FY2014 Financial Report

IG Seismic Services Plc

Consolidated financial statements

as of and for the year ended 31 December 2014

Contents

General information................................................................................................................................. 1

Report of the Board of Directors.............................................................................................................. 2

Independent auditors' report..................................................................................................................... 4

Consolidated statement of financial position............................................................................................... 6

Consolidated statement of profit and loss and other comprehensive income................................................. 7

Consolidated statement of cash flows....................................................................................................... 8

Consolidated statement of changes in equity.............................................................................................. 9

Notes to the consolidated financial statements ........................................................................................ 10

Directors

Sergey Generalov, Chairman, Non-Executive Director (appointed on 24 September 2012)

Nikolay Levitskiy, Chief Executive Officer, Executive Director (appointed on 30 December 2011)

Boris Aleshin, Independent Non-Executive Director (appointed on 30 December 2011)

Peter O'Brien, Independent Non-Executive Director (appointed on 10 January 2012)

Dmitry Lipyavko, Independent Non-Executive Director (appointed on 12 November 2012)

Denis Cherednichenko, Non-Executive Director (appointed on 30 December 2011)

Maurice Dijols, Non-Executive Director (appointed on 30 December 2011)

Gerald Rohan, Independent Non-Executive Director (appointed on 4 June 2014)

Company secretary

A.T.S. Services Limited

Arch. Makariou III, 2-4

Capital Center, 9th floor

1065 Nicosia

Cyprus

Registered office

Arch. Makariou III, 2-4,

Capital Center, 9th floor

1065 Nicosia

Cyprus

Independent auditor

Ernst & Young Cyprus Limited

Jean Nouvel Tower

6 Stasinou Avenue P.O. Box 21656

1511 Nicosia

Cyprus

The Board of Directors of IG Seismic Services plc (the "Company") (together with its subsidiaries referred to as "the Group") present their report and audited consolidated financial statements as of and for the year ended 31 December 2014. The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and the requirements of Cyprus Companies Law, Cap. 113.

Principal activities

The principal activity of the Group during the year continued to be provision of land and transition zone seismic data acquisition and data processing and interpretation to the petroleum industry in the Russian Federation, the Commonwealth of Independent States ("CIS") and other countries outside of the CIS.

Review of developments, position and performance of the Group's business

The results of the Group for the year are set out on page 7 of the consolidated financial statements. Sales of the Group in 2014 reached 19,589,247 compared with 19,339,577 in 2013. Adjusted EBITDA in 2014 was 4,448,998 (2013: 4,228,807). EBIDTA calculation is presented in Note 8. Losses for the year are retained.

Dividends

The holders of ordinary shares are entitled to receive dividends as declared. One share has one vote at annual and general shareholders' meetings of the Company. No dividends were declared and paid for ordinary shares in 2014 and 2013.

Principal risks and uncertainties

The Group's critical accounting estimates and judgements and financial risk management are disclosed in Notes 5 and 32 to the consolidated financial statements. The Group's commitments and contingencies are disclosed in Note 33 to the consolidated financial statements.

Future development

The Board of Directors does not expect any significant changes in the activities of the Group for the foreseeable future. The Group's strategic objective is to strengthen its position as a leading seismic player in Russia. The Group will also continue its focus on effective cost management.

Share capital

Share capital of the Group is described in Note 20 to the financial statements.

Board of Directors

The structure of the Board of Directors during the year and as at 31 December 2014 and at the date of this report is presented on page 1. Directors are subject to appointment or removal according to the provision of Shareholders Agreement. Independent Directors are subject to re‑election at regular intervals.

The Group is managed by the Board of Directors which is collectively responsible to the shareholders for the success of the Group. The Board sets the strategic objectives and ensures that the necessary resources are in place to enable these objectives to be met. The Board is fully involved in decision making in the most important areas of business and conducts regular reviews of the Group's operational and financial performance.

There were no significant changes in the assignment of responsibilities of the Board of Directors. Composition of the Board of Directors remained unchanged except appointment of Gerald Rohan, Independent Non-Executive Director, on 4 June 2014.

Events after the reporting date

All significant events that occurred after the reporting date are described in Note 35 to the consolidated financial statements.

Independent auditor

The independent auditors, Ernst & Young Cyprus Limited, have expressed their willingness to continue in office. A resolution giving authority to the Board of Directors to fix their remuneration will be proposed at the Annual General Shareholder's Meeting.

By order of the Board

__________________________

Nikolay Levitskiy

Executive director

Nicosia

28 April 2015

Independent auditor's report

To the Members of IG Seismic Services plc

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of IG Seismic Services plc (the "Company") and its subsidiaries (together with the Company, the "Group"), which comprise the consolidated statement of financial position as at 31 December 2014, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board of Directors' responsibility for the consolidated financial statements

The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2014, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113.

Report on other legal requirements

Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013, we report the following:

• We have obtained all the information and explanations we considered necessary for the purposes of our audit.

• In our opinion, proper books of account have been kept by the Company, so far as appears from our examination of these books.

• The consolidated financial statements are in agreement with the books of account.

• In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give the information required by the Cyprus Companies Law, Cap. 113, in the manner so required.

• In our opinion, the information given in the report of the Board of Directors is consistent with the consolidated financial statements.

Other matter

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 34 of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.

Stavros Pantzaris

Certified Public Accountant and Registered Auditor

for and on behalf of

Ernst & Young Cyprus Limited

Certified Public Accountants and Registered Auditors

Nicosia

28 April 2015

These consolidated financial statements were approved for issue by the Board of Directors on 28 April 2015 and were signed on its behalf by:

Companies which do not distribute 70% of their profits after tax, as defined by the relevant tax law, within two years after the end of the relevant tax year, will be deemed to have distributed as dividends 70% of these profits. Special contribution for defense at 20% for the tax years 2012 and 2013 and 17% for 2014 and thereafter will be payable on such deemed dividends distribution. Profits and to the extent that these are attributable to shareholders, who are not tax resident of Cyprus and own shares in the Company either directly and/or indirectly at the end of two years from the end of the tax year to which the profits relate, are exempted. The amount of deemed distribution is reduced by any actual dividends paid out of the profits of the relevant year at any time. This special contribution for defense is payable by the Company for the account of the shareholders.

1. Corporate information

Organizational structure and operations

These are consolidated financial statements of IG Seismic Services plc (the "Company" or "IGSS") and its subsidiaries (together referred to as the "Group") which is engaged in provision of land and transition zone seismic data acquisition and data processing and interpretation to the petroleum industry in the Russian Federation, the Commonwealth of Independent States ("CIS") and other countries outside of the CIS.

The Company was incorporated in Cyprus as a private limited liability company in accordance with the provisions of the Companies Law, Cap. 113. Its registered office is located at 2-4 Arch. Makariou III Avenue, Capital Center, 9th floor, P.C. 1065, Nicosia, Cyprus. On 10 October 2012 the Company changed its legal form from private limited company into public limited company.

On 11 December 2012 the Company's GDRs were admitted to the Official List maintained by the UK Listing Authority and started trading on the London Stock Exchange's main market on 12 December 2012. Global Depositary Receipts (GDRs) of the Company representing two ordinary shares each are listed and traded on the Main Market of the London Stock Exchange under the ticker IGSS (Bloomberg: IGSS LI, Reuters: IGSSq.L).

As of 31 December 2014, the free float of the Company amounted to approximately 24.4% of the issued share capital. The JP Morgan Chase Bank is the depositary bank for the GDR programme of the Company. In April 2014 Mr. Nikolay Levitskiy became the ultimate controlling shareholder of the Group.

Shareholder structure as of 31 December 2014:

1. Corporate information (continued)

The information related to major operating subsidiaries of the Group as at 31 December 2014 and 2013 is presented below.

The Group did not pursue any business acquisitions throughout 2014 except for acquisition of assets disclosed in Note 7. All changes in effective ownership interest didn't result in change in control. Operating segment information is presented in Note 8.

* Although the effective interest of the Group in the company didn't exceed 50%, this company was considered a subsidiary of the Group because the Group has had control over the operating and financial activities through a majority of representatives in the Board of Directors of the company, and non-Group ownership interest has been diluted among a significant number of non-controlling shareholders.

2. Basis of preparation

Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113.

The Group entities registered in the territory of the Russian Federation ("RF") maintain accounting records and prepare financial reports in accordance with Federal Law No. 402-FZ Concerning Accounting, the Statute Concerning Accounting and Reporting in the RF and Accounting Statements as approved by relevant orders of the RF Ministry of Finance. The Group entities registered in the territory of the Kazakhstan ("KZ") maintain accounting records and prepare financial reports in accordance with Law of the Republic of Kazakhstan No. 234-III Concerning Accounting.

These consolidated financial statements have been prepared based on the Russian and Kazakh statutory accounting data adjusted for the purposes of compliance with IFRS.

Basis of measurement

These consolidated financial statements have been prepared on a historical cost basis. The consolidated financial statements are presented in Russian Rubles ("RUR") and all values are rounded to the nearest thousand except when otherwise indicated.

Functional and presentation currency

Functional currency is the currency of the primary economic environment in which an entity operates and is normally the currency in which the entity primarily generates and expends cash.

The Group's revenues, profits and cash flows are primarily generated in Russian Rubles, and are expected to remain principally denominated in Russian Rubles in the future. During the first half of 2014, the Group changed the currency in which it presents its consolidated financial statements from US dollars to Russian Rubles, in order to better reflect the underlying performance of the Group. A change in presentation currency is a change in accounting policy which is accounted for retrospectively.

Consolidated financial statements including comparative amounts as of 31 December 2013 previously reported in US dollars have been restated into Russian Rubles using the procedures outlined below:

• the cumulative translation reserves except for subsidiaries registered in the territory of the Kazakhstan were set to nil at 1 January 2013, the earliest statement of financial position date which will be presented in the annual consolidated financial statements due to the abovementioned change in accounting policy, and these reserves have been restated on the basis that the Group had reported in Russian Rubles as if this had always been the Group's presentation currency.

2. Basis of preparation (continued)

Functional and presentation currency (continued)

Translation from functional currency to the presentation currency is made in accordance with IAS 21 The Effect of Changes in Foreign Exchange Rate as follows:

• Assets and liabilities denominated in non-Russian Rubles currencies were translated into Russian Rubles at the closing rates of exchange on the relevant statement of financial position date;

• Non-Russian Rubles income and expenditure were translated at the average rates of exchange prevailing for the relevant period;

• Share capital, share premium and the other reserves were translated at the historic rates and subsequent rates prevailing on the date of each transaction;

• Translation gains or losses are recorded as a separate component of the shareholders' equity. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

RUR exchange rates were derived from those rates established by the Central Bank of the Russian Federation ("CBR").

Foreign currencies

Transactions in foreign currencies are translated to the respective functional currency, which is Russian Ruble and Kazakh Tenge for the subsidiary companies at exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency using the exchange rate at the date that the fair value was determined. Foreign currency differences arising in translation are recognized in the statement of comprehensive income.

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2014. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct and indirect ownership of voting rights. Subsidiaries are 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, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

2. Basis of preparation (continued)

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

Going concern

These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. These accompanying financial statements do not include any adjustments that may be necessary if the Group is unable to continue as a going concern.

In 2014 the Group reported net loss of 2,409,972 (net loss for 2013 of 400,671) which was significantly affected by one-off expenses discussed in note 8 and unfavorable shift in RUR to USD exchange rates resulting in significant foreign exchange loss.

The Group's current liabilities as at 31 December 2014 of 16,692,797 exceeded its current assets by 1,649,417 (as of 31 December 2013 the Group's net current assets position comprised 2,818,010). The net current liability position as at 31 December 2014 primarily relates to short-terms loans and borrowings of 7,482,974 and trade and other payables of 6,012,765.

For a number of years, the Group has been able to successfully refinance its short-term debt, obtain new equity capital from existing and new investors and generate sufficient operating cash flow as well as sufficient undrawn facilities under revocable credit lines to ensure that it does not face a liquidity shortfall or default on its debt obligations.

Having considered the above, the Group's management and the Company's directors believe that it is appropriate to prepare these consolidated financial statements on a going concern basis as the Group has undertaken certain actions aimed at improving performance and liquidity, including control and optimization of operating expenses, and refinancing of the current liabilities.

As a result, the Group's management considers that the application of the going concern assumption for the preparation of these consolidated financial statements is appropriate.

Seasonality

There is a limited season for providing seismic services in certain Siberian regions of the Russian Federation which remain in flood-like, or swampy conditions, in warm weather. Such conditions generally restrict the provision of seismic services in Siberia to a period from December to April.

3. Summary of significant accounting policies

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

3. Summary of significant accounting policies (continued)

Investment in associates

The Group's investment in its associates, an entity in which the Group has significant influence, is accounted for using the equity method.

Under the equity method, the investment in the associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The profit or loss reflects the Group's share of the results of operations of the associate. When there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The Group's share of profit or loss of an associate is shown on the face of the profit or loss and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate.

The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the loss as separate line item in the profit or loss.

Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

Non-controlling interest

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately within the Group's equity and consist of the amount of those interests at the date of obtaining control plus their share of changes in equity since that date. They are measured at acquisition fair value or at proportionate share of net assets acquired and this choice is made for each acquisition separately. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. Changes in the Parent's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

3. Summary of significant accounting policies (continued)

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable for goods provided or services rendered less any trade discounts, value-added tax and similar sales-based taxes after eliminating sales within the Group.

Revenue is recognized as follows:

• Revenue arising from production activity is recognized on the date of delivery of goods and the transfer of title thereto.

• Interest income is accrued on a regular basis by reference to the outstanding principal amount and the applicable effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

• Dividend income is recognized where the shareholder's right to receive a dividend payment is established.

• Revenue under long-term contracts is recognized in accordance with IAS 11 Construction Contracts as described below.

Construction type contracts

The Group principally operates fixed price contracts. If the outcome of such a contract can be reliably measured, revenue associated with the construction contract is recognized by reference to the stage of completion of the contract activity at year end (the percentage of completion method).

The outcome of a construction contract can be estimated reliably when: (i) the total contract revenue can be measured reliably; (ii) it is probable that the economic benefits associated with the contract will flow to the entity; (iii) the costs to complete the contract and the stage of completion can be measured reliably; and (iv) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. When the outcome of a construction cannot be estimated reliably, contract revenue is recognized only to the extent of costs incurred that are expected to be recoverable.

In applying the percentage of completion method, revenue recognized corresponds to the total contract revenue (as defined below) multiplied by the actual completion rate based on the proportion of total contract costs (as defined below) incurred to date and the estimated costs to complete.

Contract revenue - contract revenue corresponds to the initial amount of revenue agreed in the contract and any variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue, and they are capable of being reliably measured.

Contract costs - contract costs include costs that relate directly to the specific contract and costs that are attributable to contract activity in general and can be allocated to the contract. Costs that relate directly to a specific contract comprise: site labor costs (including site supervision); costs of materials used in construction; depreciation of equipment used on the contract; costs of design, and technical assistance that is directly related to the contract.

3. Summary of significant accounting policies (continued)

Construction type contracts (continued)

The Group's contracts are typically negotiated for the construction of a single asset or a group of assets which are closely interrelated or interdependent in terms of their design, technology and function. In certain circumstances, the percentage of completion method is applied to the separately identifiable components of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.

Assets covered by a single contract are treated separately when:

• The separate proposals have been submitted for each asset;

• Each asset has been subject to separate negotiation and the contractor and customer have been able to accept or reject that part of the contract relating to each asset;

• The costs and revenues of each asset can be identified.

A group of contracts are treated as a single construction contract when:

• The group of contracts is negotiated as a single package; the contracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin;

• The contracts are performed concurrently or in a continuous sequence.

Exploration and evaluation assets

The Company recognizes exploration and evaluation costs using the successful efforts method as permitted by IFRS 6 Exploration for and Evaluation of Mineral Resources. Under this method, costs related to exploration and evaluation (license acquisition costs, exploration and appraisal drilling) are temporarily capitalized until the drilling program results in the discovery of economically feasible oil and gas reserves. If a determination is made that the well did not encounter oil and gas in economically viable quantities, the well costs are expensed to Exploration expenses in the consolidated statement of profit or loss. Exploration and evaluation assets are recognized at cost less impairment, if any, as property, plant and equipment until the existence (or absence) of commercial reserves has been established.

Exploration and evaluation assets are subject to technical, commercial and management review as well as review for indicators of impairment at least once a year. This is to confirm the continued intent to develop or otherwise extract value from the discovery. When indicators of impairment are present, impairment test is performed. If subsequently commercial reserves are discovered, the carrying value, less losses from impairment of the respective exploration and evaluation assets, is classified as oil and gas properties (development assets). However, if no commercial reserves are discovered, such costs are expensed after exploration and evaluation activities have been completed.

3. Summary of significant accounting policies (continued)

Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses, if any. The initial cost of the asset includes the purchase price or expenditures incurred that are directly attributable to the acquisition of the assets. The purchase price is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Major replacements of property, plant and equipment are capitalized. All other repair and maintenance costs are charged to the profit and loss component of the consolidated statement of comprehensive income during the financial period in which they are incurred.

Depreciation on property, plant and equipment is calculated using the straight-line method over the estimated useful lives, as follows:

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

Leases

Group as a lessee

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Finance leases that transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an operating expense in the profit or loss on a straight-line basis over the lease term.

Group as a lessor

Leases in which the Group does not transfer substantially all the risks and benefits of ownership of an 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 basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

3. Summary of significant accounting policies (continued)

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 asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Intangible assets other than goodwill

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in profit and loss in the period 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 are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify 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 profit or loss as the expense category that is consistent with the function of the intangible assets.

Intangible assets with a finite life are amortized on a straight-line basis over their expected useful lives. The useful lives of the Group's intangible assets are as follows:

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate:

• The technical feasibility of completing the intangible asset so that the asset will be available for use or sale;

• Its intention to complete and its ability to use or sell the asset;

• How the asset will generate future economic benefits;

• The availability of resources to complete the asset;

• The ability to measure reliably the expenditure during development.

3. Summary of significant accounting policies (continued)

Intangible assets other than goodwill (continued)

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.

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 profit or loss when the asset is derecognised.

Financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (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 described below:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value) in the profit or loss.

Financial assets designated upon initial recognition at fair value through profit or loss are designated at their initial recognition date and only if the criteria under IAS 39 are satisfied. The Group has not designated any financial assets at fair value through profit or loss.

3. Summary of significant accounting policies (continued)

Financial assets (continued)

The Group evaluates its financial assets held for trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management's intention to sell them in the foreseeable future significantly changes, the Group may elect to reclassify them. The reclassification to loans and receivables, available-for-sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation, as these instruments cannot be reclassified after initial recognition.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

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 (EIR) method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss in finance costs for loans and in cost of sales or other operating expenses for receivables.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held to maturity investments are measured at amortised cost using the EIR, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss in finance costs. The Group did not have any held-to-maturity investments during the years ended 31 December 2014 and 2013.

Available-for-sale financial investments

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

3. Summary of significant accounting policies (continued)

Financial assets (continued)

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 the investment is determined to be impaired, when the cumulative loss is reclassified from the available-for sale reserve to the profit or loss in finance costs. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the EIR method.

The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management's intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held to maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the 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 maturity amount 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 profit or loss. The Group did not have any available-for-sale investments during the years ended 31 December 2014 and 2013.

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 pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of 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.

3. Summary of significant accounting policies (continued)

Financial assets (continued)

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.

Impairment of financial assets

The Group assesses, at each reporting date, whether there is 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 there is objective evidence of impairment as a result of one or more events that has occurred since 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 observable data indicating 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 whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been 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 asset's original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or loss. 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 finance income in the profit or loss. 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 write-off is later recovered, the recovery is credited to finance costs in the profit or loss.

3. Summary of significant accounting policies (continued)

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 evaluated against the original cost of the investment and "prolonged" against the period in which the fair value has been below its original cost. When 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 profit or loss - is removed from other comprehensive income and recognised in the profit or loss. Impairment losses on equity investments are not reversed through profit or loss; 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 profit or loss.

Future interest income continues to be accrued based on the reduced carrying amount of the asset, 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 profit or loss, the impairment loss is reversed through the profit or loss.

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, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. 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, net of directly attributable transaction costs.

The Group's financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, financial guarantee contracts, and derivative financial instruments.

3. Summary of significant accounting policies (continued)

Financial liabilities (continued)

Subsequent measurement

The measurement of financial liabilities depends on their classification as described below:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the profit or loss.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IAS 39 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss.

Loans and borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the profit or loss.

Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation.

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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the profit or loss.

3. Summary of significant accounting policies (continued)

Offsetting of financial instruments

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

Inventories

Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:

• Raw materials: purchase cost on a first in, first out basis;

• Finished goods and work in progress: cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity, but excluding borrowing costs.

Where payment for inventories is deferred and such an arrangement actually contains elements of financing, the difference between the purchase price which is normally paid on trade credit terms and the consideration paid is recognized as interest expense over the term of the credit and is charged to the statement of comprehensive income.

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.

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. Recoverable amount 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. When 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, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group's CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.

3. Summary of significant accounting policies (continued)

Impairment of non-financial assets (continued)

Impairment losses of continuing operations, including impairment on inventories, are recognised in the profit or loss in expense categories consistent with the function of the impaired asset, except for a property previously revalued when 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.

The following assets have specific characteristics for impairment testing:

Goodwill

Goodwill is tested for impairment annually as at 31 December and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

Intangible assets

Intangible assets with indefinite useful lives are tested for impairment annually as at 31 December either individually or at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

Cash and cash equivalents

Cash represents cash in hand and in the Group's bank accounts and interest bearing deposits, which can be effectively withdrawn at any time without prior notice or penalties reducing the principal amount of the deposit. Cash equivalents are highly liquid short-term investments that are readily convertible to known amounts of cash and have original maturities of three months or less from their date of purchase. They are carried at cost plus accrued interest, which approximates fair value.

Share capital

Ordinary shares are classified as equity. Any excess of the fair value of consideration received over the par value of shares issued is recognized also as share premium.

Dividends

Dividends are not recognized as a liability or deducted from equity as at the reporting date unless they have been declared / approved by the shareholders on or before the reporting date. Dividends are disclosed in financial statements if they have been declared after the reporting date, but before the date when the financial statements are authorized for issue.

3. Summary of significant accounting policies (continued)

Government grants

A government grant is recognized in the statement of financial position initially as deferred income when there is reasonable assurance that it will be received and that the company will comply with the conditions attached to it. Grants that compensate the company for expenses incurred are recognized as other operating income on a systematic basis in the same periods in which the expenses are incurred. Government grants include grants for research and development.

Provisions

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. When 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 a provision is presented in the profit or loss net of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as finance costs.

Warranties

Provisions for warranty-related costs are recognised when the product is sold or service provided to the customer. Initial recognition is based on historical experience. The initial estimate of warranty-related costs is revised annually.

Restructuring provisions

Restructuring provisions are recognised only when the recognition criteria for provisions are fulfilled. The Group has a constructive obligation when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, and an appropriate timeline. Furthermore, the employees affected have been notified of the plans main features.

Contingent liabilities recognised in a business combination

A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of the amount that would be recognised in accordance with the requirements for provisions above or the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the requirements for revenue recognition.

Income tax for the year comprises current and deferred tax. Income tax is recognized in the statement of income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Parent company is Cyprus resident whereas all subsidiaries are registered in Russia and Kazakhstan.

3. Summary of significant accounting policies (continued)

Income tax

Current income tax

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the profit or loss. 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 between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

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

• When the deferred tax liability arises from the initial recognition of goodwill or 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;

• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised 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:

• When 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;

• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

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.

3. Summary of significant accounting policies (continued)

Income tax (continued)

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.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction to goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in profit or loss.

Value-added tax

The Russian tax legislation permits settlement of value added tax ("VAT") on a net basis. VAT is payable to the state budget upon invoicing and delivery of goods, performing work or rendering services, as well as upon collection of prepayments from customers. VAT on purchases, even not settled at the reporting date, is deducted from the amount of VAT payable.

Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT. VAT recoverable arises when VAT input related to purchases exceeds VAT output related to sales.

Offsetting

Assets and liabilities are only offset and reported at the net amount in the consolidated statement of financial position when there is a legally enforceable right to offset the recognized amounts and the Group intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.

Social expenditures

To the extent that the Group's contributions to social programs benefit the community at large and are not restricted to the Group's employees, they are recognized in the statement of comprehensive income as incurred.

3. Summary of significant accounting policies (continued)

Employee benefits

In the normal course of business the Group contributes to the Russian Federation state pension scheme on behalf of its employees. Mandatory contributions to the governmental pension scheme are expensed when incurred. Discretionary pensions and other post-employment benefits are included in labor costs in the statement of comprehensive income, however, separate disclosures are not provided as these costs are not material. There are no other pension plans. The Group contributes to the Russian Federation state social insurance, medical insurance and unemployment funds on behalf of its employees.

Financial income and expenses

Finance income comprises interest income on funds invested, dividend income, and changes in the fair value of financial assets at fair value through profit or loss, and foreign currency gains.

Interest income is recognized as it accrues in the statement of comprehensive income, using the effective interest method. Dividend income is recognized in the statement of income on the date that the Group's right to receive payment is established, except for dividends from associates, which are deducted from investment in associates and not recognised in profit and loss.

Finance expenses comprise interest expense on loans and borrowings, unwinding of the discount on provisions, dividends on preference shares classified as liabilities, foreign currency losses, changes in the fair value of financial assets at fair value through profit or loss and impairment losses recognized on financial assets. All borrowing costs are recognized in the statement of comprehensive income using the effective interest method. Foreign currency gains and losses are reported on a net basis.

Reclassifications

A number of items presented in the Group's 2013 consolidated financial statements have been reclassified to ensure the comparability of information in the consolidated financial statements for the year ended on 31 December 2014. This primarily included classification of interest liability on promissory notes within accounts payable.

4. Changes in accounting policies and disclosures

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

During the current year the Group adopted all the new and revised International Financial Reporting Standards (IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2014. As of 31 December 2014 the Group has early adopted IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements" and IFRS 12 "Disclosure of Interests in Other Entities". This adoption did not have a material effect on the accounting policies of the Group.

4. Changes in accounting policies and disclosures (continued)

Standards, interpretations and amendments to published standards that are issued but not yet effective

Up to the date of approval of the financial statements, certain new Standards, Interpretations and Amendments to existing standards have been published that are not yet effective for the current reporting period and which the Group has not early adopted, as follows:

Issued by the IASB and adopted by the European Union

• IFRIC Interpretation 21 Levies (effective for annual periods beginning on or after 17 June 2014);

• Annual Improvements to IFRSs 2010-2012 Cycle (effective for annual periods beginning on or after 1 July 2014);

• Annual Improvements to IFRSs 2011-2013 Cycle (effective for annual periods beginning on or after 1 July 2014);

• Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) (effective for annual periods beginning on or after 1 July 2014).

Issued by the IASB but not yet adopted by the European Union

• IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018);

• IFRS 14 Regulatory Deferral Accounts (effective for annual periods beginning on or after 1 January 2016);

• IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2017);

• Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception (effective for annual periods beginning on or after 1 January 2016);

• Amendments to IAS 1 Disclosure Initiative Operations (effective for annual periods beginning on or after 1 January 2016);

• Annual Improvements to IFRSs 2012-2014 Cycle (effective for annual periods beginning on or after 1 January 2016);

• Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective for annual periods beginning on or after 1 January 2018);

• Amendments to IAS 27 Equity Method in Separate Financial Statements (effective for annual periods beginning on or after 1 January 2016);

• Amendments to IAS 16 and IAS 41 Bearer Plants (effective for annual periods beginning on or after 1 January 2016);

• Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation (effective for annual periods beginning on or after 1 January 2016);

• Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations (effective for annual periods beginning on or after 1 January 2016).

The above are expected to have no significant impact on the Group's financial statements when they become effective.

5. Significant accounting judgments, estimates and assumptions

The Group makes a number of assumptions and estimates, which may affect the reporting of assets and liabilities in the next financial year. Estimates and assumptions are continuously assessed and are based on the management experience and other factors, including expectations of future events, and are reasonable under the circumstances. In addition to these estimates, management also relies on certain judgments in applying the accounting policies. Most significant judgments, which affect the amounts recorded in the consolidated financial statements, and estimates, which may result in significant adjustment of the carrying value of assets and liabilities in the next financial year are presented below.

Business valuation and impairment test

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from these estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position 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.

The following methodologies (in the course of priority) were applied to most assets valuations:

• market valuation;

• discounted cash flow (DCF) method;

• multiples method.

In most cases the asset value obtained using the primary method is controlled using a secondary method. If the controlling method produces a result which is different from that obtained using the primary method, the following algorithm is used:

• the assumptions used in the primary and controlling methods are double-checked;

• the factors causing the variation are tried to be determined.

In case of identification of objective factors explaining the variation in valuation results, the result produced by the primary method shall be used. In the absence of objective factors explaining the difference in valuation results, the average of the two value estimates is used. Valuation techniques are in part based on assumptions that are not supported by observable market prices or rates. Management believes that changing any such assumption would not result in a significantly different value.

Management has made a number of judgments, estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with IFRS. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

5. Significant accounting judgments, estimates and assumptions (continued)

Construction type contracts

The Group applies judgments in measuring and recognizing contracts accounted for in accordance with IAS 11 Construction Contracts. Revenue from construction contracts is recognized in the amount referred to the stage (percent) of the work performed depending on the completion of the contract. The percentage of completion is determined based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

Provision for doubtful accounts receivable

Provision for doubtful accounts receivable is based on the assessment of probability of collecting receivables from certain counterparties. In case of overall deterioration of the customers' solvency or when an actual outstanding debt exceeds the estimated level, the actual results may differ from these estimates.

Contingent tax liabilities

Russian tax legislation is subject to varying interpretations and changes occur frequently. When the Group's management believes that it is highly probable that tax authorities may challenge the Group's interpretation of the legislation applied and its position as related to the accuracy of tax calculation and payment, an appropriate provision is formed in the consolidated financial statements.

Litigations

The Group's management exercises considerable judgment in measuring and recognizing provisions and the exposure to contingent liabilities related to pending litigations or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent liabilities.

Judgment is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and quantifying the possible range of the final settlement. Because of the inherent uncertainties in this evaluation process, actual losses may be different from the originally estimated provision. These estimates are subject to change as new information becomes available, primarily with the support of internal specialists, if available, or with the support of outside consultants, such as actuaries or legal counsel. Revisions to the estimates may significantly affect future operating results.

6. Acquisition of non-controlling interest

In 2014, the Group acquired an additional 11.59% interest in the voting shares of its major operating subsidiary OJSC Geotech Seismic Services, increasing its ownership interest to 100.00%, and 1.53% in the share capital of LLC Boguchanskaya Geophisicheskaya Expeditsiya, increasing its ownership interest to 97.14%.

Cash consideration of 452,829 was paid to the non-controlling shareholders and 21,342 expenses were incurred in relation to this transaction. As of 31 December 2014 all obligations in relation to the acquisition of non-controlling interest were settled in full.

6. Acquisition of non-controlling interest (continued)

Following is a schedule of additional interests acquired by the Group in its operational subsidiaries:

7. Acquisition of assets

In September 2014 the Group has completed acquisition of LLC Luidor, an entity owning an exploration and production license for the Nitchemyu-Syninskiy oil-field (Komi republic). The entity has been purchased for the purpose of performing seismic services with an aim for consequent resale of the asset with profit. Consideration comprised 495,000 and was settled in full amount by December 2014 to the unrelated party. The acquisition was accounted for as assets acquisition which did not meet a definition of a "business" acquisition under IFRS 3 Business Combinations. The Group recognised the individual identifiable assets acquired and liabilities assumed. The cost of the group of assets was allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase and comprised the following as of the date of acquisition:

Fair value of the exploration and production license was determined by the independent appraisal and accounted within exploration and evaluation assets in accordance with IFRS 6. The loan issued to a third party, is denominated in Russian rubles, matures on 31 December 2016 and bears interest rate of 10% p.a.

The difference between the consideration paid and the fair value of the acquired assets and liabilities of 612 was charged to the profit and loss.

8. Segment information

For management purposes, the Group is organized into business units based on their products and services, and has two reportable operating segments which are Seismic segment and Data processing and interpretation (DPI) segment. Seismic segment includes conducting seismic works with the purpose of search and exploration of oil and gas fields, comprising oilfield seismic works in two or three dimensions, field seismic works in a land-sea transit zone. DPI segment includes processing of seismic and geophysical data, structural interpretation of results of processing, dynamic processing and interpretation of results of processing.

Information on transactions of the holding and managerial companies which conduct managerial services and financial and investment activities was included into the Corporate block, that is not separate operating segment. Information on transactions of the non-core companies (subsidiaries) was included into the Other block, that is not separate operating segment.

8. Segment information (continued)

Transfer prices between Seismic segment, DPI segment and Corporate block are on an arm's length basis in a manner similar to transactions with third parties. Internal revenues and expenses primarily pertain to management services rendered by Corporate block to Seismic segment and DPI segment. In the periods presented below, the Group operated in the Russian Federation and Kazakhstan.

The following table's present revenue and profit information regarding the Group's operating segments for years ended 31 December 2014 and 2013, respectively. Intersegment revenues and intersegment costs are presented for reference only and are not taken into account in calculating gross profit.

8. Segment information (continued)

Calculation of the adjusted EBIT and adjusted EBITDA from operating profit/(loss):

Restructuring and redundancy costs incurred during the year ended 2014 primarily relates to the reduction of staff in connection with the optimization of the Company's corporate structure and business units management structure and certain restructuring of several operating subsidiaries of the Group.

In the second half of 2014 the Group has decided to liquidate three small non-core subsidiaries to eliminate unfeasible maintenance costs. Two subsidiaries Seysmos LLC and Khantymansiyskgeofizika-service LLC are incorporated in Russian Federation and one, Ishimgeofizika, is domiciled in Kazakhstan. The liquidation is expected to be finalized by the mid 2015. A loss before tax was incurred by these subsidiaries which is included within restructuring and redundancy costs of other subsidiaries for the year ended 31 December 2014.

8. Segment information (continued)

During the years ended 31 December 2014 and 2013, the Group earned its external sale by its geographical areas as follows:

As of 31 December 2014 and 31 December 2013, the Group had its goodwill and intangible assets, property, plant and equipment and investments in associates by their geographical areas as follows:

In 2014, the Group earned transaction revenues from operations each exceeding 10 percent of the Group's consolidated revenues with three major customers in the amounts of 3,213,713, 3,110,614 and 2,067,331, reported within revenues from field seismic operations (2013: four customers in the amounts of 4,036,493, 2,167,553, 1,873,928 and 1,867,418).

9. Goodwill

For impairment testing purposes, goodwill acquired as a result of the business combination was attributable to one separate cash-generating unit - Seismic works.

As at 31 December 2014 and 2013, the carrying amount of goodwill was 3,760,082.

Recoverable amount of the cash generating unit has been determined by calculating value-in-use using cash-flow projections up to 2020 and terminal value of working capital and non-current assets as of the projection period end. A pre-tax discount rate of 18.9% (2013: 16.3%) derived from the weighted average cost of capital has been applied to the projected cash-flows. These calculations are based on 5-year projections and all the assumptions in relation to production volumes and pricing growth rates are determined by reference to management's past experience and industry forecasts. The cash flow forecasts beyond the five-year period were extrapolated using perpetuity formula and zero terminal growth rate (2013: 2.0%).

In calculating the value-in-use of the assets, the following assumptions have been regarded as most significant: marginal income, discount rates and the growth rate used to extrapolate cash flows beyond the planned period.

Risks inherent in the oil service industry are directly related to economic conditions in the oil sector shaped by global oil prices. The key factors of risk include slumping oil prices, which cause oil companies to sharply cut their exploration costs and minor investors to quit the industry.

In addition, these trends are exacerbated by deteriorating customer solvency leading to growth in receivables and a slower turnover or shortage of working capital and ultimately triggering growth in payables.

9. Goodwill (continued)

As at 31 December 2014, the Group determined that the recoverable amount of seismic CGU exceeds the carrying amount of the unit and, therefore, no impairment on this unit was recognized.

With regard to the assessment of value in use cash-generating units, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount.

Level of WACC when impairment occurs is 24.4%. Level of terminal growth rate when impairment occurs is - 7.7%.

10. Material partly-owned subsidiaries

Financial information of subsidiaries that have material non-controlling interests is provided below:

Proportion of equity interest held by non-controlling interests:

The summarised financial information of these subsidiaries is provided below. This information is based on amounts before inter-company eliminations.

10. Material party-owned subsidiaries (continued)

10. Material party-owned subsidiaries (continued)

11. Intangible assets other than goodwill

During the year ended 31 December 2014 the Group has acquired new software from Geoquest System which cost USD 5.8 million (197,851) and is used for data processing and interpretation contracts.

12. Property, plant and equipment

Property, plant and equipment as at 31 December 2014 comprised the following:

Property, plant and equipment as at 31 December 2013 comprised the following:

12. Property, plant and equipment (continued)

The above amounts include several vehicles under finance lease agreements. Net book value of these vehicles comprised 13,913 as of 31 December 2014 (31 December 2013: 11,778):

Collateral

Properties with a carrying amount of 1,865,065 are subject to a registered debenture to secure bank loans (31 December 2013: 556,986) (Note 33).

13. Investments in associates

The Group's equity associates were as follows:

The principal activity of the associates is seismic data acquisition to the petroleum industry in the Russian Federation. Details on transactions and balances with associates which are only related parties to the Group are disclosed in Note 34.

Movements in the carrying value of the Group's investments in associate are summarized in the table below:

Summarised statement of financial position of OJSC Sibneftegeofizika:

13. Investments in associates (continued)

Summarised statement of comprehensive income of OJSC Sibneftegeofizika:

Summarised cash flow information of OJSC Sibneftegeofizika:

Summarised statement of financial position of OJSC Stavropolneftegeofisika:

Summarised statement of comprehensive income of OJSC Stavropolneftegeofisika:

14. Income tax

Income tax expense for the years ended 31 December comprised the following:

14. Income tax (continued)

Reconciliation of effective tax rate is presented below:

In the context of the Group's current structure, tax losses and current tax assets of the different subsidiaries may not be set off against current tax liabilities and taxable profits of other subsidiaries and, accordingly, taxes may accrue even where there is a net consolidated tax loss. Therefore, deferred tax asset of one subsidiary of the Group is not offset against deferred tax liability of another subsidiary.

In Cyprus losses in respect of the years up to 2009, which were not set off against profits up to the years 2014, may not be carried forward to the year 2015 according to Cyprus tax legislation. As far as the Russian subsidiaries are concerned, tax loss carry forwards available for utilization expire in 2015-2024.

Certain deductible temporary differences, unused tax losses or credits for which no deferred tax asset is recognised as of 31 December 2014 amounts to 1,519,445 and expires in 2023-2024 (31 December 2013: 385,940).

At 31 December 2014, there was no recognised deferred tax liability (2013: Nil) for taxes that would be payable on the unremitted earnings of the Group's subsidiaries. The Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future to the full extent. As of 31 December 2014 temporary differences associated with investments in associates, for which no deferred tax asset is recognised amount to 215,364 (31 December 2013: 106,447).

14. Income tax (continued)

Deferred tax relates to the following:

The table below presents movement in the deferred tax positions: