SHELL REFINING COMPANY (FEDERATION OF MALAYA) BERHAD (Incorporated in Malaysia)

Transcription

1 DIRECTORS REPORT AND STATUTORY FINANCIAL STATEMENTS 31 DECEMBER A5/nr

2 DIRECTORS REPORT AND STATUTORY FINANCIAL STATEMENTS 31 DECEMBER 2014 CONTENTS PAGES DIRECTORS REPORT 1-7 STATEMENT BY DIRECTORS 8 STATUTORY DECLARATION 8 INDEPENDENT AUDITORS REPORT 9-10 STATEMENT OF COMPREHENSIVE INCOME 11 STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN EQUITY 14 STATEMENT OF CASH FLOWS

3 DIRECTORS REPORT The Directors hereby submit their annual report to the members together with the audited financial statements of the Company for the financial year ended 31 December PRINCIPAL ACTIVITIES The principal activities of the Company consist of refining and manufacturing of petroleum products. There has been no significant change in these activities during the financial year. FINANCIAL RESULTS The results of the operations of the Company for the financial year were as follows: RM 000 Loss for the financial year (1,188,768) DIVIDENDS Since the end of the previous financial year, the Directors do not recommend the payment of any dividend for the financial year ended 31 December RESERVES AND PROVISIONS All material transfers to or from reserves and provisions during the financial year are shown in the financial statements. 1

4 DIRECTORS REPORT (CONTINUED) DIRECTORS The Directors who have held office during the period since the date of the last report are as follows: Iain John Lo Dato Seri Talaat bin Husain Datuk Seri Saw Choo Boon Datuk Zainun Aishah binti Ahmad Lau Nai Pek Datuk Yau Ah Fara Yvonne Arnel Lamco Santos Amir Hamzah Bin Abu Bakar Michael John Carey (appointed on 6 February 2015) In accordance with Articles 81(2) of the Company s Articles of Association, Mr Michael John Carey retires by rotation at the forthcoming Annual General Meeting and, being eligible, offer himself for re-election. In accordance with Article 81(3) of the Company s Articles of Association, Dato Seri Talaat bin Husain and Mr Iain John Lo, retire by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. DIRECTORS BENEFITS During and at the end of the financial year, no arrangements subsisted to which the Company is a party, being arrangements with the object or objects of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate except for awards of shares under the Performance Share Plan ( PSP ) granted by Royal Dutch Shell plc to eligible senior executives including certain Directors of the Company. Since the end of the previous financial year, no Director of the Company has received or become entitled to receive any benefit (other than benefits disclosed as Directors remuneration in Note 13 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. 2

5 DIRECTORS REPORT (CONTINUED) DIRECTORS BENEFITS (CONTINUED) Long-term incentives Following the unification of Shell Transport and Trading Company plc and Royal Dutch Petroleum Company (N.V. Koninklijke Nederlandsche Petroleum Maatschappij) in 2005, the share option grants were discontinued and in its place, an amended Long Term Incentive Plan was introduced. The purpose of the changes was to ensure a closer link between the remuneration of Directors and executives and the performance of the Royal Dutch Shell plc relative to its peers. Long-Term Incentive Plan ( LTIP ) Under the LTIP, performance shares are awarded conditionally once a year as shown below. TSR Rank Performance shares received 1 st 2 x award 2 nd 1.5 x award 3 rd 0.8 x award 4 th or 5 th Nil Awards will have a face value between zero and two times base award. Awards are subject to performance over a period of at least three years. The actual number of shares that Directors received in 2014 is based on the TSR performance of Royal Dutch Shell plc over the period from year 2011 to The face value of the conditional performance share award is the number of shares as referred to in Directors Longterm Incentive Interest below multiplied by the share price at the time of the award. DIRECTORS LONG-TERM INCENTIVE INTEREST The tables below show the PSP and the share options interest of the Directors who held office at the end of the financial year. Following the unification, the options that were made with respect to N.V. Koninklijke Nederlandsche Petroleum Maatschappij and Shell Transport and Trading Company plc shares, have been converted into Royal Dutch Shell plc share entitlements at the appropriate conversion rates. Other than consequential changes, the terms and conditions applicable to these options have generally not been altered as a result of this conversion. 3

6 DIRECTORS REPORT (CONTINUED) DIRECTORS BENEFITS (CONTINUED) DIRECTORS LONG-TERM INCENTIVE INTEREST (CONTINUED) (a) Interest in options over shares of Royal Dutch Shell plc Interest in options over shares in Royal Dutch Shell plc Balance as at 1 January 2014/since date of appointment Options granted Options exercised Options expired Balance as at 31 December 2014 Lau Nai Pek 11,600 0 (11,600) 0 0 (b) Direct interest in shares of Royal Dutch Shell plc (i) LTIP Awards Class of Shares Awards as at 1 January 2014/since date of appointment Awards granted in 2014 Awards cancelled /lapsed in 2014 Awards as at 31 December 2014 Awards vested in 2014 * Iain John Lo Lau Nai Pek Amir Hamzah bin Abu Bakar Arnel Santos 1 RDSA 30,925 12,650 (8,500) 35,075 8,111 1 RDSA 1,360 0 (1,360) RDSA 6,315 2,875 (1,840) 7,350 1,756 1 RDSA 8,000 8,500 16,500 11,543 * A face value of 95% of the LTIP awards granted in 2011 was vested during the financial year. 1 RDSA - Royal Dutch Shell plc Class A shares 2 RDSB - Royal Dutch Shell plc Class B shares 4

7 DIRECTORS REPORT (CONTINUED) DIRECTORS BENEFITS (CONTINUED) DIRECTORS LONG-TERM INCENTIVE INTEREST (CONTINUED) (b) Direct interest in shares of Royal Dutch Shell plc (continued) (ii) Direct interest in vested shares of **PSP and ***GESPP Iain John Lo Datuk Seri Saw Choo Boon Lau Nai Pek Amir Hamzah bin Abu Bakar Class of Shares 1 RDSA 2 RDSB 1 RDSA 2 RDSB Balance as at 1 January 2014/ since date of appointment 26, , Shares added to vested share account in , Dividend share Shares sold/ transferred in 2014 (29,361) (97) (21,810) 0 Balance as at 31 December , RDSA 3, ,140 1 RDSA 2,208 1, (3,988) ** PSP is Performance Share Plan *** GESPP is the Global Employee Share Purchase Plan available to all employees to subscribe for shares in Royal Dutch Shell plc According to the register of Directors shareholdings, none of the other Directors in office at the end of the financial year held any interest in shares in and debentures of the Company or its related corporations. 1 RDSA - Royal Dutch Shell plc Class A shares 2 RDSB - Royal Dutch Shell plc Class B shares 5

8 DIRECTORS REPORT (CONTINUED) STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS Before the financial statements were made out, the Directors took reasonable steps: (a) (b) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of the Company had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances: (a) (b) (c) which would render the amounts written-off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Company inadequate to any substantial extent; or which would render the values attributed to current assets in the financial statements of the Company misleading; or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Company misleading or inappropriate. No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Company to meet its obligations when they fall due. At the date of this report, there does not exist: (a) (b) any charge on the assets of the Company which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Company which has arisen since the end of the financial year. At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Company, which would render any amount stated in the financial statements misleading. In the opinion of the Directors: (a) (b) the results of the Company s operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature except as disclosed in the note to the financial statement in Note 3; and there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Company for the financial year in which this report is made. 6

9 DIRECTORS REPORT (CONTINUED) ULTIMATE HOLDING COMPANY The Directors regard Royal Dutch Shell plc, a company incorporated in England and Wales, as the Company s ultimate holding company. SIGNIFICANT SUBSEQUENT EVENTS Subsequent to the financial year, the following significant events occurred: (i) Structured review As disclosed in Note 33 to the financial statements, and as announced on 9 January 2015 to Bursa Malaysia, the Board has completed the structured review of Shell Refining Company s resilience in the current poor margin environment as announced in September The Board has concluded that refining margins are expected to remain depressed due to overcapacity in the global refining industry. Given the poor margin environment, the Board is proactively investigating long-term options in the best interest of the Company. These will include, but are not limited to, the potential sale of the assets, or conversion of operations to a storage terminal and/or other viable options. The focus near-term is to secure and sustain the safe and reliable operation of the Refinery while long-term options are being pursued. Once the final option has been selected, the Company will seek the necessary approval from shareholders in compliance with regulatory requirements. Further details on the selected option shall be disclosed and announced to Bursa Malaysia in due course. (ii) Extension of term loan The Company had successfully extended the maturity date of its long term loan of RM450 million which will be due on 15 June 2015 to 31 December 2015 as disclosed in Note 17 to the financial statements. AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. Signed on behalf of the Board of Directors in accordance with their resolution dated 31 March AMIR HAMZAH BIN ABU BAKAR MANAGING DIRECTOR IAIN JOHN LO CHAIRMAN 7

10 STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 We, Amir Hamzah Bin Abu Bakar and Iain John Lo, being the Directors of Shell Refining Company (Federation of Malaya) Berhad, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 11 to 56 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the provisions of the Companies Act, 1965 in Malaysia so as to give a true and fair view of the state of affairs of the Company as at 31 December 2014 and of the results and cash flows for the financial year ended on that date. The supplementary information set out in Note 35 on page 56 have been prepared in accordance with the Guidance of Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants. Signed on behalf of the Board of Directors in accordance with their resolution dated 31 March AMIR HAMZAH BIN ABU BAKAR MANAGING DIRECTOR IAIN JOHN LO CHAIRMAN STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 I, Michael John Carey, the Director primarily responsible for the financial management of Shell Refining Company (Federation of Malaya) Berhad, do solemnly and sincerely declare that the financial statements set out on pages 11 to 56 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, MICHAEL JOHN CAREY DIRECTOR Subscribed and solemnly declared by the above named Michael John Carey at Kuala Lumpur in Malaysia on 31 March 2015, before me. COMMISSIONER FOR OATHS 8

11 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ( 3926-U) REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of Shell Refining Company (Federation of Malaya) Berhad, on pages 11 to 55 which comprise the statement of financial position as at 31 December 2014 of the Company, and the statements of comprehensive income, changes in equity and cash flows of the Company for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on Notes 1 to 34. Directors Responsibility for the Financial Statements The Directors of the Company are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The Directors are also responsible for such internal control as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company s preparation of the 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 Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, 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. PricewaterhouseCoopers (AF 1146), Chartered Accountants, Level 10, 1 Sentral, Jalan Travers, Kuala Lumpur Sentral, P.O. Box 10192, Kuala Lumpur, Malaysia T: +60 (3) , F: +60 (3) , 9

12 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF (CONTINUED) ( 3926-U) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Company as of 31 December 2014 and of its financial performance and cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report that, in our opinion, the accounting and other records and the registers required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act. OTHER REPORTING RESPONSIBILITIES The supplementary information set out in Note 35 on page 56 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The Directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants ( MIA Guidance ) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. OTHER MATTERS This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants SUBATHRA A/P GANESAN (No. 3020/08/16(J)) Chartered Accountant Kuala Lumpur [ ] 10

13 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 Note Restated Revenue 6 14,262,773 14,696,086 Purchases (14,571,039) (14,519,448) (308,266) 176,638 Other income 7 14,440 13,653 Manufacturing expenses (191,576) (188,198) Administrative expenses (53,917) (43,384) Depreciation and amortisation (151,435) (146,700) Other expenses (3,148) (2,261) Finance cost 8 (68,693) (33,084) Impairment 9 (460,878) 0 Loss before taxation 9 (1,223,473) (223,336) Taxation 10 34,705 67,353 Loss for the financial year/ Total comprehensive expense for the financial year (1,188,768) (155,983) Loss per RM1 unit of share (sen) - basic 12 (396) (52) The notes set out on pages 17 to 56 form an integral part of these financial statements. 11

14 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 NON-CURRENT ASSETS Note Property, plant and equipment 14 1,104,821 1,667,822 Prepaid lease payments 15 1,864 1,885 Long-term receivables Derivative financial assets ,565 75,331 1,225,250 1,745,325 CURRENT ASSETS Inventories ,183 1,386,826 Trade receivables 19 26,971 68,649 Other receivables and prepayments 20 1, Tax recoverable 4,376 4,378 Amounts receivable from related companies 21 - Trade 737,976 1,226,301 - Non-trade 5,193 5,930 Bank balances 22 8,737 41,009 1,585,840 2,733,836 TOTAL ASSETS 2,811,090 4,479,161 CAPITAL AND RESERVES ATTRIBUTABLE TO OWNERS OF THE COMPANY Share capital , ,000 PSP from RDS* 1,306 1,237 Retained earnings 23,378 1,212, ,684 1,513,383 CURRENT LIABILITIES Trade and other payables 25 75,558 89,949 Amounts payable to related companies 21 - Trade 634,937 1,060,288 - Non-trade 17,636 41,203 Borrowings , ,513 1,647,246 1,694,953 NET CURRENT (LIABILITIES)/ ASSETS (61,406) 1,038,883 *Performance share plan from Royal Dutch Shell plc 12

15 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 (CONTINUED) NON-CURRENT LIABILITIES Note Borrowings ,160 1,236,120 Deferred tax liabilities , ,160 1,270,825 TOTAL EQUITY AND LIABILITIES 2,811,090 4,479,161 The notes set out on pages 17 to 56 form an integral part of these financial statements. 13

16 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 Issued and fully paid ordinary Nonshares of RM1 each distributable Distributable Number Nominal PSP Retained Note of shares value reserve earnings Total 000 At 1 January , ,000 1,237 1,212,146 1,513,383 Total comprehensive expense for the financial year (1,188,768) (1,188,768) PSP from RDS 24 - re-charge by parent 0 0 (1,144) 0 (1,144) - charge during the year 0 0 1, ,213 At 31 December , ,000 1,306 23, ,684 At 1 January , ,000 1,996 1,402,749 1,704,745 Total comprehensive expense for the financial year (155,983) (155,983) PSP from RDS 24 - re-charge by parent 0 0 (719) (870) (1,589) - charge during the year 0 0 (40) 0 (40) Dividends for the financial year ended: - 31 December (33,750) (33,750) At 31 December , ,000 1,237 1,212,146 1,513,383 The notes set out on pages 17 to 56 form an integral part of these financial statements. 14

17 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 Note CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation (1,223,473) (223,336) Adjustments for: Property, plant and equipment - depreciation 151, ,700 - write-off impairment 460,878 0 Interest expense 58,755 42,546 Interest income (92) (271) Net foreign exchange loss - unrealised 50,652 60,384 Fair value gain on derivative financial instruments (43,236) (61,798) Allowance/(reversal) of inventories write-down to net realisable value 80,167 (2,955) (Reversal)/allowance for doubtful debts (891) 1,307 Amortisation of prepaid lease payments PSP from RDS 1, (464,437) (37,362) Changes in working capital: Inventories 505,476 (250,331) Trade and other receivables 41,574 (45,463) Trade and other payables (8,921) (8,832) Related companies 41,760 89,684 Cash generated from/(used in) operations 115,452 (252,304) Interest received Net cash flows generated from/(used in) operating activities 115,544 (252,033) CASH FLOWS FROM INVESTING ACTIVITIES Property, plant and equipment - additions (54,827) (164,899) Net cash flows used in investing activities (54,827) (164,899) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of borrowings (35,730) 0 Proceeds from borrowings 0 502,540 Interest paid (57,423) (43,874) Dividends paid 0 (33,750) Net cash flows (used in)/generated from financing activities (93,153) 424,916 15

18 STATEMENT OF CASH FLOWS Note NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (32,436) 7,984 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 41,009 32,932 EFFECTS OF EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 22 8,737 41,009 During the financial year ended 31 December 2014, the Company acquired property, plant and equipment with an aggregate cost of RM49,445,737 (2013: RM89,763,000). During the year, cash payments of RM54,826,737 (2013: RM164,899,000) were made for acquisitions of property, plant and equipment. The balance unpaid at the financial year end of RM13,283,000 (2013: RM18,664,000) is included in accruals for capital expenditure under Note 25. The notes set out on pages 17 to 56 form an integral part of these financial statements. 16

19 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER GENERAL INFORMATION The principal activities of the Company consist of refining and manufacturing of petroleum products. There has been no significant change in these activities during the financial year. The Directors regard Royal Dutch Shell plc, a company incorporated in England and Wales, as the Company s ultimate holding company. The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of the Bursa Malaysia Securities Berhad ( Bursa Malaysia ). The address of the registered office of the Company is: Level 8, Symphony House Pusat Dagangan Dana 1 Jalan PJU 1A/ Petaling Jaya Selangor Darul Ehsan The address of the principal place of business of the Company is: Batu 1, Jalan Pantai Port Dickson Negeri Sembilan 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION The financial statements of the Company have been prepared in accordance with the Malaysian Financial Reporting Standards ( MFRS ), International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The financial statements of the Company have been prepared under the historical cost convention unless otherwise indicated in the summary of significant accounting policies. The Directors have prepared the financial statements of the Company on a going concern basis. The Company incurred net losses during the financial year ended 31 December 2014 of RM1,189 million (2013: RM156 million) which included an impairment charge of RM461 million in 2014 (2013: RM Nil). As of that date, the Company had net current liabilities of RM61 million (2013: net current assets of RM1,039 million). As at 31 December 2014, the outstanding borrowings amounted to RM1,758 million (2013: RM1,740 million) as disclosed in Note 17 to the financial statements, of which RM450million is short term. Subsequent to the financial year end, the Company had successfully negotiated for an extension to the maturity date of the RM450 million term loan to 31 December The Directors have considered in preparing the cash flow forecast for the next 12 months, the available credit facilities for operations and committed funding of RM450 million beyond the maturity date, and are of the opinion that it is appropriate to prepare the financial statements on a going concern basis. 17

20 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1 BASIS OF PREPARATION (CONTINUED) The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires Directors to exercise their judgment in the process of applying the Company s accounting policies. Although these estimates and judgment are based on the Directors best knowledge of current events and actions, actual results may differ. As at 31 December 2014, the areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3. (a) Standards, amendments to published standards and interpretations that are effective The new accounting standards, amendments and improvements to published standards and interpretations that are effective for the Company s financial year beginning on or after 1 January 2014 are as follows: Amendments to MFRS 132 Offsetting Financial Assets and Financial Liabilities' There is no significant impact on the financial results and position of the Company upon adoption of the above new standards, amendments to published standards and interpretation. (b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Company but not yet effective The Company will apply the new standards, amendments to standards and interpretations in the following period: (i) Financial year beginning on/after 1 January 2017 MFRS 15 Revenue from contracts with customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces MFRS 118 Revenue and MFRS 111 Construction contracts and related interpretations. 18

21 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1 BASIS OF PREPARATION (CONTINUED) (b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Company but not yet effective (continued) (ii) Financial year beginning on/after 1 January REVENUE RECOGNITION MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. There is now a new expected credit losses model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The adoption of the above will not result in any significant change to the Company s results and financial position. The Company is in the process of assessing the full impact of the adoption of MFRS 15 and MFRS 9 on the financial statements of the Company in the year of initial application. (a) Revenue Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Company s activities. Revenue is recognised upon delivery of products and acceptance by customers of refined and partially refined oil products and feedstocks, net of government taxes. 19

22 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.2 REVENUE RECOGNITION (CONTINUED) (b) Interest income Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognised using the original effective interest rate. (c) Other income 2.3 PURCHASES Other income comprises mainly of operating and transport fees charged to related companies. Purchases reflect all costs related to acquisition of inventories, the effects of the changes therein (cost of inventories), including foreign exchange gains and losses, supplies used for conversion into finished products and inventories write-down. 2.4 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost or valuation less accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it be capable of operating in the manner intended by management. Cost also includes borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (refer to accounting policy Note 2.13 on borrowing costs). All other property, plant and equipment are stated at historical costs less accumulated depreciation and accumulated impairment losses. Freehold land is not depreciated as it has an infinite life. All property, plant and equipment are depreciated on a straight line basis to allocate the cost, or the revalued amounts to their residual values, over their estimated useful lives at the following annual rates: Land improvements and buildings 2.5% - 5.0% Plant, machinery and equipment 9.0% % Motor vehicles 20% During the financial year, the Company revised the estimated useful lives of the refinery to the shorter of 11 years, or the remaining useful lives of the respective assets (refer to Critical accounting estimates and judgments Note 3 (ii)). Depreciation on work-in-progress commences when the assets are ready for their intended use. 20

23 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.4 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Plant, machinery and equipment comprise components of the refinery which are subject to different refurbishment cycle. Residual values and useful lives of assets are reviewed, and adjusted if appropriate, at the end of each reporting period. At the end of reporting period, the Company assesses whether there is any indication of impairment. If such indicators exist, the carrying amount of the asset is assessed and written down immediately to its recoverable amount. Refer accounting policy Note 2.6 on impairment of non-financial assets. Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in profit or loss. On disposal of revalued assets, amounts in revaluation reserve relating to those assets are transferred to retained earnings. 2.5 MAINTENANCE COSTS Asset replacement costs incurred by the Company for major scheduled maintenance of the refinery are capitalised as part of the refinery assets and depreciated on a straight line basis over their estimated useful lives, typically the period until the next major scheduled maintenance. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. 2.6 IMPAIRMENT OF NON-FINANCIAL ASSETS Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there is separately identifiable cash flows (cash generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. The impairment loss is charged to profit or loss unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in profit or loss unless it reverses an impairment loss on a revalued asset, in which case it is taken to revaluation surplus reserve. 2.7 LEASES (a) Finance leases Leases of property, plant and equipment where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate of interest on the remaining balance of the liability. The corresponding rental obligations, net of finance charges are included in borrowings. 21

24 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.7 LEASES (CONTINUED) (a) Finance leases (continued) The interest element of the finance charge is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. Property, plant and equipment acquired under finance lease are depreciated over the shorter of the estimated useful life of the asset and the lease term. (b) Operating leases 2.8 INVENTORIES Leases of assets where 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 charged to profit or loss on a straight-line basis over the lease period. Initial direct costs incurred by the Company in negotiating and arranging operating leases are capitalised as prepayments and recognised in profit or loss over the lease term on a straight-line basis. Inventories are stated at the lower of cost and net realisable value. Cost comprises direct purchase costs (including transportation, insurance and premium) and is determined using the first in, first out method. The cost of finished products includes oil, direct materials, labour and an appropriate proportion of fixed and variable manufacturing overheads. Net realisable value is the estimate of selling price in the ordinary course of business, less the cost of completion and selling expenses. 2.9 TRADE RECEIVABLES Trade receivables are amounts due from customers for oil products sold in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, cash and cash equivalents comprise cash, bank balances, deposits with licensed banks, other short-term and highly liquid investments with original maturities of three months or less. 22

25 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.11 SHARE CAPITAL (a) Classification Ordinary shares are classified as equity. (b) Dividends to shareholders of the Company 2.12 TRADE PAYABLES Dividends on ordinary shares are recognised as a liability in the period in which they are declared. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method BORROWINGS AND BORROWING COSTS Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the fair value (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method, except for borrowing costs incurred for construction of any qualifying asset. General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 23

26 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.14 CURRENT AND DEFERRED INCOME TAX The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. This liability is measured using the single best estimate of the most likely outcome. Deferred tax is recognised, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised. Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis EMPLOYEE BENEFITS (a) Short-term employee benefits The Company recognises a liability and an expense for bonuses, based on a formula that takes into consideration the profit attributable to the Company s shareholders after certain adjustments. The Company recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. Wages, salaries, paid annual leave, sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Company. 24

27 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.15 EMPLOYEE BENEFITS (CONTINUED) (b) Post-employment benefits The Company s post-employment benefit scheme comprises only of the defined contribution plan. Contributions to the Employees Provident Fund, which is a defined contribution plan, are charged to profit or loss when incurred. Once the contributions have been paid, the Company has no further payment obligations. (i) Long-term employee benefits The Company provides death in service and long-term disability benefits to its employees. The benefit is on a lump sum basis based on a multiplier of the last drawn average annual salary of the employee and is not dependent on the employee s length of service. Accordingly, it is charged to profit or loss when incurred CONTINGENT LIABILITIES AND CONTINGENT ASSETS The Company does not recognise contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past event whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company. The Company does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain PROVISIONS Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 25

28 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.18 GOVERNMENT GRANTS Grants from the Government are recognised at their fair value where there is a reasonable assurance that the grants will be received and the Company will comply with all attached conditions. Government grants relating to costs are recognised in profit or loss over the period necessary to match the related costs for which the grants are intended to compensate. Government grants relating to the purchase of assets are deducted in arriving at the carrying amount of the assets. The grants are recognised in profit or loss over the life of a depreciable asset by way of a reduced depreciation charge FOREIGN CURRENCIES The basis of accounting for foreign currency transactions is as follows: (a) Functional and presentation 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 Ringgit Malaysia, which is the Company s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings are presented in profit or loss within finance cost. Foreign exchange gains and losses that are relating to acquisition of inventories are presented in profit and loss within purchases. All other foreign exchange gains and losses are under other expenses. 26

29 2.20 FINANCIAL ASSETS (a) Classification The Company classifies its financial assets in the following categories: at fair value through profit or loss and 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. (i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current. (ii) 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 end of the reporting period. These are classified as non-current assets. The Company s loans and receivables comprise trade and other receivables, amounts due from related companies and cash and cash equivalents in the statement of financial position. (b) Recognition and initial measurement Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. (c) Subsequent measurement gains and losses Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables financial assets are subsequently carried at amortised cost using the effective interest method. Changes in the fair values of financial assets at fair value through profit or loss, including the effects of currency translation, interest and dividend income are recognised in profit or loss in the period in which the changes arise. 27

30 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.20 FINANCIAL ASSETS (CONTINUED) (d) Subsequent measurement impairment of financial assets Assets carried at amortised cost The Company assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Company uses to determine that there is objective evidence of an impairment loss include: Significant financial difficulty of the customers; A breach of contract, such as a default or delinquency in interest or principal payments; or It becomes probable that the customers will enter bankruptcy or other financial reorganization. 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 credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables have a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Company may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (e) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. 28