Northern Nigeria Flour Mills Plc Annual Report For the year ended 31 March 2018

Transcription

1 Annual Report For the year ended 31 March 2018

2 Corporate Information Country of incorporation and domiciliation Nature of business and principal activities Nigeria The Company's main business is milling of Wheat, Sorghum, Maize and similar grains. Directors Alhaji (Dr) Aminu Dantata, CON Mr. John G. Coumantaros Alhaji Rabiu Muhammad Gwarzo, OON Mr. Charl P.F Marais*** Mr. Peter Kradolfer*** Alhaji Sani Umar** Mr. Paul M. Gbededo Alhaji Y. Olalekan A. Saliu Mallam Mahmud Ahmed Mr. Richard Hedge Dr. Jibrilla Mohammed Alhaji Sadiq A. Usman* (US Citizen) (South African) (Swiss) (Swiss) Company registration number RC Date of incorporation 29 October, 1971 Registered office 15 Maimalari road, Bompai Industrial Estate, Kano. Postal address P.O.Box 6640 Kano. Holding company Bankers Independent Auditors Flour Mills of Nigeria Plc Incorporated in Nigeria Access Bank Plc First Bank of Nigeria Limited Guaranty Trust Bank Plc Sterling Bank Plc Union Bank of Nigeria Plc Zenith Bank Plc KPMG Professional Services KPMG Tower Bishop Aboyade Cole Street Victoria Island Lagos Ahmed Zakari & Co. Chartered Accountants 5th Floor African Alliance Building F.1 Sani Abacha Way P.O Box 6500, Kano Company Secretary Miyetti Nominees Limited 26, Post Office Road, Kano. 1

3 Corporate Information Registrars and Transfer Office Atlas Registrars Limited (BAGCO) Building 34, Eric Moore Road, Iganmu Lagos State Solicitor Messrs J. B. Maijiyagbe & Co. 4, Human Rights Avenue P. O. Box 726 Kano * Appointed as director 16 March **Resigned as deputy managing director during the year to become non-executive director. ***Resigned as director 16 March

4 Index The reports and statements set out below comprise the financial statements presented to the shareholders: Page Directors' Report 4 Statement of Directors' Responsibilities in Relation to the Financial Statements 10 Audit Committee Report 11 Independent Joint Auditors' Report 12 Statement of Financial Position 16 Statement of Profit or Loss and Other Comprehensive Income 17 Statement of Changes in Equity 18 Statement of Cash Flows Other national disclosures 62 Value Added Statement 63 Five Year Financial Summary 64 3

5 Directors' Report The directors present their annual report together with the financial statements and independent auditor's report on Northern Nigeria Flour Mills Plc for the year ended 31 March Legal form The Company was incorporated as a private limited liability company on 29 October Its registered office is 15, Maimalari road, Bompai Industrial Estate, Kano. The Company was converted to a public limited liability company in 1978 and its shares are qouted on the Nigerian Stock Exchange. It is a subsidiary of Flour Mills of Nigeria Plc, which holds 53.06% of the company's equity. Flour Mills of Nigeria Plc is incorporated in Nigeria. 2. Principal activities Northern Nigeria Flour Mills Plc was incorporated in Nigeria with interests in milling of wheat, maize and sorghum. The Company operates in Kano state, Nigeria. There have been no material changes to the nature of the Company's business from the prior year. 3. Results The summary of results for the year is as set out below: 31-Mar Mar-17 N '000 N '000 Revenue 2,861, ,521 Operating profit 348,379 8,364 (Loss)/profit before taxation (113,187) (8,778) Loss for the year (60,988) (18,024) Total comprehensive loss for the year (65,316) (11,359) 4. Directors and directors' interests The directors that served in office during the year were as follows: Directors Designation Alhaji (Dr) Aminu Dantata, CON Chairman Mr. John G. Coumantaros (US Citizen) Vice Chairman Alhaji Rabiu Muhammad Gwarzo, OON Vice Chairman Mr. Charl P.F Marais (South African) Director Resigned 16 March 2018 Mr. Peter Kradolfer (Swiss) Director Resigned 16 March 2018 Alhaji Sani Umar* Non-executive Mr. Paul M. Gbededo Non-executive Alhaji Y. Olalekan A. Saliu Non-executive Mallam Mahmud Ahmed Executive Mr. Richard Hedge (Swiss) Executive Appointed 16 March 2018 Dr. Jibrilla Mohammed Non-executive Alhaji Sadiq A. Usman Non-executive * Resigned as deputy managing director during the year to become non-executive director. In accordance with Section 277 of the Companies and Allied Matters Act, Cap C.20 LFN 2004 none of the directors has notified the Company of any declarable interests in contracts with the Company during the year. 5. Directors' interests in shares The directors who served during the year and their respective interests in the share capital of the company as recorded in the Register of members and/or notified for the purpose of Section 275 of the Companies and Allied Matters Act, Cap C.20 LFN 2004 are as follows: 4

6 Directors' Report Number of interests in shares Director 2018 Direct 2018 Indirect 2017 Direct 2017 Indirect Alhaji (Dr) Aminu Dantata, CON 1,216,782 9,894,362 1,111,195 9,894,362 Mr. John G. Coumantaros Alhaji Rabiu Muhammad Gwarzo, OON 609, ,598 - Mr. Charl P.F Marais Mr. Peter Kradolfer Alhaji Sani Umar 237, ,363 - Mr. Paul M. Gbededo Alhaji Y. Olalekan A. Saliu 97,881-97,881 - Mallam Mahmud Ahmed Mr. Richard Hedge Dr. Jibrilla Mohammed Alhaji Sadiq A. Usman Parent company 2,161,624 9,894,362 2,056,037 9,894,362 The parent company is Flour Mills of Nigeria Plc which holds 53% (2017: 53%) of the company's equity. Flour Mills of Nigeria Plc is incorporated in Nigeria. 7. Substantial Shareholders According to the Register of Members, the following shareholders of the company held more than 5% of the issued share capital of the company. There was no change in the shareholding structure of the Company during the year. As at 31 March, 2018, the shares of the Company were held as follows: Number of % shares Flour Mills of Nigeria Plc. 94,545, Northern Nigeria Investment Limited 12,955, Dantata Investment & Securities Limited 9,894, Directors' Responsibilities The Directors are responsible for the preparation of the financial statements which give a true and fair view in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies and Allied Matters Act of Nigeria, Cap C20 LFN 2004 and the Financial Reporting Council of Nigeria (FRCN Act 2011). In doing so, they ensure that: proper accounting records are maintained; suitable accounting policies are adopted and consistently applied; judgments and estimates made are reasonable; the going concern basis is used, unless it is inappropriate to presume that the Company will continue in business and; Internal control procedures are instituted which, as far as is reasonably possible, safeguard the assets, prevent and detect fraud and other irregularities. 9. Corporate Governance Introduction The Company is committed to the best practice and procedures in corporate governance. Its business is conducted in a fair, honest and transparent manner which conforms to high ethical standards. This enables the directors and Management to accomplish the company s strategic goals, ensure good growth and corporate stability for the benefit of all stakeholders. 5

7 Directors' Report Board meetings Members of the Board of Directors hold a minimum of four quarterly meetings to approve the Company s business strategy and objectives, decide on policy matters, direct and oversee the company s affairs, progress, performance, operations, finances; and ensure that adequate resources are available to meet the company s goal and objectives. Attendance of Directors at quarterly meetings is very good. In line with provisions of Section 258(2) of the Companies and Allied Matters Act of Nigeria, Cap C20 Laws of Federation of Nigeria 2004, record of Directors attendance at Board meetings is available for inspection at the Annual General Meeting Role of Directors The highlights of the role of directors include: Critical and regular examination of the company s overall strategy with a view to ensuring that its goals, business plan and budget are in alignment. Assign respective committees to consider and take appropriate decisions on issues requiring Board attention. Establish well-considered objectives for the company and monitor implementation, reviewing performance and ensure the deployment of appropriate competencies. Ensure that adequate resources are available to meet the company s goals and objectives. Oversee Board appraisal, training, succession planning, appointment and remuneration of members. Frequency and Attendance of Board Meetings The Board held four (4) meetings during the financial year ended 31 March The notice for each meeting was in line with the Company s Articles of Association and board papers are usually provided to Directors in advance. Senior Executives of the Company are invited to attend board meetings and make representations of their business units. A summary of record of attendance at Board meetings is presented below: Name 18-Jul Sep Dec Mar-18 Alhaji (Dr) Aminu Dantata, CON No No No No Mr. John G. Coumantaros Yes Yes Yes Yes Alhaji Rabiu Muhammad Gwarzo, OON Yes Yes Yes Yes Mr. Charl P.F Marais Yes Yes No N/a Mr. Peter Kradolfer Yes No Yes N/a Alhaji Sani Umar Yes Yes Yes Yes Mr. Paul M. Gbededo No Yes Yes Yes Alhaji Y. Olalekan A. Saliu Yes Yes Yes Yes Mallam Mahmud Ahmed Yes Yes Yes Yes Mr. Richard Hedge N/a N/a N/a Yes Dr. Jibrilla Mohammed Yes Yes Yes Yes Alhaji Sadiq A. Usman Yes Yes Yes Yes Yes - Present No - Absent NA Not applicable (not a director on this date) 6

8 Directors' Report Statutory Audit Committee Composition Pursuant to section 359(3) of the Companies and Allied Matters Act of Nigeria, Cap C20 Laws of Federation of Nigeria 2004, the Company has put in place an Audit Committee comprising: Alhaji Bello Umar Gwangwazo (Chairman) Alhaji Rabiu Muhammad Gwarzo, OON Alhaji Ashabu Madaki Alhaji Lawan Sule Garo Mallam Mahmud Ahmed Dr. Jibrilla Mohammed Alhaji Sadiq A. Othman Alhaji Bello Umar Gwangwazo Meetings Members of the Audit Committee receive regular reports and updates on financial matters and internal control reviews from internal and external auditors. A summary of record of attendance at Audit Committee meetings held during the financial year ended 31 March, 2018 is presented below: Name 13-Jun Sep Nov Mar-18 Mr. J.O. Salami (KSM) Yes Yes N/a N/a Alhaji Rabiu Muhammad Gwarzo, OON Yes Yes Yes Yes Alhaji Ashabu Madaki Yes Yes N/a N/a Alhaji Lawan Sule Garo Yes Yes Yes Yes Mallam Mahmud Ahmed Yes Yes Yes Yes Dr. Jibrilla Mohammed Yes Yes Yes Yes Alhaji Sadiq A. Othman N/a N/a Yes Yes Alhaji Bello Umar Gwangwazo N/a N/a Yes Yes Yes- Present No- Absent N/A- Not applicable Code of Business Conduct In demonstration of strong commitment to best practices in corporate governance, integrity and high ethical standards in all aspects of our business, The Company has a Code of Conduct in place. Apart from being in line with current global trends, it also aligns with the requirements of regulatory authorities. Through the provisions of the Code, the Company instills in its Directors and Employees the need to maintain high standard of corporate values, transparency, accountability, professionalism and promote good corporate governance. Whistle Blowing Under its whistle blowing mechanism, employees of the Company and other stakeholders including third parties are encouraged to report any observed or suspected acts of fraud, corruption or other irregularities, orally or anonymously contact the independent helpline by telephone or online without fear of reprisal or recrimination. 7

9 Directors' Report The company guarantees that the identity of the reporting individual or organization shall be accorded utmost protection and the report timeously investigated and treated. The robust system has been embraced by all employees and stakeholders and it is producing good results. 10. Donations The Company made a donations of N70,000 during the year (2017: N400,000). In compliance with Section 38(2) of the Companies and Allied Matters Act, CAP C20 Laws of the Federation of Nigeria, 2004, the Company did not make any donation or gift to any political party, political association or for any political purpose during the current and preceding years. Donations 31-Mar-18 N. Manufacturers association of Nigeria 50,000 Nigerian Institute of Food and Science Technology (NSFST) 20, Property, plant and equipment 70,000 Movements in property, plant and equipment during the year are shown in Note 15 to the financial statements. In the opinion of the Directors, the market value of the Company's property, plant and equipment is not less than the value shown in the audited financial statements. 12. Human Capital Employment and Employees The Company reviews its employment policy in line with the needs of the business. Careful recruitment is undertaken to ensure that potential high performers are attracted and retained. Employee Development Local Training and Development Programmes are organized to meet the needs of the Company s modernization / automation strategy implementation. The Company continues to place premium on its Human Capital Development arising from the fact that this would ensure improved efficiency of the business and maintain strategic advantage over competition. Equal Employment Opportunity and Diversity The Company recognises its social duty to employ disabled people and follows a policy of providing, wherever possible, the same employment opportunities for disabled people as for others. If employees become disabled every effort is made to ensure their employment continues, with appropriate training where necessary. Subject to the applicable laws, we recruit, hire, train, promote, discipline and provide other conditions of employment without regard to a person s race, colour, religion, sex, age, national origin, disability or other classifications protected under the law. This includes providing reasonable accommodation for members disabilities or religious beliefs and practices. As at year end, the Company had no physically challenged person in its employment (2017: Nil). Health, Safety and Environment The Company appreciates the value of safe work environment to business success and therefore embarks on periodic assessment to ensure compliance and safety. Employees are continuously sensitized and talks on safe work procedures preceding the commencement of each shift in the operational areas. The Company provides Personal Protective Equipment to employees as required by the nature of job and safety officers are on regular monitoring to ensure usage compliance. 8

10 Directors' Report HIV/AIDS Policy HIV/AIDS policy guidelines are in place and employees are encouraged to undertake voluntary counseling and testing (VCT) in order to confirm their HIV status. Continuous interactions at workshops with known HIV positive individuals are arranged from time to time to educate staff and eliminate discrimination and stigmatization. Performance Management/Target Setting Performance Management/Target Setting is designed to achieve set strategic objectives for effective monitoring of performance of the Company and employees. 13. Events after the reporting period There were no significant developments since the reporting date which could have had a material effect on the state of affairs of the company at 31 March 2018 and the loss for the year ended on that date which have not been adequately provided for or recognized in the financial statements. 14. Independent Joint Auditors Messrs. KPMG Professional Services and Ahmed Zakari & Co. were appointed as joint auditors during the year, and having satisfied the relevant corporate governance rules have indicated willingness to continue in office as joint auditors to the Company in accordance with Section 357(2) of the Companies and Allied Matters Act, CAP C20 Laws of the Federation of Nigeria, 2004, therefore, the auditors will be re-appointed at the next annual general meeting of the Company without any resolution being passed. BY ORDER OF THE BOARD 9

11 Statement of Directors' Responsibilities in Relation to the Financial Statements for the year ended 31 March, 2018 The Directors accept responsibility for the preparation of the annual financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and the Financial Reporting Council (FRC) of Nigeria Act, The Directors further accept responsibility for maintaining adequate accounting records as required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error. The Directors have made an assessment of the Company s ability to continue as a going concern and have no reason to believe the Company will not remain a going concern in the year ahead. Signed on behalf of the Board of Directors By: Date: 29 June 2018 Date: 29 June

12 Audit Committee Report In compliance with section 359 (3) to (6) of the Companies and Allied Matters Act 1990 the Audit Committee received the Audited Financial Statements for the year ended 31 March 2018 together with Management Control Report from the External Auditors and management response thereto at the duly convened meetings of the Committee. We reviewed the scope and planning of the audit requirements and found them adequate. After due consideration the Committee accepted the Report of the External Auditors that the financial statements give a true and fair view of the state of the Company's financial affairs as at 31 March 2018 having been prepared in accordance with generally accepted accounting principles, agreed ethical practices and statutory requirements. The Committee reviewed Management's response to the External Auditors findings in the Management Control Report and we and the External Auditors are satisfied with Management response. The Committee considered and approved the provision made in the Financial Statements for the remuneration of the External Auditors. We confirm that the internal control system was constantly and effectively monitored through effective internal audit function. The External Auditors confirmed having received full cooperation from Management in the course of their statutory audit. The Committee therefore recommended that the Audited Financial Statements for the year ended 31 March 2018 and the External Auditors' Report thereon be presented for adoption at this Annual General Meeting. On behalf of the audit committee Alhaji Bello Umar Gwangwazo Chairman Audit Committee Other Members Alhaji R. M. Gwarzo, OON Dr. Jibrilla Mohammed Alhaji Lawan Sule Garo Alhaji Sadiq A. Othman Mallam Mahmud Ahmed Signed Kano, Nigeria 28 June

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17 Statement of Financial Position as at 31 March, Mar Mar-17 Note(s) N. '000 N. '000 Assets Non-Current Assets Property, plant and equipment 15 2,109,691 2,008,933 Deferred tax assets 14 92,216 36,715 2,201,907 2,045,648 Current Assets Inventories 16 2,673,752 1,367,418 Trade and other receivables , ,433 Prepayments 18 20,253 17,006 Investment 19 5,943 - Cash and cash equivalents , ,939 3,715,732 2,291,796 Total Assets 5,917,639 4,337,444 Equity and Liabilities Equity Share capital 21 89,100 89,100 Share premium 21 89,521 89,521 Retained earnings 995,641 1,060,957 Liabilities 1,174,262 1,239,578 Non-Current Liabilities Borrowings 22 1,061,702 - Retirement benefit obligation 23 80,945 93,186 Long service award 24 20,235 24,566 Deferred income ,183-1,369, ,752 Current Liabilities Trade and other payables , ,255 Borrowings 22 2,465,130 2,423,606 Current tax payable 13 17,818 17,824 Deferred income ,209 - Dividend payable 27 24,062 24,980 Customer deposits 28 1,043 59,449 3,374,312 2,980,114 Total Liabilities 4,743,377 3,097,866 Total Equity and Liabilities 5,917,639 4,337,444 The financial statements were approved by the Board of Directors on 29 June, 2018 and were signed on its behalf by: The notes on pages 20 to 61 form an integral part of these financial statements. 16

18 Statement of Profit or Loss and Other Comprehensive Income 31-Mar Mar-17 Note(s) N. '000 N. '000 Revenue 5 2,861,752 1,330,536 Cost of sales 6 (2,149,621) (993,072) Gross profit 712, ,464 Other income 7 90,522 40,969 Selling and distribution 8 (15,860) (50,086) Administrative expenses 9 (438,414) (321,791) Operating profit ,379 6,556 Finance income 11 27,278 23,983 Finance costs 12 (479,621) (31,942) (Loss)/profit before minimum tax (103,964) (1,403) Minimum tax 13 (9,223) (7,375) (Loss) before taxation (113,187) (8,778) Taxation 13 52,199 (9,264) Loss for the year (60,988) (18,042) Other comprehensive income: Items that will not be reclassified to profit or loss: Remeasurements on net defined benefit liability 23 (6,365) 8,773 Related tax 14 2,037 (2,090) Total items that will not be reclassified to profit or loss (4,328) 6,683 Other comprehensive income for the year net of taxation (4,328) 6,683 Total comprehensive loss for the year (65,316) (11,359) Earnings per share (kobo) Basic earnings per share 29 (34) (10) Diluted earnings per share 29 (34) (10) The notes on pages 20 to 61 form an integral part of these financial statements. 17

19 Statement of Changes in Equity Share capital Share Retained Total equity premium earnings N. '000 N. '000 N. '000 N. '000 Balance at 1 April ,100 89,521 1,072,316 1,250,937 Loss for the year - - (18,042) (18,042) Other comprehensive income - - 6,683 6,683 Total comprehensive Loss for the year - - (11,359) (11,359) Balance at 31 March ,100 89,521 1,060,957 1,239,578 Balance at 1 April ,100 89,521 1,060,957 1,239,578 Loss for the year - - (60,988) (60,988) Other comprehensive income - - (4,328) (4,328) Total comprehensive Loss for the year - - (65,316) (65,316) Balance at 31 March ,100 89, ,641 1,174,262 The notes on pages 20 to 61 form an integral part of these financial statements. 18

20 Statement of Cash Flows 31-Mar Mar-17 Note(s) N. '000 N. '000 Cash flows from operating activities (Loss)/profit before taxation (113,187) (8,778) Adjustments for: Depreciation of property, plant and equipment ,363 71,117 Profit on sale of assets (220) (820) Interest income 11 (27,278) (23,983) Finance costs ,621 31,942 Provision for retirement benefit 23 20,100 15,471 (Credit)/provision for long service award 24 (1,238) 8,155 Write-off of property, plant and equipment 15 5,196 - Gain on foreign exchange transactions 7 (1,605) (180) Minimum tax 13 9,223 7,375 Changes in working capital: Inventories (1,306,334) (971,285) Trade and other receivables (22,043) (149,639) Prepayments (3,247) (8,349) Investment (5,943) - Trade and other payables , ,045 Deferred income 393,392 - Customer deposits (58,406) 6,777 Dividend payable (918) 24,980 (121,480) (823,172) Tax paid 13 (10,494) (2,826) Value added tax paid (94,644) (34,885) Retirement benefit paid 23 (38,706) (6,228) Long service award benefit paid 24 (3,093) (4,419) Net cash used in operating activities (268,417) (871,530) Cash flows from investing activities Purchase of property, plant and equipment 15 (296,317) (1,463,517) Proceeds on sale of property, plant and equipment Interest income received 11 27,278 23,983 Net cash used in investing activities (268,819) (1,438,714) Cash flows from financing activities Proceeds from borrowings 22 2,974,690 2,423,606 Repayment of borrowings 22 (1,950,000) - Finance costs paid 22 (401,085) (31,942) Net cash generated from financing activities 623,605 2,391,664 Net cash inflow for the year 86,369 81,420 Cash and cash equivalents at the beginning of the year 469, ,519 Total cash and cash equivalents at end of year , ,939 The notes on pages 20 to 61 form an integral part of these financial statements. 19

21 1 Corporate information Northern Nigeria Flour Mills Plc was incorporated as a private limited liability company on 29 October The Company was converted to a public limited liability company in 1978 and was quoted on the Nigeria Stock Exchange in the same year. The Company's registered office and factory is located at No 15 Maimalari Road, Bompai, Kano. Its present ownership structure is 47% owned by individuals and institutions in Nigeria and 53% owned by Flour Mills Nigeria Plc which is the parent Company and ultimate controlling party. 1.1 Principal activities The Company's main business is milling of wheat, maize and other associated grains. 1.2 Registered Office The address of its registered office is: 15 Maimalari road, Bompai Industrial Estate, Kano. 1.3 Composition of financial statements The Company's financial statements comprise: Statement of profit or loss and other comprehensive Income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements. Additional information provided by management in line with the requirements of the Company and Allied Matters Act, CAP C20 Laws of the Federation of Nigeria, 2004 includes Directors' report Value added statement Statement of directors' responsibilities Five year financial summary. 1.4 Financial period These financial statements cover the financial year from 1 April 2017 to 31 March 2018 with comparatives for year ended 31 March Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standard Board (IASB) and the requirements of the Companies and Allied Matters Act of Nigeria, Cap C20 Laws of Federation of Nigeria 2004 and the Financial Reporting Council (FRC) of Nigeria Act, Functional and presentation currency These financial statements have been expressed in Naira, which is the functional currency of the Company, and the presentation currency for the financial statements. All amounts have been rounded to the nearest thousand, unless otherwise indicated. Ownership Structure The parent company is Flour Mills of Nigeria Plc, a company registered in Nigeria. 20

22 1. Corporate information (continued) Number of shares % of share capital Flour Mills of Nigeria Plc 94,545, Northern Nigeria Investment Limited 12,955, Dantata Investment & Securities Limited 9,894, Other individuals and institutional shareholders 60,805, Significant accounting policies 178,200, The following is the summary of principal accounting policies applied in the preparation of these financial statements. 2.1 Basis of preparation and measurements The financial statements have been prepared on the going concern basis in accordance with International Financial Reporting Standards ("IFRS") issued and effective at the time of preparing these financial statements and in accordance with the Companies and Allied Matters Act of Nigeria, Cap C20 Laws of Federation of Nigeria 2004 and the Financial Reporting Council of Nigeria Act,2011. The financial statements have been prepared on the historical cost basis except for the following: Financial instuments - Initially measured at fair value and subsequently at amortised cost using the effective interest method Inventories - Lower of cost and net realisable value Defined benefit obligation - Present value of the obligation determined using the Projected Unit Credit method 2.2 Segmental reporting The Company is involved in the milling of wheat, Sorghum and other local grains. All of the Company's products have similar risks and returns thus the management does not use any operating segments results to make decisions about resources to be allocated to the segment and assess its performance. The Company has only one business segment. 2.3 Revenue Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax. Revenue from the sale of goods is recognised when all the following conditions have been satisfied: the company has transferred to the buyer the significant risks and rewards of ownership of the goods; the company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the company; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Rendering of services When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the company; the stage of completion of the transaction at the end of the reporting period can be measured reliably; and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable. Revenue from contract processing is recognised when the processing is completed and based on the agreed processing fee per tonne. 21

23 2.3 Revenue (continued) Deferred revenue represents the revenue collected from customers from which services is yet to be rendered. This is recognised as a liability until the company fulfills its contractual obligation to provide the service. 2.4 Finance income and Finance cost Interest income is recognised when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount on initial recognition. Finance costs comprise interest expense on borrowings. Borrowing cost that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss. Foreign currency gains and losses are recognised in profit or loss and presented on a net basis as either finance income or finance cost. 2.5 Translation of foreign currencies Foreign currency transactions A foreign currency transaction is recorded, on initial recognition in Naira, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of the reporting period: foreign currency monetary items are translated using the closing rate; non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognised in profit or loss in the period in which they arise. Cash flows arising from transactions in a foreign currency are recorded in Naira by applying to the foreign currency amount the exchange rate between the Naira and the foreign currency at the date of the cash flow. 2.6 Employee benefits Short-term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted. Defined contribution plan The Company operates a defined contribution based retirement benefit scheme for its staff, in accordance with the Pension Reform Act of 2014 with employee and employer contributing 8% and 10% respectively of the employee s relevant emoluments (basc salary, housing and transportation allowances). Payments to defined contribution benefit plans are recognised as an expense when employees have rendered the service entitling them to the contributions. Employee contributions are funded through payroll deductions. The funds are managed by several independent fund managers approved by the Pension Commission. The Company's only obligation is the monthly contributions to the fund. 22

24 2.6 Impairment of tangible and intangible assets (continued) Defined benefit plans The Company also operates a defined benefit gratuity scheme for its qualified staff. Benefits are related to the employees' length of service and remuneration. The cost of providing gratuity benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. The obligation is determined by an independent actuary at each reporting period. Actuarial gains and losses (if any) are recognised fully in other comprehensive income. Also, past service cost is recognised immediately in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Company recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. The Company's obligation in respect of the scheme is the amount of future benefits that employees have earned in return for their service in the current and prior periods. The benefit is discounted to determine its present value. The discount rate is the yield at the reporting date on Federal Government of Nigeria issued bonds that have maturity dates that approximates the term of the Company's defined benefits obligation. Defined benefits costs are categorised as follows: Service cost (including current service cost, past service cost, as well as gains and losses on curtailment and settlements.) Interest expense Re-measurement (actuarial gains and losses) The service cost and interest expense are charged to the profit or loss while the gains and loss due to remeasurement are charged to other comprehensive income. Although the fund is not funded, the Company ensures that adequate arrangements are in place to meet its obligations under the scheme. Long service award The Company operates long service award for its qualified staff. The benefits are graduated depending on the employees number of years in service to the company. The Company's obligation in respect of the scheme is the amount of future benefits that employees have earned in return for their service in the current and prior periods. The benefit is discounted to determine its present value. The obligation is determined by an independent actuary at each reporting period. Gains or losses due to remeasurement of long service awards are recognised in profit or loss. 2.7 Taxation Tax expenses Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: a transaction or event which is recognised, in the same or a different period, in other comprehensive income, or a business combination. Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity. The tax currently payable is based on taxable profit for the period in accordance with the Company Income Tax Act, CAP C21, LFN 2004 and Education Tax Act, CAP E4, LFN The Company s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. 23

25 2.7 Taxation (continued) Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of profit or loss because of items of income or expense that are taxable or deductible in future years and items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the reporting date. The Company is subject to the Companies Income Tax Act (CITA). Total amount of tax payable under CITA is determined based on the higher of two components namely Company Income Tax (based on taxable income (or loss) for the year); and Minimum tax based on CITA. Taxes based on taxable profit for the period are treated as income tax in line with IAS 12; whereas Minimum tax which is based on gross amount is outside the scope of IAS 12 and therefore, are not presented as part of income tax expense in profit or loss. Where the minimum tax charge is higher than the Company Income Tax (CIT), a hybrid tax situation exists. In this situation, the CIT is recognized in the income tax expense line in the profit or loss and the excess amount is presented above the income tax line as minimum tax. Deferred tax assets and liabilities Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax are recognised in the statement of profit or loss except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 2.8 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows: Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings. Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred. The capitalisation of borrowing costs commences when: expenditures for the asset have occurred; borrowing costs have been incurred, and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation is suspended during extended periods in which active development is interrupted. 24

26 2.8 Borrowing costs (continued) Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised as an expense in the period in which they are incurred. Finance cost includes interest expense on borrowing. 2.9 Property, plant and equipment Property, plant and equipment are tangible assets which the company holds for its own use or for rental to others and which are expected to be used for more than one year. An item of property, plant and equipment is recognised as an asset 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. Property, plant and equipment is initially measured at cost. Cost includes all of the expenditure which is directly attributable to the acquisition or construction of the asset, including the capitalisation of borrowing costs on qualifying assets. Expenditure incurred subsequently for major services, additions to or replacements of parts of property, plant and equipment are capitalised if it is probable that future economic benefits associated with the expenditure will flow to the company and the cost can be measured reliably. Day to day servicing costs are included in profit or loss in the year in which they are incurred. Depreciation of an asset commences when the asset is available for use as intended by management. Depreciation is recognised so as to write off the cost or valuation of assets (other than land and properties under construction) less their residual values over their useful lives, using the straight-line method, on the following basis by the company. Depreciation on property, factory buildings, machinery, vehicles, furniture and equipment is calculated on a straight-line basis at rates deemed appropriate to write off the cost of the assets to their residual values over their expected useful lives. The useful lives of items of property, plant and equipment have been assessed as follows: Item Depreciation method Average useful life Land - Nil Buildings Straight line 50 years Plant and machinery Straight line years Furniture and equipment Straight line 3-10 years Vehicles Straight line 5 years The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting year. Profits and losses on disposals of assets are determined by comparing proceeds with the carrying amounts. These profits and losses are included in profit or loss. Properties in the course of construction (capital work-in-progress) are carried at cost, less any recognised impairment losses and are not depreciated. Cost includes professional fees and for qualifying assets, borrowing cost capitalised in accordance with the Company accounting policy. The depreciation charge for each year is recognised in profit or loss unless it is included in the carrying amount of another asset. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its continued use or disposal. Any gain or loss arising from the derecognition of an item of property, plant and equipment, determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, is included in profit or loss when the item is derecognised. Engineering spare parts and stand-by equipment are capitalised as property, plant and equipment when the Company expects to use them for more than one year. 25

27 2.10 Impairment of tangible and intangible assets At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest Company of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the income statement, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase Inventories Inventories are measured at the lower of cost and net realisable value. The Company's Inventories consist of raw materials, consumables, finished goods and spare parts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Raw Materials which include purchase cost and other costs incurred to bring the materials to their location and condition, are valued at First-In-First-Out (FIFO). Cost of finished goods and work-in-progress include cost of materials used in production, direct labour and factory overheads. Finished goods are valued on a weighted average cost basis. When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. Engineering spare parts and other consumables are valued at weighted average cost and adjusted for allowance for obsolete and damaged stocks. 26

28 2.12 Financial instruments Initial recognition and measurement Financial instruments are recognised initially when the company becomes a party to the contractual provisions of the instruments. The company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value. For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. Classification The company classifies financial assets and financial liabilities into the following categories: Loans and receivables Other financial liabilities Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Classification is re-assessed on an annual basis, except for derivatives and financial assets designated as at fair value through profit or loss, which shall not be classified out of the fair value through profit or loss category. Subsequent measurement Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Other financial liabilities are subsequently measured at amortised cost, using the effective interest method. Financial assets Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the statement of comprehensive income when the loans and receivables are derecognised or impaired, as well as through the amortisation process. This category of financial assets includes trade and other receivables and cash and cash equivalents. Trade and other receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments generally with maturities of three months or less from date of acquisition. They are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value. Held to maturity investment Investments are initially measured at fair value plus direct transaction cost. At subsequent reporting dates these are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investment s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. Impairment of financial assets 27