State Oil Company of the Azerbaijan Republic International Financial Reporting Standards Consolidated financial statements 31 December 2016 State Oil Company of the Azerbaijan Republic Consolidated financial statements Contents Independent auditor’s report Consolidated financial statements Consolidated statement of financial position ..................................................................................................1 Consolidated statement of profit or loss and other comprehensive income ....................................................3 Consolidated statement of changes in equity .................................................................................................4 Consolidated statement of cash flows ...........................................................................................................5 Notes to the consolidated financial statements 1 The Group and its operations ..............................................................................................................6 2 Basis of preparation and significant accounting policies .......................................................................6 3 Critical accounting estimates and judgments ..................................................................................... 23 4 Adoption of new or revised standards and interpretations and new accounting pronouncements ....... 27 5 Segment information ......................................................................................................................... 33 6 Financial risk management ................................................................................................................ 38 7 Balances and transactions with related parties .................................................................................. 45 8 Cash and cash equivalents and deposits ........................................................................................... 48 9 Restricted cash ................................................................................................................................. 48 10 Available-for-sale investments ........................................................................................................... 48 11 Trade and other receivables .............................................................................................................. 49 12 Inventories ........................................................................................................................................ 50 13 Other non-current assets ................................................................................................................... 50 14 Other financial assets ........................................................................................................................ 50 15 Property, plant and equipment ........................................................................................................... 51 16 Intangible assets other than goodwill ................................................................................................. 52 17 Investments in joint ventures ............................................................................................................. 53 18 Investments in associates ................................................................................................................. 56 19 Trade and other payables.................................................................................................................. 60 20 Borrowings ........................................................................................................................................ 60 21 Taxes payable................................................................................................................................... 64 22 Asset retirement obligations .............................................................................................................. 64 23 Other provisions for liabilities and charges ......................................................................................... 65 24 Deferred income ............................................................................................................................... 66 25 Other current and non-current liabilities ............................................................................................. 66 26 Deferred acquisition consideration payable........................................................................................ 67 27 Charter capital, additional paid-in-capital, retained earnings and gain on sale of subsidiary share ...... 67 28 Analysis of revenue by categories ..................................................................................................... 68 29 Analysis of expenses by nature ......................................................................................................... 68 30 Other operating income ..................................................................................................................... 69 31 Finance income................................................................................................................................. 69 32 Finance costs .................................................................................................................................... 69 33 Income taxes .................................................................................................................................... 69 34 Advances received for sale of interest ............................................................................................... 73 35 Put option liabilities ........................................................................................................................... 73 36 Significant non-cash investing and financing activities ....................................................................... 74 37 Contingences, commitments and operating risks ............................................................................... 74 38 Business combination, acquisition of non-controlling interests, acquisition of subsidiary which is not a business and goodwill .............................................................................................................. 82 39 Material partly-owned subsidiaries..................................................................................................... 84 40 Events after reporting date ................................................................................................................ 88 State Oil Company of the Azerbaijan Republic Consolidated financial statements Consolidated statement of financial position (Amounts presented are in millions of Azerbaijani Manats) 31 December 31 December Note 2016 2015 Assets Current assets Cash and cash equivalents 8 4,163 4,881 Restricted cash 9 121 203 Deposits 8 1,039 143 Available-for-sale investments 10 82 77 Trade and other receivables 11 8,618 6,146 Inventories 12 4,968 1,903 Other current financial assets 14 1,564 611 Total current assets 20,555 13,964 Non-current assets Property, plant and equipment 15 20,116 17,236 Goodwill 38 342 275 Intangible assets other than goodwill 16 689 716 Investments in joint ventures 17 4,555 3,171 Investments in associates 18 4,442 2,838 Deferred tax assets 33 841 712 Other non-current financial assets 14 578 502 Other non-current assets 13 889 540 Total non-current assets 32,452 25,990 Total assets 53,007 39,954 Equity Charter capital 27 1,802 1,617 Additional paid-in-capital 27 2,159 1,423 Retained earnings 6,265 6,191 Other capital reserves (46) (12) Put option on company’s shares 35 (1,305) (1,305) Gain on sale of subsidiary share 27 1,280 1,234 Cumulative translation differences 6,292 4,427 Equity attributable to equity holders of the Group 16,447 13,575 Non-controlling interests 1,257 1,073 Total equity 17,704 14,648 The accompanying notes are an integral part of these consolidated financial statements. 1 State Oil Company of the Azerbaijan Republic Consolidated financial statements Consolidated statement of profit or loss and other comprehensive income (Amounts presented are in millions of Azerbaijani Manats) Note 2016 2015 Revenue 28 51,905 33,103 Cost of sales 29 (47,387) (29,849) Gross profit 4,518 3,254 Distribution expenses 29 (814) (653) General and administrative expenses 29 (1,092) (855) Loss on disposal of property, plant and equipment and intangible assets (34) (19) Social expenses (148) (143) Exploration and evaluation expenses 29 (35) (31) Other operating expenses 29 (1,196) (427) Other operating income 30 697 161 Operating profit 1,896 1,287 Finance income 31 189 65 Finance costs 32 (841) (476) Foreign exchange gains and losses, net (1,284) (2,934) Share of result of joint ventures 17 767 273 Share of result of associates 18 209 201 Profit/(loss) before income tax 936 (1,584) Income tax expense 33 (586) (201) Profit/(loss) for the year 350 (1,785) Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods − currency translation differences, net of tax 1,818 5,024 Other comprehensive (loss)/income not to be reclassified to profit or loss in subsequent periods − loss on cash flow hedge, net of tax (34) 6 Other comprehensive income for the year, net of tax 1,784 5,030 Total comprehensive income for the year 2,134 3,245 Profit/(loss) is attributable to: Equity holders of the Group 147