Novavis Group S.A. — Annual Report 2015

Jul 5, 2016

ANNUAL REPORT 2015

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Dear shareholders, colleagues and partners,

Sadovaya Group is pleased to present you the consolidated annual report 2015. Due to the events of the war in eastern part of Ukraine, where all the assets of the company are situated, Sadovaya Group had to postpone an audit of the

report until the full end of the armed conflict.

Currently, the situation continues to be difficult; periodic violations of the cease-fire regime, the absence of any concrete decisions concerning the existing conflict, infrastructure destruction, the inability of the export sales, as well as many other factors deny the negative impact on both the development of the Donbas coal industry as a whole and the work of individual coal companies.

Among other things, the situation of the enterprises is deteriorated as a result of devaluation of the hryvnia and the high inflation rate, respectively, as well as the abolition of state subsidies to the state coal enterprises. In 2015, the production volumes were significantly decreased.

Today Sadovaya Group is primarily focused on the saving of its assets, as well as coal reserves with the potential for their further growth. We continue to negotiate the restructuring process with all our creditors, and we are constantly looking for any ways and decisions of current difficult financial situation of the company. The integrated business model with a complete production cycle, the transparency structure of the group as well as a dedicated and faithful team will allow us to successfully overcome the current crisis in the future.

We understand that the situation in the east of the country was much more complex than it was seemed at first. The conflict is dragged on, and we should not expect its rapid resolving. However, if compared with the previous year, we see that the situation as a whole is clearly changed for the better.

Sadovaya Group looks forward to the peaceful resolution of the conflict and the situation stabilization. We look forward to Your support and understanding.

Sincerely Yours,

Alksandr Tolstoukhov

Contents

• 1. Management report
• a. Coal market
• b. Business description and principal activities of the Group
• c. Highlights of 2015
• d. Review of financial results of 2015
• e. Related party transactions
• f. Principal risk and uncertainties
• g. Future developments of the Group
• h. Events after the end of reporting period
• i. Corporate governance report
• 1. Management statement
• 1. Consolidated unaudited financial statement for the year ended 31 December 2015
• 1. Notes to the consolidated unaudited financial statements

Coal market

Coal remains central to the global energy system. It is the world's largest source of electricity, accounting for around 40% of global electricity production. It is currently the world second largest source of primary energy, and is widely expected to replace oil as the world's largest source of primary within a few years.

Coal is the most abundant of fossil fuels. It is available from a wide variety of mines distributed globally. It is used for electricity generation, but also in steel and aluminum production as well as in cement manufacture and as a liquid fuel. Global consumption of coal is growing and is expected to increase even more as developing countries expand their energy needs.

Ukraine has a favorable geographical location between Europe and Asia at the crossroads of major international trade routes and benefits from access to river and sea ports, developed railway and road networks.

Source: BP Statistical review RDW 2013

Fig.2 Top coal producing countries in 2015, Mt

Source: BP Statistical review 2015

Traditionally, coal was one of the main energy sources in Ukraine, powering its massive metallurgical industry and one of the biggest fleets of thermal power plants in Europe.

Ukraine is well-endowed with energy resources, especially its 31 800 million tonnes of proven coal reserves as at the end of 2012, ranking the country No. 7 in the world. Major coal deposits are located in the Donetsk, Lviv – Volyn and Dnipro coal basins, as well as in the Dnipro-Donets and Zakarpattya coal depressions. The deposits are located in thin seams (0.8 – 1.0 metres) at an average depth of around 700 metres. Some mines are deeper than 1 000 metres.

Ukraine's Government has estimated that the total coal reserves at 117.5 billion tons, with explored reserves (where coal mining is profitable) estimated at 56.7 billion tons. In 2014 in Ukraine out of 65,99 mmt of coal mined, the volumes decreased at 22,3% comparing with 2013. The main reason is the military conflict in the east of Ukraine where the most part of mines are situated. The amount of steam coal mined in 2014 is 48,86 mmt.

Majority of produced steam coal in Ukraine is consumed domestically for electricity production.

Ecological Centre of Ukraine Ecological Centre of Ukraine

Source: Ministry of Coal and Energy of Ukraine Source: Map of Ukraine's coal deposits Source: National

Business description and principal activities of the Group

Sadovaya Group S.A., incorporated in the Grand Duchy of Luxembourg, is a holding company for Sadovaya Group: a group of ten companies, seven of which are incorporated and operating in Ukraine in the mining industry and two are Cyprus companies (the "Group").

The Group comprises operating, holding, servicing and trading companies (Fig.6).

The main shareholder of Sadovaya Group S.A. is Cypriot company Connectico LLC (75%), whose final shareholders are Mr. Alexander Iurievich Tolstoukhov (51%) and Mr. Sergey Nicolaievich Stetsurin (49%).

Other 25% of shares are traded on the Warsaw Stock Exchange.

The Group's principal activities are the preparation and marketing of coal from three main sources: own underground mining, the recovery of coal waste deposits, and third party purchases. The Group's diversified mining and related operations are divided into the following major segments: coal mining and coal enrichment (or coal cleaning), the extraction of coal from waste deposits (or processing of waste dumps), and coal trading (or trade activities).

ANNUAL REPORT 2015 Sadovaya Group S.A.

Fig.6 Sadovaya Group structure, 2016

Sadovaya Group operates two full-cycle mine complexes in Ukraine's Donetsk and Luhansk Regions – Sadovaya and Rassvet-1 mines, and in March 2011 acquired a license to develop Roskoshniy mine field, natural extension of Sadovaya mine filed. Total underground resources under Group's ownership currently comprise 42.8 mmt. The Group extracts two types of coal, classified as anthracite (grade A) and semi-anthracite (grade T), which are mainly used for energy generating purposes.

Geographically, the Group is optimally located, in the Donbas region near its major customers in eastern Ukraine, and with rail and water (via the Black Sea) links to the external markets.

Coal mining

The Group has two mining complexes in the Donbas region with its own infrastructure. Sadovaya mine extracts coal of anthracite type (grade A). Rassvet-1 mine extracts semi-anthracite type of coal (grade T).

In October 2012 due to surplus of coal these two mining complexes have to be temporally stopped. Currently they continue working in sustaining mode to maintain safety conditions of underground mining.

The Management took all necessary measures to save all property and assets. It was secured continuous provision of electricity. Mines' dewatering was performed on a going basis to prevent its flooding.

As of the date of report publication the management given the ongoing military conflict has limited possibilities to estimate inventory damage and theft probability as well as to estimate impairment of property, plant and equipment considering uncertainties of their future economic benefits and losses.

Fig.8 Sadovaya Group resources, audited by IMC Montan, as of July 2010

in tones	Resources	2P Reserves
Sadovaya field	12,380,000	9,929,000
Rassvet- 1 field	13,200,470	5,473,000
Roskoshniy field	17,617,000	9,051,000

Waste resources 7,930,735 6,745,162

Waste recovery 51,128,205 31,198,162

Coal extraction results in huge waste heaps of tailings and gangue found almost everywhere in Donbas. Extraction processes at mines were in past frequently inefficient. For a long period of time it was technically not possible to extract all the coal from the excavated rocks. That is why the waste heaps in Donbas contain reasonable amounts of residual coal.

In the course of time those waste heaps are vulnerable to spontaneous ignition and/or slow combustion. According to specialists' research, percentage of combustible material (coal) in waste heaps varies from 7 to 15% of coal.

Burning waste heaps or heaps close to spontaneous ignition are sources of uncontrolled greenhouse gas and hazardous substances emissions. The latter include sulfurous anhydride that transforms into sulphur acid and is the reason for acid rains, hydrogen sulfide and carbon monoxide.

Ground water is contaminated with solid particles, becomes hard and acid when it contacts a waste heap. Erosion processes that often destroy the integrity of the waste heaps are responsible for contamination of nearby areas with particles that contain hazardous materials (like sulphur). Erosion can lead overtime to the total destruction of a waste heap in a massive landslide that is dangerous both in terms of direct hazard to population and property and massive emissions of particles and hazardous substances into the atmosphere. Erosion also helps to intensify the process of spontaneous combustion. Combustion of coal in the waste heap is rather long-term and lasts from 5 to 7 years.

It is assumed that this common practice will continue and waste heaps will be burning and emitting greenhouse gas (GHG) emissions into the atmosphere until the coal is consumed. Whereas using improved extraction techniques, proposed in by the Group, that is Modular Enrichment complex application, the residual coal can be extracted from the waste heaps. The coal can subsequently be sold for (local) district heating. The reclaimed coal will replace coal that would have otherwise been mined. This avoided coal production not only avoids CO2 combustion of the coal itself, but also all associated consumption of power and raw materials during mining and the release of fugitive emissions of methane when mining.

Taking into the account the importance of all the above mentioned the Group took a decision to receive the loan for the construction of the relevant Modular Enrichment complexes.

The Loan Agreement with European Bank for reconstruction and Development was concluded for partial financing of this project. This Agreement provides financing of 36 mln dollars for constructing 4 reprocessing facilities with the total capacity of 3.6 m/t (annual percentage

rate LIBOR 3M +3.6% amortization period – 7 years).

The project has a number of environmental and social benefits including: processing of waste material, reduced emissions of greenhouse gases, smaller stockpiles with associated visual landscaping improvements and social-economic benefits in terms of job creation and a local economic stimulus.

On April 30, 2013 MEC "Vakhrushevskiy" was put into operation but it could not reach its project production capacity.

On September 13, 2013 the interest payment on EBRD loan was not made by PC Interdon LLC.

As of 29th of November 2013 the PC "Interdon" LLC received the follow-up Letter-notice of Demand from European Bank of Reconstruction and Development concerning the Event of Default which was taken place on September 13, 2013 in the result of nonfulfillment by PC Interdon LLC its obligations of the Loan agreement with EBRD concerning interests and commission fee payment.

In the result of negotiations between EBRD and Sadovaya group it was decided to conclude the Restructuring agreement to improve production indicators and advance the complex efficiency. The period of Restructuring is 2 years.

On December 19, 2013 the Restructuring Term Sheet was signed with EBRD. According to abovementioned 25% of participant interest of Interdon LLC is transferred to EBRD. It has been already drawn up Capex plan and detailed Plan of Improvement implementation.

According to this Agreement the Environmental and Social Action Plan shall be prepared and approved.

The Deed of Guaranty and Indemnity signed on February 15, 2012 between Sadovaya Group S.A. and EBRD was released.

According to the further plan of the realization of the cooperative project with EBRD, it was planned by the Company to prepare the second site for factory's building – "Samsonovskiy" site.

But in 2013 due to financial difficulties of the Group and uncertainty in the east part of Ukraine it was taken the decision to temporally stop this Project realization. Detailed time scheme of its implementation will be discussed after the finishing of Anti-terroristic operation in Ukraine. The Restructuring agreement and Share Purchase Agreement were signed between EBRD and Sadovaya Limited, PC Interdon LLC In April 2014, PC Interdon LLC received the

second tranche from EBRD in the amount of 299 ths. USD. In 2014 it was temporally captured by unknown military officers.

Currently the enterprise is under the full control of the Group. In the end of 2015 it restarted its recovery activity.

In 2015 57 140 tonnes of coal were recovered from waste dumps; this volumes exceeds the volumes 2014 in 2,5 times.

Currently PC Interdon LLC is on the first stage of the Restructuring agreement implementation. Due to continuous military conflict in the east of Ukraine the possibilities of PC Interdon LLC are limited and it is not able to fully restart its activity.

Coal trading

Since the 4th Quarter 2012 the Group has been suffering from the difficulties with coal trading, related to the decrease of the demand at the coal market caused by significant coal stock surplus at the TPPs. As a result two mining complexes of the Group have to be temporally stopped.

Currently they continue working in sustaining mode to maintain safety conditions of underground mining. Coal has not been mined in 2014.

In 2014 Rassvet and Sadovaya mines were captured by military people. Today all enterprises have renewed the total control.

In 2015 Rassvet and Sadovaya mines neither perform any trading not mining activity. They continue to operate in sustaining mode.

Significant additional information

In the period from September to December 2014 production assets of "Mine "Rassvet-1" LLC and Mine "Donvostok STB" LLC, located in the Shakhtersk district of the Donetsk region, were seized by unknown weaponed persons. In the result of the actions of these persons the infrastructure of the mine was partially destroyed.

In 2015 Group restores the full control over all its subsidiaries but their activity is still not restarted.

Collective sediment pond was also destroyed being on the Company's balance sheet, designed for mechanical water treatment of the group of mines in the region built for the treatment of mine water inflowing to the Olkhovskiy reservoir - the source of drinking water for a number of nearby settlements. In the result of military events all waterworks had been broken, that is pumping station, transformer substation, the chlorination building, as well as pumping and filtration station with boiler, which led to the deterioration of the water to the established norms.

The Group makes all efforts to minimize the consequences. It tries to find the potential investors for its reconstruction to avoid possible disaster. As of the date of report publication the management in view of the ongoing military conflict has limited possibilities to estimate inventory damage and consequences, it is not able to estimate impairment of property, plant and equipment considering uncertainties of their future economic benefits.

Highlights of 2015

The event of force majeure continue to take place due to the continuous Anti-terroristic operation in the East of Ukraine

January-December

The trading of Sadovaya group shares at WSE was temporally stopped

May

OTP Bank won a lawsuit against the Sadovaya mine, Rassvet mine, Donvostok STB and Interinvest, concerning the indebtedness recovery

December

Interests on Loan agreement between JSC «BANK CREDIT-DNEPR» and PE "Volat-Trans" were not paid.

January-December

The shares of Sadovaya Group restarted its trading at Warsaw Stock Exchange

February

The license on coal mining of Shakhta "Sadovaya" LLC, the subsidiary of Sadovaya Group, was temporally stopped

July

Interests on Loan agreement between between EBRD and PC Interdon LLC were not paid.

January-December

Review of financial results for 2015

In 2015, the Group continued to operate in sustaining mode demonstrating considerably low results in its operating and financial performance under adverse events of ongoing military conflict in the region.

In these circumstances the Group was forced to limit any production operations to the absolute minimum and to shift most of the assets into the sustaining mode. The decision was taken also in order to avoid direct threat to the lives and health of our employees.

Preserving business and people's safety remains a top Group's priority in this difficult situation.

However, the year 2015 was also marked by some positive expectations on peaceful resolution of the conflict after the 2nd Minsk Agreements and subsequently the implementation of the ceased fire mode. While the Group sees this as positive signs the complete settlement of this conflict is yet to come and will require more time, negotiations and peaceful initiatives. The Group tends to be realistic on the trends and dynamics of current course of events, thus we believe that recovery of its business level back to before crisis results will require a lot of difficult and complex decisions together with considerable time.

Revenue. In 2015, the Company reported total revenue of USD1.04 million, representing 59% decline y-o-y. The decline resulted mainly from decreased sales volumes along with the sales prices downfall. Sales prices decrease also resulted from the local currency devaluation effect versus the Group's reporting currency, USD. There was no revenue from the export operations in 2015. The profitability ratios decreased substantially given the operating and financial leverage of the Group.

COS. Below is the cost structure, describing the main COS components in the year 2015, 2014. In order to provide fair view on the financial statements, all expenses related to idle assets were reallocated to the Idle entry (please refer to Note 10 of the consolidated financial statements).

Fig.1 COS structure in 2015 Fig.2 COS structure in 2014

Total loss. In 2015, general loss amounted to USD 506 thousand, comparing to USD 1,342 thousand in the previous year.

Operating expenses

.

General and administrative expenses decreased from USD838 ths in 2014 to USD 101 ths. 2015, a 88% year-on-year decrease.

Please see Figure 3, 4 for the main components.

Main drivers of the substantial decline are reduction of the administrative personnel and local currency devaluation effect.

For detailed information about general and administrative expenses structure please refer to Note 9 of the condensed consolidated financial statements.

Selling and distribution costs. The Group did not incure distribution costs in the year 2015. In the previous year the amount of distribution expenses was USD 269 ths.

Cost of idle capacity totaled USD1,226 ths. in 2015, comparing to USD2,848 ths. in the year 2014 as the Company limited the production on its operational assets due to the ongoing armed unrests and shooting in the region.

Fig.3 General and administrative expenses in 2015

Fig.4 General and administrative expenses in 2014

Expenses from financial assets impairment totaled USD1,149 ths. in the year ended 2015, comparing to USD ths. 2013. These expenses include trade and other receivables and advances received impaired according to the accounting policy of the Group.

Other operating expenses, net decreased up to USD292 ths in 2015 compared to USD11.2 million in 2014 as the were no expenses from the inventory impairment in 2015 and the Group made cost optimization by writing-off some doubtful trade payables.

Finance income and expenses

Finance expenses decreased from USD 3,746 ths. in 2014 to USD 3,007 ths. in 2015, a 20% decrease. The decrease is explained mainly by the change in the Group's loan portfolio and the local currency devaluation affected the loans in UAH. For additional information on Group's finance expenses please refer to Notes 13 of the consolidated financial statements.

Net loss. Net loss for the financial year 2015 comprised USD38.8 million, decreasing from USD50.1 million for the FY2014. More than 80% of the net loss compose of the non-operating foreign currency translation losses resulted from the devaluation of the local currency.

Related party transactions

Information in respect of related parties transactions is disclosed in Note 29 of the consolidated report. Total amount of proceeds from goods and services arising from such transactions doesn't exceed 1% of total revenue.

Accounts payable are interest-free at each date. Such liabilities arose due to machinery lease from related parties and purchased coal. Accounts receivable from related parties at each date are interest-free as well. The sales to and purchases from related parties are made on terms equivalent to those prevailed in arm's length transactions.

Principal risks and uncertainties

Risk of continuous military events in Ukraine

The Group's business and financial position depends on the coal mining, enrichment and realization. In 2015, continuous military conflict in the east of Ukraine resulted in impossibility of coal mining and limited coal realization.

In 2015, the impossibility of coal supply from this region significantly increased the level of coal prices in Ukraine reflecting the increasing demand and currently Ukraine is among the highest prices of steam coal globally.

During the winter of 2015-2016, Ukraine faced a serious deficit of anthracite which is used at seven of the 14 power stations in the country. The deficit of coal in Ukraine is 40%, - as the President of Ukraine stated.

As is known, A-grade coal (anthracite) is extracted almost solely in the controlled and uncontrolled territories of the Donetsk and Luhansk regions.

It is not possible to renew the coal mining and coal supply until the end of armed conflict.

Risk of mines flooding and gas explosions

Due to military actions, the major part of the mining infrastructure was destroyed. In the majority mines, neither safety nor technical regulations are met. No training and education initiatives for miners are taken which can result

in negative consequences, including but not limited the flooding, gas explosions, cave-ins, any chemical leakages.

Floods are a big risk for both underground and above-ground mining sites. They can come about because of ground water ingress or uncontrolled surface runoff, such as flash flooding following heavy rains. Floods can compromise the stability of pit walls, bringing about a collapse that kills miners and wrecks equipment. Water must be pumped out of the flooded pits, mud removed and levees rebuilt.

A methane gas buildup can lead to an explosion in a coal mine. As such, a work area must be properly ventilated in order to reduce gas pocket formation. Coal mining equipment must be monitored on a regular basis to look for faults that can cause sparks and set off explosions.

Chemicals are used in mines to transform ores from a natural state into usable commodities. When chemicals are not stored properly and/or miners do not adhere to safety procedures, accidents happen. It is also critical for miners who work with these chemicals to have appropriate ventilation to reduce the incidence of inhaling hazardous dust and fumes – these dangerous substances can result in long-term physical damage. 16

Risk of destruction of any production units

Due to the continuous military events in the east of Ukraine the Production units can be destroyed partially and full. The Group does its best to save all assets, property and equipment.

Environmental risk

Coal mining has been the backbone of the economy of the Donbas region since the nineteenth century. With the intermittent collapse of the electricity supply across the entire conflict area, ventilation systems and water pumps in coal mines failed, resulting in the release of accumulated gases after ventilation restarted. The often irreparable flooding of mines not only damages installations but also waterlogs adjacent areas and pollutes groundwater. As of the date of the report completion, permanent or temporary flooding has been reported at more than ten mines, yet due to the lack of uninterrupted monitoring and fieldwork to assess the damage, the exact extent of the risks to environmental and public health is unclear.

At the moment, relatively little is known about the direct chemical impact of the war on the environment and people.

Business environment

In April 2014 the Anti-terroristic operation in the east of Ukraine began and it is continued till nowadays resulted in negative influence at coal mining in the region. Most of the mines had to be stopped.

Demand for coal products

Demand for coal is fluctuating and depends both on the local and world economy and political stability, as well as on weather conditions. Today the main obstruction for recovery of the demand for anthracitic coal in Ukraine is terrorists' presence in the East of Ukraine. The internal demand for coal is very high but due to military events it is not possible to renew the coal mining and coal supply.

Exposure to currency risk

The Group debt structure is mostly denominated in US dollars, whereas the main part of revenue streams is nominated in UAH. In case of shifts in USD/UAH currency rate the Group has a chance to obtain gain or loss as a result of such movement. The Group aims to balance its currency denominated assets and liabilities by increasing export share and varying its debt structure.

Future developments of the Group

In 2016 military events continued to take place in the East of Ukraine the Management is not able to make any cashflow projections for the year 2016-2017 based on the current market uncertainties and current impossibility of coal mining renewal. The Group tries to control all production objects and to save all its assets. Currently the Group determines the level of this harm and tries to make the consequences minimal.

Development of mining segment

A volatile security situation and continuing geopolitical tensions hamper mining exploration and production activities in Ukraine.

Ukraine's mining output growth will contract as ongoing hostilities between the Ukrainian government and "separatists" have significantly damaged mining infrastructure and the country's investment outlook. Despite these dynamics, Ukraine's mining sector holds significant growth potential due to the country's vast mineral reserves.

At the date of this report Sadovaya mine and Rassvet-1 are stopped. The dates of their restarting depend on current events in there region and normalization of situation in the region. Due to high coal demand and sufficient coal needs in Ukraine Sadovaya Group has all chances to restart its activity in normal mode.

Development of waste recovery segment.

The massive unexplored waste heat recovery market across the globe has created abundant opportunities for the major players to exploit its potential. Although, there has been significant development in the developed economies of European Union, the waste heat recovery market is still at its nascent form especially in Ukraine. Ukraine has unique conditions of the secondary usage of natural resources, which is particularly important given to the increasing generation of waste and its progressive accumulation.

The first enrichment complex MEC "Vakhrushevskiy" (Interdon LLC) for processing waste dumps with a total processing capacity of 150 tones/h and an annual expected coal output of 180-280 thousand tones was put into operation in April 2013. In 2015, it was the only subsidiary of the Group who restarted its activity.

The Group also intends to continue construction of an enrichment complex for processing tailing ponds deposits, with a total processing capacity of 150 tones/h and an expected annual coal output of 240-300 thousand tones but exact period of implementation will be defined after the finishing of Anti-terroristic operation.

Due to the high coal content in the deposits (average 23-53%) the coal can be recovered at about 20% lower cost than coal from mining. The technology allows enriching coal up to 5% ash content. Such type of coal could be sold with up to 70% price upside to regular energy coal (18-20% ash). The Group owns waste resources with a low sulphur content (< 1%) which opens additional export opportunities to EU countries.

Development of the coal trade segment.

The coal industry is of critical importance for Ukraine's economy. Its stability is important for the operation of allied basic branches — power engineering and metallurgy — and supply of fuel and electricity to the country's household and utility sectors.

Steam coal is a substantial contributor to the Ukrainian energy output. Coal-based thermal power generation is the only reliable and import-free energy source capable of delivering adequate energy volumes with flexibility required by the industrial and individual consumers in Ukraine.

In 2015 the ratio of Ukrainian coal trade segment operations is significantly changed. The coal export share was decreased in 10 times, and the share of coal import was (14,5 mln. tones – from Russia, USA, Kazakhstan, South Africa) was increased on 25,1%. In 2016 the coal import volume is expected to be lower; within the period January – April, 2016 the coal import was decrease on 20%.

In 2015, the Group has been undertaking attempts to sell stockpiled coal assets available but due to continuous armed conflict this procedure has been still on the stage of realization at the date of this report publication.

The gross data about the Company after the reporting date.

In 2016, the Anti-terroristic operation in the east of Ukraine continues to take place. All Banks, Financial institutions, Superannuation and pension funds were moved out from this territory and are still closed within the uncontrolled territory. Shooting and bombardment is almost stopped but the access to this area is still limited. Any export or import operations are impossible within this area.

Group fully controls all its subsidiaries. Currently it determines the financial consequences. The mining activity will be restored after the anti-terroristic operation finishing.

Events after the end of the reporting period

In February, the shares of Sadovaya Group restarted its trading at Warsaw Stock Exchange.

In May 2016 in the result of failure to publish Annual report 2015 of Sadovaya Group S.A. the trading of Sadovaya group shares at WSE was temporally stopped. The trading renew will take place after the publishing of Annual report 2015 that is in July, 2016.

In February Shakhta "Sadovaya" LLC, the subsidiary of Sadovaya Group lost the suitcase concerning the continuation of the license on coal mining of Shakhta "Sadovaya" LLC, which was temporally stopped in June 2015. Currently the company has already submitted an appeal to the court.

Sadovaya Group also could not meet its obligations to other creditors but it makes every effort to find the resolution of each matter. It tries to find the mutual understanding with all creditors.

Corporate governance report

General information

Sadovaya Group S.A. ("the Company") is registered in Luxembourg, registered office: 10, Boulevard de la Foire, L-1528 Luxembourg. R.C.S Luxembourg B 153489. The shares of the Company are listed on the Warsaw Stock Exchange. The subscribed share capital is set at four hundred and thirty thousand eight hundred and fifty-six United States Dollars and ninety-three cents (USD 430,856.93), represented by forty-three million eighty-five thousand six hundred and ninety-three (43,085,693) shares with a nominal value of one cent (USD 0.01) each.

The Company declares that it follows the non-binding principles on corporate governance contained in "Ten principles of corporate governance of the Luxembourg stock exchange" approved in October 2009. Any incompliance with these principles were disclosed and explained below. Also the Company has decided to observe the majority of the WSE Corporate Governance Rules. Sadovaya Group S.A. has a clear and transparent corporate governance framework and provides relevant disclosure.

All adopted corporate governance documents and details regarding current corporate governance system of the Company are published on the Company's website http://sadovayagroup.com/.

Board of Directors

The Company has a one-tier management structure consisting of the Board of Directors composed of one or more A directors (the "A Directors") and one or more B directors (the "B Directors"). The Board of Directors is responsible for the management of the Company's operations. It is vested with the broadest powers to take any actions necessary or useful to fulfill the Company's corporate purpose, with the exception of actions reserved by Luxembourg law or the Articles of Association to the General Meeting of Shareholders.

The Director(s) are elected by the General Meeting, for a period not exceeding six (6) years and until their successors are elected, provided, however, that any Director may be removed at any time by a resolution taken by the General Meeting of Shareholders. In the event of vacancy in the office of a Director because of death, resignation or otherwise, the remaining Directors elected by the General Meeting may meet and elect a Director to fill such vacancy until the next General Meeting of Shareholders.

The Annual General Meeting of the Company was held on November 27, 2015, the Board of Directors was comprised of:

Mr.Alexander Tolstoukhov, A Director; Mr. Sergey Stetsurin, B Director;

The mandate of the Directors was prolonged until the Annual General Meeting of the year 2019 or until their successors have been duly elected.

Audit Committee

The Audit Committee assists in supervising the activities of the Board of Directors with respect to:

• operation of internal risk management and control systems, including supervision of the enforcement of relevant legislation and regulations, and supervising the operation of codes of conduct;

• provision of financial information by the Company (choice of accounting policies, application and assessment of the effects of new rules, information about the handling of estimated items in the financial accounts, forecasts, work of internal and external auditors, etc.);

• compliance with recommendations and observations of internal and external auditors;
• the role and functioning of the Company's internal audit department;
• the Company's tax planning policy;

• the Company's relations with the external auditor, including, in particular, its independence, remuneration and non-audit services for the Company.

In the course of 2015 year members of the Audit Committee of the Company was not appointed, the entire Board of Directors dealt with the tasks and responsibilities of the Audit Committee in close collaboration with the internal and external auditors.

Nominations and Remuneration Committee

Currently the Company does not have Nominations or Remuneration committees; the need to create Nominations and/or Remuneration committees is assessed annually. The tasks and duties contemplated by the Remuneration committee and Nominations committee are performed by the entire Board of Directors. The Company does not have formal policies on board and top-management performance evaluation and remuneration at the moment.

Internal Control/Risk Management

In the course of 2015 year the Board of Directors of the Company was responsible for the system of internal risk management and control and reviewing at least annually the internal control and risk management systems, with a view to ensuring that the main risks (including those related to compliance with existing legislation and regulations) are properly identified, managed and disclosed.

Financial reporting process

The Group has in place common accounting policies and procedures on financial reporting and closing. Also, prepares budgets for review and approval of Board of Directors, as well as forecast of financial performance during the year. The management monitors the publication of the new reporting standards and works closely with external auditors in evaluating in advance the potential impact of these standards.

The entities of the Group maintain their accounting records in accordance with accounting standards and other statutory requirements to financial reporting in the country of their incorporation. Local statutory accounting principles and procedures differ from accounting principles generally accepted under IFRS. Accordingly, the accompanying financial statements, which have been prepared from the Group entities' statutory accounting records, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS. Stand alone financial statements is issued based on maintained accounting records in accordance with local (Luxembourg) accounting standards.

Management of the Group is paying adequate attention and efforts in designing, implementing and maintaining an effective system of internal controls on financial reporting process. Financial reports are analyzed, reviewed and discussed before issuance.

The remuneration of the members of the Board of Directors

The remuneration of the members of the Board of Directors is determined by the Board of Directors and ratified by the General Meeting of shareholders.

The objective of the Group's remuneration policy is to provide a compensation program allowing for the attraction, retention and motivation of members of the Board of Directors who have the character traits, skills and background to successfully lead and manage the Company.

General Meeting practices

The General Meeting of shareholders is vested with the powers expressly reserved to it by law and by the Company's Articles of incorporation. The General Meeting of shareholders of the Company may at any time be convened by the Board of Directors. It shall also be convened upon written request of shareholders representing at least ten percent (10%) of the Company's share capital. In such case, the General Meeting of shareholders must be convened and shall be held within a period of one (1) month from receipt of such request. Further, shareholder(s) representing at least five percent (5%) of the Company's share capital may request the adjunction of one or several items to the agenda of any General Meeting of shareholders.

The annual General Meeting of shareholders shall be held in Luxembourg, at the registered office of the Company or at such other place as may be specified in the notice of such meeting, on the third Wednesday of June at 5 p.m. If such day is a legal holiday, the annual General Meeting of shareholders must be held on the next following business day. Other meetings of shareholders may be held at such place and time as may be specified in the respective notices of meeting.

Where the shares are recorded in the register of shareholders in the name of a depositary or subdepositary of the former, the certificates must be received at the Company no later than the day precedent the fifth (5th) working day before the date of the general meeting unless the Company fixes a shorter period.

All proxies must be received at the Company by the same deadline.

Voting rights

Each share entitles to one (1) vote, subject to the provisions of the law. Unless otherwise required by law or by the Company's Articles of incorporation, resolutions at a General Meeting of shareholders duly convened are adopted at a simple majority of the votes validly cast, regardless of the portion of capital represented. Abstention and nil votes will not be taken into account.

A shareholder may act at any General Meeting of shareholders by appointing another person, shareholder or not, as his proxy in writing by a signed document transmitted by mail, facsimile, electronic mail or by any other means of communication. One person may represent several or even ail shareholders.

Shareholder who participate in a General Meeting of shareholders by conference call, video conference or by any other means of communication which allow such shareholder's identification and which allow that all the persons taking part in the meeting hear one another on a continuous basis and may effectively participate in the meeting, are deemed to be present for the computation of quorum and majority, subject to such means of communication being made available at the place of the meeting.

Each shareholder may vote at a General Meeting of shareholders through a signed voting form sent by mail, facsimile or electronic mail to the Company's registered office or to the address specified in the convening notice. The shareholders may only use voting forms provided by the Company which contain at least the place, date and time of the meeting, the agenda of the meeting, the proposals submitted to the resolution of the meeting as well as for each proposal three boxes allowing the shareholder to vote in favour of or against the proposed resolution or to abstain from voting thereon by ticking the appropriate boxes. The Company will only take into account voting forms received prior to the General Meeting of shareholders which they relate to.

The Board of Directors may determine further conditions that must be fulfilled by the shareholders for them to take part in any General Meeting of shareholders.

Any amendments to the rights of shareholders require an amendment to the Articles of Association and are subject to the same quorum as for an extraordinary General Meeting. Any resolution to amend the

Articles of Association must be taken before a Luxembourg notary and such amendments must be published in accordance with Luxembourg regulations.

Dividend rights

The General Meeting shall determine how the remainder of the annual net profits shall be disposed of and it may alone decide to pay dividends from time to time, as in its discretion believes best suits the corporate purpose and policy.

The dividends may be paid in euro or any other currency selected by the Board and they may be paid at such places and times as may be determined by the Board. The Board may decide to pay interim dividends under the conditions and within the limits laid down in the Luxembourg laws.

Share options

At the date of this annual report, the Company has no a share option plan and no share options have been granted to the members of the Board of Directors, members of Company's senior management or employees.

Information regarding deviation from the WSE Code of Best Practice for WSE Listed Companies

The Company has decided to observe the majority of the WSE Corporate Governance Rules included in the Code of Best Practice for WSE Listed Companies. However, certain principles apply to the Company accordingly, with due observance of Luxembourg laws and the Company's corporate structure, especially the single board structure as opposed to the two-tier system that the WSE Corporate Governance Rules assume. The Company does not have two separate governing bodies (supervisory board and management board) which are obligatory in Polish joint stock companies. Instead, the Board of Directors of the Company performs both the management and supervisory functions. As a result, the Company applies those principles of the WSE Corporate Governance Rules which refer to relations between supervisory board and management board not directly, but accordingly.

In 2015 the Company did not fully comply with the following rules described in the Code of Best Practice for WSE Listed Companies as follows:

	Rule						Rule status in the Company
I.	Recommendations Companies	for	Best	Practice	for	Listed

1. A company should pursue a transparent and effective Complies with the reservation that the information policy using both traditional methods and Articles of Association of the modern technologies and latest communication tools Company provide that all the meetings ensuring fast, secure and effective access to take place in Luxembourg, in the place information. Using such methods to the broadest extent specified in the convening note and possible, a company should in particular: - maintain a the Company has not implemented the company website whose scope and method of technology enabling on-line presentation should be based on the model investor broadcasting. At the same time the relations service available at http://naszmodel.gpw.pl/; - Company supports its shareholders to ensure adequate communication with investors and exercise their voting rights by analysts, and use to this purpose also modern methods authorizing the proxies. of Internet communication; - enable on-line broadcasts of General Meetings over the Internet, record General Meetings, and publish the recordings on the company website. 5. A company should have a remuneration policy and Currently the Company does not have rules of defining the policy. The remuneration policy a remuneration policy adopted; the should in particular determine the form, structure, and need to create Remuneration level of remuneration of members of supervisory and committee is assessed annually. management bodies. Commission Recommendation of 14 December 2004 fostering an appropriate regime for the remuneration of directors of listed companies (2004/913/EC) and Commission Recommendation of 30 April 2009 complementing that Recommendation (2009/385/EC) should apply in defining the remuneration policy for members of supervisory and management bodies of the company. 6. A member of the Supervisory Board should have There is only one governing body in appropriate expertise and experience and be able to the Company, the Board of Directors.
devote the time necessary to perform his or her duties. A member of the Supervisory Board should take relevant action to ensure that the Supervisory Board is informed about issues significant to the company 7. Each member of the Supervisory Board should act in the interests of the company and form independent decisions and judgments, and in particular: - refuse to accept unreasonable benefits which could have a negative impact on the independence of his or her opinions and judgments; - raise explicit objections and separate opinions in any case when he or she deems that the decision of the Supervisory Board is contrary to the interest of the
company. 9. The WSE recommends to public companies and their The Company supports this

Rule	Rule status in the Company
shareholders that they ensure a balanced proportion of women and men in management and supervisory functions in companies, thus reinforcing the creativity and innovation of the companies' economic business.	recommendation however the members of the Board of Directors are appointed by General Meeting of Shareholders and therefore the compliance with this recommendation depends on the shareholders' future decisions.
II. Best Practice for Management Boards of Listed Companies
1. A company should operate a corporate website and publish on it, in addition to information required by legal regulations: 1) basic corporate regulations, in particular the statutes and internal regulations of its governing bodies; 2) professional CVs of the members of its governing bodies; 3) current and periodic reports; 4) [deleted]	Complies taking into account that there is only one governing body in the Company, the Board of Directors. The Company has not adopted rules of changing the company authorised to audit financial statements. The Company may consider the rules adoption in the future.
5) where members of the company's governing body are elected by the General Meeting – the basis for proposed candidates for the company's Management Board and Supervisory Board available to the company, together with the professional CVs of the candidates within a timeframe enabling a review of the documents and an informed decision on a resolution; 6) annual reports on the activity of the Supervisory Board taking account of the work of its committees together with the evaluation of the work of the Supervisory Board and of the internal control system and the significant risk management system submitted by the Supervisory Board; 7) shareholders' questions on issues on the agenda submitted before and during a General Meeting together with answers to those questions; 8) information about the reasons for cancellation of a General Meeting, change of its date or agenda together with grounds; 9) information about breaks in a General Meetings and the grounds of those breaks; 10) information on corporate events such as payment of the dividend, or other events leading to the acquisition or limitation of rights of a shareholder, including the deadlines and principles of such operations. Such

Rule	Rule status in the Company
information should be published within a timeframe
enabling investors to make
investment decisions;
11) information known to the Management Board based
on a statement by a member of the Supervisory Board on any relationship of a member of the Supervisory
Board with a shareholder who holds shares representing
not less than 5% of all votes at the company's General
Meeting;
12) where the company has introduced an employee
incentive scheme based on shares or similar instruments
– information about the projected cost to be incurred by
the company from to its introduction;
13) a statement on compliance with the corporate
governance rules contained in the last published annual
report, as well as the report referred to in § 29.5 of the
Exchange Rules, if published; 14) information about the content of the company's
internal rule of changing the company authorised to
audit financial statements or information about the
absence of such rule.
3. Before a company executes a significant agreement	Complies taking into account that
with a related entity, its Management Board shall	there is only one governing body in
request the approval of the transaction/agreement by the	the Company, the Board of Directors.
Supervisory Board. This condition does not apply to
typical transactions made on market terms within the
operating business by the company with a subsidiary
where the company holds a majority stake.
III. Best Practice for Supervisory Board Members 1. In addition to its responsibilities laid down in legal	Complies taking into account that there is only one governing body in
provisions the Supervisory Board should:	the Company, the Board of Directors.
1) once a year prepare and present to the Ordinary
General Meeting a brief assessment of the company's
standing including an evaluation of the internal control
system and the significant risk management system;
2) once a year prepare and present to the Ordinary
General Meeting an evaluation of its work;
3) review and present opinions on issues subject to
resolutions of the General Meeting.
2. A member of the Supervisory Board should submit to
the company's Management Board information on any relationship with a shareholder who holds shares
representing not less than 5% of all votes at the General
Meeting. This obligation concerns financial, family, and

Rule	Rule status in the Company
other relationships which may affect the position of the
member of the Supervisory Board on issues decided by
the Supervisory Board.
3. A General Meeting should be attended by members
of the Supervisory Board who can answer questions
submitted at the General Meeting.
4. A member of the Supervisory Board should notify
any conflicts of interest which have arisen or may arise
to the Supervisory Board and should refrain from taking
part in the discussion and from voting on the adoption
of a resolution on the issue which gives rise to such a
conflict of interest.
5. A member of the Supervisory Board should not
resign from this function if this action could have a
negative impact on the Supervisory Board's capacity to
act, including the adoption of resolutions by the
Supervisory Board.
6. At least two members of the Supervisory Board
should meet the criteria of being independent from the
company and entities with significant connections with
the company. The independence criteria should be
applied under Annex II to the Commission
Recommendation of 15 February 2005 on the role of
non-executive or supervisory directors of listed
companies and on the committees of the (supervisory)
board. Irrespective of the provisions of point (b) of the said Annex, a person who is an employee of the company or an associated company cannot be deemed to meet the independence criteria described in the Annex. In addition, a relationship with a shareholder precluding the independence of a member of the Supervisory Board as understood in this rule is an actual and significant relationship with any shareholder who has the right to exercise at least 5% of all votes at the General Meeting. 7. [deleted] 8. Annex I to the Commission Recommendation of 15 February 2005 on the role of non-executive or supervisory directors… should apply to the tasks and the operation of the committees of the Supervisory Board. 9. Execution by the company of an agreement/transaction with a related entity which meets

Rule	Rule status in the Company
the conditions of section II.3 requires the approval of
the Supervisory Board.
IV. Best Practices of Shareholders
10. A company should enable its shareholders to	Complies taking into account that the
participate in a General Meeting using electronic	Articles of Association of the
communication means through:	Company provide that all the meetings
1) real-life broadcast of General Meetings;	take place in Luxembourg, in the place
2) real-time bilateral communication where	specified in the convening note and
shareholders may take the floor during a General	the Company has not implemented the
Meeting from a location other than the General	technology enabling on-line
Meeting;	broadcasting. At the same time the
3) exercise their right to vote during a General Meeting	Company supports its shareholders to
either in person or through a plenipotentiary.	exercise their voting rights by
	authorizing the proxies.

Sadovaya Group S.A.

Consolidated Financial Statements

for the periods ended 31 December 2015, 31 December 2014

Consolidated income statement	33
Consolidated statement of comprehensive income	33
Consolidated statement of financial position	34
Consolidated statement of changes in equity	35
Consolidated statement of cash flows	37
Notes to the consolidated financial statements	37
1. General information 37
2.1 Basis of preparation38
2.2 Summary of significant accounting policies40
3. Significant accounting judgments, estimates and assumptions50
4. New and amended standards and interpretations 52
5 Geographic information 52
6. Revenue53
7. Cost of sales53
8. Selling and distribution expenses53
9. Administrative expenses 53
10. Cost of idle capacity54
11. Expenses from financial assets impairment 54
12. Other income/(expenses), net54
13. Finance expenses54
14. Depreciation of non-current assets54
15. Employee benefit expenses55
16. Income tax55
17. Property, plant and equipment 56
18. Intangible assets58
19. Loans and borrowings58
20 Fair value 60
21. Inventories60
22. Trade and other receivables61
23. Prepayments and deferred expenses62
24. Cash and cash equivalents62
25. Share capital62
26. Employees benefits obligations62
27. Trade and other payables 63
28. Provisions63
29. Related parties64
30. Financial risk management objectives and policies 64
31. Events after the reporting date 66
32. Approval of the financial statements	66

Consolidated income statement

for the year ended 31 December 2015, 2014

	Note	2015 (unaudited)	2014 (unaudited)
Revenue	6	1,036,523	2,541,537
Cost of sales	7	(1,542,319)	(3,883,402)
Gross profit/ (loss)		(505,796)	(1,341,865)
Selling and distribution expenses	8	-	(269,093)
General administrative expenses	9	(100,975)	(837,503)
Cost of idle capacity	10	(1,226,027)	(2,847,883)
Expenses from financial assets impairment	11	(1,149,161)	(3,278,725)
Other income/(expenses), net	12	(291,565)	(11,232,558)
Operating profit/ (loss)		(3,273,524)	(19,807,627)
Finance expenses Finance income	13	(3,006,968) -	(3,746,009) 110
Non-operating foreign currency translation gain/(loss)		(32,420,341)	(26,263,914)
Profit/ (loss) before tax		(38,700,833)	(49,817,440)
Income tax (expense)/benefit	16	(93,728)	(256,808)
Profit/ (loss) for the period		(38,794,561)	(50,074,248)
Weighted average number of ordinary shares		43,085,693	43,085,693
Earnings per share		(0.90)	(1.16)

Notes on pages 8-37 are an integral part of these consolidated financial statements

Consolidated statement of comprehensive income

for the year ended 31 December 2015, 2014

	2015 (unaudited)	2014 (unaudited)
Profit/ (loss) for the period	(38,794,561)	(50,074,248)
Other comprehensive income/(expenses)
Exchange differences on translation in presentation currency	25,551,669	8,538,918
Other comprehensive income/(expenses) for the period	- 25,551,669	8,538,918
Total comprehensive income/(expenses) for the period	(13,242,892)	(41,535,330)
Profit/loss attributable to:
Equity holders of the parent	(38,790,001)	(50,067,067)
Non-controlling interests	(4,560)	(7,181)
Other comprehensive income/expenses attributable to:
Equity holders of the parent	25,574,190	8,561,653
Non-controlling interests	(22,521)	(22,735)

Notes on pages 8-37 are an integral part of these consolidated financial statements

Consolidated statement of financial position

as at 31 December 2015, 2014

	Note	as at 31 December 2015 (unaudited)	as at 31 December 2014 (unaudited)
Assets
Non-current assets
Property, plant and equipment	17	9,360,627	17,888,168
Intangible assets	18	271,815	444,865
Deferred tax assets	16	414,334	811,792
		10,046,776	19,144,825
Current assets
Inventories	21	4,189,680	7,199,502
Trade and other receivables	22	2,922,330	3,574,462
Prepayments and deferred expenses	23	40,339	105,352
Income tax prepayment		3,170	26,538
Cash and cash equivalents	24	1,728	25,481
		7,157,247	10,931,335
Total assets		17,204,023	30,076,160
Equity and liabilities
Equity Share capital	25	430,857	430,857
Share premium		28,525,902	28,525,902
Retained earnings		(97,953,889)	(59,747,146)
Revaluation reserve		3,954,844	4,483,644
Effect of foreign currency translation		24,818,795	(732,874)
Equity attributable to the parent		(40,223,491)	(27,039,617)
Non-controlling interest		(33,924)	(6,843)
		(40,257,415)	(27,046,460)
Non-current liabilities
Loans and borrowings	19	-	15,343,403
Employee benefit liability	15	2,216,943	2,718,435
Provisions		601,995	844,009
Deferred tax liability	16	412,972	680,067
		3,231,910	19,585,914
Current liabilities
Trade and other payables Loans and borrowings	25 19	12,806,470 41,212,939	11,266,369 26,052,137
Provisions	28	164,822	171,318
Income tax payable		45,297	46,882
		54,229,528	37,536,706
		57,461,438	57,122,620
Total equity and liabilities		17,204,023	30,076,160

Notes on pages 8-37 are an integral part of these consolidated financial statements

Consolidated statement of changes in equity

for the year ended 31 December 2015, 2014

	Share capital	Share premium	Retained earnings	Revaluation reserve	Effect of foreign currency translation	Total	NCI	Total equity
As at 01 January 2014	430,857	28,525,902	(10,484,943)	5,288,508	(9,271,792)	14,488,532	23,073	14,511,605
Profit for the period Other comprehensive income	- -	- -	(50,067,067) -	- -	- 8,538,918	(50,067,067) 8,538,918	(7,181) (22,735)	(50,074,248) 8,516,183
Depreciation transfer	-	-	804,864	(804,864)	-	-	-	-
Total comprehensive income	-	-	(49,262,203)	(804,864)	8,538,918	(41,528,149)	(29,916)	(41,558,065)
As at 31 December 2014	430,857	28,525,902	(59,747,146)	4,483,644	(732,874)	(27,039,617)	(6,843)	(27,046,460)
Profit for the period	-	-	(38,790,001)	-	-	(38,790,001)	(4,560)	(38,794,561)
Other comprehensive income	-	-	-	-	25,551,669	25,551,669	(22,521)	25,529,148
Depreciation transfer	-	-	583,258	(583,258)	-	-		-
Total comprehensive income	-	-	(38,206,743)	(528,800)	25,551,669	(13,183,874)	(27,081)	(13,210,955)
As at 31 December 2015	430,857	28,525,902	(97,953,889)	3,954,844	24,818,795	(40,223,491)	(33,924)	(40,257,415)

Notes on pages 8-37 are the integral part of these consolidated financial statements

Consolidated statement of cash flows

for the year ended 31 December 2015, 2014

	Year ended 31 December 2015 (unaudited)	Year ended 31 December 2014 (audited)
Operating activities
Loss before tax	(38,700,833)	(49,817,440)
Non-cash adjustment to reconcile profit before tax to net cash flows:
Depreciation and amortization	1,753,767	2,828,240
Loss on disposal of property, plant and equipment and intangible assets	5,202	14,573
Impairment of financial assets	1,485,217	3,346,239
Shortages and losses from impairment of inventory	-	5,615,603
Currency exchange differences	29,780,559	25,954,991
Finance expenses	3,006,968	3,745,790
Finance income	-	(107)
Movements in provisions, pensions Working capital adjustments:	521,118	1,039,635
Movements in provisions, pensions (cash part)	(39,397)	(73,198)
Decrease/(Increase) in trade and other receivables and prepayments	(1,178,826)	1,696,295
Decrease/(Increase) in inventories	594,646	1,630,855
Increase in trade and other payables	2,752,224	3,781,926
Cash used in operations	(19,355)	(236,598)
Interest received	-	109
Income tax paid	-	9,440
Net cash flows used in operating activities	(19,355)	(227,049)
Investing activities
Proceeds from sale of property, plant, equipment and intangible asset	(4,126)	(56,034)
Net cash flows used in investing activities	(4,126)	(56,034)
Financing activities
Proceeds from borrowings	-	299,154
Repayment of borrowings	-	-
Interest paid	-	-
Net cash flows from/(used in) financing activities	-	299,154
Net increase/(decrease) in cash and cash equivalents	(23,481)	16,071
Net foreign exchange difference	(272)	(106)
Cash and cash equivalents at 1 January	25,481	9,516
Cash and cash equivalents at 31 December	1,728	25,481

Notes on pages 8-37 are the integral part of these consolidated financial statements

Notes to the consolidated financial statements

1. General information

SADOVAYA GROUP S.A. (the Parent or "SADOVAYA GROUP S.A."), a public limited company registered under the laws of Luxembourg, was formed on 31 May 2010 for an unlimited period of time. SADOVAYA GROUP S.A. was formed to serve as the ultimate holding company of SADOVA LIMITED (Cyprus) and its subsidiaries. The registered address of SADOVAYA GROUP S.A. is Luxembourg 65, Boulevard Grande Duchesse Charlotte, L-1331 Luxembourg, Grand-Duchy of Luxembourg.

The financial year begins on January 1 of each year and terminates on December 31 of each year. It's register number within the Registre de Commerce et des Sociétés du Luxembourg is RCS Lu B153489.

Theses Group consolidated accounts are public and available for consultation athttp://sadovayagroup.com/en/investor/in3/ or at its registered office.

The Sadovaya Group S.A. ("the Group") comprises 10 companies, operating in spheres indicated below. These consolidated financial statements include financial statements of the Group's Companies. Mr.Tolstoukhov A.Y. and Mr. Stetsurin S.N. are ultimate Group's owners.

Group's Company	Country of incorporation	Type of activity
Sadovaya GroupS.A.	Luxembourg	Parent company
Sadovaya LLC	Cyprus	Intermediate holding company
Sadovaya Trading Ltd	Cyprus	Trading activity
"Shahta"Sadovaya" LTD	Ukraine	Mining and sale of coal, wholesale of coal
"Shahta"Rassvet-1" LTD	Ukraine	Mining and sale of coal, wholesale of coal
"Volat Trans" PE	Ukraine	Transportation
"Interinvest" LTD	Ukraine	The Company has machinery which is used by the Group
"PC Interdon" LLC	Ukraine	Processing of waste dumps
"Donvostok" LTD	Ukraine	The Company has machinery which is used by the Group
"Sadovaya Group MC" LLC	Ukraine	Managerial authority for Ukrainian companies

Sadovaya Group S.A. is wholly owned by a Cypriot company Connektico LLC, whose final shareholders are Mr. Alexander Iurievich Tolstoukhov (51%) and Mr. Sergey Nicolaievich Stetsurin (49%) (the "Final Owners").

"Shahta"Sadovaya" LTD is an enterprise registered on 7 June 1995 as "Olvin Trade" LTD. In 2007 name of the company was altered to "Shahta"Sadovaya" LTD. Today "Shahta"Sadovaya" LTD is a highly-developed company, which operates in such areas as mining of Anthracite rank coal, processing and wholesale of coal. Mining is carried out under the ground. There are 4 production and 8 development faces.

"Shahta"Rassvet-1" LTD has been founded on the bases of "Shahta"Rassvet-1" State OJSK GP SHC "Zhovtenvuhillya" and was registered on 18 May 2007. Basic activity of the Company is mining and coal cleaning. The Company does not have its own processing plant, that's why in future it plans to buy a dry cleaning coal machine that will give possibility to dispatch qualitative coal in competitive prices.

"Volat Trans" PE was founded on 25 January 2006. Basic type of services rendered is lease of vehicles. In 2008, there was a significant increase in property, plant and equipment that allows to develop scope of work and to take competitive position at the market. Today companies comprising the Group are principal contractors for the Enterprise.

"Interinvest" LTD was founded on 24 October 2002. The Company has machinery which is used by the Group.

"PC Interdon" LLC was registered on 12 May 1997. The Company processes waste dumps and trades coal.

"Donvostok" LTD was founded on 05 March 2007. The Company has machinery which is used by the Group.

Property of the Group, and its management are concentrated in Ukraine. Head office is located in Alchevsk, 6 Moskovskaya street.

Sadovaya Trading Ltd was registered on 19 April 2011. The company was created as a trading house of the Sadovaya Group responsible for trading with international markets.

Management Company Sadovaya Group LLC (Ukraine) was incorporated on 22 August 2011. This company will act solely as managerial authority for Ukrainian companies.

2.1 Basis of preparation

This report is intended solely for the purpose of performing and provisions the Consolidated financial statements for year 2015 of Sadovaya Group S.A. to the Warsaw Stock Exchange.

Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by EU.

Basis of consolidation

a) Subsidiaries

Subsidiaries are all entities over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intragroup transactions are eliminated in full.

The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Acquisition-related costs are expensed as incurred.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

c) Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

Preparation of financial statements on a going concern basis

The consolidated financial statements have been prepared on a going concern basis. At the date of signing of consolidated financial statements there are material uncertainties about conditions that cast substantial doubt upon the Group's ability to continue as a going concern and that, therefore, the Group may be unable to realize its assets and discharge its liabilities in the normal course of business.

The Group has recognized net loss after tax to USD 38,795 thousand and suffers from significant sales decrease starting the year 2012. Sadovaya and Rassvet-1 mines have temporary discontinued mining operations. Due to technological problems waste coal reprocessing plant located at Vakhrushevsky has not succeeded in achievement of planned production capacity. Management of the Group is intending to sale the non-core assets and use the proceeds to refit the equipment and increase the effectiveness of production process. Future development and performance of the Group substantially depends of sales to key customers.

Management has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future despite of continuing military conflict in the Eastern Ukraine. Thus they continue to adopt the going concern basis of accounting in preparing the annual consolidated financial statements of the Group.

Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous financial year.

The group has not applied the following standards and IFRIC interpretations and also amendments to them that have been issued but are not yet effective:

IFRS 9 Financial Instruments: Classification and Measurement - accounting standard that will eventually replace IAS 39 Financial Instruments: Recognition and Measurement (effective from 1 January 2018);

IFRS 15 Revenue from contracts with customers - establishes the principles for the disclosure of useful information in the financial statements in respect of contracts with customers (effective from 1 January 2017);

IFRS 11 Joint arrangements – accounting standard provides guidance in respect of the accounting for acquisition of interests in joint operations (effective from 1 January 2016);

IAS 1 Presentation of Financial Statements – disclosure a number of smaller projects aiming to improve the presentation and disclosure principles and requirements in existing standards (effective from 1 January 2016);

IAS 16 Property, plant and equipment and IAS 38 Intangible assets – clarification of acceptable methods of depreciation and amortization the amendment to the two standards (effective from 1 January 2016);

IAS 27 Separate financial statements – equity method - the amendment to the standard allows the use of the equity method to account for investments in subsidiaries, associates and joint ventures in an entity's separate IFRS financial statements if local regulation requires using the equity method (effective from 1 January 2016).

The Group anticipates that the adoption of these standards and amendments in future periods will have no material impact on its financial statements. The Group currently does not plan early application of the above standards and interpretations.

2.2 Summary of significant accounting policies

а) Foreign currency translation

Functional currency for the Ukrainian entities is the Ukrainian Hrivnia ("UAH"), for Cyprus and Luxembourg - USD.

Presentation currency of the consolidated financial statements is the US Dollar.

The principal UAH exchange rates used in the preparation of consolidated financial statements are as follows:

Average 2015	31 December 2015	Average 2014	31 December 2014
21,812	24,001	11,740	15,769

i) Transactions and balances

Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date.

All differences are taken to the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

ii) Translation into presentation currency

The results and financial position of all the Group entities are translated into the presentation currency as follows:

(a) assets and liabilities for each statement of financial position presented are translated at the official rate at the date of the balance sheet;

(b) income and expenses for each income statement are translated at average exchange rates on the dates of the transactions;

(с) share capital is translated at historical exchange rate;

(d) revaluation reserve is translated at historical exchange rate;

(e) all resulting exchange differences are recognized as a separate component of other comprehensive income;

(f) line items of the statement of cash flows are translated at average exchange rates of the appropriate reporting period.

b) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and sales taxes or duty.

The following specific recognition criteria must also be met before revenue is recognised:

Sale of goods

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. The moment of the risk's and property passing is defined according with the conditions of the contract.

Rendering of services

Revenue from the rendering services is recognised by reference to the stage of completion. The revenue includes freight services, operating lease and others.

Interest income

For all financial instruments measured at amortised cost and interest bearing financial assets classified as available-for-sale, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the income statement.

Rental income

Rental income arising from operating leases on investment properties is accounted for on a straight line basis over the lease terms.

c) Taxes

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

Value added tax

Revenues, expenses and assets are recognised net of the amount of VAT except for:

where the value added tax arising on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable;

receivables and payables are measured with the amount of VAT included.

d) Property, plant and equipment

Property, plant and equipment are measured at fair value, net of accumulated depreciation and/or accumulated impairment losses, recognised after the date of revaluation. Revaluation is conducted with sufficient frequency to provide confidence that fair value of a revalued asset does not differ materially from its carrying amount, but at least every 3 years.

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is recalculated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals to its revalued amount.

Any revaluation surplus is credited to the assets revaluation reserve included in the equity section of the statement of financial position, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. A revaluation deficit is recognised in the income statement, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.

An annual transfer from the asset revaluation reserve to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciation based on the assets original cost.

Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

- Buildings	20 to 50 years
- Machinery	5 to 12 years
- Vehicles	4 to 7 years
- Furniture, fittings and equipment	3 to 7 years
- Others	3 to 10 years

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included to the other incomes (expenses) in the income statement when the asset is derecognised.

The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively, if appropriate.

Construction–in-progress includes expenses connected with construction, creating of necessary infrastructure and machinery. Finance costs incurred during the construction which is financed due to debt funds are included to construction-in-progress costs. Charge of depreciation starts from the moment when an asset is ready for service.

e) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the income statement in other expenses in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.

The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income in the expense category consistent with the function of the intangible asset.

Amortization is calculated on a straight-line basis over the estimated useful life of the asset as follows:

- Rights and licenses	5 to 20 years
- Software	3 to 5 years
- Other intangible assets	3 to 5 years

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of comprehensive income in other income (expenses) when the asset is derecognised.

f) Leases

The determination of whether the contract is, or contains criteria of a lease is based on the substance of the contract as at the date when contract commences, one should determine, whether fulfilment of the contract is dependent on the use of a specific asset or assets and whether the contract conveys a right to use the asset.

Group as a lessee

Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight line basis over the lease term.

Group as a lessor

Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income.

g) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. Borrowing costs consist of interest calculated using effective interest rate method, financial expenses, relating to financial lease, exchange differences, connected with borrowings in foreign currency, to the extent they compensate for reduction of interest costs .

Income, received from investing of borrowing of funds for acquisition of qualifying assets is deducted from the borrowing costs.

All others borrowing costs are recognised in gains and losses as incurred.

h) Financial instruments – initial recognition and subsequent measurement

i) Financial assets

Initial recognition and measurement

The Group determines the classification of its financial assets on initial recognition.

Financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of comprehensive income. The losses arising from impairment are recognised in the income statement in finance costs.

Impairment costs are recognised in other operating expenses in the statement of comprehensive income. When the Group calculates impairment it uses an allowance account of valuation reserve.

Available-for-sale financial investments

Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or determined to be impaired, at which time the cumulative loss is recognised in the income statement in finance costs and removed from the available-for-sale reserve.

The Group evaluated its available-for-sale financial assets whether the ability and intention to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management intent significantly changes to do so in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances.

Reclassification to loans and receivables is permitted when the financial asset meets the definition of loans and receivables and has the intent and ability to hold these assets for the foreseeable future or maturity.

The reclassification to instruments held to maturity is permitted only when the entity has the ability and intent to hold the financial asset accordingly.

For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR.

If the asset is subsequently determined to be impaired then the amount recorded in equity is reclassified to the income statement.

Derecognition

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

The rights to receive cash flows from the asset have expired;

The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset.

In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

ii) Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR.

The EIR amortisation is included in finance cost in the income statement.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

iii) Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant.

When term of overdue payment on an individually insignificant financial asset exceeds 180 days, the Group impairs it on 50%. When term of overdue payment is more than 360 days – impairment is on the whole amount.

If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred).

The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement in other operating expenses. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognised in other operating expenses in the income statement. In year 2012, the impairment loss is recognised as separate item that does not alter previous year results.

Available-for-sale financial investments

For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. 'Significant' is to be evaluated against the original cost of the investment and 'prolonged' against the period in which the fair value has been below its original cost.

Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement – is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognised directly in other comprehensive income.

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement.

Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income.

If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.

iv) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

v) Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques.

Such techniques may include using recent arm's length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.

i) Advance payments

Advance payments are stated at cost, net of value added tax and impairment reserve. Prepayments made refer to intangible assets, when goods and services prepaid will be received in a year or later, or when advances are referred to an asset, which after initial recognition will be referred to intangible assets. Advance payments for acquisition of assets are referred to the carrying amount of the asset when the Group receives control and it is probable that the Group will receive future economic benefits, relating to these assets. When there is evidence that assets, goods and services will not be received, carrying amount of advance payments reduces and appropriate impairment loss refers to the financial result. Prepayments made for property, plant and equipment is included in property plant and equipment.

j) Inventories

Inventories are measured at the lower of cost and net realisable value.

Cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

The writing-off of inventories is reflected on FIFO basis.

l) Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.

Impairment losses are recognised in the income statement, except for property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or cash-generating unit's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

m) Obligations on employee benefits

i) Defined contribution plans

The Group makes definite payments to the Social security contribution for benefit of the employees. Payments are calculated as an interest of current gross amount of wages and salaries and are recognised in expenses as incurred.

ii) Defined benefit plans

Some Group's companies take part in state defined benefit plan which provides early retirement of employees, who work with hazardous and dangerous work conditions.

The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method. Actuarial gains and losses are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses for each individual plan at the end of the previous reporting period exceed 10% of the defined benefit obligation at the date. The past service costs are recognised as an expense on a straight line basis over the average period until the benefits become vested. If the benefits have already vested, immediately following the introduction of, or changes to, a pension plan, past service costs are recognised immediately.

Net expenses (incomes) of plan are recognised in sales cost.

n) Cash and cash equivalents

Cash and cash equivalents in the statement of financial position include cash in banks and in hand.

о) Accounts payable

Accounts payable are accounted at the fair value of the consideration due to in future for goods and services which were received.

p) Provisions

General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Land restoration and abandoning of mines

The Group has environmental protection obligations which connected with operating activity in the past and necessity of restoration of its mines. According to the Code of Mineral Resources, Land Code of Ukraine, Mining Law, Law of Protection of Land and other legislation documents, the Group is responsible for site restoration and soil rehabilitation upon abandoning of its mines.

Obligations on environmental activity costs are recognised when there is probability of liquidation of damage for the environment from the Group's activity, outflow of economic benefits, which is required for settlement of the obligation, is probable and reliable assessment of this obligation can be received. Charged amount is the most exact assessment of expenses, necessary for regulation of this obligation at the end of the reporting period.

Provisions are assessed at the present value of expenses, which can appear for settlement of obligations by use of rate, which reflects current market assessment of the risks connected with these obligations. Changes in provision on processing waste dump are recognised in coal mining cost. Amount of provision on mine abandon and dismantling of machinery are included to the initial value of asset after its recognition. Increasing of provisions is recognised by charging interests expenses.

3. Significant accounting judgments, estimates and assumptions

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Revaluation of property, plant and equipment

The Group measures its property, plant and equipment at revalued amounts with changes in fair value being recognised in other comprehensive income. The Group engaged an independent valuation expert to assess the fair value as at 31 December 2008 and at 31 December 2012. Comparative method was used for valuation of the machinery, substitution method– for valuation of buildings. Revaluation of property, plant and equipment at 31 December 2015 was not performed.

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset's performance of the cash generating unit being tested. The recoverable amount is most sensitive to the the expected future cash inflows used for the discounted cash flow model as well as the discount rate and the growth rate used for extrapolation purposes.

Net realisable value of inventories

Inventories are written down to net realisable value item by item. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made, of the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the end of the period to the extent that such events confirm conditions existing at the end of the period.

Estimates of net realisable value also take into consideration the purpose for which the inventory is held. The net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess is based on general selling prices.

Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when a decline in the price of materials indicates that the cost of the finished products exceeds net realisable value, the materials are written down to net realisable value.

Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective counties in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority.

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

Pension benefits

The cost of defined benefit pension plans is determined using actuarial valuations. An actuarial valuation involves making various assumptions. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The mortality rate is based on publicly available mortality tables. Future salary increases and pension increases are based on management estimates and expected future inflation rates.

Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

4. New and amended standards and interpretations

Adoption of new IFRS standards, amendments and interpretations applicable in 2015 did not have any material impact on the consolidated financial statements of the Group.

• Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. This amendment is not relevant to the Group, since none of the entities in the Group qualify to be an investment entity.

• IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32

These amendments clarify the meaning of «currently has a legally enforceable right to set-off» and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These amendments had no impact on the Group's financial position.

• IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39

These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. This amendment is not relevant to the Group.

• Recoverable Amount Disclosures for Non-Financial Assets – Amendments to IAS 36 Impairment of Assets

These amendments remove the unintended consequences of IFRS 13 on the disclosures required under IAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or CGUs for which impairment loss has been recognised or reversed during the period.

This amendment is not relevant to the Group.

5 Geographic information

Revenue from external customer:

	2015	2014
Ukraine	1,036,523	2,202,578
Export	-	338,959
	1,036,523	2,541,537

6. Revenue

	2015	2014
Revenue from sales of finished goods	1,036,402	2,423,699
Revenue from sales of merchandise	-	18,799
Revenue from rendering of services	121	99,039
	1,036,523	2,541,537

7. Cost of sales

	2015	2014
Change in finished goods and work-in-progress	(133,781)	(849,441)
Raw materials	(137,320)	(908,589)
Wages and salaries of operating personnel	(114,150)	(256,449)
Depreciation of non-current assets	(516,052)	(1,362,589)
Energy supply	(56,002)	(111,521)
Held for resale merchandise	-	(24,769)
Subcontractors services	(549,797)	(298,153)
Taxes and obligatory payments	(2,563)	(5,230)
Repair and current maintenance	(32,654)	(66,661)
	(1,542,319)	(3,883,402)

8. Selling and distribution expenses

	2015	2014
Delivery costs	-	(9,441)
Raw materials	-	(197,217)
Repair and current maintenance	-	(7,738)
Depreciation of non-current assets	-	(9,901)
Wages and salaries of distribution personnel	-	(37,938)
Other expenses	-	(6,858)
	-	(269,093)

9. Administrative expenses

	2015	2014
Professional services	(78,215)	(691,686)
Wages and salaries of administrative personnel	(10,364)	(80,369)
Insurance	(4,929)	(32,042)
Utilities	(1,275)	(18,877)
Other expenses	(1,901)	(5,056)
Depreciation of non-current assets	(3,034)	(2,586)
Tax other than income tax	(1,256)	(6,887)
	(100,975)	(837,503)

10. Cost of idle capacity

As at 31 December 2015, cost of idle capacity amounts to USD 1,226,027 USD (as at 31 December 2014: USD 2,847,883). This includes depreciation of idle assets and other expenses.

11. Expenses from financial assets impairment

	2015	2014
Impairment of accounts receivable	(1,149,161)	(3,278,725)
	(1,149,161)	(3,278,725)

12. Other income/(expenses), net

	2015	2014
Income from sale of foreign currency	-	5,921
Net income/(expenses) from operational exchange differences	(40,290)	(5,508,773)
Income from sale of property, plant and equipment	1,335	-
Fines and penalties accrued	(45)	(5,322)
Shortages and losses from impairment of inventories	-	(4,264,454)
Charity	-	(35,558)
Writing-off of non-current assets	-	(1,226)
VAT expenses (impairment of VAT assets)	(336,056)	(1,351,149)
Other income/(expenses)	83,491	(71,997)
	(291,565)	(11,232,558)

13. Finance expenses

	2015	2014
Interest expenses	(2,968,794)	(3,675,084)
Effect of provision discounting	(38,174)	(70,925)
	(3,006,968)	(3,746,009)

14. Depreciation of non-current assets

	2015	2014
Depreciation of property, plant and equipment, recognized in:
cost of sales	(501,113)	(1,337,897)
administrative expenses	(1,657)	(1,398)
selling and distribution expenses	-	(9,901)
other expenses (incl temporarily idle capacity)	(1,226,027)	(1,437,082)
Amortization of intangible assets, recognized in:
cost of sales	(14,939)	(24,692)
administrative expenses	(1,377)	(1,188)
other expenses (incl temporarily idle capacity)	(8,654)	(16,079)
	(1,753,767)	(2,828,237)

15. Employee benefit expenses

	2015	2014
Wages and salaries	(794,602)	(1,030,701)
Social security contributions and similar taxes	(325,693)	(410,839)
Net plan expenses	(68,128)	(1,486,035)
	(1,188,423)	(2,927,575)
Average number of employees, persons	139	159
Wages and salaries of operating personnel	(114,150)	(256,449)
Wages and salaries of administrative personnel	(10,364)	(80,369)
Wages and salaries of distribution personnel	-	(37,938)
Wages related to idle periods	(956,875)	(859,407)
Wages and salaries of personnel involved in production of property, plant and equipment	(25,364)	(196,027)
Wages and salaries of personnel recognized as deferred expenses	(13,542)	(11,350)
Net plan expenses	(68,128)	(1,486,035)
	(1,188,423)	(2,927,575)

16. Income tax

The major components of income tax expense for the years ended 31 December 2015, 2014 are:

Consolidated income statement

2015	2014
-	(2,877)
(93,728)	(253,931)
(93,728)	(256,808)

Deferred income tax relates to the following:

		Consolidated statement of financial position	Consolidated income statement	Consolidated statement of comprehensive income
	2015	2014	2015	2015
Deferred tax assets
Advances received	-		-	-
Inventories	122,816	368,892	(131,541)
Other financial assets	-	-	-
Trade receivables	-		-	-
Provisions	49,881	75,080	609	-
Defined benefit plan obligations	236,333	359,713	(0)	-
Charged vacation expenses	5,304	8,107	(25)	-
Deferred tax liabilities			-
Property, plant and equipment and intangible assets	(412,972)	(629,037)	339
Other financial assets	-	(51,030)	36,891	-
Deferred income tax (expenses)/benefits			(93,728)	-
Net deferred tax asset/(liability)	1,362	131,725

		Consolidated statement of financial position		Consolidated statement of comprehensive income
	2014	2013	2014	2014
Deferred tax assets
Inventories	368,892	1,353,634	(426,123)	-
Other financial assets		1,342	(914)	-
Trade receivables		-		-
Provisions	75,080	255,585	(73,167)	-
Defined benefit plan obligations	359,713	686,844	15,520	-
Charged vacation expenses	8,107	42,045	(17,737)	-
Deferred tax liabilities
Property, plant and equipment and intangible assets	(629,037)	(1,706,608)	317,027	-
Other financial assets	(51,030)		(68,538)
Deferred income tax (expenses)/benefits			(253,931)
Net deferred tax asset/(liability)	131,725	632,842

Reconciliation of deferred tax assets/ (liabilities):

As at 31December 2013	632,842
Deferred income tax benefits /(expenses) for the reporting period, recognised in the profit or loss	(253,931)
Deferred income tax benefits /(expenses) for the reporting period, recognised in the Other	-
comprehensive income
Effect of translation into presentation currency	(247,186)
As at 31December 2014	131,725
Deferred income tax benefits /(expenses) for the reporting period, recognised in the profit or loss Deferred income tax benefits /(expenses) for the reporting period, recognised in the Other	(93,728) -
comprehensive income
Effect of translation into presentation currency	(36,635)
As at 31December 2015	1,362

17. Property, plant and equipment

The Group measures its property, plant and equipment at revaluated amounts with changes in fair value being recognised in other comprehensive income. The Group engaged an independent valuation expert to assess the fair value as at 31 December 2012. Comparative method was used for valuation of the machinery, substitution method – for valuation of buildings.

As at 31 December 2015, the Group did not perform revaluation procedure.

Movement of property, plant and equipment for the period ended 31 December 2015 and 2014 was as follows:

	Land and Buildings	Machinery	Vehicles	Furniture and fittings	Other assets	Construction in- progress	Total
Cost
As at 31 December 2013	32,405,671	18,265,729	3,637,961	410,416	119,260	2,836,787	57,675,824
Additions	-	-	-	-	-	12,815	12,815
Transfers	12,815	-	-	-	-	(12,815)	-
Disposals	-	-	(16,838)	-	(118,295)	-	(135,133)
Effect of translation into presentation currency	(15,971,580)	(9,012,069)	(852,696)	(203,246)	6,761	(1,796,060)	(27,828,890)
As at 31 December 2014	16,446,906	9,253,660	2,768,427	207,170	7,726	1,040,727	29,724,616
Additions	-	-	-	-	-	-	-
Transfers	62	425	-	-	-	(487)	-
Disposals	-	(711)	(5,596)	-	(558)	-	(6,865)
Effect of translation into presentation currency	(5,641,206)	(3,430,967)	(1,416,967)	(71,059)	(839)	(320,682)	(10,881,720)
As at 31 December 2015	10,805,762	5,822,407	1,345,864	136,111	6,329	719,558	18,836,031
Accumulated depreciation
As at 31 December 2013	(8,035,078)	(9,334,762)	(1,447,118)	(195,180)	(45,762)	-	(19,057,900)
Charge for the period	(1,190,572)	(1,384,749)	(211,569)	(28,535)	(6,690)	-	(2,822,115)
Disposals	-	-	5,269	-	30,568	-	35,837
Effect of translation into presentation currency	4,226,655	4,901,893	757,500	102,493	19,189	-	10,007,730
As at 31 December 2014	(4,998,995)	(5,817,618)	(895,918)	(121,222)	(2,695)	-	(11,836,448)
Charge for the period	(782,216)	(793,259)	(133,423)	(18,748)	(5,480)	-	(1,733,126)
Disposals	-	133	3,638	-	558	-	4,329
Effect of translation into presentation currency	1,735,951	1,990,100	319,129	43,288	1,373	-	4,089,841
As at 31 December 2015	(4,045,260)	(4,620,644)	(706,574)	(96,682)	(6,244)	-	(9,475,404)
Net carrying amount
As at 31 December 2013	24,370,593	8,930,967	2,190,843	215,236	73,498	2,836,787	38,617,924
As at 31 December 2014	11,447,911	3,436,042	1,872,509	85,948	5,031	1,040,727	17,888,168
As at 31 December 2015	6,760,502	1,201,763	639,290	39,429	85	719,558	9,360,627

18. Intangible assets

Intangible assets of "Shahta "Sadovaya" LLC as at 31 December 2015 represent:

• special permission for subsurface use #4488 dated 08 November 2007 issued by the Ministry of Ecology and Natural Resources of Ukraine for 19 years. Carrying amount of this permission as at 31 December 2015 equals to USD 24,312 (as at 31 December 2014 equals to USD 47,444).

• special permission for subsurface use #5259 dated 27 December 2010 issued by the Ministry of Ecology and Natural Resources of Ukraine for 20 years. Carrying amount at 31 December 2015 equals to USD 115,958 (as at 31 December 2014 equals to USD 210,046).

A special permission for subsurface use #4982 dated 11 June 2009 for 20 years comprises intangible assets of "Shahta"Rassvet-1"LTD. Carrying amount of this permission as at 31 December 2015 equals to USD 58,683 (as at 31 December 2014 equals to USD 116,664).

Movement of intangible assets for the period ended 31 December 2015 and 2014 was as follows:

	Computer software	Licenses and rights to use natural resource	Expenses on acquisition of intangible assets	Total
Cost
As at 31 December 2014	29,642	545,802	24,480	599,924
Additions	-	-	-	-
Disposals	(242)	-	-	(242)
Effect of translation into presentation currency	(8,684)	(187,208)	(8,396)	(204,288)
As at 31 December 2015	20,958	358,594	16,084	395,636
Accumulated amortization
As at 31 December 2014	(15,497)	(139,562)	-	(155,059)
Charge for the period	(720)	(24,250)	-	(24,970)
Disposals	242	-	-	242
Effect of translation into presentation currency	8,722	47,244	-	55,966
As at 31 December 2015	(7,253)	(116,568)	-	(123,821)
Net carrying amount
As at 31 December 2014	31,427	840,471	68,161	940,059
As at 31 December 2015	13,705	242,026	16,084	271,815

19. Loans and borrowings

The balances of the Group's loans and borrowings were as follows:

	at 31/12/2015	at 31/12/2014
Non-current loans and borrowings
Bank loans	-	16,912,123
	-	16,912,123
Deducting current portion of long-term borrowings
Current portion of long-term bank loans	-	(1,568,720)

Total non-current loans and borrowings	-	15,343,403
Current loans and borrowings
Bank loans	41,208,135	24,356,582
Interest free financial liabilities	-	126,835
Promissory notes	4,804	-
Current portion of long-term bank loans		1,568,720
	41,212,939	26,052,137
	41,212,939	41,395,540

		at 31/12/2015			at 31/12/2014
	Currenc y	Interest rate, %	Residual debt	Interest rate, %	Residual debt
	USD	3M LIBOR+6.5		3M LIBOR+6.5
Loan 1	USD	% 1M LIBOR+8.5	18,299,000	% 1M LIBOR+8.5	18,299,000
Loan 2		%	21,293,720	%	21,293,720
Loan 3	UAH	16%	35,226	16%	53,617
Loan 4	UAH	18%	80,189	18%	122,051
Loan 5	USD	0%	1,500,000	14%	1,500,000
Loan 6	UAH	0%	-	0%	126,835
Promissory notes & Bank overdrafts	UAH	0%	4,804	0%	317
			41,212,939		41,395,540

Loan 1

Loan was received in March 2012 from European Bank for Reconstruction and Development regarding to Loan agreement #42621 dated 30/12/2011. The borrower is "PC Interdon" LTD. Maturity date is 28 December 2018. In September 2013, the Group failed to pay interests due as required by loan Agreement. As a result EBRD declared all of the principal and accrued interests due and payable on demand due to Event of Default. Pursuant to the share pledge agreement as of February 15, 2012, the main shareholder of the Group, Connektico Ventures Ltd, has pledged 17.50% of its shares held in the Group in favor of EBRD.

In 2014, the Group received a USD 299,000 disbursement under Amendments dd 27.04.2014.

Loan 2

Loan was received in December 2011 from OTP Bank according to agreement #CR 11-321/28-2 dated 09/12/2011. The Borrowers are "Shahta Sadovaya" LTD and "Shahta Rassvet-1" LTD. Maturity date is 30 October 2016.

The Loan is secured by 100% shares held by main shareholders of "Shahta Sadovaya" LTD and "Shahta Rassvet-1" LTD, Sadovaya Ltd and Connektico Ventures Ltd, in these Companies as well as property rights on cash which will be obtained from DTEK LLC according to agrements with "Shahta Sadovaya" LTD and "Shahta Rassvet-1" LTD.

Loan 3

Loan was received in June 2011 from SB "Credit-Dnepr" under agreement #150611-K dated 15/06/2011. The borrower is "Volat Trans" PE. Maturity date is 14/06/2014. The Loan is secured by property rights according to sale-purchase agreement #20AK/04-11 dated 22.04.2011, between Volat Trans PE and "Car company "Dinas-Service" LLC.

Loan 4

Loan was received in March 2011 from SB "Credit-Dnepr" under agreement #280311-K dated 28/03/2011. The borrower is "Volat Trans" PE. Maturity date is 28/03/2014. The Loan is secured by property rights according to sale-purchase agreement #2011/2 dated 17.02.2011, between Volat Trans PE and "Amkodor-Ukrspecmash" LLC and guaranted by Guarantee agreement of "Shakhta "Sadovaya" LLC #280311-П dated 28.03.2011.

Loan 5

Under the Cession Agreements signed by Sadovaya Limited and Hayworth Services Ltd on 03.11.2014, the former transferred the rights it has in and to the claim to "Shahta Sadovaya" LTD (Loan Agreement No 20110627U3 dd 27 June 2011) and "Shahta Rassvet-1" LTD (Loan Agreement No 20110627U4 dd27 June 2011) in amount USD 300,000 and USD 1,200,000 respectively.

Loan 6

Loan received in January 2012 from Gornoe Oborudovanie LLC was written-off in the year 2015.

20 Fair value

The fair value of the financial assets and liabilities carried in the financial statements represent the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

Fair value of cash and short-term deposits, trade receivables and trade payables, and other current liabilities is approximately equal to their carrying amount mainly due to the fact that these instruments will be repaid in the nearest future.

Fair value of loans from banks and other financial liabilities, bills is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

There were no material differences between carrying amounts and fair values of financial instruments as at the reporting date.

21. Inventories

	at 31/12/2015	at 31/12/2014
Raw materials	3,778,095	6,769,444
Finished goods	157,799	35,334
Other inventories	70,666	113,077
Merchandise	140,072	213,199
Spare parts	43,048	68,448

4,189,680 7,199,502

During the year 2015, the inventories were not impaired. In 2014, USD 5,615,603 was recognised as an expense for inventories carried at net realisable value.

22. Trade and other receivables

	at 31/12/2015	at 31/12/2014
Trade receivables	3,955,552	5,243,929
Provision for impairment of trade receivables	(2,919,795)	(3,750,381)
VAT recoverable	187,067	338,588
Other receivables	1,698,693	1,741,033
Prepayments for other taxes	813	1,293
	2,922,330	3,574,462

For terms and conditions relating to related party receivables, refer to Note 29.

Trade receivables are non-interest bearing and are generally due in 90-180 day terms. See below for the movements in the provision for impairment of receivables (see credit risk disclosure Note 30 for further guidance).

	Trade receivables	Total
As at 31 December 2013	3,786,985	3,786,985
Charge for the year	2,458,997	2,458,997
Utilised	-	-
Unused amounts recovered	-	-
Effect of translation into presentation currency	(2,495,601)	(2,495,601)
As at 31 December 2014	3,750,381	3,750,381
Charge for the year	501,502	501,502
Utilised	-	-
Unused amounts recovered	-	-
Effect of translation into presentation currency	(1,332,088)	(1,332,088)
As at 31 December 2015	2,919,795	2,919,795

As at 31 December, the ageing analysis of trade receivables is as follows:

						Past due, but not impaired
	Total	Undue and not impaired	Past due and partly impaired	< 60 days	60- 180 days	180-360 days	> 360 days
2015	2,734,450	1,269,820	45,614	12,580	1,258	65,400	1,339,778
2014	3,234,581	1,256,326	50,380	15,269	2,569	256,801	1,653,236

As at 31 December 2015, receivables of USD 2,919,795 (as at 31 December 2014: USD 3,750,381) were impaired by recognition of provision for impairment according to the accounting policy of the Group (Note 2.2 (h) financial instruments – initial recognition and subsequent measurement).

23. Prepayments and deferred expenses

	at 31/12/2015	at 31/12/2014
Prepayments to suppliers	1,889,715	2,903,473
Provisions for impairment	(1,899,173)	(2,873,916)
Deferred expenses	49,797	75,795
	40,339	105,352

See below the movements in the provision for impairment of prepayments:

	2015	2014
As at 1 January	2,873,916	4,236,849
Charge for the year	12,099	975,497
Utilised	-	-
Unused amounts recovered	-	-
Effect of translation into presentation currency	(986,842)	(2,338,430)
As at 31 December	1,899,173	2,873,916

24. Cash and cash equivalents

		at 31/12/2015	at 31/12/2014
	UAH	1,622	3,511
Cash at banks	USD	106	21,958
	EUR	-	12
		1,728	25,481

25. Share capital

		2015		2014
	%	Amount	%	Amount
Connektico Ltd	75	323,143	75	323,143
Free float	25	107,714	25	107,714
		430,857		430,857

As at 31 December 2014, 2013 all shares issued by the Group are fully paid.

26. Employees benefits obligations

The Group has juridical obligation to refund to the State Pension Fund of Ukraine additional pensions, which are paid to definite category of personnel after their retirement.

This pension plan is not financed.

All the parameters remain unchanged for the year 2015.

27. Trade and other payables

Trade payables are non-interest bearing and have an average term of three months.

For terms and conditions relating to related party disclosure, refer to Note 29.

For explanations on the Group's credit risk management processes, refer to Note 30.

	at 31/12/2015	at 31/12/2014
Trade payables	1,617,890	2,492,406
Accrued salaries, wages and related taxes	967,265	1,437,359
Provision for unused vacations	50,484	94,376
Accounts payable for other taxes	602,775	161,014
Advances from customers	119,870	280,984
Current portion of non-current liabilities on defined benefit plan	67,059	102,067
Accrued interest	8,914,762	6,036,099
Other current liabilities	466,365	662,064
	12,806,470	11,266,369

28. Provisions

Provision for land reclamation and abandoning of mines is charged due to mining activity of the Group in the result of which liabilities arise for mine closing and dismantling, and reclamation of land, balance of which was disrupt by underground works and waste dumps.

	Provision on processing waste dump	Provision on mine abandon and dismantling of machinery	Total
As at 31 December 2013	16,631	1,580,772	1,597,403
Accrued obligations	635	-	635
Discounting effect	70,925	-	70,925
Effect from translation into presentation currency	(78,845)	(746,109)	(824,954)
As at 31 December 2014	9,346	834,663	844,009
Accrued obligations	342	-	342
Discounting effect	38,174	-	38,174
Effect from translation into presentation currency	(41,121)	(239,409)	(280,530)
As at 31 December 2015	6,741	595,254	601,995

All the parameters remain unchanged for the year 2015.

29. Related parties

Residual debts and transactions between the Group's Companies were eliminated in combination, and information about them is not disclosed in this note.

Information about transactions between the Group and its related parties are as follows:

	Year ended 31/12/2015	Year ended 31/12/2014
Purchase of goods and services	378	3,611
Revenues from goods and services	5,935	1,624
	at 31/12/2015	at 31/12/2014
Accounts payable	32,940	170,972
Accounts receivable	348,288	-
		-
Loans	-	126,835

Purchase of goods and services and liabilities to related parties

Accounts payable to related parties at each date are interest-free. Such liabilities arose due to machinery lease from related parties and purchased coal. Prices of such transactions are established according with market ones.

Proceeds from goods and services and liabilities of related parties

Accounts receivable from related parties at each date are interest-free. Prices of transactions with related parties are established according with market ones. Liabilities are repaid basically with cash. Accounts receivable from the related parties are not impaired.

Loans

Reflects a short-term loan received from Gornoe Odorudovanie LLC in January 2012. The loan is interestfree and was written-off in the year 2015.

30. Financial risk management objectives and policies

Due to its activity, the Group is exposed to the following risks arisen from its use of financial instruments:

Credit risk Liquidity risk Market risk

This Note provides information on the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing such risks, and the Group's management of capital.

The Board of directors has overall responsibility for the establishment and supervision of the risk management framework.

The risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

Credit Risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers. The carrying amount of financial assets represents the maximum credit exposure.

Maximum exposure to credit risk was as follows:

	at 31/12/2015	at 31/12/2014
Cash (see Note 24)	1,728	25,481
Trade accounts receivable, net (see Note 22)	2,734,450	3,234,581
	2,736,178	3,669,816

In 2015, the Group continued to operate in the environment affected by macroeconomic uncertainty, financial and energy crisis resulted from the military conflict in the region. However, the Group's management believes that based upon previous experience of business partnership with the customers, the Group's exposure to credit risk may to be kept at a satisfactory level.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

From the beginning of the active military confrontation the Group was forced to minimize output and shift the assets into the sustaining mode. The major priority the Group was also to seek possibilities of restructuring of the existing loan facilities. Therefore, the Company is on the constant dialog with its creditors on settlement of outstanding loan facilities and potential restructuring of the loan portfolio.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group's income or the value of its holdings of financial instruments.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

During the year 2015 the Group operated in challenging environment, under the adverse effect of the macroeconomic and political factors. Ministry of Economic Development and Trade of Ukraine reported that in the first half of 2015 Ukraine's GDP fell by 16.3%. According to the MinEco in 2015 Ukraine's economy is primarily suffering from the military conflict in Donbas region together with an accumulated systemic imbalances, the consequences of which were the devaluation and inflation shocks that made significant negative impact on the economy.

The last quarter of 2015 brought expectations on peaceful resolution of the conflict after Minsk Agreement-2 and subsequently the mode of ceased fire was implemented. While the Group sees this as positive signs the complete settlement of this conflict is yet to come and will require more time, negotiations and peaceful initiatives. The Management of the Group tends to be realistic on the trends and dynamics of current course of events thus they believe that recovery of the business level back to before crisis results will require a lot of difficult and complex decisions together with considerable time.

Capital management

The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group continues its operations in the adverse environment affected by military conflict in the region. The key priorities of the Management in these circumstances remain cost cutting, managing accounts receivable and restructuring of the existing loan facilities. On the back of positive news on implementation of Minsk Agreement-2 requirements, the Management of the Group places its hopes for the success in peace negotiations and diplomatic solution of the conflict that will directly contribute to the recovery of macroeconomic stability in Ukraine and also to Group's operations.

31. Events after the reporting date

Events after the end of the reporting period

In February, the shares of Sadovaya Group restarted its trading at Warsaw Stock Exchange.

In May 2016 in the result of failure to publish Annual report 2015 of Sadovaya Group S.A. the trading of Sadovaya group shares at WSE was temporally stopped. The trading renew will take place after the publishing of Annual report 2015 that is in July, 2016.

In February Shakhta "Sadovaya" LLC, the subsidiary of Sadovaya Group lost the suitcase concerning the continuation of the license on coal mining of Shakhta "Sadovaya" LLC, which was temporally stopped in June 2015. Currently the company has already submitted an appeal to the court.

Sadovaya Group also could not meet its obligations to other creditors but it makes every effort to find the resolution of each matter. It tries to find the mutual understanding with all creditors.

32. Approval of the financial statements

The Consolidated Financial Statements of the Group for the year ended 31 December 2015 was approved for issue and signed on behalf of the Management Board on 04 July, 2016.