806,428 178,050,156 Current assets Prepayments 5 3,024,241 3,508,432 Cash and cash equivaLents 6 29,049,161 24,984,468 Other 812,122. - Total current assets 32, 885,524 28,492,900 TOTAL ASSETS 196,691952 206,543,056 LIABILITIES AND EQUITY Equity Founders' contribution 7 151,631 151,631 Accumulated deficit (155,989) (184,536) TotaL equity (4,358) (32,905) Non-current liabilities Government grants 8 195,168,498 205,985,312 Total non-current liabilities 195,168,498 205,985,312 Current liabilities Accounts payable 9 715,701 590,649 Other 812,111 - Total current liabilities 1,527,812 590 649 TOTAL LIABILITIES AND EQUITY 196,691,952 206,543,056 The fPnoncia? statements were approved by the management of the Armenian Socia? Investment Fund on 27 June 2079 and signed on fts behalf. The accomponyrig notes form an integral part of these finncial statements, Ashot Kirakosyan Levon Dulyan Execytive Director rinancLp and Administrative Director Armeniaon Territorial Deve{opment Fund Staternent of comprehensive income As at 31 December 2015 Note 2018 2017 USD U5D Cost of the Projects 10 (19,231,713) (12,627,114) Income from Grants 8 19,231,713 12, 627,114 Other income/ (expense), net 93,551 3,046 Exchange gain/(1oss), net (38,706) (14,340) Results of the year before income tax 54,845 (11,294) Ircome tax (26,298 <612) Results of the year 28,547 (11,906) Other comprehensive Ireorne Comprehensive result for the year 28,547 (11,06) rheP)nanc-oa stotements we-re approved by riLu managemert of th|e ArMertun SercIa lrvestmernt Fund *n 27 Jre 20J9 and sigred 'r tss behaflf. Tie cccompriyfing r?otes f[xrsr un integro part of tfilesp ffrinarciaJ statemenlts Ashot Kirakosyar Levon Dulyan Execulive Director Finance and Administrative Director Armenian Territorial Development Fund Statemrent of changes in equity For the year ended 31 Decermber zois Founlers Accumulated Total contribution deficit USD IJ5D UJSD As at 1 January 2017 151,631 (172,630) (20,999) Results of the year (11,906) _ 11906_ As at 31 December 2017 151,631 (184,536) (32,905) Results of the year 28,547 28,547 As at 31 December 201S 151,631 (155,989) (4,358) Tte frinanda statemeLnnrs were approved by the menogemerrt of Lhe Armnenian So&fci rvestment fnid a 27 Ju'rr 2019 and siqrr=d on its behrtf. The accompanyng notes forni an integro' part of these firOrrcia statemerits Ashot Kirakosyan Levon Dulyan Executive Director Fiarice and Administrative Director Armenian Territorial Development Fund Statement of cash flows For the year ended 31 December 2018 2018 2017 USD USD Operating cash flows Funds receivedl(refunded) Urgent projects 7r656,11)4 SI LD 6,770,401 7,742,652 LEI D 2,311,7B6 T44,255 5DC Grant 2,153,63B 354,180 USAID Grant 1,624,103 2,387,1T9 551P 689,969 766,443 Jermuk project -2 1,441,622 Jermuk project .1 (115,829) 2,493,629 Other 127,482 1 2.,659,276 13,878,278 Project expenditures Urgent projects (81,599) SI LD (7,175,121) (6,965,221) LEID (It987,610) (53,494) SDC Grant (2,310,2B0) (107,916) US .15AID Grant (1,565,&36) (2,347,416) 551P (4,139,254) (4,502,864) Jermuk project -2 (97,081} (6) Jermuk project -1 (1,229,909) (1,030,769) Other (40,848) (16,045) (18,627,338) (15,023,731) Other operating cash flows (net) - 35'637 Total Operating cash flows 4,031,938 ji,109,816) Exchange gain/([oss) on cash 32,755 (15,903) Net cash flows 4.064,693 1125,719) Opening cash balance 24,984,468 26,110,187 Cosing cash balance 29,049,161 24,984,468 Tie fnanidal stotements were approved by the management of the Arnner?ian Social lavestrret Fundi orp 27 June 2019 ond signed on its behotf The accumpanyong notes fort 4in frutegrig? part of thipse fnnrcrdo stat emrenJ5, Ashot Kirakosyan Levon Dulyan Exec,utlve Director / Finance and Administrative Director Armenian Territorial Development Fund NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 1. Background 1.1 The foundation and its objectives The Armenian Territorial Development Fund (ATDF) is the legal successor of Armenian Social Investment Fund (ASIF) since 2015. The ATDF operates based on the new Charter since 4 August 2015, and continues ordinary activities of the ASIF. The ASIF has been established by a Decree N 162 dated 11 04-2000 of the Government of the Republic of Armenia, the sole founder, as an autonomous non-profit agency to assist in the rehabiditation of small-scate infrastructure through community initiated and demand-based activities. It was registered in accordance with resolution N 988 of the Ministry of Justice of the Republic of Armenia dated on 13 September 2000. The ATOF registered address is: 31 K. Ulnetsi Street, Yerevan, 0037, Republic of Armenia. The ATDF implements projects related to: welfare development of population through improving quality and accessibly of social and economic infrastructure and public services, employment, investment activity, * Institutional and financial streogthering of regions of the Republic of Armenia.: The projects are financed by the Government of the Republic of Armenia through funds received from international donors, the largest creditor being International Development Association (IDA), International Bank of Reconstruction and Development (IBRD) and Asian Development Bank (AD1. The Projects are co-financed by: * Governmeat of the Republic of Armenia, * Local Communities, * Other Sponsors. 1,2 The implemented projects The major projects implemented by ATDF/ASIF since its incorporation are ASIF I, ASIF II, ASIF III, SILD, SSIP and LEID projects with objective to raise the living standards of the poor and vulnerable groups in the Republic of Armenia through: a) improving the quality and access, and increasing the coverage of community infrastructure and services in poor communities, and for the most vulnerable groups in response to critical emerging needs; and b) promoting complementary institutional capacity building at the community and municipal level so as to improve the quality and sustainability of service delivery and municipal investmeflts, increase accountability, and enhance greater stakeholder empowerment at local leveL In year ended 31.12.201W, the ATDF implemented the following projects * "SILD" , "Sodat Investment and Local Development Project", financed by the Loan Agreement IBRD Loan Number 8483-AM dated 8 April 2015 between the Republic of Armenia and the IBRD, In the amount of 30,000,000 USD. The objective of the project is to improve quality and use of and access to community and inter-community infrastructure, V, Armenian Territorial Development Fund NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 Decanber 2018 The Closing date for the Loan Number 8483-AM firiancing is set on 30 June 2020, "SSIP" - -Seismic Safety Improvement Program", financed by Loan Agreement ADB Loan 32B4-ARM dated 19 October 2015 between the ADO and the Republic of Armenia, in the amount of 83,600,000 USD. The objective of the project is to build earthquake. resilient schools and improve ability of responding to natural disasters, The closiag date of the SSIP project is set on 31 May 2024. q USAID Grant" "Territoria Management Reform" project, financed by Implementation Letter dated 10 August 2015 between USA International Development Agency (USAID} and ATDF, in the amount of 8,600,000 USD, The objective of the project is funding inter-community projects in 14 pilot combined communities. The cLosing date of the project is set on 10 August 2020. * "LEID1" - "ILocal Economy and Infrastructure Development Project", financed by the Loan Agreement IBRD Loan Number 8572-AM dated 23 February 2016 between the Republic of Armenia and the IBRD, in the amount of 55,000,000 USD. The Project objective is to improve infrastructure services and institutional capacity for increased tourism contribution to local economy in selected regions of Armenia {i.e. Kotayk, Vayots Dzor, Syuniq, Lori, Armavir, Ararat), In particular, the proposed Project wiLl support business environment and investment climate for Small and Medium-sized Enterprises (SME) creation, growth, and innovations, The Project became effective on 29 December 2016. The Project related activities commenced from 21 April 2017. The Closing date for the Loan Number 8572-AM financing is set on 310 April 2021, * "SDC Grant" - "SociaL kivestrnent and Local DeveLopment SDC" project dated 23 September 2016, financed by the Swiss Agency for Development and Cooperation (5DC, and countersigned on 13 October 2016 between the Republic of Armenia and IBRD in the amount of 2,428,300 USD. The objective of the project is to improve capacities of municipatities in Southern Armenia to provide sustainable public infrastructure and services to their citizens. The Project became effective on Z February 2017, The Project related activities commenced from 15 March 2017. The closing date of the project is set on 31 March 2019. * Tie project of resolving of the priority Issues in Jermuk community of Vayots Dzor region, financed by the State budget of the RepubLic of Armenia, in the amount of 1,190,693.5 thousand AM.D, * The project of pole design of regional development in Jermuk cornmunity of Vayots Dzor region, financed by the State budget of the Republic of Armenia, in the amount of 697,939.9 thousand AMD. The project of resolving priority issues in the regions of Armenia, financed by the State budget of the Republic of Armenia, iln thu amount 3,657,9943 thousand AMD. Armenian Territorial Development Fund NOTES TO THE FINANCkAL STATEMENTS For the year ended 31 Decernber 2018 2, Summary of significant accounting policies 2.1 Bases of preparation These financial statements are prepared in accordance with Internationa Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board 1IASB) within the International Federatioi of Accountants (IFAC)- 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. a) New standards, interpretations and amendments effective from 1 January 2018 IFRS 9 Financial Instruments a IFRS 15 - Revenue from Contracts with Customers a FRI C 22 Foreign Currency Transactions and Advance Consideration. None of the amendments to Standards that are effective from that date had a significant effect on the Company's financial statements. Armenian Territorial Development Fund NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 b) .ew soarWc.s, interpretalivirs and ariridnr,rty 1wt e eflerivi # Pronouncement Nature of the impending change in Date by Date Impact of initia acounting policy on adoption of which Organization application or the pronouncement application plans ta financial of the IFRS is apply the statement required pronouncem ent initially 1 IFRS 16, Lmeaes Under IFRS 16 a lessee recognizes a 1 January 1 January No impact 120171 fIgIhLof -kse assets and a lease 2019 Early 20t9 envisaged ilability, The right-of-use assets is adoption treated similarty to uther nn- permitted finiciaL assets and depreciated accordingLy and the Liability accrues interest, The lease iability i5 initially measured at the piesert value of Lease payments payable over the ,Lease term. 2 IFRIC 23 The interpretatin adrresses how to 1 January 1 January No impact Uncertainty Over determine the taxable prof itflss), 2019 Early 2019 envisaged Incore lax tax bases, unused tax losses, unused adopt1in tax credlLs and tax rates, when there permitted Is uicter Lainty over treatment under IAS 12, Inmne Tax. Armenian Territorial Development Fund NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 2.2 Basis of measurement These financial statements are prepared on the historical cost basis. 2.3 Functional and presentation currency The ATDF's functional currency is the national currency of the Republic of Armenia, Dram (AMD}. The presentatiron currency of these financial statements is United States Dollar (USD). 2.4. Significant accounting estimates and judgments The Fund makes certain estimates and assumptions rearding the future. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasofnable under the circumstances, However, actual experience may differ from those estimates and assumptions. In the reporting year, there are no estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next finandal year, Measurenent of fair values A number of assets and liabilities included in the Fund's financial statements require measurement at, and/or disclosure of, fair value. The fair value measurement of the Fund's financial and non-financial assets and liabilities utilizes market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categori.ed Into different levels based on how observable the inputs used in the valuation technique utilized are (the 'fair value hierarchy), Level 1: Quoted prices in active markets for identical items (unadjustedl - Level 2; ObservabEe direct or indirect inputs other than Level 1 inputs - Level 3: Unobservable inputs (i.e. not derived from market data). The classification of an item into the above levels Is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognized in the period they occur. 2.5. Financial instruments - Risk Management During its natural activity, the Fund is exposed to various finandaL risks such as. - credit risk - liquidity risk In common with alt other businesses, the Fund is exposed to risks that arise from its use of financial instruments, This note describes the Fund's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements, There have been no substantive changes in the Fund-s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. (a, Principal financial instruments The principal financial instruments used by the Fund, from which financial Instrument risk 6A Armenian Territorial Development Fund NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 arises, are as folows: * Cash and cash equivalents * Trade and other payables (b) Financial instruments by category Measured at amortized cost (oans and receivables -2017) Financial assets 31.12 201B 31.12.2017 USD USD Funds receivable 163,679,456 177,901,454 Cash and cash equivalents 29,049,161 24,984,468 192,728,617 202.,885,922 Financial liabilities at amortized cost Flondol liabilities 2018 2017 USD USD Trade and other payables 715,703 590,649 715, 703 590,649 (c) Firancial instruments not measured at fair value Financial instruments not measured at fair value incLude cash and cash equivaLents, trade and other payables. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other payables approximates their fair va(ue. For details of the fair value hierarchy, valuation techniques, and significant unobservable inputs related to determining the fair value, which are classified in level 3 of the fair value hierarchy, refer to appendix A. General objectives, policies and processes The overall managemnot of the Fund's activitIes Is carried out by the Board of Trustees. The overall objective of the Board is to set poLicies that seek to reduce risk os far as possible without disruption of the Fund's activities, Further details regarding these policies are set out beLow: Credit risk Credit risk is the risk of financial loss to the Group if a customer or counter party to a financial instrument fails to meet its contractual obligations. The Fund is mainly exposed to credit risk, which arises from cash and cash equivaLents held by banks. Liquidity risk Liquidity risk arises from the Fund's finance charges and principal repayments on its debt instruments. It is the risk that the Fund will encounter difficulty In meeting its financial obliations as they faLl due, Armenian Territorial Development Fund NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 20 18 The Funds policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances to meet expected requirements. The following table sets out the Fund's contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: Between 1 Between 3 Between 1 Up to 1 and 3 and 12 and 5 Over 5 month months months years years USD USD USD USD USD At 31 December 2018 Trade and other payables 4,651 _ 163,516 308,908 238,626 - 4,651 163,516 308,908 238,626 2.6. Foreign currency transactions Foreign currency is a currency other than the functional currency of the ATDF. Transactions in foreign currencies are translated to functional currency at exchange rates at the dates of the transactions. Settlement rate of foreign currency over functional currency established by the Central Bank of the Republic of Armenia is taken as the exchange rte, The ATDF's accounts are maintained and transactions are mainly made in USD and Armenian Drams (AMD). Transactions denominated in local currency are translated into USD as folows: - Contributions of the Republic of Armenia expressed in AMO are presented in USD at the official exchange rate defined by the Central Bank of Armenia at the date of transfer, - Payments to contractors and suppliers expressed in AMD are presented in USD at the exchange rates defined by the C1A at the date of payment. The exchange rate defined by the CBA as at 31 December 2017 is: USD 1- 483.17 AMD, The exchange rate defined by the CBA as at 31 December 2018 is USD 1= 483.76 AMD. 2,7, Government grants Grants from the government in return for past or future compliance with certain conditions relating to operating activities of ATDF are recognized at their fair value where there is reasonable assurance that: a) the ATDF will comply with the conditions attached to them; and b) the grants will be received: Government grants relating to the purchase of property, plant and equipment are deferred and are recognized in the income statenent on a straight line basis over the expected lives of the related assets, Grants relating to costs are deferred and recognized in the income statement over the period necessary to match them with the costs that they are intended to compensate. 2.8 Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and provision for impairment, where required. Costs of minor repairs and maintenance are expensed when incurred. Cost of replacing major parts or components of property, plant and equipment items are capitalized and the replaced part is retired. Armenian Territorial Development Fund NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 Depreciation is calculated on a straight-line basis in accordance with the folLowing annual depreciation rates: Machinery and equipment 20% Transportation means 20% Oporational fixtures 20% 2,9, Cash Cash comprises of cash balances and bank accounts balances. 2 10. Preparyments Prepayments are carried at cost Less provision for impairment. If there is an indication that the assets, goods or services retating to an advance witI not be received, the carrying value of the advance is written down accordingly arnd a corresponding impairment loss is recognised in the income statement. Armenlan Territorial DeveLopment Fund NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 Decem-ber 2018 3. Property and equipment Property and equiprnent represent fixed assets acquired in the scope of the implernented projects for use at ATDF USD P!oj>ects ASIF ||| SILD UGraD 1 SSW L> Ttat __________ rdrt Grant--1 Grant As of January 1, 2017 332,202 116,61 24,119 17,909 - _ 117 - 534,965 Acquisilions . ,f 4,112 - 711 10,6W0 As of December 31, 2017 332202 122,395 t8,231 17,909 - 44,117 711 545,565 Acquisitiorn5 -_ 2,4M 848- 5.488 287 - 9,0Z3 As of December 31,2013 3Z22 124,795 29,079 17,909 5, 45 44,404 7ti1 554,5" Acurnulated _depredlatin As of Jariuary 1, 2017 323,574 16,744 4,791 6,864 6,157 - 358,160 Annual charge.9 8,628 16,044 4,080 3,546 6,317 88 38, 03 As of Decernber 31, 2017 332,202 32,758 8,871 1G,410. 12,504 88 396r,563 Annual char?es 16,568 4,183 3,544 - 6,369 89 30,753 A of December 31, 2018 332, 202 49,356 13.054 13,954 18,873 177 427,616 Carrying VaLu