The National Detergent Co. SAOG

Transcription

1 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Principal place of business: Detergent Powder Unit: Liquid and Soap Unit: Sulphonation Unit: National Detergent Factory Road number 2 and 13 Way number 6421 Way number 3605 Rusayl Industrial Estate Ghala Industrial Estate Al Ghubrah Sultanate of Oman Sultanate of Oman Sultanate of Oman Sohar Detergent Powder Unit: Registered office: Road No. 5, Phase 1 P.O. Box 3104 Sohar Industrial Estate Ruwi, Postal Code 112 Sultanate of Oman Sultanate of Oman

2 THE NATIONAL DETERGENT CO. SAOG FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Contents Page Report of the independent auditors 1 Statement of comprehensive income 3 Statement of financial position 4 Statement of changes in equity 5 Statement of cash flows 6 Notes to the financial statements 7-34

3 DRAFT INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF THE NATIONAL DETERGENT CO. SAOG Report on the financial statements We have audited the accompanying financial statements of National Detergent Co. SAOG ( the Company ), which comprise the statement of financial position as at 31 December 2012, and the statement of comprehensive income, statement of changes in equity and 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 financial statements The Board of Directors is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the relevant disclosure requirements of the Commercial Companies Law of 1974, as amended, and the Rules and Guidelines on disclosures issued by the Capital Market Authority, and for such internal control as management determines is necessary to enable the preparation of 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 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 whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements 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 management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 4 2 INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF THE NATIONAL DETERGENT CO. SAOG (continued) Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2012, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Other matter The financial statements of the Company for the year ended 31 December 2011, were audited by another auditor who expressed an unmodified opinion on those statements on 28 February Report on other legal and regulatory requirements In our opinion the financial statements comply, in all material respects, with the relevant disclosure requirements of the Commercial Companies Law of 1974, as amended and the Rules and Guidelines on disclosure issued by the Capital Market Authority. [Date] Muscat

5 STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2012 Note Revenue 5 21,014,583 20,532,183 Cost of sales 6 (16,398,664) (15,919,334) GSS PFIT 4,615,919 4,612,849 Selling and distribution expenses 7 (2,821,484) (2,656,094) Administrative and general expenses 8 (859,226) (769,797) Other operating income 48,836 28,194 PFIT FM OPERATIONS 984,045 1,215,152 Finance costs 10 (200,597) (92,088) Finance income 10 2,938 12,474 Finance costs - net (197,659) (79,614) Directors remuneration (18,500) (30,000) Profit before tax 767,886 1,105,538 Taxation 11 (88,679) (129,526) PFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR 679, ,012 Basic earnings per share 12 Bzs 40 Bzs 57 The attached notes 1 to 30 form part of these financial statements. 3

6 STATEMENT OF FINANCIAL POSITION Assets Non-current asset Note Property, plant and equipment 13 13,501,133 13,514,403 Current assets Inventories 14 2,595,391 2,649,263 Trade and other receivables 16 5,664,847 4,893,566 Cash and bank balances , ,999 9,006,538 8,197,828 Total assets 22,507,671 21,712,231 Equity Share capital 18 1,701,250 1,701,250 Share premium , ,263 Legal reserve , ,083 Revaluation reserve 20 7,228,682 7,228,682 Proposed dividend , ,500 Retained earnings 2,212,528 2,128,759 Total equity 12,669,244 12,670,537 Liabilities Non-current liabilities Long term loans 22 2,223,613 2,597,222 Deferred government grant 22-2,892 Deferred tax 23 1,051,150 1,028,681 End of service benefits , ,092 3,777,799 4,058,887 Current liabilities Current maturities of term loans , ,875 Short term loans and overdrafts 22 1,656, ,000 Trade and other payables 25 3,754,290 3,908,444 Taxation 11 66, ,488 6,060,628 4,982,807 Total liabilities 9,838,427 9,041,694 Total equity and liabilities 22,507,671 21,712,231 Net assets per share 26 Bzs 745 Bzs 745 The financial statements were approved by the Board of Directors on signed on their behalf by: February 2013 and were Abdul Hussain Bhacker Al Lawati Chairman V Sundaresan Director and CEO The attached notes 1 to 30 form part of these financial statements. 4

7 STATEMENT OF CHANGES IN EQUITY Share Share Legal Revaluation Proposed Retained capital premium reserve reserve dividend earnings Total At 1 January ,701, , ,083 7,228, ,625 1,833,247 12,545,150 Comprehensive income: Profit for the year , ,012 Total comprehensive income for the year , ,012 Transaction with owners: Dividend paid (850,625) - (850,625) Proposed dividend ,500 (680,500) - Total transactions with owners (170,125) (680,500) (850,625) At 31 December ,701, , ,083 7,228, ,500 2,128,759 12,670,537 At 1 January ,701, , ,083 7,228, ,500 2,128,759 12,670,537 Comprehensive income: Profit for the year , ,207 Total comprehensive income for the year , ,207 Transaction with owners: Dividend paid (680,500) (680,500) Proposed dividend ,438 (595,438) - Total transactions with owners (85,062) (595,438) (680,500) 1,701, , ,083 7,228, ,438 2,212,528 12,669,244 The attached notes 1 to 30 form part of these financial statements. 5

8 STATEMENT OF CASH FLOWS For the year ended 31 December 2012 Operating activities Note Cash flows from operating activities , ,387 Interest paid (197,705) (79,757) Interest received Tax paid (130,488) (216,384) Net cash flows from operating activities 362, ,389 Investing activities Acquisitions of property, plant and equipment 13 (517,046) (3,033,304) Proceeds from disposal on property, plant and equipment 7,065 5,745 Cash flows used in investing activities (509,981) (3,027,559) Financing activities Long term loan received 300,000 2,750,000 Repayment of long term loans (337,044) (253,703) Short term loans 789, ,000 Dividend paid (680,500) (850,625) Cash flows from financing activities 71,865 2,345,672 Net decrease in cash and cash equivalents (76,086) (218,498) Cash and cash equivalents at the beginning of the year 654, ,497 Cash and cash equivalents at the end of the year 578, ,999 Cash and cash equivalent comprise: Cash at bank and in hand 746, ,999 Bank borrowings - overdraft (167,387) - 578, ,999 The attached notes 1 to 30 form part of these financial statements. 6

9 1 Legal status and principal activities The National Detergent Company SAOG, an Omani Joint Stock Company ( the Company ), was constituted in accordance with the Commercial Companies Law of Oman 1974, and Ministerial Decree number 78/1980 dated 3 November The principal activity of the company is manufacture and sale of detergents, liquid soaps and home care products. 2 Summary of significant accounting policies The principal accounting policies are summarised below. These policies have been consistently applied to all the years presented unless otherwise stated. 2.1 Basis of preparation The company s financial statements have been prepared in accordance with International Financial Reporting Standards, and applicable requirements of the Commercial Companies Law and the Capital Market Authority of the Sultanate of Oman. These financial statements have been presented in Rial Omani which is the functional and presentational currency for these financial statements. Changes in accounting policy and disclosures The accounting policies are consistent with those used in the previous financial year except as follows: The company has adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2012: IAS 12 Income Taxes (Amendment) Deferred Taxes: Recovery of Underlying Assets IFRS 7 Financial Instruments : Disclosures Enhanced Derecognition Disclosure Requirements The adoption of the standards or interpretations is described below: IAS 12 Income Taxes (Amendment) Deferred Taxes: Recovery of Underlying Assets The amendment clarified the determination of deferred tax on investment property measured at fair value and introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. It includes the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 should always be measured on a sale basis. The amendment is effective for annual periods beginning on or after 1 January 2012 and has no effect on the Company s financial position, performance or its disclosures. IFRS 7 Financial Instruments: Disclosures Enhanced Derecognition Disclosure Requirements The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Company s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about the entity s continuing involvement in derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after 1 July The Company does not have any assets with these characteristics so there has been no effect on the presentation of its financial statements. 7

10 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) The following standards, amendments and interpretations are not yet effective: The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. IAS 1 Financial Statement Presentation Presentation of Items of Other Comprehensive Income The amendments to IAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or recycled ) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Company s financial position. IAS 19 Employee Benefits (Revised) The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The amendment has no impact on the Company s financial position. IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates, has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The revised standard becomes effective for annual periods beginning on or after 1 January The amendment has no impact on the Company s financial position. IAS 32 Offsetting Financial Assets and Financial Liabilities Amendments to IAS 32 These amendments clarify the meaning of currently has a legally enforceable right to set-off. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments are not expected to impact the Company s financial position or performance and become effective for annual periods beginning on or after 1 January IFRS 1 Government Loans Amendments to IFRS 1 These amendments require first-time adopters to apply the requirements of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, prospectively to government loans existing at the date of transition to IFRS. Entities may choose to apply the requirements of IFRS 9 (or IAS 39, as applicable) and IAS 20 to government loans retrospectively if the information needed to do so had been obtained at the time of initially accounting for that loan. The exception would give firsttime adopters relief from retrospective measurement of government loans with a below-market rate of interest. The amendment is effective for annual periods on or after 1 January The amendment has no impact on the Company. IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities Amendments to IFRS 7 These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. These amendments will not impact the Company s financial position or performance and become effective for annual periods beginning on or after 1 January

11 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) IFRS 9 Financial Instruments: Classification and Measurement IFRS 9, as issued, reflects the first phase of the IASB s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The amendment has no impact on the company. IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also addresses the issues raised in SIC-12 Consolidation Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. The amendment has no impact on the company. This standard becomes effective for annual periods beginning on or after 1 January IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities Nonmonetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The amendment has no impact on the Company. IFRS 12 Disclosure of Interests in Other Entities IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required, but has no impact on the Company s financial position or performance. This standard becomes effective for annual periods beginning on or after 1 January IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Company is currently assessing the impact that this standard will have on the financial position and performance, but based on the preliminary analyses, no material impact is expected. This standard becomes effective for annual periods beginning on or after 1 January Annual Improvements May 2012 These improvements will not have an impact on the Company, but include: IFRS 1 First-time Adoption of International Financial Reporting Standards This improvement clarifies that an entity that stopped applying IFRS in the past and chooses, or is required, to apply IFRS, has the option to re-apply IFRS 1. If IFRS 1 is not re-applied, an entity must retrospectively restate its financial statements as if it had never stopped applying IFRS. 9

12 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) IAS 1 Presentation of Financial Statements This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the previous period. IAS 16 Property Plant and Equipment This improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. IAS 32 Financial Instruments, Presentation This improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes. IAS 34 Interim Financial Reporting The amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures. These improvements are effective for annual periods beginning on or after 1 January Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors ( the Board ) that makes strategic decisions. 2.3 Revenue recognition Revenue from the sale of goods is stated at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods. 2.4 Finance cost and income Financing costs comprise interest payable on borrowings calculated on effective interest rate method and foreign exchange losses. Finance income comprises dividend income, interest income and Government interest subsidy. Interest income and expense are recognised as they accrue using the effective interest rate method. 2.5 Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are included in selling and distribution expenses in the statement of comprehensive income on a straight-line basis over the period of the lease. 10

13 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 Foreign currency Items included in the financial statements of the company are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in Rials Omani, which is the company s functional and presentation currency. Foreign currency transactions are translated into Rials Omani at the exchange rate prevailing on the transaction date. Foreign currency assets and liabilities are translated into Rials Omani at the exchange rate prevailing at the statement of financial position date. Differences on exchange are dealt within the statement of comprehensive income. 2.7 Income tax Income tax on the results for the year comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is recognised in the statement of comprehensive income as the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred tax. Deferred income tax assets and liabilities are offset as there is a legally enforceable right to offset these in Oman. The principal temporary differences arise from revaluation of land, depreciation on property, plant and equipment and provisions for doubtful debts and slow moving stocks. 2.8 Property, plant and equipment Property, plant and equipment except freehold land are stated at cost less accumulated depreciation less any identified impairment losses. Freehold land is stated at revalued amounts and is not depreciated. Revaluation of land is carried out on a regular basis, not exceeding 3 years to determine its market value at the date of revaluation. When an asset is revalued, any increase in the carrying amount arising on revaluation is credited directly to other comprehensive income or directly in equity under the revaluation reserve, except to the extent that a revaluation increase merely restores the carrying value of an asset to its original cost, whereby it is recognised as income. A decrease resulting from a revaluation is initially charged directly against any related revaluation surplus held in respect of that same asset, the remaining portion being charged as an expense. On disposal the related revaluation surplus is credited directly to retained earnings. Subsequent costs are included in the asset s carrying amount or recognised as separate assets, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance expenses are charged to the statement of comprehensive income during the financial period in which they are incurred Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows: Years Buildings Plant and machinery 4-20 Furniture, fixtures and office equipment 3-5 Motor vehicles 4 11

14 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.8 Property, plant and equipment (continued) Land is not depreciated as it is deemed to have an indefinite life. Capital work-in-progress is not depreciated until it is transferred into one of the above categories at the time when it is ready for use. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down immediately to its recoverable amount. Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amounts and are taken into account in determining operating profit. 2.9 Investment in associates Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. The financial statements include the Company s share of the total recognised gains and losses of associates on an equity accounting basis, from the date that significant influence commences until the date that significant influence ceases. When the Company s share of losses exceeds its interest in an associate, the Company s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of an associate Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on the weighted average basis and consists of the direct cost of goods and related direct expenses. The cost of finished goods includes an appropriate portion of direct labour and related production overheads. Net realisable value is the price at which stock can be sold in the normal course of business after allowing for the costs of realisation Financial assets The company classifies its financial assets into loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the reporting date. These are classified as non-current assets. The company s loans and receivables comprise trade and other debtors and cash and cash equivalents in the statement of financial position (notes 2.12 and 2.13). 12

15 2 Summary of significant accounting policies (continued) 2.12 Trade and other receivables Trade debtors and other receivables are initially recognised at their fair value and subsequently stated at amortised cost using effective interest rate method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of any provision is recognised in the statement of comprehensive income within administrative and general expenses. Subsequent recoveries of amounts previously written off are credited against administrative and general expenses in the statement of comprehensive income Cash and cash equivalents For the purpose of the statement of cash flows, all bank balances and short term deposits with a maturity of three months or less from the date of placement are considered to be cash equivalents Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Term loans are carried on the statement of financial position at their principal amount. Instalments due within one year are shown as a current liability. Interest is charged as an expense as it accrues, with unpaid amounts included in accounts payable and accruals. Short-term loans are carried on the statement of financial position at their principal amount. Interest is charged as an expense as it accrues, with unpaid amounts included in trade and other payables Deferred Government grant Interest subsidy is recognised in the statement of financial position initially as a deferred Government grant when there is reasonable assurance that it will be received and that the Company will comply with the conditions attached to it. This deferred Government grant is amortised over the life of the loans to which it relates on a systematic basis in the same periods in which the interest expense is incurred. Amortisation of the deferred Government grant is recognised in the statement of comprehensive income End of service benefits and leave entitlements End of service benefits are accrued in accordance with the terms of employment of the Company's employees at the reporting date, having regard to the requirements of the Oman Labour Law 2003 as amended. Employee entitlements to annual leave and leave passage are recognised when they accrue to employees and an accrual is made for the estimated liability as a result of services rendered by employees up to the reporting date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosed as a non-current liability. Contributions to a defined contribution retirement plan and occupational hazard insurance for Omani employees in accordance with the Omani Social Insurances Law of 1991 are recognised as an expense in the statement of comprehensive income as incurred. 13

16 2 Summary of significant accounting policies (continued) 2.17 Trade and other payables Trade creditors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Liabilities are recognised for amounts to be paid for goods and services received, whether or not billed to the Company Earning per share The Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period Directors remuneration The Directors remuneration is governed as set out by the Commercial Companies Law and the rules prescribed by the Capital Market Authority. The Annual General Meeting shall approve the remuneration and the sitting fees for the Board of Directors provided that such fees shall not exceed 5% of the annual net profit after deduction of the legal reserve and the optional reserve and the distribution of dividends to the shareholders. Such fees shall not exceed 200,000 in one year. The sitting fees for each Director shall not exceed 10,000 in one year. 3 Financial risk management 3.1 Financial risk factors The Company s activities expose it to a variety of financial risks including the effects of changes in market risk (including foreign currency exchange rates and interest rates), credit risk and liquidity risk. The Company s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the company. Risk management is carried out by the management under policies approved by the Board of Directors. (a) Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity s functional currency. The majority of foreign currency transactions are either in US Dollar or in currencies linked to US Dollars. The Company also deals in other currencies such as Euro and Great Britain Pound. The Company manages the risks through regular monitoring of the currency markets to determine appropriate action to minimise the foreign exchange risk exposure. Management believes that the impact of the fluctuations from these transactions will not be significant. 14

17 3 Financial risk management (continued) 3.1 Financial risk factors (continued) (a) Market risk (continued) (ii) Interest rate risk The Company s interest rate risk arises from long term loan from a bank and short-term borrowings which are exposed to changes in market interest rates. The Company borrows from commercial banks at commercial rates of interest. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the Company to fair value interest rate risk. The Company s policy is to maintain majority of its borrowings in fixed rate instruments. During 2012 and 2011, the Company s borrowings were denominated only in Rial Omani. The Company analyses its interest rate exposure on a regular basis and reassesses the source of borrowings and renegotiates interest rates at terms favourable to the Company. The short term borrowing interest rates with banks are subject to change upon re-negotiation of the facilities which takes place on an annual basis in the case of overdrafts and at more frequent intervals in the case of short term loans. If the interest rate were to shift by 1% on borrowings, there would be a maximum increase or decrease in the interest expense of 5,673 ( ). The company earned interest on deposit placed with a commercial bank. The Company is exposed to interest rate fluctuations as the interest rate is at market rates. Further the management believes that the change in interest rate does not materially affect the company s performance as the interest income is not significant to the statement of comprehensive income. (b) Credit risk Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises from cash and cash equivalents and credit exposures to customers through outstanding debtors including outstanding amounts due from related parties. [Refer to note 15 (b) for credit quality of banks and financial institutions]. For banks and financial institutions, parties with a minimum rating of P2 are accepted. For outside customers, where there is no independent rating agency established in the country, the credit control team comprising senior management assesses the credit quality of the customers, taking into account their financial position, market reputation of the major stakeholders of the customers, past experience and other factors. On a need basis the Company also seeks security through post dated cheques, bank guarantee and letter of credit. The outstanding positions of the customers are regularly monitored by the credit control team. Credit risk on debtors is limited to their carrying values as management regularly reviews these balances to assess recoverability and makes provision for balances whose recoverability is in doubt. 15

18 3 Financial risk management (continued) 3.1 Financial risk factors (continued) (b) Credit risk (continued) The major groups of customers categorised by the company at the reporting date are set out below: % % Local customers 1,748,206 32% 1,309,517 28% Export customers 3,731,701 68% 3,350,412 72% 5,479, % 4,659, % Trade and other receivables includes 22% receivable from two customers in GCC countries ( % receivable from two customers in the GCC countries) who individually owe the Company more than 10% of the gross receivables at the reporting date. The Company has long-term distribution relation with these customers and had no financial issues or disputes in the past and accordingly the concentration risk is mitigated. The Company has taken adequate steps to mitigate the credit risk such as insurance coverage from Export Credit Guarantee Agency (ECGA), control on dispatches within approved credit limits, customers confirmation of balances at periodic intervals and acknowledgement of receipt of goods from the customers. (c) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company s reputation. Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot be reasonably predicted, such as natural disasters. In addition, the Company has access to credit facilities. 16

19 3 Financial risk management (continued) 3.1 Financial risk factors (continued) (c) Liquidity risk (continued) The table below analyses the Company s financial liabilities into the relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances, as the impact of discounting is not significant. 31 Dec 2012 Contractual cash flows Under 1 year 1-2 years 2-5 years Non-derivative financial liabilities Total Loans from commercial banks (note 22) 678, ,691 1,729,340 3,064,597 Short term loans and overdraft 1,656, ,656,796 Trade and other payables 3,754, ,754,290 6,089, ,691 1,729,340 8,475, Dec 2011 Contractual cash flows Non-derivative financial liabilities Under Total 1 year years years Government soft loans (note 22) 47, ,489 Loans from commercial banks (note 22) 303, ,852 2,329,384 3,180,318 Short term loans and overdraft (note 22) 700, ,000 Trade and other payables 3,908, ,908, Capital management 4,959, ,852 2,329,384 7,836,251 The capital of the Company comprises of paid-up share capital, share premium, retained earnings, legal reserves and revaluation reserves. Summary of quantitative data as to what it manages as the capital and any changes therein from the previous year are given in the statement of changes in equity. The primary objective of the Company s capital management is to ensure that it maintains appropriate capital ratios in order to support future development of the business and maximise shareholder value. 17

20 3 Financial risk management (continued) 3.2 Capital management (continued) The Company also uses gearing ratio to monitor its capital, which is calculated as debt divided by total capital plus net debt. The Company includes within debt, long-term interest bearing loans and all current borrowings. Capital includes equity attributable to the equity holders including share premium, retained earnings, revaluation and other reserves. Total borrowings 4,463,741 3,541,097 Less: cash and cash equivalents (746,300) (654,999) Net debts 3,717,441 2,886,098 Total equity 12,669,244 12,670,537 Total capital employed 16,386,685 15,556,635 Gearing ratio 23% 19% 3.3 Fair value estimation The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. The fair values of noncurrent financial liabilities other than Government soft loans are considered to approximate to their carrying amounts as these carry variable interest rates. None of the Company s financial instruments are carried in the statement of financial position at fair value as all the Company s financial assets and financial liabilities are carried in the statement of financial position at amortised cost. 4 Critical accounting estimates The company makes estimates and assumptions concerning the future. Estimates are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are set out below: 18

21 4 Critical accounting estimates (continued) Trade debtors The management reviews the debtors ageing on a monthly basis and submits the same to the Board of Directors. In case of difficult unsecured debtors whose outstanding is in excess of the credit period allowed, regular follow up is made to collect the same. In case considered necessary legal options are also explored. Debtors impairment provision is estimated by the management in case of doubtful debtors. In the event of a debtor becoming bad, after exploring all possible options including legal, the same is written off with the Board of Directors approval as and when identified. At the reporting date, gross trade receivable were 5,479,907 (2011: 4,659,929) and provision for doubtful debts was 200,477 (2011: 159,063). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the statement of comprehensive income. Impairment of inventories Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory type and the degree of ageing or obsolescence, based on anticipated selling prices. At the reporting date, gross inventories were 2,622,007 (2011: 2,723,691) with provisions for old and obsolete inventories of 86,428 (2011: 74,428) respectively. Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the statement of comprehensive income. Taxes Uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income. Given the wide range of business relationships and nature of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of finalisation of tax assessments. The amount of such provision is based on various factors, such as experience of previous tax assessments and differing interpretations of tax regulations by the Company and the responsible tax authority. Useful lives of property, plant and equipment The Company s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual value and useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ from previous estimates. 19

22 5 Segment information Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The Board considers the business from a divisional perspective. Divisionally, management considers the performance of Consumer division and other division. The reportable operating segments derive their revenue primarily from the manufacture and sale of detergents, liquid soap and homecare products. The directors review monthly analysis of production and sales by volume, sales, collections, cost of sales and factory cost by value, variance with budgets, financial position, and working capital facilities with utilisation status; raw materials and debtors on an overall Company basis. The following divisional analysis has been compiled based on the major division of the Company: 2012 Consumer division Revenue Cost of sales Other division Total 19,565,865 1,448,718 21,014,583 (15,171,574) (1,227,090) (16,398,664) Total overheads (3,652,567) (28,143) (3,680,710) Other income 43,524 5,312 48,836 Profit from operations 785, , ,045 Finance costs (184,736) (15,861) (200,597) Finance income 2,938-2,938 Finance costs -net (181,798) (15,861) (197,659) Directors remuneration (18,500) Profit before tax 767,886 Taxation (88,679) Profit for the year 679,207 Other financial information Trade receivables 5,107, ,421 5,479,907 Plant, property and equipment addition 506,352 10, ,046 20

23 5 Segment information (continued) 2011 Consumer division 21 Other division Total Revenue 18,552,955 1,979,228 20,532,183 Cost of sales (14,220,507) (1,698,827) (15,919,334) Total overheads (3,400,466) (25,425) (3,425,891) Other income 21,616 6,578 28,194 Profit from operations 953, ,554 1,215,152 Finance costs (71,600) (20,488) (92,088) Finance income 12,474-12,474 Finance costs -net (59,126) (20,488) (79,614) Directors remuneration - - (30,000) Profit before tax 894, ,066 1,105,538 Taxation - - (129,526) Profit for the year 894, , ,012 Other financial information Trade receivables 4,226, ,003 4,659,929 Plant, property and equipment addition 3,032, ,033,304 6 Cost of sales Materials consumed 12,404,821 12,791,334 Direct labour 1,711,467 1,207,930 Freight and handling charges 1,053, ,102 Utilities and direct expenses 818, ,175 Depreciation (see note 13) 410, ,793 16,398,664 15,919,334 7 Selling and distribution expenses Sales promotion and advertisement 1,608,358 1,686,086 Selling expenses 487, ,082 Employee related expenses 408, ,043 Distribution expenses 317, ,883 2,821,484 2,656,094

24 8 Administrative and general expenses Employee related costs 494, ,080 Depreciation (see note 13) 118,817 94,827 Repairs expenses 92,031 75,636 Printing stationery and telephone expenses 52,353 44,787 Other expenses 36,657 41,472 Professional charges 34,646 41,137 Travelling conveyance 19,234 24,458 Directors sitting fees (see note 30) 10,800 12,400 9 Employee related costs 859, ,797 Employee related costs included under cost of sales, selling and distribution expenses and administrative expenses: Wages and salaries 1,852,221 1,402,174 Other benefits 605, ,608 End of service benefits (note 24) 85,770 72,954 Training and recruitment expenses 70,953 52,317 2,614,913 1,976, Financial income and cost Finance cost Interest on long term borrowings Interest on short term borrowings (107,566) (8,567) (87,952) (68,442) Government grant (2,892) (12,331) Foreign exchange difference (2,187) (2,748) (200,597) (92,088) Finance income Interest income on deposits Notional interest on soft loan (note 22) 2,892 12,331 2,938 12,474 22

25 11 Taxation (a) The tax (charge)/credit for the year comprises: Current tax (66,210) (130,488) Deferred tax (22,469) 962 (88,679) (129,526) (b) The reconciliation of tax on the accounting profit at the applicable rate of 12% after the basic exemption limit of 30,000 with the taxation charge in the statement of comprehensive income is as follows: Tax on accounting profit of 767,886 (31 December ,105,538) 88, ,065 Add tax effect of: Expenses not allowed Tax charge for the year in the statement of comprehensive income 88, ,526 (c) Taxation has been agreed with the Oman Taxation Authorities for all years up to Assessments relating to the year 2008 to 2012 are pending with the Oman Taxation Authorities. 12 Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. Net profit attributable to shareholders () 679, ,012 Number of shares outstanding (note 18) 17,012,500 17,012,500 Earnings per share (Bz) The diluted earnings per share is identical to the basic earnings per share. 23