Energy SpA — Interim / Quarterly Report 2018

Jun 30, 2018

DTEK Energy B.V.

Unaudited Condensed Consolidated Interim Financial Statements

30 June 2018

Contents

Report on Review of Unaudited Condensed Consolidated Interim Financial Statements

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Unaudited Condensed Consolidated Interim Balance Sheet
Unaudited Condensed Consolidated Interim Income Statement
Unaudited Condensed Consolidated Interim Statement of Comprehensive Income
Unaudited Condensed Consolidated Interim Statement of Changes in Equity
Unaudited Condensed Consolidated Interim Statement of Cash Flows

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

	Corporate Information
3	Basis of Preparation and Summary of Significant Accounting Policies
	Critical Accounting Estimates and Judgements
	Adoption of New or Revised Standards and Interpretations
6	Segment Information
	Balances and Transactions with Related Parties
8	Property, Plant and Equipment
	Financial Investments
10	Trade and Other Receivables
11	Loss of control over the operations of entities located in non-controlled territory
12	Share Capital
13	Borrowings
14	Other Financial Liabilities
15	Revenue and Heat Tariff Compensation
16	Cost of Sales
17	Other Operating Expenses
18	Finance Costs
19	Contingencies and Commitments
20	Financial Risk Management
21	Fair Value of Assets and Liabilities
22	Changes in accounting policies
23	Subsequent Events

ž

Report on Review of Unaudited Condensed Consolidated Interim Financial Statements

To the Shareholders and Board of Directors of DTEK Energy B.V.

$\overline{\phantom{a}}$

Introduction

We have reviewed the accompanying condensed consolidated interim balance sheet of DTEK Energy B.V. and its subsidiaries (the 'Group') as at 30 June 2018 and the related condensed consolidated interim income statement, condensed consolidated interim statements of comprehensive income, changes in equity and cash flows for the six-month period then ended, and notes, comprising a summary of significant accounting policies and other explanatory notes. Management is responsible for the preparation and presentation of these condensed consolidated interim financial statements in accordance with International Accounting Standard 34, 'Interim financial reporting'. Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim financial reporting'.

Emphasis of Matter - Material Uncertainty Related to Going Concern

Without qualifying our conclusion, we draw attention to the paragraph 'going concern' included in Note 3 to the condensed consolidated interim financial statements, which indicates that the Group has not completed its restructuring of its borrowings. These conditions, along with other matters as set forth in the paragraph 'going concern' included in Note 3, indicate the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.

LC AF Pricevaledrous Coopers (Audit)

25 September 2018 Kyiv, Ukraine

DTEK Energy B.V.
Unaudited Condensed Consolidated Interim Balance Sheet

In millions of Ukrainian Hryvnia	Note	30 June 2018	31 December 2017
ASSETS
Non-current assets
Property, plant and equipment	8	72,728	77,049
Intangible assets		1,543	1,592
Goodwill		4,384	4,384
Financial investments	9	11,374	11,857
Income tax prepaid		128	171
Deferred income tax asset		1,017	947
Other non-current assets		352	407
Total non-current assets		91,526	96,407
Current assets
Inventories		4,149
Trade and other receivables	10	20,456	4,814 24,600
Income tax prepaid		177	46
Financial investments	9	124	136
Cash and cash equivalents		7,100	5,611
Total current assets		32,006	35,207
TOTAL ASSETS		123,532	131,614
EQUITY
Share capital	12	0	0
Share premium		9,909	9,909
Other reserves		25,968	29,789
Accumulated deficit		(20, 880)	(28, 366)
Equity attributable to owners of the parent		14,997	11,332
Non-controlling interest in equity		5,556	7,729
TOTAL EQUITY		20,553	19,061
LIABILITIES
Non-current liabilities Borrowings	13
Other financial liabilities	14	44,778 4,255	47,898
Retirement benefit obligations		6,053	5,516 5,992
Provisions for other liabilities and charges		1,252	1,159
Deferred income tax liability		4,623	4,724
Total non-current liabilities		60,961	65,289
Current liabilities
Borrowings	13	14,870	16,384
Other financial liabilities	14	1,900	453
Prepayments received		5,586	7,008
Trade and other payables		15,699	19,072
Current income tax payable		983	793
Other taxes payable and tax provision		2,980	3,554
Total current liabilities		42,018	47,264
TOTAL LIABILITIES		102,979	112,553
TOTAL LIABILITIES AND EQUITY		123,532	131,614

Approved for issue and signed on behalf of the Management Board on 25 September 2018.

DTEK Management B.V. Director

SCM Management B.V. Director

DTEK Energy B.V.
Unaudited Condensed Consolidated Interim Income Statement

In millions of Ukrainian Hryvnia	Note	Six months ended 30 June 2018	2017
Revenue Heat tariff compensation	15	83,181	67,684 147
Cost of sales	16	(73, 697)	(58, 467)
Gross profit		9,484	9,364
General and administrative expenses Other operating expenses Distribution costs Other operating income Net operating foreign exchange loss	17	(1,269) (1,707) (447) 191 (222)	(1,203) (2, 236) (451) 229 (42)
Loss of control over the operations of entities located in non-controlled territory	11		(3,905)
Operating profit		6,030	1,756
Net foreign exchange gains on financing and investing activities Finance income Finance costs	18	4,207 1,373 (4, 347)	1,358 1,080 (4,220)
Profit/(loss) before income tax		7,263	(26)
Income tax expenses		(1, 859)	(977)
Profit/(loss) for the period		5,404	(1,003)
Profit/(loss) is attributable to:
Owners of the Company Non-controlling interests		5,357 47	(1,086) 83
Profit/(loss) for the period		5,404	(1,003)

Unaudited Condensed Consolidated Interim Statement of Comprehensive Income

	Six months ended 30 June 2018	2017
In millions of Ukrainian Hryvnia
Profit/(loss) for the period	5,404	(1,003)
Items that may be reclassified to profit or loss:
Recycling of cash flow hedge reserve to income statement	108	110
Currency translation reserve	(431)	(214)
Items that will not be reclassified to profit or loss:
Property, plant and equipment:
- Change in estimate for asset retirement obligation	(40)	(78)
- Income tax recorded on change in estimate for asset retirement obligation		14
Loss of control over the operations of entities located in non-controlled territory
(Note 11)		(3,538)
Income tax attributable to loss of control over the operations of entities located in
non-controlled territory (Note 11)		419
Other comprehensive loss for the period	(356)	(3, 287)
Total comprehensive profit/(loss) for the period	5,048	(4, 290)
Total comprehensive profit/(loss) attributable to:
Owners of the Company	5,001	(4,323)
Non-controlling interests	47	33
Total comprehensive profit/(loss) for the period	5,048	(4,290)

DTEK Energy B.V.
Unaudited Condensed Consolidated Interim Statement of Changes in Equity

$\overline{\nu}$

				Attributable to owners of the Company		Non-	Total
In millions of Ukrainian Hryvnia	Share capital	Share premium	reserves	Other Accumulated deficit		Total controlling interest	Equity
Balance at 1 January 2018 as originally presented Retrospective application of new standards	0	9,909	29,789	(28, 366)	11,332	7,729	19,061
(Note 22) Balance at 1 January 2018 after application	$\blacksquare$		۰	(774)	(774)	(193)	(967)
of new standards	0	9,909	29,789	(29, 140)	10,558	7,536	18,094
Profit for the six months ended 30 June 2018				5,357	5,357	47	5,404
Other comprehensive loss	٠		(356)		(356)		(356)
Total comprehensive profit/(loss) for the period	۰		(356)	5,357	5,001	47	5,048
Property, plant and equipment:
-Realised revaluation reserve			(4,226)	4,226
-Income tax related to realised revaluation reserve			761	(761)
Acquired non-controlling interest (Note 1)				(562)	(562)	(2,027)	(2, 589)
Balance at 30 June 2018	0	9,909	25,968	(20, 880)	14,997	5,556	20,553

				Attributable to owners of the Company		Non-	Total
In millions of Ukrainian Hryvnia	Share capital	Share premium	reserves	Other Accumulated deficit		Total controlling interest	Equity
Balance at 1 January 2017	0	9,909	19,017	(27, 742)	1,184	4,530	5,714
Profit/(Loss) for the six months ended 30 June 2017	-			(1,086)	(1,086)	83	(1,003)
Other comprehensive profit/(loss)			(4,327)	1,090	(3, 237)	(50)	(3, 287)
Total comprehensive profit/(loss) for the period	۰		(4, 327)	4	(4, 323)	33	(4,290)
Property, plant and equipment:
-Realised revaluation reserve		-	(1,949)	1,949
-Income tax related to realised revaluation reserve			351	(351)
Dividends declared						(417)	(417)
Balance at 30 June 2017	0	9,909	13,092	(26, 140)	(3, 139)	4,146	1,007

		Six months ended 30 June
In millions of Ukrainian Hryvnia	Note	2018	2017
Cash flows from operating activities
Profit/(loss) before income tax		7,263	(26)
Adjustments for:
Depreciation and impairment of property, plant and equipment and amortisation of intangibles		6,526
Losses on disposals of property, plant and equipment		5	3,995 24
Assets received free of charge		(3)	(40)
Net change in provision for financial investments and trade and other
receivables, including non-financial assets		488	998
Non-cash operating charge to retirement benefit obligation		(5)	185
Extinguishment of accounts payable			(3)
Foreign exchange gains on financing and investing activities		(4,207)	(1,358)
Unrealised foreign exchange losses on operating activity		174	76
Finance costs, net		2,974	3,140
Change in provisions for other liabilities and charges			12
Loss of control over the operations of entities located in non-controlled
territory	11		3,905
Operating cash flows before working capital changes Changes in:		13,215	10,908
Inventories		667
Trade and other receivables		3,572	(1, 166) 453
Prepayments received		(1, 422)	(1, 517)
Trade and other payables		(2,518)	303
Other financial liabilities		(66)	20
Repayment of restructured obligations		(345)	(28)
Other taxes payable and tax provision, other than income tax		(575)	(1,926)
Cash generated from operations		12,528	7,047
Income taxes paid		(1,780)	(1, 354)
Defined employee benefits paid		(311)	(272)
Interest and tender costs excluding capitalised borrowings cost paid		(2,405)	(1, 331)
Interest received		139	76
Provisions utilised		(23)	(4)
Net cash generated from operating activities		8,148	4,162
Cash flows from investing activities
Purchase of property, plant and equipment		(3, 855)	(3, 176)
Withdrawal/(placement) of restricted cash		74	(367)
Capitalised borrowings cost paid		(9)	(6)
Deposits withdrawal/( placed) including restricted deposits		6	(114)
Cash lost as a result of loss of control	11		(39)
Deferred consideration and finance lease related to acquisitions paid		(124)
Net cash used in investing activities		(3,908)	(3, 702)
Cash flows from financing activities
Acquisition of non-controlling interest		(2,589)
Repayment of borrowings	13	(27)	(3,616)
Dividends paid to non-controlling participants		(1)	(345)
Net cash used in financing activities		(2,617)	(3,961)
Net change in cash and cash equivalents		1,623	(3, 501)
Cash and cash equivalents at the beginning of the period		5,524	7,488
Exchange (loss)/gain on cash and cash equivalents		(60)	28
Cash and cash equivalents at the end of the period		7,087	4,015

According to the Group accounting policy, restricted balances are excluded from cash and cash equivalents for the purposes of the condensed consolidated interim statement of cash flows.

$\mathbf{1}$ Corporate Information

DTEK Energy B.V. (the "Company") is a private limited liability company incorporated in the Netherlands on 16 April 2009.

The Company and its subsidiaries (together referred to as "the Group") are beneficially owned by Mr. Rinat Akhmetov, through various entities commonly referred to as System Capital Management ("SCM"). Mr. Akhmetov has a number of other business interests outside of the Group. Related party transactions are detailed in Note 7.

DTEK Energy B.V. is a vertically integrated power generating and distribution group. Its principal activities are coal mining for further supply to its power generating facilities and finally distribution of electricity to end customers primarily in Ukraine. The Group's coal mines, power generation plants and distribution facilities are located in the Donetsk (controlled territory), Lugansk (controlled territory), Dnipropetrovsk, Lviv, Ivano-Frankivsk, Vinnitsya, Zaporizhzhya, Kyiv regions and the City of Kyiv in Ukraine. The Group sells major part of electricity generated to Energorynok SE, the state-owned electricity metering and distribution pool, at prices determined based on the competitive pool model adopted by the National Commission for State Regulation of Energy and Public Utilities in Ukraine. The Group's distribution entities then repurchase electricity for supply to final customers at a regulated price.

On 05 June 2018 the Group acquired 9.5% of share capital of DTEK Dniproenergo JSC and 9.5% of share capital of DTEK Zakhidenergo JSC by means of acquisition of 100% of share capital of GPL Power Limited, the entity that was previously under common control of SCM. GPL Power Limited is engaged in investment holding activities.

The Group accounted acquisition of these entities as a common control transaction, recognising deficit in the amount of UAH 562 million directly in retained earnings. This charge was calculated as cash consideration in amount of USD 99 million (equivalent of UAH 2,589 million at the date of transaction) transferred less the carrying amount of net assets of acquired entities attributable to non-controlling participants at the date of transaction. The non-controlling interest represents the share of the net assets determined based on predecessor values according to the Group accounting policy. Under this method the subsidiaries results, assets and liabilities are incorporated prospectively from the date, on which business combination between entities under common control occurred.

There were no contingent liabilities recognized as a result of the acquisition. The amount of acquisition related costs was not significant.

$\overline{2}$ Operating Environment

The ongoing political and economic instability in Ukraine which commenced at the end of 2013 and led to a deterioration of State finances, volatility of financial markets, illiquidity on capital markets, higher inflation and depreciation of the national currency against major foreign currencies has continued in both 2016 and 2017, though to a much lesser extent as compared to 2014 and 2015.

The inflation rate in Ukraine stood at 4.4% for the first half of 2018 (as compared to 7.9% for the six months of 2017 and 13.7% for the twelve months of 2017) while GDP continued to grow at 3.2% in the second quarter of 2018 (as compared to 2.1% growth for 12 months 2018) according to the statistics published by the National Bank of Ukraine.

During six months of 2018 the Ukrainian Hryvnia has slightly appreciated against the US dollar, EUR and Russian Roubles. As at the date of this report the official exchange rate of the Ukrainian Hryvnia against the US dollar was UAH 28.11 per USD 1, compared to UAH 26.19 per USD 1 as at 30 June 2018 and UAH 28.07 per USD 1 as at 31 December 2017. In 2017 there has been a further easing of currency control restrictions that were introduced in 2014-2015. In particular, the required share of foreign currency for mandatory sale was decreased from 75% to 50% starting from 4 April 2017 and the settlement period for export-import transactions in foreign currency was increased from 90 to 180 days starting from 26 May 2017. In addition, starting from 13 April 2017 Ukrainian companies are permitted to pay dividends to non-residents with a limit of USD 5 million per month for the 2014-2016 periods. Starting from 15 November 2017 the limit for dividends related to the periods up to 2013 was set at USD 2 million per month. Starting from March 2018 National Bank of Ukraine allowed Ukrainian companies to pay dividends to nonresidents with a limit of USD 7 million per month regardless of the period.

The IMF has continued to support the Ukrainian government under the four-year Extended Fund Facility ("EFF") Programme approved in March 2015, providing the fourth tranche of approximately USD 1 billion in April 2017. Further disbursements of IMF tranches depend on the continued implementation of Ukrainian government reforms, and other economic, legal and political factors.

The banking system remains fragile due to its weak level of capital, low asset quality caused by the economic situation, currency depreciation, changing regulations and other factors.

The conflict in the parts of Eastern Ukraine which started in spring 2014 has not been resolved to date. In January-March 2017, there was some escalation of military confrontation along the line of contact of the conflicting parties. The National Security and Defence Council of Ukraine issued resolution in March 2017 that completely suspended anv freight transportation between the controlled and non-controlled territory of Ukraine, and this continues to date. In February-March 2017, the self-proclaimed authorities in the non-controlled territory announced their intention to seize business assets located in the non-controlled territory and to require businesses to comply with various local fiscal, regulatory and other requirements which contravene Ukrainian legislation. Subsequently, on 15 March 2017 the self-proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. As a result, the Group and SCM has announced that they have lost control over the operations and assets of the entities located in the non-controlled territory. The effect of the events further disclosed in Note 11.

Operating Environment (Continued) $\overline{2}$

The Group's entities affected include:

• DTEK Rovenkiantracyte LLC: $\bullet$
• DTEK Sverdlovantracyte LLC; $\bullet$
• DTEK Mine Komsomolets Donbassa PJSC: $\bullet$
• Mospino CPE LLC;
• one power plant belonging to DTEK Skhidenergo LLC (Zuevskava TTP):
• DTEK Donetskoblenergo (only non-controlled territory part); $\bullet$
• PJSC DTEK Energougol ENE PJSC (only non-controlled territory part); $\bullet$
• DTEK Power Grid LLC (only non-controlled territory part).

As at 30 June 2018, the Group had significant balances receivable from and prepayments made to the State and entities dependant on government financing, including prepaid income taxes of UAH 305 million, VAT recoverable of UAH 2,886 million (Note 10), receivables from Energorynok SE of UAH 4,300 million and receivables from various water and heat supply companies of UAH 976 million. The timing of settlement of these balances is uncertain and is dependent upon the availability of State funds and amounts of future taxable profits of the Group's subsidiaries.

The Government of Ukraine introduced the Electricity Market Law on 13 April 2017 with the aim to liberalize and enhance competition in the Ukrainian electricity market. One of the measures it introduced is the separation of electricity distribution and supply activities and their assets from electricity generation activities and their assets. In order to comply with the requirements of the Law, in 2018 the Group initiated a plan to separate its electricity distribution business in the following manner: (i) to complete the reorganization of PJSC Kyivenergo whereupon PJSC Kyivenergo electricity supply activities were transferred to the Group's new subsidiary LLC Kyiv Energy Services and electricity distribution assets and activities was transferred to PJSC DTEK Kyivski Elektromerezhi, an entity which spun off from PJSC Kyivenergo; (ii) to create subsidiaries of JSC DTEK Dnipro Grids (former PJSC DTEK Dniprooblenergo) and JSC DTEK Donetsk Grids (PJSC DTEK Donetskoblenergo): LLC Dnipro Energy Services and LLC Donetsk Energy Services correspondingly, which are going to conduct electricity supply activities.

Basis of Preparation and Summary of Significant Accounting Policies 3

These condensed consolidated interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by European Union. They do not include all the information and disclosures required for a complete set of annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with IFRS as adopted by adopted by European Union.

The accounting policies adopted are consistent with those of the Group's annual consolidated financial statements for the year ended 31 December 2017, except as described below.

New IFRS standards. The group has applied IFRS 9 and IFRS 15 standards for the first time for their annual reporting period commencing 1 January 2018. The Group had to change its accounting policies and make retrospective adjustments as a result of adopting these new standards. The impact of the adoption of these standards and the new accounting policies are disclosed in Note 22.

Income taxes. Income tax expense is recognised based on management's best estimate of the weighted average annual income tax expected for the full financial year, which is estimated at 20% (six months 2017: 49%). High income tax rate for six months ended 30 June 2017 was driven by non-recurring expenses as a result of loss of control over the operations of entities located in non-controlled territory incurred during the reporting period (Note 11).

Exchange rate fluctuations. As at 30 June 2018, the exchange rate used for translating foreign currency balances was USD 1 = UAH 26.19 (31 December 2017: USD 1 = UAH 28.07); EUR 1 = 30.57 UAH (31 December 2017: EUR $1 = 33.49$ UAH).

Going concern. As of 30 June 2018 the Group had an excess of current liabilities over current assets of UAH 10,012 million. This was caused by the classification of UAH 14,059 million of bank borrowings as current that are in default as of 30 June 2018.

The Group's business is concentrated in Ukraine, the majority of its revenue is generated in Ukraine and denominated in UAH (six months ended 30 June 2018 and 2017: 94% and 93%, respectively), although the Group also receives foreign currencies from its export of electricity and coal. The majority of the Group's debt is denominated in currencies other than the UAH.

Due to the significant UAH devaluation during the period 2014 to 2016 management commenced discussions with lenders on both a bi-lateral and an all-party basis. However, the Group has not been able to finalise discussion with all of its lenders or execute the restructured bank debt documentation to extend the terms of all of its debt as of the date of preparation of these condensed consolidated interim financial statements. In December 2016 the Group's bonds in amount of UAH 26,089 million were restructured. In March 2017 bank borrowings together with accrued but not paid interest in the amount of UAH 13,321 million at the date of transaction were restructured and in August 2017 additional bank borrowings of UAH 714 million were restructured. The restructurings resulted in the modification of certain of the key terms and conditions in respect of the Restructured Debt aligned with the Override Agreement (Note 13).

3 Basis of Preparation and Summary of Significant Accounting Policies (Continued)

As further discussed in Note 13, the Group's bank borrowings totalling UAH 7,725 million as of 30 June 2018 were restructured subsequent to the balance sheet date. The Group continues its discussions with the remaining lenders with respect to the unrestructured debt totalling UAH 6,334 million as of 30 June 2018 excluding sundry working capital loans, aiming to achieve the same terms as accepted by all other bank lenders under the Bank Exchange Offer. Prior to the signing of these new restructuring agreements, these bank borrowings remain in default.

Management has prepared monthly cash flow projections for periods throughout 2018 and 2019. Judgments with regard to future electricity prices, coal volumes and the timing of settlements with various counterparties were required for the preparation of the cash flow projections. Management has estimated that the overall cash flows are positive, indicating that there is no liquidity gap in any months, based on the important assumptions in the cash flow projections, including: electricity tariffs increasing to offset the impact of cost inflation; improvement of the payment discipline of Energorynok SE; stabilisation of the UAH; the ability of the Group to export coal and electricity; and that lenders with whom the Group has yet to complete debt restructuring will not demand principal repayment.

Whilst the terms of the restructuring have been agreed with the bank lenders on the basis of binding heads of terms accepted by all of the bank lenders under the Bank Exchange Offer, management acknowledges that, prior to full completion of the restructuring of the remaining debt obligations that were subject to restructuring and completion of required procedures, there is a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern, and, therefore, it may be unable to realize the Group's assets and discharge its liabilities in the normal course of business.

Taking into account ongoing restructuring process of some of the facilities and based on cash flow projections performed, management considers that the application of the going concern assumption for the preparation of these condensed consolidated interim financial statements is appropriate.

$\overline{A}$ Critical Accounting Estimates and Judgements

Critical accounting estimates and judgements applied are consistent with those followed in the preparation of the Group's annual consolidated financial statement for the year ended 31 December 2017, except for the additional ones described below.

Control over the legal entities whose operations in the non-controlled territory were lost. As further disclosed in Note 11, on 15 March 2017 the self-proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. The Group has determined that it retains control over the legal entities whose operations were located in the non-controlled territories, as these entities are registered in the controlled territory of Ukraine and continue to serve its obligations and collect payments on receivables. Thus, the Group continues to consolidate the remaining assets and liabilities of those entities as of 30 June 2018.

Impairment of property, plant and equipment located in the non-controlled territory. As a result of the events further disclosed in Note 11, management of the Group has performed an impairment testing of respective property, plant and equipment and determined that the value of these assets is zero, thus recognising UAH 5,357 million as decrease of previously recognised revaluation in other comprehensive income and UAH 7,395 million as impairment charge in profit and loss for the six months ended 30 June 2017. Management has determined that the loss of control over the assets does not require derecognition of the property, plant and equipment. This is based on consideration that the Group still holds the legal title over the assets; the seizure of assets is illegal and might be temporary; the Group may still be able to claim some compensation for the assets through International courts. Would the judgement be made that the assets are derecognised, the whole amount of UAH 12,752 million of decrease in the carrying value of property, plant and equipment would need to be charged to income statement and previously recognised revaluation in equity in amount of UAH 5,357 would need to be transferred to retained earnings.

Valuation allowance for financial assets. The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements of the Group in respect of valuation of financial assets. The new accounting policies are set out in Note 22.

Valuation of account receivables for heat. The agreement with the Kyiv City Administration for the provision of heat and electricity generation to the residents and local companies of Kyiv city was prolonged after 28 April 2018 and has expired on 31 July 2018. As a result, the Group has transferred tangible assets attributable to heat and electricity generation business of PJSC Kyivenergo to the new operator appointed by Kyiv City Administration. Transfer of trade receivables for heat and corresponding trade payables for supplied gas was not completed to this date. Nevertheless, management believes that trade receivables from individuals and legal entities for supplied heat, which are primarily overdue, with the carrying amount of UAH 2,217 million and corresponding trade payables for purchased gas due to NAK Naftogaz, Ukrainian state oil and gas company, in amount of UAH 3,715 million will be transferred to the new operator by the end of 2018. Management judgement is based on interpretation of provisions of the Law of Ukraine on Heat Supply according to which the new operator of generation and heat assets becomes the successor and assumes all unsettled obligations of the predecessor entity for previously consumed energy.

$\overline{\mathbf{4}}$ Critical Accounting Estimates and Judgements (Continued)

In August 2018, Kyiv City Administration started negotiating with NAK Naftogaz to conclude an amicable agreement through the court process regarding transfer of debt of PJSC Kyivenergo due to NAK Naftogaz for supplied gas to the new operator of generation and heat assets. Management believes that upon completion of these negotiations, PJSC Kyivenergo will transfer full amount of trade receivables for heat and corresponding payables for the supplied gas to the new operator. On this basis, management did not recognise an additional impairment of trade receivables for heat to account for increased risk profile of this asset, being primarily lower chances to collect overdue debt once the new operator begins billing customers. To this date, the parties have not signed the amicable agreement.

5 Adoption of New or Revised Standards and Interpretations

The following new standards, which are relevant to the Group's condensed consolidated interim financial statements. have been issued, but have not been endorsed by European Union:

• IFRIC 23 Uncertainty over Income Tax Treatments (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019):
• Annual Improvements to IFRS Standards 2015-2017 Cycle (issued on 12 December 2017 and effective $\bullet$ for annual periods beginning on or after 1 January 2019);
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (issued on 7 February 2018 and $\bullet$ effective for annual periods beginning on or after 1 January 2019);
• Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018 and effective for annual periods beginning on or after 1 January 2020).

The following new standards which are relevant to the Group's consolidated financial statements, have been issued and endorsed by European Union, but have not been effective for financial periods beginning on or after 1 January 2018:

IFRS 16 - Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 $\bullet$ January 2019).

All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

IFRS 16 will require the Group to recognise in the balance sheet assets taken in an operating lease and the related lease liabilities. Although, the current annual operating lease commitments are immaterial, the Group is still assessing the impact of IFRS 16. Management will perform more detailed analysis and will disclose the impact of the new standard in the consolidated financial statements for the year ended 31 December 2018 that will be comparative period for the year when the standard is adopted. Management intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to the adoption.

New and amended standards adopted by the group. The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2018:

• IFRS 9, Financial Instruments (issued on 24 July 2014 and effective for annual periods beginning on or after 1 January 2018);
• IFRS 15 Revenue from Contracts with Customers (issued on 28 May 2014 and effective for annual periods beginning on or after 1 January 2018).

The impact of the adoption of these standards and the new accounting policies are disclosed in Note 22. The other standards did not have any impact on the Group's accounting policies and did not require retrospective adjustments.

6 Segment Information

Management Board is the Group's chief operating decision-maker.

The management has determined the operating segments used for disclosure by the Group based on reports reviewed by the Management Board for the purposes of assessing performance. The Management Board considers the business from a product perspective taking into account the vertical integration of the Group.

The Management Board assesses the performance of the operating segments based on a measure of Adjusted EBIT. This measurement basis represents profit for the year after excluding the following income statement items: foreian exchange losses less gains, income tax expense, impairment of property, plant and equipment, any effect of loss of control over the operations of entities located in non-controlled territory, charity payments to related parties, certain maintenance of social infrastructure costs, finance income and expenses except for gains/losses on initial recognition and early repayment of financial instruments from non-related parties, interest on bank deposits, unwinding of discount on the long-term restructured accounts receivable and impairment of financial investments.

The following operating segments are analysed by the Management Board being also the reportable segments:

• Coal mining and power generation on thermal power plants, coal resale, electricity export:
• Electricity distribution;
• Kyivenergo; $\bullet$
• Other. $\bullet$

Revenues presented in 'Other' segment mainly include revenues from gas resale for third parties, sales of services and revenues of Corum companies, acquired by the Group on 28 November 2017, that are engaged in supporting the Group's underground mining operations. Revenues from gas resale within the Group for the purpose of internal consumption are presented in 'Coal and power generation' segment.

The Group's mining and power generation operations are vertically integrated and while the operating businesses are organised and managed separately, with each segment offering different products and serving different markets, there remains significant inter-dependence between the segments. The primary reporting format, business segments, is based on the Group's management and internal reporting structure. Prices between the segments were set based on references to the market prices. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment revenue includes transfer between business segments. Those transfers are eliminated on consolidation.

In 2018 the Group performed the reorganization of PJSC Kyivenergo (Note 2), according to which electricity supply and distribution business of PJSC Kyivenergo was separated as at 28 February 2018. For the purposes of segment reporting the Group presented electricity supply and distribution business of PJSC Kyivenergo within 'Electricity distribution' segment starting from 1 March 2018. Would management continue to consider electricity supply and distribution business of the entity as a part of 'Kyivenergo' segment, revenue and segment result of this segment for the six months ended 30 June 2018 would be higher by UAH 4,734 million and UAH 379 million respectively.

Segment information for the reportable business segments of the Group for the six months ended 30 June 2018 is as follows:

	Coal and power	Electricity
In millions of Ukrainian Hryvnia	generation	distribution	Kyivenergo	Other	Elimination	Total
Sales - external Sales to other segments Total revenue Heat tariff compensation Total revenue and heat tariff compensation	35,885 24 35,909 35,909	28,839 688 29,527 29,527	11,321 3 11,324 11,324	7,136 1,455 8,591 8,591	(2, 170) (2, 170) (2, 170)	83,181 83,181 83,181
Segment result		(15)	(313)		5
Net operating foreign exchange loss Foreign exchange losses less gains on	6,770			(79)		6,368 (222)
financing and investing activities Finance costs net of finance income not						4,207
included in Segment result Unallocated expenses						(2,830) (260)
Profit before income tax						7,263
Capital expenditure	2,522	610	103	88		3,323

$\bf 6$ Segment information (Continued)

Segment information for the main reportable segments of the Group as of and for the six months ended 30 June 2017 is as follows:

	Coal and power	Electricity
In millions of Ukrainian Hryvnia		generation distribution	Kyivenergo	Other	Elimination	Total
Sales - external Sales to other segments	29,256 2.048	20,439 604	13,690	4,299 948	(3,600)	67,684
Total revenue	31,304	21,043	13,690	5,247	(3,600)	67,684
Heat tariff compensation Total revenue and heat tariff			147			147
compensation	31,304	21,043	13,837	5,247	(3,600)	67,831
Segment result Net operating foreign exchange loss Foreign exchange losses less gains on	7,071	(314)	(488)	(11)	52	6,310 (42)
financing and investing activities Finance costs net of finance income not						1,358
included in Segment result Loss of control over the operations of entities located in non-controlled territory						(3, 466)
(Note 11) Charitable donations and sponsorship to						(3,905)
related parties (Note 7) Unallocated expenses						(240) (41)
Loss before income tax						(26)
Capital expenditure	2,486	503	549	32		3,570

$\overline{7}$ Balances and Transactions with Related Parties

The nature of the related party relationships for those related parties with whom the Group entered into significant transactions or had significant balances outstanding is detailed below.

			30 June 2018			31 December 2017
	Entities under	DTEK BV	Associates	Entities under	DTEK BV	Associates
	common	Group	and Joint	common	Group	and Joint
	control of SCM	subsidiaries		Ventures of control of SCM	subsidiaries	Ventures of
In millions of Ukrainian Hryvnia			SCM			SCM
Prepayments for property, plant and equipment	80			82
Loans receivable (Note 9)		11,392			11,875
Trade and other receivables	3.567	1.261	105	3,090	2.684	109
Restricted deposits	64			76
Cash and cash equivalents (including deposits up to 3 months) Guarantee under the borrowings of	606			1,449
related parties (Note 14) Other financial liabilities and interest		(872)			(1,065)
accrual	(2)	(16)		(2)	(15)
Trade and other payables	(499)	(1,652)		(1, 122)	(3,040)	(1)
Prepayments received	(754)	(4)	(156)	(863)	(8)	(3)

The income and expense items with related parties were as follows:

		Six months ended 30 June 2018			Six months ended 30 June 2017
	Entities under	DTEK BV	Associates	Entities under	DTEK BV	Associates
	common	Group	and Joint	common	Group	and Joint
	control of SCM	subsidiaries		Ventures of control of SCM	subsidiaries	Ventures of
In millions of Ukrainian Hryvnia			SCM			SCM
Sales of electricity	6,037		1,384	5,290		1,236
Sales of gas	4,172		834	2,866	210	727
Sales of coal	786			975		21
Sales of services and other materials	452	56	3	$\overline{2}$	53	6
Purchase of coal and fuel	(34)	(2, 561)		(6)	(1, 946)
Purchase of production materials and
spare parts	(872)			(90)
Purchase of gas		(6, 212)		(1)	(5,504)
Purchase of non-current assets	(136)			(834)
Purchase of services	(2,030)	(33)		(2, 147)	(140)	(1)
Charitable donations and sponsorship				(240)
Interest income on bank deposits	51			32
Interest income on loans provided		379			371
Unwinding of discount on guarantee
provided		(25)			(13)
Unwinding of discount on loans provided to related parties		59			50
Gain on modification of loans provided
to related parties (Note 9)		474
Impairment of accounts receivables
and financial investments	(63)	(216)	(2)

8 Property, Plant and Equipment

Movements in the carrying amount of property, plant and equipment were as follows:

In millions of Ukrainian Hryvnia	Mining assets	Buildings and structures	Plant and machinery	fittings and equipment	Furniture, Construction in progress	Total
Opening net book amount as at 1 January 2018	12,607	21,978	34,762	2.591
Additions	21	182	1.386	109	5,111 1,625	77,049 3,323
Disposals and other movements Depreciation charge	$\sim$ (640)	(443) (1, 325)	(468) (4, 362)	(59) (335)	(12)	(982)
Transfers	46	272	714	108	(1, 140)	(6, 662)
Net book amount as at 30 June 2018	12.034	20,664	32,032	2,414	5,584	72,728

In millions of Ukrainian Hryvnia	Mining assets	Buildings and structures	Plant and machinery	fittings and equipment	Furniture, Construction in progress	Total
Opening net book amount
as at 1 January 2017	13,998	17,580	25,321	2,271	4,954	64,124
Additions	32	261	987	81	2.209	3,570
Disposals and other movements	(129)	(13)	(13)	(3)	(39)	(197)
Depreciation charge Loss of control over the operations of	(451)	(895)	(2,460)	(200)		(4,006)
entities located in non-controlled territory (Note 11)	(4, 573)	(2,864)	(3,889)	(170)	(1,256)	(12, 752)
Transfers	169	64	537	112	(882)
Net book amount as at 30 June 2017	9,046	14,133	20,483	2.091	4,986	50.739

9 Financial Investments

Non-current financial investments were as follows:

In millions of Ukrainian Hryvnia	30 June 2018	1 January 2018*	31 December 2017
Loans provided to related parties Equity securities Deposits placed	11,332 32 10	11,498 38 4	11,815 38 4
Total	11,374	11,540	11,857
Current financial investments were as follows:	30 June 2018	1 January 2018*	31 December
In millions of Ukrainian Hryvnia
			2017
Restricted deposits Loans provided to related parties	$\overline{\phantom{a}}$ 64 60	76 60	76 60

* effect from the first application of IFRS 9

Loans provided to related parties in amount of UAH 11,332 million (31 December 2017: UAH 11,815 million) are presented by the loans issued to subsidiary of DTEK Oil&Gas B.V., an entity under common control. DTEK Oil&Gas B.V. is incorporated in the Netherlands and has the majority of its assets in Ukraine and outside of non-controlled territory. The loans are due in 2023 and 2024. The loans are carried at amortised cost with effective interest rate of 8% at origination date. Loans are pledged as collateral under the Eurobonds (Note 19).

9 Financial Investments (Continued)

Subsequently, current interest rates under provided loans were revised from 7% per year to 8% per year for 2020-2021 and to 9% per year for 2022-2024. Respective effect of change in interest rates comprised UAH 474 million and was recognised as gain on modification of loans provided to related parties in finance income for 6 months 2018.

The impact of adoption of IFRS 9 resulted in additional provision for loans provided to related parties totalling UAH 317 million at 1 January 2018. Further, the Group has charged the additional provision for the 6 month 2018 in amount of UAH 216 million resulting from increase yield on corporate bonds used as a basis for IFRS 9 expected credit losses measurement.

Current financial investments are neither past due nor impaired.

10 Trade and Other Receivables

In millions of Ukrainian Hryvnia		30 June 2018 1 January 2018* 31 December
			2017
Trade receivables less provision of UAH 8,290 million
(31 December 2017: UAH 7,447 million)	12,225	15,429	16,153
Restructured trade receivables less provision of UAH 52 million
(31 December 2017: UAH 17 million)	122	204	207
Other financial receivables less provision of UAH 1,112 million
(31 December 2017: UAH 895 million)	1,354	709	775
Total financial assets	13,701	16,342	17,135
Prepayments to suppliers less provision of UAH 665 million
(31 December 2017: UAH 1,209 million)
VAT recoverable less provision of UAH 85 million	3,038	4,162	4,162
(31 December 2017: UAH 85 million)	2,886	2,376	2,376
Heat tariff compensation receivable	730	730	730
Other non-financial assets less provision of UAH 69 million
(31 December 2017: UAH 72 million)	101	197	197
Total non-financial assets	6,755	7,465	7,465
Total trade and other receivables	20,456	23,807	24,600

* effect from the first application of IFRS 9

The total impact of the first application of IFRS 9 as at 1 January 2018 was as follows:

In millions of Ukrainian Hryvnia

Provision for impairment at 31 December 2017	9.725
Impact from the adoption of IFRS 9	793
Provision for impairment at 1 January 2018	10.518

Trade and other receivables and related provisions were written-off in amount of UAH 517 million during 6 months 2018.

$11$ Loss of control over the operations of entities located in non-controlled territory

In early March 2017 a number of threats were reported in the Ukrainian and online media of the potential seizure by the self-proclaimed authorities of production assets located in the non-controlled territory in the Donbass region of Ukraine. Management took all available actions to retain control over the assets and the systems that permitted these assets to operate. Subsequently, on 15 March 2017 the self-proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. The entities impacted include: DTEK Rovenkiantracyte LLC, DTEK Sverdlovantracyte LLC, DTEK Mine Komsomolets Donbassa PJSC, Mospino CPE LLC, one power plant belonging to DTEK Skhidenergo LLC (Zuevskaya TTP), DTEK Donetskoblenergo (only non-controlled territory part), PJSC DTEK Energougol ENE PJSC (only non-controlled territory part) and DTEK Power Grid LLC (only non-controlled territory part). The Group considered this as a theft of assets and informed the relevant Ukrainian law enforcement authorities. The Group has determined that it retains control over the legal entities impacted in the non-controlled territories, as these entities are formally registered in the controlled territory of Ukraine.

For illustrative purposes, the Group prepared consolidated Interim Income Statement and Statement of Comprehensive income of the assets over which the Group lost control to show the effect of its operation until the moment the control was lost:

	Period from 1 January 2017
In millions of Ukrainian Hryvnia	to 15 March 2017
Revenue Cost of sales	2,381 (1, 873)
Gross profit	508
Distribution costs General and administrative expenses Other operating income/ (expenses), net	(95) (67) (278)
Operating profit	68
Foreign exchange losses less gains on financing and investing activities Finance income Finance costs	1 (413)
Loss before income tax Income tax benefit	(344) 50
Loss for the period	(294)
Loss attributable to: Owners of the Company Non-controlling interest	(253) (41)
Loss for the period	(294)
Other comprehensive loss: Items that will not be reclassified to profit or loss: Property, plant and equipment: - Change in estimate for asset retirement obligation - Income tax recorded on change in estimate for asset retirement obligation	(38)
Other comprehensive loss for the period	(31)
Total comprehensive loss for the period	(325)
Total comprehensive loss attributable to:
Owners of the Company Non-controlling interest	(284) (41)
Total comprehensive loss for the period	(325)

11 Loss of control over the operations of entities located in non-controlled territory (Continued)

As a result of losing control over the assets located in the non-controlled territory in March 2017, management of the Group has decided to charge impairment provision on certain assets. Moreover, the Group also released certain liabilities of the entities located in the non-controlled territory. Impairment loss before income tax of UAH 3,905 million and UAH 3,538 million was charged to the Consolidated Interim Income Statement and Consolidated Interim Statement of Comprehensive Income respectively, for the six months ended 30 June 2017 as follows:

	Recognised in	Recognised in Other
In millions of Ukrainian Hryvnia	profit and loss	comprehensive income	Total
Assets
Property plant and equipment (Note 8)	7,395	5,357	12,752
Intangible assets	82		82
Deferred tax assets (gross)	551	338	889
Inventory	1,051		1,051
Trade and other receivables	204		204
Cash and cash equivalents	39		39
Total assets	9,322	5,695	15,017
Liabilities
Deferred tax liability (gross)	(554)	(757)	(1, 311)
Deferred consideration for acquisition	(3, 148)		(3, 148)
Retirement benefit obligations	(1, 182)	(1, 332)	(2, 514)
Asset retirement provision	(503)	(487)	(990)
Accruals for employees' bonuses	(33)		(33)
Total liabilities	(5, 420)	(2, 576)	(7,996)
Net result, including:	3,902	3,119	7,021
Loss of control over the operations of entities
located in non-controlled territory	3,905	3,538	7,443
Deferred tax benefit	(3)	(419)	(422)

Property plant and equipment. As a result of losing control, management has performed an impairment test for property, plant and equipment located in the non-controlled territory using the fair value less cost of disposal model (Level 3) and determined that the recoverable value of these assets is zero. Coal and power generation segment in the non-controlled territory includes the following three CGUs: coal mining entity DTEK Rovenkiantracyte LLC; coal mining entity DTEK Sverdlovantracyte LLC; and combined CGU of the coal mining entity DTEK Mine Komsomolets Donbassa PJSC and ZuTES power station being a part of DTEK Skhidenergo LLC. The impairment loss attributable to coal and power generation segment comprised UAH 6,978 million recognised in the income statement and UAH 5,152 million recognised in the statement of other comprehensive income. Distribution segment includes the following CGUs: DTEK Donetskoblenergo (non-controlled territory part), PJSC DTEK Energougol ENE PJSC (non-controlled territory part) and DTEK Power Grid LLC (non-controlled territory part). The impairment loss attributable to distribution and other segments comprised UAH 417 million recognised in the income statement and UAH 205 million recognised in other comprehensive income. The above mentioned companies of the distribution and other segments also have assets in the controlled area of Ukraine that have not been impaired.

Deferred consideration for acquisition. Deferred consideration for acquisition relates primarily to acquisition of coal mines DTEK Rovenkiantracyte LLC and DTEK Sverdlovantracyte LLC, located in the non-controlled territory of Ukraine. As at 15 March 2017, the Group's management recognised impairment of the mines' assets attributable to above mentioned entities. In addition, the Group obtained certificates of Ukrainian Chamber of Commerce regarding Force Majeure according to which the Group has the right to release its liabilities for non-fulfilment (improper fulfilment) of its obligations in the non-controlled territory of Ukraine. As a result, deferred consideration for acquisition in the amount of UAH 3,148 million was released and presented as part of operating income within the line "Loss of control over the operations of entities located in non-controlled territory".

Retirement benefit obligations. As a consequence of the loss of control over the operations of entities located in the non-controlled territory and the resultant dismissal of employees of these subsidiaries, management remeasured the retirement benefit obligation. The decrease in the obligation was primarily a result of applying an assumption that a majority of employees (dismissed during 2015-2017) and pensioners will stay in the non-controlled territory and thus are unable to gain required experience to be entitled for preferential retirement and claim for their preferential pensions under Ukrainian legislation. The resulting UAH 1,332 million gain from the change of assumptions in relation to retirement benefit obligations was recorded in other comprehensive income for the six months ended 30 June 2017. Further, the obligations under collective agreements were decreased to reflect the loss of control over the operations producing such coal/domestic fuel for settlement of these obligations. The resulting UAH 1,182 million curtailment gain was recorded in income statement within the line "Loss of control over the operations of entities located in non-controlled territory".

11 Loss of control over the operations of entities located in non-controlled territory (Continued)

Asset retirement provision. The Group performed re-estimation of abandonment and site restoration provision as at 15 March 2017 in respect of mines located in the non-controlled territory of Ukraine. The Group considers that asset retirement provision attributable to mines DTEK Rovenkiantracyte LLC, DTEK Sverdlovantracyte LLC, DTEK Mine Komsomolets Donbassa PJSC does not further meets the criteria of provision, as reliable estimate of the amount of obligation is impracticable due to limited access to the mines' physical characteristics, useful life, etc. The release of assets retirement provision comprised UAH 503 million recognised in the income statement and UAH 487 million recognised in other comprehensive income.

Trade and other accounts payable. Trade and other accounts payable of the companies located in the noncontrolled territory of Ukraine are primary presented by restructured payable to Energorynok SE, payable to electricity suppliers, payable for restructured taxes, accruals for salaries and related charges, other accounts payable. As a result of loss of control, the Group still retains the legal constructive obligation to fulfil these obligations, therefore the Group did not derecognise its trade and other accounts payable relating to obligations incurred prior to the loss of control in March 2017 of the entities located in the non-controlled territory of Ukraine.

Deferred tax asset/liability. Due to uncertainty of future taxable income of the entities located in the non-controlled territory of Ukraine, the Group has derecognised deferred tax assets in excess of deferred tax liabilities in previous accounting periods. Deferred tax liabilities of the entities located in the non-controlled territory of Ukraine attributable to property, plant and equipment were also derecognised due to impairment of related property, plant and equipment. over which the control was lost in current accounting period.

Management have sought to actively manage and limit the impact of these events on the Group's operations by adopting a number of contingency arrangements.

$12$ Share Capital

The authorised share capital of DTEK Energy B.V. equals to fully paid share capital and comprises 3,000 ordinary shares with a par value of Euro 10.0 per share in total amount of Euro 30,000. All shares carry one vote.

13 Borrowings

In millions of Ukrainian Hryvnia	30 June 2018	31 December 2017
Non-current
Eurobonds	30,651	32,841
Bank borrowings	14,127	15,057
Current	44,778	47,898
Bank borrowings Interest accrual	12,026	13,543
	2,844 14,870	2,841 16,384
Total borrowings	59,648	64,282

Movements in borrowings during the period are as follows:

In millions of Ukrainian Hryvnia	2018	Six months ended 30 June
Opening balance as at 1 January		2017
Cash movements	64,282	56,848
Interest and tender costs paid during the period	(2, 414)
Repayment of borrowings	(27)	(1, 337) (3,616)
Non-cash movements
Interest and tender costs accrued during the period	2,873	2,735
Foreign exchange gain	(5,066)	(1,735)
Reclassification to Eurobonds from Bank borrowings upon
restructuring		(2,012)
Recognition of Eurobonds upon restructuring		3.561
Recognition of Bank Borrowings upon restructuring		17,967
Extinguishment of Bank Borrowings		(13,321)
Closing balance as at 30 June	59,648	59.090

As at 30 June 2018 bank borrowings including accrued interest totalling UAH 14,059 million remained in default. Subsequently to the balance sheet date, on 21 September 2018, the Group restructured bank borrowings including accrued interest in the amount of UAH 7,725 million as of 30 June 2018. Upon restructuring, the currency of this restructured debt was changed from RUB to EUR. Further, the restructured bank borrowings in the amount of UAH 1,746 million as of 30 June 2018 were exchanged to Eurobonds. Under the conditions of this restructuring agreement the Company shall give the same treatment to the newly restructured borrowings to be in line with the payment schedule and other conditions as agreed with other lenders in the Override Agreement.

Management believes that the remaining unrestructured bank borrowings totalling UAH 6,334 million as of 30 June 2018 will be subject to separate restructuring agreement with similar terms and conditions to the Override Agreement. Prior to the signing of these new agreements, these bank borrowings remain in default.

Collaterals for bank borrowings and Eurobonds are disclosed in Note 19.

Covenants. The New Notes and Restructured Bank Debt contain specific covenants, including but not limited to limitations on distribution to shareholders (unless such distribution is made pursuant to mandatory requirements of the law), limits on capital expenditure, restrictions on permissible business activities, requirement to perform transactions on an arm's length basis, requirement to make periodic disclosure of financial information, permissible levels of additional financial indebtedness and cash interest cover.

Following the signing of the Restructured Bank Debt Documentation the Group is in compliance with the covenants relating to this debt. Covenants on the remaining unrestructured bank borrowings remain in breach as at 30 June 2018. This debt has been classified as current and amounts to UAH 14,059 million as of 30 June 2018 (31 December 2017: UAH 15,528 million).

Events of default are comprehensive and include cross-default to other debt of the Group. However, the cross-default clauses in the New Notes and Restructured Bank Debt Documentation excludes existing cross default in relation to the remaining unrestructured bank borrowings.

14 Other Financial Liabilities

Non-current other financial liabilities comprise:

In millions of Ukrainian Hryvnia	30 June 2018	31 December 2017
Restructured trade payables	1.091	2,269
Deferred consideration for acquisition	1,763	1,678
Guarantee under the borrowings of related parties	872	1.065
Payable for finance lease	478	447
Loans payable to related parties	12	13
Restructured taxes payable	6
Other long-term financial liabilities	33	35
Total non-current other financial liabilities	4.255	5,516

Current other financial liabilities comprise:

In millions of Ukrainian Hryvnia	30 June 2018	31 December 2017
Current portion of restructured trade payable	1,582	229
Current portion of deferred consideration	227	107
Restructured taxes payable	30	85
Payable for finance lease	55	28
Loans payable to related parties
Total other financial liabilities	1,900	453

Restructured trade payables include UAH 2,505 million (31 December 2017: UAH 2,325 million) of restructured payable to the energy seller monopolist Energorynok SE which sells the energy to distribution companies of the Group, and UAH 113 million of restructured trade payable for state-owned Vugillya Ukrayiny (31 December 2017: UAH 114 million). Remaining balance in amount of UAH 55 million (31 December 2017: 59 UAH million) relates to different suppliers. Restructured trade payables are recognised at fair value and subsequently carried at amortised cost at effective interest rate ranging between 14.8% and 21.1%.

Cash movements in other financial liabilities related to investing activities are presented by repayment of deferred consideration for acquisition and payables under finance lease in amount of UAH 124 million (six months 2017: UAH nil). There were no other significant cash movements for six months period that ended 30 June 2018. Remaining movements attributable to other financial liabilities were non-cash and presented by unwinding of discount related to deferred consideration and finance lease, and loss on change in estimate (Note 18).

During 2017, UAH 1,625 million nominal values of trade payables to Energorynok SE were restructured with maturity up to 2020-2021 based on court decisions. In April 2018 these restructured trade payables of Energorynok SE in amount of UAH 1,743 million were reclassified from non-current to current due to new court decision.

15 Revenue and Heat Tariff Compensation

In millions of Ukrainian Hryvnia	2018	Six months ended 30 June 2017
Sale of electricity to final customers	31,391	26,771
Sale of electricity to electricity pool	31,301	24,328
Heat generation	6.013	5,307
Sale of gas	6,577	4,229
Sale of electricity abroad	4,541	3,871
Sale of steaming and coking coal	2,604	2,952
Other sales	754	226
Total revenue	83,181	67.684

15 Revenue and Heat Tariff Compensation (Continued)

Agreement with Kiev City Authorities. The agreement with the Kyiv City Administration for the provision of heat and electricity generation to the residents and local companies which was due to expire on 31 December 2017 was prolonged till the end of heating season, 28 April 2018. Further, as at 26 April 2018 the Group concluded additional agreement with Kyiv City Administration, according to which the plan of transfer of assets attributable to heat and generation businesses of PJSC Kyivenergo back to the City was approved. The plan was realised through 2 main stages: 1) first part of assets owned by Kyiv City Administration was transferred by the Group back to the City till 30 April 2018; 2) second part of assets owned by Kyiv City Administration was transferred by the Group till 31 July 2018. Total amount of revenue attributable to transferred assets and recognised in income statement for the six months ended 30 June 2018 comprised UAH 8,570 million (6 months 2017: UAH 7,715 million).

16 Cost of Sales

In millions of Ukrainian Hryvnia		Six months ended 30 June
	2018	2017
Cost of electricity purchased for resale	33,776	28,782
Raw materials	14,348	9,599
Cost of gas purchased for resale	6,508	4.110
Depreciation of property, plant and equipment net of
amortisation of government grants	6,332	3,860
Staff cost, including payroll taxes	4,911	4,903
Transportation services and utilities	4,094	3,372
Cost of coal purchased for resale	1,408	1,643
Taxes, other than income tax	1,074	1,074
Production overheads	867
Equipment maintenance and repairs	215	794
Change in finished goods		239
Other costs	144	66
	20	25
Total cost of sales	73,697	58,467

$17$ Other Operating Expenses

In millions of Ukrainian Hryvnia		Six months ended 30 June
	2018	2017
Net change in provision for financial investments and trade and
other receivables, including non-financial	488	998
Social payments	278	247
Expenses on idle capacity	175	168
Maintenance of social infrastructure	137	70
Non-recoverable VAT	116	103
Expenses of rent property, plant and equipment	103	38
Charitable donations and sponsorship	94	332
Penalties	50	66
Other	266	214
Total other operating expenses	1,707	2.236

18 Finance Costs

		Six months ended 30 June
In millions of Ukrainian Hryvnia	2018	2017
Interest expense
- Eurobonds	1,940	1,843
- borrowings	922	892
Losses on modification of long-term accounts payables	424	301
Unwinding of discounts on pension obligations	378	443
Unwinding of discounts on long term accounts payable	222	231
Unwinding of discounts on deferred consideration related to	207	229
acquisition and finance lease
Loss on change in estimates on deferred consideration related to	180
acquisition and finance lease
Loss on initial recognition of long-term restructured accounts
receivable	35	30
Unwinding of discounts on assets retirement provision	31	41
Interest expense on restructured tax payable	5	9
Professional fees		148
Other finance costs	3	53
Total finance costs	4,347	4,220

19 Contingencies and Commitments

Tax legislation. Ukrainian tax and customs legislation is subject to varying interpretations and changes, which can occur frequently. Management's interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant authorities, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

The Group conducts intercompany transactions. It is possible with evolution of the interpretation of tax law in Ukraine and changes in the approach of tax authorities under the new Tax Code, that such transactions could be challenged in the future. The impact of any such challenge cannot be estimated; however, management believes that it should not be significant.

The Group has income tax liabilities in various countries. The ultimate tax consequences of many transactions and calculations are uncertain, partly because of uncertainty concerning their timing. The Group continually assesses such matters and where final tax sums differ from the estimates such differences are recognised as income tax provisions in the period in which the differences become apparent. As at 30 June 2018 the Group's contingent liabilities in relation to uncertain tax positions are equal to UAH 323 million (31 December 2017: UAH 323 million).

Legal proceedings and tax litigations. From time to time and in the normal course of business, claims against the Group are received. Management believes that it has provided for all material losses in these condensed consolidated interim financial statements. As at 30 June 2018 the Group's contingent liabilities in relation to legal claims on the Group's contractual obligations are equal to UAH 4,978 million (31 December 2017: UAH 4,620 million) and contingent liabilities in relation to tax matters equal to UAH 277 million (31 December 2017: UAH 277 million).

Assets pledged and restricted. The Group has the following assets pledged as collateral:

	As at 30 June 2018		As at 31 December 2017
In millions of Ukrainian Hryvnia	Asset Pledged	Related liability	Asset pledged	Related liability
Financial investments (Note 9) Restricted deposits (Note 9) Cash and cash equivalents	11,332 64 13	30,651	11.815 76 87	32,841
Total	11.409	30,651	11.978	32,841

The Group has pledged proceeds from future sales of electricity and part of future volume of electricity production as security for borrowings. Total amount of the pledge is set in the pledge agreements, and the maximum exposure of the Group is limited to the outstanding loan balance and related liabilities as at the reporting date. As at 30 June 2018 future sales proceeds and the volume of electricity production in amount of UAH 1,022 million were pledged as security for the borrowings of UAH 781 million (31 December 2017: future sales proceeds and production of electricity totalling UAH 1,013 million were pledged as security for the borrowings of UAH 781 million).

19 Contingencies and Commitments (Continued)

The Group has pledged proceeds from future export sales of coal as security for its borrowings. As at 30 June 2018 future sales proceeds of coal in amount of UAH 20,455 million were pledged as security for borrowings amounting UAH 7,224 million (31 December 2017: proceeds of coal in amount of UAH 21,951 million were pledged as security for borrowings amounting UAH 7,742 million).

As at 30 June 2018 the movable and immovable property of the Group having value of UAH 24 million is encumbered with a tax lien (31 December 2017: UAH 510 million).

Environmental matters. The enforcement of environmental regulation in Ukraine is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material. Management believes that there are no significant liabilities for environmental damage.

Compliance with covenants. The Group is subject to certain covenants related primarily to its Eurobonds and bank borrowings. Non-compliance with such covenants may result in negative consequences for the Group, including increase in the cost of borrowings, declaration of default and demand for immediate repayment of borrowings.

As at 30 June 2018 and 31 December 2017 the Group was in breach of certain covenants under a number of bank borrowings agreements (see Note 13).

Insurance. The insurance industry in Ukraine is developing and many forms of insurance protection common in other parts of the world are not yet generally available. At present, Group's insurance policy incorporates "All Risks" Property Damage and Business Interruption coverage for generation and several mining companies. In particular, the policy covers losses resulting from loss or damage of property, plant and equipment, loss of profit resulting from business interruption and loss or damage of wagons of third party transportation provider. The Group does not have full coverage for third party liability in respect of property or environmental damage arising from accidents on the Group's property or relating to the Group's operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have an adverse effect on the Group's operations.

20 Financial Risk Management

The Group's activities expose it to a variety of financial risks: market risk (including price risk, currency risk and cash flow and fair value interest rate risk), credit risk and liquidity risk.

The condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2017.

There have been no changes in the risk management function since year end or in any risk management policies.

Liquidity risk.

The following table analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are undiscounted cash flows.

The maturity analysis of financial liabilities at 30 June 2018 is as follows:

In millions of Ukrainian Hryvnia	Up to $6$ months	$6 - 12$ months	$1 - 2$ vears	$2 - 5$ vears	Over 5 vears	Total
Liabilities
Bank borrowings	15,588	351	775	17,850	724	35,289
Eurobonds	987	1,196	2.659	10,632	41,167	56,640
Guarantee under the borrowings of related parties	2,619	$\overline{\phantom{0}}$	۰			2,619
Other financial liabilities	1,240	705	669	1.398	38,114	42,126
Trade and other financial payables	13,852	13				13,865
Total future payments, including future principal and interest payments	34,286	2,265	4,103	29,880	80,005	150.539

Compared to year end, there was no other material change in the contractual undiscounted cash out flows for financial liabilities.

20 Financial Risk Management (Continued)

The maturity analysis of financial liabilities at 31 December 2017 is as follows:

In millions of Ukrainian Hryynia	Up to $6$ months	$6 - 12$ months	$1 - 2$ years	$2 - 5$ years	Over 5 years	Total
Liabilities
Bank borrowings	16.281	1,093	617	5,650	14.224	37,865
Eurobonds	1,044	1,072	2,624	10,996	46,860	62,596
Guarantee under the borrowings of
related parties	2.807	-				2,807
Other financial liabilities	306	177	1.164	2,523	37,688	41,858
Trade and other payables (Note 23)	16,783	366	-		-	17,149
Total future payments, including future principal and interest payments	37,221	2,708	4,405	19,169	98,772	162,275

Credit risk concentration.

As at 30 June 2018, cash and cash equivalents in amount of UAH 4,218 million were placed in Deutsche Bank, UAH 1,048 million in Credit Suisse, UAH 606 million in First Ukrainian International Bank, UAH 556 million in Ukrgasbank, UAH 477 million in State Savings Bank of Ukraine and UAH 195 million in other Ukrainian and European banks (31 December 2017: UAH 2,585 million in Deutsche Bank, UAH 1,449 million in First Ukrainian International Bank, UAH 737 million in State Savings Bank of Ukraine and UAH 840 million in other Ukrainian and European banks).

There were no other material changes in credit risk concentration compared to 31 December 2017.

$21$ Fair Value of Assets and Liabilities

This note provides an update on the judgements and estimates made by management in determining the fair values since the last annual consolidated financial statements.

Property, plant and equipment at fair value. Property, plant and equipment are carried in the statement of financial position at their fair value. The Group's property, plant and equipment are all categorised as Level 3 in the fair value hierarchy. For a description of the valuation inputs in this Level 3 fair value refer to the Group's 2017 annual consolidated financial statements. The Group has not updated its assessment of fair value of property, plant and equipment during the six months ended 30 June 2018.

Financial instruments carried at fair value through profit and loss. Equity securities are carried in the statement of financial position at their fair values. The fair value of equity securities represents Level 1 of fair valuation hierarchy and is determined based on quoted market prices.

The group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis as at 30 June 2018.

Financial instruments carried at amortised cost. Majority of the Group financial assets and liabilities are carried at amortised cost using the effective interest method. These assets are not measured at fair value in the balance sheet. For the majority of these instruments, the fair values are not materially different to their carrying amounts, since the interest receivable/payable is either close to current market rates or the instruments are short-term in nature. Significant differences were identified for the following instruments at 30 June 2018:

	30 June 2018		31 December 2017
In millions of Ukrainian Hryvnia	Fair value	Carrying amount	Fair value	Carrying amount
FINANCIAL ASSETS Loans provided to related parties	11.118	11,392	10,966	11,875
FINANCIAL LIABILITIES
Non-current bank borrowings *	13.918	14.127	15,335	15,057
Eurobonds	30,185	30,651	33,448	32,841
Deferred consideration	1,739	1,990	1.325	1,785

The valuation techniques used to determine the above fair values have not changed as compared to the techniques used and disclosed in the 2017 annual consolidated financial statements.

* given the current default status on current borrowings totalling UAH 14,059 million (31 December 2017: UAH 15,528 million) and the uncertainties on the timing of cash flows on their repayment, management considers it is impracticable to estimate a fair value of these borrowings. Fair value of remaining part of current borrowings being UAH 811 million (31 December 2017: UAH 856 million) approximates its carrying values.

22 Changes in accounting policies

The Group has initially adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1 January 2018. The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 December 2018.

IFRS 9 Financial instruments

IFRS 9 was adopted without restating comparative information. The adjustments arising from the new impairment rules are therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognised in the opening balance sheet on 1 January 2018.

The following tables show the adjustments recognised for each individual balance sheet line item. The adjustments are explained in more detail by standard below.

In millions of Ukrainian Hryvnia	31 December 2017	Effect from the first
		application of IFRS 9	1 January 2018
ASSETS
Non-current assets
Property, plant and equipment	77,049		77,049
Intangible assets	1,592		1,592
Goodwill	4,384		4,384
Financial investments	11,857	(317)	11,540
Income tax prepaid	171		171
Deferred income tax asset	947	143	1,090
Other non-current assets	407		407
Total non-current assets	96,407	(174)	96,233
Current assets
Inventories	4,814		4,814
Trade and other receivables	24,600	(793)	23,807
Income tax prepaid	46		46
Financial investments	136		136
Cash and cash equivalents	5,611		5,611
Total current assets	35,207	(793)	34,414
TOTAL ASSETS	131,614	(967)	130,647
EQUITY
Share capital	0		0
Share premium	9,909		9,909
Other reserves	29,789		29,789
Accumulated deficit	(28, 366)	(774)	(29,140)
Equity attributable to owners of the
parent	11,332	(774)	10,558
Non-controlling interest in equity	7,729	(193)	7,536
TOTAL EQUITY	19,061	(967)	18,094

The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements of the Group. The new accounting policies are set out below. In accordance with the transitional provisions in IFRS 9 (7.2.15) and (7.2.26), comparative figures have not been restated.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses (further, "ECLs") which uses a lifetime expected loss allowance for trade and other receivables. To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and ageing.

22 Change in accounting policies (Continued)

Under IFRS 9, loss allowances are measured on either of the following bases:

• 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
• lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information.

The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held).

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets care credit-impaired. A financial asset is 'creditimpaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Presentation of impairment

Impairment losses related to trade and other receivables, including contract assets, are presented as part of other operating expenses in the statement of profit or loss.

Impact of the new impairment model

For assets in the scope of the IFRS 9 impairment model, impairment losses are generally expected to increase and become more volatile. The Group has determined that the application of IFRS 9's impairment requirements at 1 January 2018 results in an additional impairment allowance as follows.

In millions of Ukrainian Hryvnia

Loss allowance at 31 December 2017 under IAS 39 Additional impairment recognised at 1 January 2018 on:	9,725
Trade and other receivables (Note 10) Financial investments (Note 9)	793 317
Loss allowance at 1 January 2018 under IFRS 9	10.835

The following analysis provides further detail about the calculation of ECLs related to trade receivables on the adoption of IFRS 9. The ECLs were calculated based on actual credit loss experience over the past year or publicly available observable information used as a benchmark for expected credit losses. The Group performed the calculation of ECL rates separately for different group of customers. Exposures within each group were segmented based on common credit risk characteristics such as credit risk and ageing of trade and other receivables.

The following table provides information about the exposure to credit risk and ECLs for financial receivables as at 1 January 2018:

In millions of Ukrainian Hryvnia	Expected loss rate	Gross carrying amount	Basis
Financial receivables from related parties	$2.6\% - 3.4\%$	3,077	Adjusted yield to maturity on corporate bonds
Financial receivables from Energorynok SE	3.0%	6,712	Adjusted yield to maturity on government bonds
Financial receivables from Individuals	13.1%	4,859	Based on statistics of the National Bank of Ukraine
Trade and other receivables:
- for heat and water supply (Kyiv region)	2.9%	663	Historical payment discipline
- for electricity supply (Kyiv region)	7.7%	384	Historical payment discipline
- from customers of Distribution segment - state entities	36.6%	909	Historical payment discipline
- from customers of Distribution segment - other entities	8.6%	543	Historical payment discipline
- from other counterparties	10.0%	757	Historical payment discipline

22 Change in accounting policies (Continued)

For trade and other receivables with overdue period for more than 1 year with gross caring amount of UAH 7,590 million, loss allowance was calculated based on historical default rates that fall within 80-100%. Adoption of IFRS 9 did not result in a significant revision of the provision for these financial assets as they were substantially impaired under IAS 39.

IFRS 15 Revenue from Contracts with Customers

Starting from 1 January 2018 the Group is obliged to apply IFRS 15 Revenue from Contracts with Customers. The new standard recognition requirements provide more advanced guidance on complex transactions, such as accounting for multiple-element arrangements. The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed.

Management reviewed number of typical sales agreements used for revenue stream of each segment: generation, distribution, heating, mining, gas, export sales. Management assessed that adjustment of the retained earnings opening balance as at 1 January 2018 is immaterial, the retained earnings opening balance as of 01 January 2018 was not restated in the Group's condensed consolidated interim financial statements.

23 Subsequent Events

The developments after the balance sheet date which are related to the debt restructuring are disclosed in the Notes 3 and 13.