United Foods Company (PSC)

Transcription

1 FINANCIAL STATEMENTS 31 DECEMBER 2017

2 DIRECTORS REPORT The Directors are pleased to present their report together with audited financial statements of United Foods Company (PSC) (the "Company") for the year ended 31 December Review of the activities The year 2017 was a challenging year globally, and in particular in the region. While the global economic slowdown and political unrest continued to impact business in the region, food sector was severely affected. Despite these challenges, your company s strategy to diversify and expand in UAE and GCC markets, came to our rescue and helped to improve overall company revenues by 12% with UAE registering a growth of 14%. In the process of increasing the distribution and the customer base in UAE and adding new products to the portfolio, your company has invested in the infrastructure and marketing activities and increased trade spends resulting into increase in operating expenses for the year with a potential for future growth. New products sales have grown reasonably well in 2017 and increased significantly higher than in This is in alignment of the company s strategy to diversify and expand the core business by increasing the customer and distribution base in the local UAE as the No.1 priority market as well as expansion to the new markets. Overall focus will remain to capitalize on the distribution growth potential in UAE and pursuing growth opportunities in GCC and exploring new markets. Results The Company recorded turnover of 450,609,800, a growth of 12% over 2016 (2016: 402,182,158) with a net profit (excluding share of results of associate) of 20,967,343 (2016: 26,171,479). In the current year financial statements, the previous year net profit has been readjusted to 30,636,502 to account for the bargain gain of 4,461,214 on finalization of fair value of acquisition and purchase price allocation of the identifiable assets and liabilities of the associate within twelve months of the date of becoming associate as permitted by International Financial Reporting Standards. In accounting for this acquisition in its financial statements for the year ended 31 December 2016, the Company was able to determine its share of provisional fair values of ERC s net assets.

3 DIRECTORS REPORT (continued) 2017 Retained earnings balance brought forward from the year ,842,907 Net profit for the year ,927,140 Profit available for appropriation 131,770,047 Appropriations: Dividends declared (relating to 2016) (3,025,000) Directors remuneration (108,549) Director s remuneration (1,800,000) Retained earnings balance as of 31 December ,836,498 10% cash dividend totaling to 3,025,000 is proposed relating to the year 2017 subject to approval by shareholders in Annual General Meeting. Directors The list of Directors of the Company is as follows: Mr. Ali Bin Humaid Al Owais Mr. Mohamed Abdel Aziz Ali Abdalla Al Owais Mr. Mohamed Salim Rashid Abdalla Al Owais Mr. Abdulla Rahma Al Owais Mr. Ahmed Abdullah Sultan Al Owais Mr. Khalid Al Shamsi - Chairman - Executive Vice Chairman - Vice Chairman - Director - Director - Director Auditors Ernst & Young was appointed as auditors of the Company for the year ended 31 December 2017 and being eligible, they have offered themselves for reappointment for the year ending 31 December For and on behalf of the Board 2018

4 INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF UNITED FOODS COMPANY (PSC) Report on the audit of the financial statements Opinion We have audited the financial statements of United Foods Company (PSC) (the Company ), which comprise the statement of financial position as at 31 December 2017, and the statement of income and statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2017 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards ( IFRSs ). Basis for opinion We conducted our audit in accordance with International Standards on Auditing ( ISAs ). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (the IESBA Code ) together with the ethical requirements that are relevant to our audit of the financial statements in the United Arab Emirates, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. Revenue recognition Revenue is a material and an important determinant of the Company s performance and profitability. This gives rise to the inherent risk that revenue recognised is overstated in order to present more profitable results for the year. The Company generates revenue from sale of goods when the significant risks and rewards of ownerships is transferred to customers (refer note 2.3 to the financial statements for the revenue recognition policy). Given the magnitude of the amount and inherent risk of revenue overstatement, we consider revenue recognition to be a key audit matter.

5 INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF UNITED FOODS COMPANY (PSC) (continued) Report on the audit of the financial statements (continued) Revenue recognition (continued) To address the above risk, we performed the following procedures among others: - Tested the design and operating effectiveness of controls in respect of the Company s revenue and accounts receivable processes; - Performed substantive testing and analytical procedures to test the accuracy and completeness of the underlying calculation of the accruals for rebates and discounts. - Performed analytical procedures, including gross profit margin analysis and obtained explanations for significant variances as compared to previous year; - Performed sales cut-off procedures and selected a sample of invoices before and after year-end to test whether sales are recorded in the appropriate period; - Inquired of management at different levels and departments of their knowledge of fraud risk and actual fraud instances; and - Performed journal entries testing for accounts related to identified risks of material misstatement and verified them with supporting documents. Accounts receivables As at 31 December 2017, the Company had trade receivables of 76.2 million, before provisions for doubtful debts of 1.1 million (refer note 9 to the financial statements), which is significant to the Company as it represents approximately 25% of the total assets of the Company. In addition, the consumer product industry continues to be impacted by macroeconomic challenges which increases the risk of the collectability of trade receivables. There is a risk that trade receivables are overstated and provision for doubtful debts is understated. The determination as to whether a trade receivable is collectable involves management judgement. The specific factors that management considers include the age of the balance, location of the customer, existence of disputes, recent historical payment patterns and any other available information concerning the creditworthiness of the counterparty. Management uses this information to determine whether a provision for impairment is required either for a specific transaction or for a customer's overall balance. We focused on this area because it requires a high level of management judgement and due to the materiality of the amounts involved. To address the above risk, we performed the following procedures among others: - Requested direct confirmations for a selected sample of customers of the Company to confirm their respective outstanding balances. In the absence of reply from customers, we performed the alternative procedures by reference to invoice testing and subsequent cash collections from the respective customers; - Reviewed the management s assessment of recoverability of accounts receivable through detailed analysis of ageing of accounts receivable, and also assessed the adequacy of any related provisions; - Inquired of management about any past due accounts receivable with no subsequent collections and management s plan for recovering these receivables; and - Inquired of management about disputes, if any, with customers during the year and reviewed any related uncollected amounts to assess their recoverability.

6 INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF UNITED FOODS COMPANY (PSC) (continued) Report on the audit of the financial statements (continued) Inventories As at 31 December 2017, the gross inventory balance amounts to 63.7 million, before the provision for slow moving inventories of 1.2 million (refer note 8 to the financial statements), which were significant to the Company as it represents approximately 21% of the total assets of the Company. Due to the significance of the inventory balance and related estimation involved, this is considered as a key audit matter. To address the above risk, we performed the following procedures among others: - Attended and observed physical inventory count performed by the store and finance department at year end; - Assessed the process, methods and assumptions used to develop the provision for slow moving, excess or obsolete items; - Tested the reliability of the underlying data used by management to calculate the inventory obsolescence provisions; and - Performed net realisable value test to ensure that inventories are measured at the lower of cost and net realisable value. Other information Management is responsible for the other information. Other information consists of the information included in the Company s 2017 Annual Report, other than the financial statements and our auditors report thereon. We obtained the report of the Board of Directors, prior to the date of our auditors report, and we expect to obtain the remaining sections of the Company s 2017 Annual Report after the date of our auditors report. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditors report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs and in compliance with the applicable provisions of the Company s Articles of Association and the UAE Federal Law No. (2) of 2015, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s financial reporting process.

7 INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF UNITED FOODS COMPANY (PSC) (continued) Report on the audit of the financial statements (continued) Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

8 INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF UNITED FOODS COMPANY (PSC) (continued) Report on other legal and regulatory requirements Further, as required by the UAE Federal Law No. (2) of 2015, we report that: i) the Company has maintained proper books of account; ii) iii) iv) we have obtained all the information we considered necessary for the purposes of our audit; the financial statements have been prepared and comply, in all material respects, with the applicable provisions of the Company s Articles of Association and the UAE Federal Law No. (2) of 2015; the financial information included in the Directors report is consistent with the books of account of the Company; v) investments in shares and stocks during the year ended 31 December 2017 are disclosed in note 6 and 7 to the financial statements; vi) vii) note 20 reflects material related party transactions and the terms under which they were conducted; based on the information that has been made available to us, nothing has come to our attention which causes us to believe that the Company has contravened during the financial year ended 31 December 2017 any of the applicable provisions of the UAE Federal Law No. (2) of 2015 or of its Articles of Association which would have a material impact on its activities or its financial position; and viii) the Company made no social contributions during the year. For Ernst & Young Partner Registration No Dubai, United Arab Emirates

9 STATEMENT OF INCOME Notes (restated) Sales 450,609, ,182,158 Cost of sales (368,263,692) (321,098,200) Gross profit 82,346,108 81,083,958 Selling and distribution expenses (47,294,196) (41,932,269) Administrative expenses (15,777,397) (15,279,470) Finance costs (447,349) (718,175) Gain on derecognition of available for sale investment - 1,797,151 Other income, net 2,140,177 1,220,284 Profit before share of results of associate 20,967,343 26,171,479 Gain on bargain purchase on investment in an associate 7-4,497,288 Share of loss on investment in associate (1,040,203) (32,265) Profit for the year 3 19,927,140 30,636,502 Earnings per share in The attached notes 1 to 26 form part of these financial statements. 8

10 STATEMENT OF COMPREHENSIVE INCOME Notes (restated) Profit for the year 19,927,140 30,636,502 Other comprehensive loss Other comprehensive income to be reclassified to profit or loss in subsequent periods: Change in fair value of available-for-sale investments 6 (27,031) 1,800,114 Change in fair value of available-for-sale investment reclassified to profit and loss on derecognition 6 - (1,797,151) Share of other comprehensive income of associate 7 (13,642) 48,089 Other comprehensive income for the year (40,673) 51,052 Total comprehensive income for the year 19,886,467 30,687,554 The attached notes 1 to 26 form part of these financial statements. 9

11 STATEMENT OF FINANCIAL POSITION As at 31 December 2017 Notes (restated) ASSETS Non-current assets Property, plant and equipment 4 118,264, ,673,744 Intangible asset 5 576, ,613 Available-for-sale investments 6 298, ,289 Investment in an associate 7 15,894,047 18,090, ,033, ,746,992 Current assets Inventories 8 62,527,261 57,689,126 Accounts receivable and prepayments 9 80,819,343 73,989,586 Amount due from a related party , ,625 Bank balances and cash 10 23,031,298 4,935, ,594, ,900,550 TOTAL ASSETS 301,628, ,647,542 EQUITY AND LIABILITIES Equity Share capital 11 30,250,000 30,250,000 Statutory reserve 12 15,125,000 15,125,000 Regular reserve 13 15,125,000 15,125,000 General reserve 14 65,314,980 65,314,980 Fair value reserve 15 56,012 96,685 Retained earnings 126,836, ,842,907 Total equity 252,707, ,754,572 LIABILITIES Non-current liability Employees end of service benefits 17 5,920,943 5,318,574 Current liabilities Trade and other payables 18 42,952,070 30,187,264 Amount due to a related party 20 48,323 18,751 Trust receipts 19-5,368,381 43,000,393 35,574,396 Total liabilities 48,921,336 40,892,970 TOTAL EQUITY AND LIABILITIES 301,628, ,647,542 Ali Bin Humaid Al Owais Mohamed Salim Rashid Abdalla Al Owais Chairman Vice Chairman The attached notes 1 to 26 form part of these financial statements. 10

12 STATEMENT OF CASH FLOWS Notes (restated) OPERATING ACTIVITIES Profit for the year 19,927,140 30,636,502 Adjustments for: Depreciation 4 11,783,127 12,024,691 Amortisation 5 419, ,456 Net loss / (gain) on disposal of property, plant and equipment (147,014) 27,838 Finance costs 447, ,175 Provision for employees end of service benefits 17 1,023,772 1,125,989 Gain on available for sale investment 6 - (1,797,151) Share of profit / (loss) in an associate 7 1,040,203 32,265 34,493,605 43,220,765 Working capital changes: Inventories (4,838,135) 7,494,573 Accounts receivable and prepayments (6,829,757) 875,553 Trade and other payables 10,964,806 (4,306,806) Amount due from a related party 69,625 (63,473) Amount due to a related party 29,572 (1,843,320) 33,889,716 45,377,292 Employees end of service benefits paid 17 (421,403) (324,085) Net cash from operating activities 33,468,313 45,053,207 INVESTING ACTIVITIES Purchase of property, plant and equipment 4 (7,374,442) (11,097,788) Purchase of intangible assets 5 (338,259) (1,500) Proceeds from disposal of property, plant and equipment 147,298 63,550 Dividend received from an associate 1,033,905 - Investment in associate 7 - (16,277,371) Net cash used in investing activities (6,531,498) (27,313,109) FINANCING ACTIVITIES Trust receipt obtained 79,520, ,616,939 Trust receipt paid (84,888,392) (127,340,223) Finance costs paid (447,349) (718,175) Dividends paid (3,025,000) (2,750,000) Net cash used in financing activities (8,840,730) (18,191,459) NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 18,096,085 (451,361) Cash and cash equivalents at 1 January 3,435,213 3,886,574 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 10 21,531,298 3,435,213 The attached notes 1 to 26 form part of these financial statements. 11

13 STATEMENT OF CHANGES IN EQUITY Share Statutory Regular General Fair value Retained capital reserve reserve reserve reserve earnings Total Balance as at 1 January 2017 (restated) 30,250,000 15,125,000 15,125,000 65,314,980 96, ,842, ,754,572 Profit for the year ,927,140 19,927,140 Other comprehensive gain for the year (40,673) - (40,673) Total comprehensive income for the year (40,673) 19,927,140 19,886,467 Dividend declared and paid (Note 11) (3,025,000) (3,025,000) Share of directors remuneration of an associate (108,549) (108,549) Directors remuneration (1,800,000) (1,800,000) Balance as at 31 December ,250,000 15,125,000 15,125,000 65,314,980 56, ,836, ,707,490 The attached notes 1 to 26 form part of these financial statements. 12

14 STATEMENT OF CHANGES IN EQUITY Share Statutory Regular General Fair value Retained capital reserve reserve reserve reserve earnings Total Balance as at 1 January ,500,000 13,750,000 13,750,000 65,314,980 45,633 91,256, ,617,018 Profit for the year (restated) ,636,502 30,636,502 Other comprehensive gain for the year ,052-51,052 Total comprehensive income for the year ,052 30,636,502 30,687,554 Dividend declared and paid (Note 11) (2,750,000) (2,750,000) Bonus shares declared 2,750, (2,750,000) - Transfer to statutory reserve (Note 12) - 1,375, (1,375,000) - Transfer to regular reserve (Note 13) - - 1,375, (1,375,000) - Directors remuneration (1,800,000) (1,800,000) Balance as at 31 December 2016 (restated) 30,250,000 15,125,000 15,125,000 65,314,980 96, ,842, ,754,572 The attached notes 1 to 26 form part of these financial statements. 13

15 1 ACTIVITIES United Foods Company (PSC) (the Company ) is a Public Shareholding Company, incorporated on 1 November 1976 by a Decree issued by His Highness, The Ruler of Dubai. On 27 June 1994, the Company amended its status to a public shareholding company to comply with the provisions of the UAE Federal Law No. (2) of The Company s shares are listed on the Dubai Financial Market (DFM) since July The Company is primarily engaged in the manufacturing, processing and marketing of hydrogenated vegetable ghee, cooking oil, margarine, butter products and fat including trading of food products. The registered address of the Company is P.O. Box 5836, Dubai, UAE. 2.1 BASIS OF PREPARATION The financial statements of the Company have been prepared in accordance with the International Financial Reporting Standards ( IFRS ) and the applicable requirements of the UAE Federal Law No. (2) of The Federal Law No. 2 of 2015, concerning Commercial Companies has come into effect from 1 July 2015, replacing the existing Federal Law No. 8 of The financial statements have been prepared on the historical cost basis, modified to include the measurement at fair value of available-for-sale investments. The financial statements are presented in United Arab Emirates Dirham ( ), which is also the Company s functional currency. 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the previous year financial statements for the year ended 31 December 2016, except for the adoption of new standards and interpretations effective for annual period beginning on or after as of 1 January 2017, as listed below. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Although these new standards and interpretation apply for the first time in 2017, they do not have a material impact on the financial statements of the Company. New standards and interpretations effective for annual period beginning on or after 1 January Amendments to IAS7Statement of Cash Flows: Disclosure Initiative -Amendments to IAS 12Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses -Annual Improvements Cycle Amendments to IFRS 12Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12 Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments (1 January 2018) In July 2014, the IASB issued the final version of IFRS 9Financial Instruments that replaces IAS 39Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Company plans to adopt the new standard on the required effective date and will not restate comparative information. During 2017, the Company has performed a detailed impact assessment of all three aspects of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Company in 2018 when the Company will adopt IFRS 9. Overall, the Company expects no significant impact on its statement of financial position and equity including for the effect of applying the impairment requirements of IFRS 9. 14

16 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) Standards issued but not yet effective (continued) IFRS 15 Revenue from Contracts with Customers (1 January 2018) IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January During 2017, the Company performed an assessment of IFRS 15. (a) Sale of goods For contracts with customers in which the sale of goods is generally expected to be the only performance obligation, adoption of IFRS 15 is not expected to have any impact on the Company s revenue and profit or loss. The Company expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods. In preparing to adopt IFRS 15, the Company is considering the following: Variable consideration Some contracts with customers provide a right of return, trade discounts or volume rebates. Currently, the Company recognises revenue from the sale of goods measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. If revenue cannot be reliably measured, the Company defers revenue recognition until the uncertainty is resolved. Such provisions give rise to variable consideration under IFRS 15, and will be required to be estimated at contract inception and updated thereafter. IFRS 15 requires the estimated variable consideration to be constrained to prevent over-recognition of revenue. The Company expects that application of the constraint will not result in any change in revenue being recognised than under current IFRS. - Rights of return The Company s contract with a customer provides a right to return the good within the specified period. However, the amount of returns being immaterial, the Company currently does not account for the right of return and does not anticipate significant impact on revenue recognition under the expected value method under IFRS Volume rebates The Company provides retrospective volume rebates to its certain customers on certain products purchased by the customer once the quantity of products purchased during the period exceeds a threshold specified in the contract. Under its existing accounting policy, the Company estimates the expected volume rebates using the probabilityweighted average amount of rebates approach and includes them in Trade and other payables. These amounts may subsequently be repaid in cash to the customer or are offset against amounts payable by customer. Under IFRS 15, retrospective volume rebates give rise to variable consideration. To estimate the variable consideration to which it will be entitled, the Company considered that the most likely amount method better predicts the amount of variable consideration for contracts with only a single volume threshold while for contracts with more than one volume threshold it would apply either the expected value method or the most likely amount method, depending on which of them better predicts the amount of variable consideration for the particular type of contract. The Company applied the requirements in IFRS 15 on constraining estimates of variable consideration and concluded that there would not be any significant adjustment to revenue from sale of goods in

17 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) Standards issued but not yet effective (continued) IFRS 15 Revenue from Contracts with Customers (1 January 2018) (continued) (b) Presentation and disclosure requirements The presentation and disclosure requirements in IFRS 15 are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and significantly increases the volume of disclosures required in the Company s financial statements. Many of the disclosure requirements in IFRS 15 are new and the Company has assessed that the impact of some of these disclosures requirements will be significant. In particular, the Company expects that the notes to the financial statements will be expanded because of the disclosure of significant judgements made: when determining the transaction price of those contracts that include variable consideration, how the transaction price has been allocated to the performance obligations, and the assumptions made to estimate the stand-alone selling prices of each performance obligation. In addition, as required by IFRS 15, the Company will disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. It will also disclose information about the relationship between the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment. In 2017 the Company continued testing of appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Company in 2018 when the Company will adopt IFRS 15. Overall, the Company expects no significant impact on its statement of financial position and equity including for the effect of applying the impairment requirements of IFRS 15. Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture IFRS 2 Classification and Measurement of Share-based Payment Transactions Amendments to IFRS 2 IFRS 16 Leases IFRS 17Insurance Contracts Transfers of Investment Property Amendments to IAS 40 Annual Improvements Cycle (issued in December 2016) These improvements include: IFRS 1First-time Adoption of International Financial Reporting Standards-Deletion of short-term exemptions for first-time adopters IAS 28Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice Applying IFRS 9Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 IFRIC Interpretation 22Foreign Currency Transactions and Advance Consideration IFRIC Interpretation 23Uncertainty over Income Tax Treatment The Company is currently assessing the impact of these standards on the future financial statements and intends to adopt these standards, if applicable, when they become effective. 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Current versus non-current classification The Company presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is classified as current when it is: Expected to be realised or intended to be sold or consumed in normal operating cycle; Held primarily for the purpose of trading; Expected to be realised within twelve months after the reporting period; or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. 16

18 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Current versus non-current classification (continued) A liability is classified as current when: It is expected to be settled in normal operating cycle; It is held primarily for the purpose of trading; It is due to be settled within twelve months after the reporting period; or There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Company classifies all other liabilities as non-current. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of rebates, discounts and payment, and excluding taxes or duty. The Company assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The specific recognition criteria described below must also be met before revenue is recognised. Sale of goods Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Interest income Interest revenue is recognised as the interest accrues using the effective interest method, under which the rate used exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. 17

19 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Company recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. Property, plant and equipment are depreciated on a straight-line basis over the assets' estimated useful lives as follows: Buildings Plant machinery and equipment Furniture, fixtures and office equipment Motor vehicles 20 years 4 to 10 years 4 years 4 years Land and capital work-in-progress are not depreciated. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less cost to sell and their value in use. An item of property, plant and equipment is derecognised upon disposal or when no further economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the statement of income in the period the asset is derecognised. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets is recognised in the statement of income in the expense category consistent with the function of the intangible asset. Amortisation is calculated on a straight line basis over the estimated useful life of 4 years to their residual values. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of income when the asset is derecognised. Impairment of non-financial assets At each reporting date the Company reviews the carrying amounts of its assets to assess whether there is an indication that those assets may be impaired. If any such indication exists, the Company makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows attributable to the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of income. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in the statement of income. 18

20 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Inventories Inventories are stated at the lower of cost and net realisable value. Costs are those incurred in bringing each product to its present location and condition, as follows: Raw materials purchase cost on weighted average basis; Spares and consumables purchase cost on weighted average basis; Finished goods and work-in-progress cost of direct materials and direct labour plus an appropriate share of production overheads based on normal operating capacity and is determined on weighted average basis. Net realisable value is based on the estimated selling price less any further costs expected to be incurred on disposal. Damaged and obsolete inventories are written off. Financial instruments-initial recognition and subsequent measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. i) Financial assets Initial recognition and measurement Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset. The Company s financial assets include available-for-sale investments, bank balances and cash, accounts receivable and amounts due from related parties. Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below: Investment in an associate An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. The Company s investments in its associate are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Company s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment separately. The statement of profit or loss reflects the Company s share of the results of operations of the associate. Any change in OCI of those investees is presented as part of the Company s OCI. In addition, when there has been a change recognised directly in the equity of the associate, the Company recognises its share of any changes, when applicable, in the statement of changes in equity. 19

21 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) i) Financial assets (continued) Investment in an associate (continued) Unrealised gains and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. The aggregate of the Company s share of profit or loss of an associate is shown on the face of the statement of profit or loss and represents profit or loss after tax and non- controlling interests in the subsidiaries of the associate, if any.the financial statements of the associate are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company. After application of the equity method, the Company determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Company determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognises the loss within Share of profit of an associate in the statement of profit or loss. Upon loss of significant influence over the associate, the Company measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. The Company elected to account for the step acquisition of an associate using fair value model. Available-for-sale investments Available-for-sale investments are recognised and derecognised, on a trade date basis, when the Company becomes, or ceases to be, a party to the contractual provisions of the instrument. Investments designated as available-for-sale investments are initially recorded at cost and subsequently measured at fair value, unless this cannot be reliably measured. Changes in fair value are reported as a separate component of equity. Upon impairment any loss, or upon derecognition any gain or loss, previously reported as fair value reserve within equity is included in the statement of income for the year. Accounts receivable Accounts receivable are stated at original invoice amount less a provision for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when there is no possibility of recovery. Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and bank balances and shortterm deposits with an original maturity of three months or less, net of outstanding bank overdraft. Derecognition of financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: The rights to receive cash flows from the asset have expired; The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company s continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. 20