ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY INDEX REPORT ON REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1

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2 INDEX PAGES REPORT ON REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE THREE AND SIX MONTH PERIODS ENDED 30 JUNE CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTH PERIODS ENDED 30 JUNE CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 5 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

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9 1. THE COMPANY, ITS SUBSIDIARIES AND ITS BUSINESS DESCRIPTION Almarai Company (the Company ) is a Saudi Joint Stock Company, which was converted from a limited liability company to a joint stock company on 2 Rajab 1426 A.H. (8 August 2005). The Company initially commenced trading on 19 Dul Hijjah 1411 A.H. (1 July 1991) and operates under Commercial Registration No Prior to the consolidation of activities in 1991, the core business was trading between 1977 and 1991 under the Almarai brand name. The Company s Head Office is located at Exit 7, North Ring Road, Al Izdihar District, P.O. Box 8524, Riyadh 11492, Kingdom of Saudi Arabia ( Saudi Arabia ). The Company and its subsidiaries (together, the Group ) are a major integrated consumer food and beverage Group in the Middle East with leading market shares in Saudi Arabia. It also operates in other Gulf Cooperation Council ( GCC ) countries, Egypt and Jordan. Dairy, Fruit Juices and related Food Business is operated under the Almarai, Joosy Life, Beyti and Teeba brand names. All raw milk production, Dairy and Fruit Juice product processing and related food product manufacturing activities are undertaken in Saudi Arabia, United Arab Emirates ( UAE ), Egypt and Jordan. Dairy, Fruit Juices and related Food Business in Egypt and Jordan operates through International Dairy and Juice Limited ( IDJ ), a joint venture with PepsiCo, in which the Company holds a controlling interest. The Group manages IDJ operations through the following key subsidiaries: Jordan Egypt - Teeba Investment for Developed Food Processing - International Company for Agricultural Industries Projects (Beyti) (SAE) Bakery products are manufactured and traded by Western Bakeries Company Limited and Modern Food Industries Company Limited, a joint venture with Chipita, in which the Company holds a controlling interest, under the brand names L usine and 7 Days, respectively. Poultry products are manufactured and traded by Hail Agricultural Development Company under the Alyoum and AlBashayer brand names. Infant Nutrition products are manufactured by Almarai Baby Food Company Limited and traded by International Pediatric Nutrition Company under Nuralac and Evolac brand names. In territories where the Group has operations, final consumer packed products are distributed from manufacturing facilities to local distribution centres by the Group s long haul distribution fleet. The distribution centres in Gulf Cooperation Council (GCC) countries are managed through subsidiaries (UAE, Oman and Bahrain) and Agency Agreements (Kuwait and Qatar) as follows: UAE Oman Bahrain Kuwait Qatar - Almarai Emirates Company L.L.C - Arabian Planets for Trading and Marketing L.L.C. - Almarai Company Bahrain S.P.C - Al Kharafi Brothers Dairy Products Company Limited - Khalid for Foodstuff and Trading Company In other territories, where permissible by law, Dairy and Juice products are exported through IDJ and other products are exported through other subsidiaries. Since 6 June 2017, the Group has suspended its operations in Qatar. The Group owns and operates arable farms in Argentina and in United States of America, collectively referred to as Fondomonte, through the following key subsidiaries: USA Argentina - Fondomonte Holdings North America L.L.C - Fondomonte South America S.A The Group s non-gcc business operations under IDJ and Fondomonte are managed through Almarai Investment Holding Company W.L.L., a Company incorporated in the Kingdom of Bahrain. 7

10 1. THE COMPANY, ITS SUBSIDIARIES AND ITS BUSINESS DESCRIPTION (Continued ) On 17 Rajab 1439 A.H. (2 April 2018) the Group, through its subsidiary Hail Agricultural Development Company ( HADCO ), increased its shareholding in Pure Breed Poultry Company ( Pure Breed ) from 41.9% to 55.9%. Pure Breed s main operations are focused on poultry grand-parent farming and its acquisition will add to Group s on-going efforts to further streamline, integrate and strengthen its poultry supply chain. After obtaining control on 17 Rajab 1439 A.H. (2 April 2018), HADCO further acquired 6.5% equity interest in Pure Breed on 20 Sha aban 1439 (6 May 2018), thus resulting in increase in existing controlling interest from 55.9% to 62.4% (Refer Note 7). 8

11 1. THE COMPANY, ITS SUBSIDIARIES AND ITS BUSINESS DESCRIPTION (Continued ) Details of subsidiaries are as follows: Ownership Interest As at As at Country of Business Functional Name of Subsidiary 30 June December 2017 Incorporation Activity Currency Direct Direct Effective Effective (a) (a) Almarai Investment Company Limited Saudi Arabia Holding Company 100% 100% 100% 100% Almarai Baby Food Company Manufacturing Saudi Arabia Limited Company 100% 100% 100% 100% Almarai Agricultural And Livestock Production Company Saudi Arabia Dormant 100% 100% 100% 100% Almarai Construction Company Saudi Arabia Dormant 100% 100% 100% 100% Almarai for Maintenance and Operation Company Saudi Arabia Dormant 100% 100% 100% 100% Agricultural Input Company Limited (Mudkhalat) Saudi Arabia Dormant 52% 52% 52% 52% Hail Agricultural Development Poultry / Agricultural Saudi Arabia Company Company 100% 100% 100% 100% Hail Agricultural And Livestock Production Company Saudi Arabia Dormant 100% 100% 100% 100% International Baking Services Company Limited Saudi Arabia Dormant 100% 100% 100% 100% International Pediatric Nutrition Company Saudi Arabia Dormant 100% 100% 100% 100% Modern Food Industries Company Limited Saudi Arabia Bakery Company 60% 60% 60% 60% Nourlac Company Saudi Arabia Dormant 100% 100% 100% 100% Western Bakeries Company Limited Saudi Arabia Bakery Company 100% 100% 100% 100% (a) Direct ownership means directly owned by the Company or any of its subsidiaries. Share Capital 1,000, ,000,000 1,000,000 1,000,000 1,000,000 25,000, ,000,000 1,000, ,000 41,000,000 70,000,000 3,000, ,000,000 Conventional Conventional Interest Income Number of Investment Borrowing Shares '000 Issued '000 '000 1, ,000, ,579-1, , , ,000, ,487-1, , ,000-19,582-3, , ,205-9

12 1. THE COMPANY, ITS SUBSIDIARIES AND ITS BUSINESS DESCRIPTION (Continued ) Ownership Interest As at As at Country of Business Functional Name of Subsidiary 30 June December 2017 Incorporation Activity Currency Direct Direct Effective Effective (a) (a) Pure Breed Poultry Company (Refer Note 7) Saudi Arabia Poultry Company 62% 62% 42% 42% Agro Terra S.A. Argentina Dormant ARS 100% 100% 100% 100% Fondomonte South America S.A. Argentina Agricultural Company ARS 100% 100% 100% 100% Almarai Company Bahrain S.P.C. Bahrain Trading Company BHD 100% 100% 100% 100% Almarai Investment Holding Company W.L.L. Bahrain Holding Company BHD 99% 99% 99% 99% IDJ Bahrain Holding Company W.L.L. Bahrain Holding Company BHD 100% 52% 100% 52% International Dairy and Juice Limited British Virgin Islands Holding Company USD 52% 52% 52% 52% International Dairy and Juice (Egypt) Limited Egypt Holding Company EGP 100% 52% 100% 52% International Company for Manufacturing and Agricultural Industries Projects Egypt Trading Company (Beyti) (SAE) EGP 100% 52% 100% 52% Markley Holdings Limited Jersey Dormant GBP 100% 100% 100% 100% Al Muthedoon for Dairy Production Jordan Dormant JOD 100% 52% 100% 52% Al Atheer Agricultural Company Jordan Livestock / Agricultural Company JOD 100% 52% 100% 52% Al Namouthjya for Plastic Production Jordan Dormant JOD 100% 52% 100% 52% (a) Direct ownership means directly owned by the Company or any of its subsidiaries. Share Capital 46,500,000 ARS 475,875 ARS 1,286,096,598 BHD 100,000 BHD 250,000 BHD 250,000 USD 7,583,334 EGP 1,101,750,000 EGP 2,596,680,000 GBP 5,769,822 JOD 500,000 JOD 750,000 JOD 250,000 Conventional Conventional Interest Income Number of Investment Borrowing Shares '000 Issued '000 ' ,000-3, , ,286,096,598-27,248-2, , , ,583,334-7, ,175, , ,680, ,769, , , ,

13 1. THE COMPANY, ITS SUBSIDIARIES AND ITS BUSINESS DESCRIPTION (Continued ) Ownership Interest Conventional Conventional Interest Income As at As at Number of Investment Borrowing Country of Business Functional Share Name of Subsidiary 30 June December 2017 Shares '000 Incorporation Activity Currency Capital Direct Direct Issued '000 '000 Effective Effective (a) (a) Al Rawabi for juice and UHT milk Manufacturing JOD Jordan JOD 100% 52% 100% 52% Manufacturing Company 500, , Teeba Investment for Developed Manufacturing JOD Jordan JOD 100% 52% 100% 52% Food Processing Company 49,675,352 49,675, ,428 - Arabian Planets for Trading and OMR Oman Trading Company OMR 90% 90% 90% 90% Marketing L.L.C. 150, , ,171 - Alyoum for Food Products OMR Oman Dormant OMR 100% 100% 100% 100% Company L.L.C. 20,000 20, EUR Fondomonte Inversiones S.L. Spain Holding Company EUR 100% 100% 100% 100% 118,515, ,515, Hail Development Company Limited Sudan Dormant SDG 100% 100% 100% 100% SDG 100, AED United Arab Almarai Emirates Company L.L.C. Trading Company AED 100% 100% 100% 100% 300, Emirates (Unpaid) International Dairy and Juice United Arab USD Holding Company USD 100% 52% 100% 52% 22,042,183 - (Dubai) Limited Emirates 22,042, BDC international L.L.C. AED United Arab Operations AED 100% 100% 100% 100% 200,000 Emirates Management (Unpaid) International Dairy and Juice Farm Egypt (S.A.E.) Egypt Holding Company EGP 100% 52% 100% 52% EGP 1,000, ,000 - Fondomonte Holding North America United States of USD Holding Company USD 100% 100% 100% 100% L.L.C. America 500,000 50, Fondomonte Arizona L.L.C. United States of USD Agricultural Company USD 100% 100% 100% 100% America 500,000 50, ,874 - United States of Fondomonte California L.L.C. America Agricultural Company USD 100% 100% 100% 100% Hayday Farm Operation L.L.C. United States of America Agricultural Company USD 100% 100% Nil Nil (a) Direct ownership means directly owned by the Company or any of its subsidiaries. 11

14 2. BASIS OF PREPARATION 2.1 Statement of Compliance These Condensed Consolidated Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting that is endorsed in Kingdom of Saudi Arabia and other standards and pronouncements that are issued by Saudi Organization for Certified Public Accountants ( SOCPA ) and should be read in conjunction with the Group s last annual Consolidated Financial Statements as at and for the year ended 31 December 2017 ( last annual Financial Statements ). They do not include all of the information required for a complete set of International Financial Reporting Standards ( IFRS ) Financial Statements; however, accounting policies and selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group s financial position and performance since the last annual Financial Statements. In this set of Condensed Consolidated Interim Financial Statements, IFRS 15 and IFRS 9 have been applied. Changes to significant accounting policies are described in Note 5B. 2.2 Preparation of The Financial Statements These Condensed Consolidated Interim Financial Statements have been prepared on the historical cost basis except for the following material items in the Condensed Consolidated Statement of Financial Position: Derivative financial instruments are measured at fair value. Equity Investment at Fair Value through Other Comprehensive Income ( FVOCI ) is measured at fair value. The defined benefit obligation is recognised at the present value of future obligations using the Projected Unit Credit Method. Biological Assets, where fair value is reliably measurable, have been valued at fair value. 2.3 Use of Judgments and Estimates In preparing these Condensed Consolidated Interim Financial Statements, management has made judgments and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgments made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual Financial Statements, except for new significant judgments and key sources of estimation uncertainty related to the application of IFRS 15 and IFRS 9, which are described in Note 5B. 3. BASIS OF CONSOLIDATION 3.1 These Condensed Consolidated Interim Financial Statements comprising the Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Profit or Loss, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows and Notes to the Condensed Consolidated Interim Financial Statements of the Group, include assets, liabilities and the results of the operations of the Company and its subsidiaries, as set out in Note (1). Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control commences until the date on which control ceases. The Group accounts for the business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identified net assets acquired. The excess of the cost of acquisition and amount of Non-Controlling Interests ( NCI ) over the fair value of the identifiable net assets acquired is recorded as goodwill in Condensed Consolidated Statement of Financial Position. NCI is measured at their proportionate share of the acquiree s identifiable net assets at the date of acquisition. The portion of profit or loss and net assets not controlled by the Group is presented separately in the Condensed Consolidated Statement of Profit or Loss and within equity in the Condensed Consolidated Statement of Financial Position. Intra-group balances and transactions, and 12

15 3. BASIS OF CONSOLIDATION (Continued ) income and expenses arising from intra-group transactions are eliminated. Accounting policies of subsidiaries are aligned, where necessary, to ensure consistency with the policies adopted by the Group. The Company and its subsidiaries have the same reporting periods. 4. FUNCTIONAL AND PRESENTATION CURRENCY These Condensed Consolidated Interim Financial Statements are presented in Saudi Riyal ( ), which is the Company s functional and Group s presentation currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated. 5. SIGNIFICANT ACCOUNTING POLICIES A. New Standards, Amendments and Standards issued and not yet effective: New Standards, Amendment to Standards and Interpretations: The Group has adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1 January 2018, and the effect of application of these standards has been fully explained in Note 5B. A number of other new standards, amendments to standards are effective from 1 January 2019 but they do not have a material effect on the Group s Condensed Consolidated Interim Financial Statements. Standards issued but not yet effective Following are the new standards and amendments to standards which are effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted; however, the Group has not early adopted them in preparing these Condensed Consolidated Interim Financial Statements. a. IFRS 16 Leases IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases-Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier adoption is permitted. The Group is in the process of assessing the potential impact on its Consolidated Financial Statements. The actual impact of applying IFRS 16 on the financial statements in the period of initial application will depend on future economic conditions, including the Group s borrowing rate at 1 January 2019, the composition of the Group s lease portfolio at that date, the Group s latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and recognition exemptions. Thus far, the most significant impact identified is that the Group will recognise new assets and liabilities for its operating leases of depot warehouses. In addition, the nature of expenses related to those leases will now change because IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. 13

16 5. SIGNIFICANT ACCOUNTING POLICIES (Continued ) Determining whether an arrangement contains a lease On transition to IFRS 16, the Group can choose whether to: - Apply the IFRS 16 definition of a lease to all its contracts; or - Apply a practical expedient and not reassess whether a contract is, or contains a lease. Transition As a lessee, the Group can either apply the standard using a: - Retrospective approach; or - Modified retrospective approach with optional practical expedients. The lessee applies the election consistently to all of its leases. The Group currently plans to apply IFRS 16 initially on 1 January The Group has not yet determined which transition approach to apply. As a lessor, the Group is not required to make any adjustments for leases in which it is a lessor except where it is an intermediate lessor in a sub-lease. b. Annual Improvements to IFRSs Cycle IFRS 3 Business Combinations and IFRS 11 Joint Arrangements - clarifies how a company accounts for increasing its interest in a joint operation that meets the definition of a business. - If a party maintains (or obtains) joint control, then the previously held interest is not remeasured. - If a party obtains control, then the transaction is a business combination achieved in stages and the acquiring party remeasures the previously held interest at fair value. IAS 12 Income Taxes - clarifies that all income tax consequences of dividends (including payments on financial instruments classified as equity) are recognised consistently with the transactions that generated the distributable profits i.e. in profit or loss, other comprehensive income or equity. IAS 23 Borrowing Costs - clarifies that the general borrowings pool used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Borrowings that were intended to specifically finance qualifying assets that are now ready for their intended use or sale or any nonqualifying assets are included in that general pool. As the costs of retrospective application might outweigh the benefits, the changes are applied prospectively to borrowing costs incurred on or after the date an entity adopts the amendments. c. IFRIC 23 Uncertainty over Income Tax Treatments Seeks to bring clarity to the accounting for income tax treatments that have yet to be accepted by tax authorities. The key test is whether it s probable that the tax authority will accept the Group s chosen tax treatment. d. Other Amendments The following amendment to standards are not yet effective and neither expected to have a significant impact on the Group s Consolidated Financial Statements: - Prepayment Features with Negative Compensation (Amendments to IFRS 9) - Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) - Plan Amendments, Curtailment or Settlement (Amendments to IAS 19) B. Changes in significant accounting policies: Except as described below, the accounting policies applied in these Condensed Consolidated Interim Financial Statements are the same as those applied in the last annual Financial Statements as at and for the year ended 31 December The changes in accounting policies are also expected to be reflected in the annual Consolidated Financial Statements as at and for the year ending 31 December

17 5. SIGNIFICANT ACCOUNTING POLICIES (Continued ) The Group has initially adopted IFRS 15 Revenue from Contracts with Customers (see a) and IFRS 9 Financial Instruments (see b) from 1 January The effect of initially applying these standards is mainly attributed to the following: Presentation of Revenue net off sales return (see a below); and an increase in impairment losses recognised on financial assets (see b below) (a) IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Group recognizes revenue when a customer obtains controls of the goods at a point in time i.e. on delivery and acknowledgement of goods, which is in line with the requirements of IFRS 15. Accordingly, there is no material effect of adopting IFRS 15 Revenue from Contracts with Customers on the recognition of Revenue of the Group. The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group s sale of goods are set out below. Type of Product Consumer Products of Dairy, Poultry, Bakery, Baby Foods and Other Segments Nature, timing of satisfaction of performance obligations, significant payment terms Customers obtain control of products when the goods are delivered to and have been accepted at their premises. Invoices are generated and revenue is recognised at that point in time. Credit invoices are usually payable within days. Invoice is generated and recognised as revenue net off applicable discounts which relate to the items sold. No customer loyalty points are offered to customers and therefore there is no deferred revenue to be recognised for the items sold. For contracts that permit the customer to return an item, under IFRS 15 revenue is recognised to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Therefore, the amount of revenue recognised is adjusted for expected returns, which are estimated based on the historical data. Returned goods are not useable and scrapped by the Group and related liability is recorded in Other Payables for Cash sales and adjusted against Trade Receivables in respect of credit sales. Nature of change in accounting policy Under IAS 18, revenue from contracts with customers was also recognised when the goods were delivered to and were accepted by the customers at their premises and a reasonable estimate of sales return could be made. However, estimated sales return was recognised under Cost of Sales, instead of netting off against Revenue, with a corresponding liability in Other Payables for cash sales and a provision for sales return against Trade receivables for credit sales. The impact of this change is that revenue is decreased with the amount of expected sales return. The Group has adopted IFRS 15 using the cumulative effect method, with the effect of applying this standard recognised at the date of initial application ( i.e. 1 January 2018). Accordingly, the information presented for the previous year has not been restated, as previously reported, under IAS 18 and related interpretations. The following table summarises the impact of adopting IFRS 15 on the Group s Condensed Consolidated Statement of Profit or Loss for the six months period ended 30 June 2018, for the relevant Financial Statement line items affected. 15

18 5. SIGNIFICANT ACCOUNTING POLICIES (Continued ) Impact on the Condensed Consolidated Statement of Profit or Loss. For the three month period ended April - June 2018 Amounts without As Reported Adjustment adoption of IFRS 15 '000 '000 '000 Revenue 3,731,081 5,346 3,736,427 Cost of Sales (2,225,462) (5,346) (2,230,808) Gross Profit 1,505,619-1,505,619 For the six month period ended January - June 2018 As Reported Adjustment Amounts without adoption of IFRS 15 '000 '000 '000 Revenue 6,963,286 32,442 6,995,728 Cost of Sales (4,204,856) (32,442) (4,237,298) Gross Profit 2,758,430-2,758,430 (b) IFRS 9 Financial Instruments IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below. i) Classification and measurement of financial assets and financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available for sale. The adoption of IFRS 9 has not had a significant effect on the Group s accounting policies related to financial liabilities and derivative financial instruments (for derivatives that are used as hedging instruments, see (iii) below). The impact of IFRS 9 on the classification and measurement of financial assets is set out below. Under IFRS 9, on initial recognition, a financial asset is classified as measured at amortised cost; FVOCI debt investment; FVOCI equity investment; or Fair Value through Profit or Loss ( FVTPL ). The classification of financial assets under IFRS 9 is generally based on the business model under which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment s fair value in OCI. This election is made on an investment-by-investment basis. 16

19 5. SIGNIFICANT ACCOUNTING POLICIES (Continued ) All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition. The following accounting policies apply to the subsequent measurement of financial assets. Financial assets at FVTPL Financial assets at amortised cost Debt investments at FVOCI Equity investments at FVOCI These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. See (iii) below for derivatives designated as hedging instruments. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses (see (ii) below). Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. These assets are subsequently measured at fair value. Interest income is calculated using the effective interest method. Foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. These assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss. The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 January 2018 relates solely to the new impairment requirements, as described further below. The following table and the accompanying notes below explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for the class of the Group s financial assets as at 1 January Note Original Classification under IAS 39 New classification under IFRS 9 Original carrying amount under IAS 39 New carrying amount under IFRS 9 Financial Assets '000 '000 Equity Investment a) Available for Sale FVOCI equity instrument 90,711 90,711 Trade Receivables b) Loans and Receivables Amortised Cost 1,042,023 1,042,023 Cash and bank balances Total Loans and Receivables Amortised Cost 1,891,697 1,891,697 3,024,431 3,024,431 17

20 5. SIGNIFICANT ACCOUNTING POLICIES (Continued ) a) These equity securities represent investments that the Group intends to hold for the long term for strategic purposes. As permitted by IFRS 9, the Group has designated these investments at the date of initial application as measured at FVOCI. Unlike IAS 39, the accumulated fair value reserve related to these investments will never be reclassified to profit or loss. b) Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified at amortised cost. An increase of 12.6 million in the allowance for impairment over these receivables was not recognised in the opening retained earnings at 1 January 2018 on transition to IFRS 9 as the amount was not material. ii) Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss (ECL) model. The new impairment model applies to financial assets measured at amortised cost but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39. Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Presentation of impairment Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Impairment losses related to trade receivables are presented separately in the Condensed Consolidated Statement of Profit or Loss. As a result, the Group reclassified impairment losses amounting to 3.1 million and 8.2 million, recognised under IAS 39, from Selling and Distribution Expense to impairment loss on financial assets in the Condensed Consolidated Statement of Profit or Loss for the three months and six months ended 30 June 2017, respectively. iii) Hedge Accounting IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. All hedging relationships designated under IAS 39 at 31 December 2017 met the criteria for hedge accounting under IFRS 9 at 1 January 2018 and are therefore regarded as continuing hedging relationships. Under IAS 39, for all cash flow hedges, the amounts accumulated in the cash flow hedge reserve were reclassified to profit or loss as a reclassification adjustment in the same period as the hedged expected cash flows affected profit or loss. However, under IFRS 9, for cash flow hedges of foreign currency risk associated with forecast inventory purchases, the amounts accumulated in the cash flow hedge reserve are instead included directly in the initial cost of the inventory item when it is recognised. The Group is already following the treatment recommended under IFRS 9 for cash flow hedges. iv) Transition The Group has taken an exemption not to restate corresponding information for prior periods with respect to classification and measurement (including impairment) requirements. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are not recognised in retained earnings as at 1 January 2018 as amount was not material. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 but rather those of IAS

21 5. SIGNIFICANT ACCOUNTING POLICIES (Continued ) The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application. - The determination of the business model within which a financial asset is held. - The designation and revocation of previous designations of certain financial assets - The designation of certain investments in equity instruments not held for trading as at FVOCI. 19

22 6. INVESTMENTS The investments in associates, joint ventures and equity investment at FVOCI comprise of the following: Nature Principal activity Country of Incorporation 30 June 2018 (Unaudited) 31 December 2017 (Audited) 30 June 2018 (Unaudited) 31 December 2017 (Audited) Investments in Associates and Joint Ventures (Refer note 6.1) United Farmers Holding Company Pure Breed Poultry Company (Refer Note 6.2) % % '000 '000 Associate Investments in Saudi Arabia 33.0% 33.0% 43,537 63,588 Agricultural sector Associate Poultry Saudi Arabia % - 65,637 Almarai Company W.L.L. Joint Venture Dormant Qatar 50.0% 50.0% , , June 31 December 30 June 31 December (Unaudited) (Audited) (Unaudited) (Audited) Equity Investment at FVOCI (Refer note 6.3) Mobile Telecommunications Company % % '000 '000 Saudi Arabia - ("Zain") 2.1% 2.1% 82,893 90,711 82,893 90,711 Total 126, ,140 20

23 6. INVESTMENTS (Continued ) 6.1. The movement in investments in associates and joint ventures is as follows: 30 June 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 United Farmers Holding Company Opening balance 63,588 58,296 Repayment of loan (17,861) - Share of Other Comprehensive Income / (Loss) 567 (5,201) Share of Results for the period / year (2,757) 10,493 Closing balance 43,537 63, June 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 Pure Breed Poultry Company Opening balance 65,637 38,112 Additions - 25,000 Share of Results for the period / year (4,699) 2,525 Transfer to Consolidated Subsidiary (60,938) - Closing balance - 65, June 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 Almarai Company W.L.L. Opening balance Closing balance On 17 Rajab 1439 A.H. (2 April 2018) the Group, through its subsidiary Hail Agricultural Development Company, increased its shareholding in Pure Breed Poultry Company from 41.9% to 55.9%. This step acquisition results in the Group fully consolidating Pure Breed s Financial Statements as a subsidiary instead of equity accounting its investment in an associate. The carrying value of the associate must be revalued to fair value with any variance being recognised in the Condensed Consolidated Statement of Profit or Loss. Accordingly, the Group has recognised a revaluation loss of 3.4 million which has been included in Share of Results of Associates and Joint Ventures (Refer note 7) The equity investment of 12.4 million shares in Zain is measured at fair value based on quoted market price available on the Saudi Stock Exchange (Tadawul). As permitted by IFRS 9 and fully explained in Note 5B, Group has designated this investment at initial application of IFRS 9 as equity investment at FVOCI and measured at fair value. The fair valuation resulted in unrealised loss of 7.8 million for the period ended 30 June 2018 which is presented within other reserves in Condensed Consolidated Statement of Changes in Equity. The Company has pledged Zain shares to Banque Saudi Fransi ( BSF ) to secure the BSF loan to Zain KSA. 21

24 7. BUSINESS COMBINATION 7.1. On 17 Rajab 1439 A.H. (2 April 2018) the Group, through its subsidiary Hail Agricultural Development Company, increased its shareholding in Pure Breed from 41.9% to 55.9%. Pure Breed s main operations are focused on poultry grand-parent farming and its acquisition will add to Company s on-going efforts to further streamline, integrate and strengthen its poultry supply chain. The fair value of the equity interest in Pure Breed held by the Group immediately before 2 April 2018 was 60.1 million. The loss of 3.4 million recognised as a result of re-measuring to fair value the previously held equity interest is included in Share of Results of Associates and Joint Ventures in the Condensed Consolidated Statement of Profit or Loss. These Condensed Consolidated Interim Financial Statements include the results of the Pure Breed from 2 April 2018, as the Company effectively obtained control of Pure Breed Company from that date. The acquired business contributed revenues of 13.1 million and net profit of 0.2 million to the Group from the period from 2 April 2018 to 30 June If the combination had taken place at the beginning of the period, the consolidated revenue and loss for the six months period ended 30 June 2018 would have been 26.6 million and 6.0 million, respectively. The fair value of acquired trade receivables is 19.0 million. The gross contractual amount for trade receivables due is 28.8 million, of which 9.8 million is expected to be uncollectible. The Group recognises non-controlling interests in Pure Breed at its proportionate share of the acquired net identifiable assets. The Group is currently in the process of allocating the purchase consideration to the identifiable assets, liabilities and contingent liabilities acquired. However, the Group has provisionally accounted for the transaction based on the carrying values of the assets and liabilities (with the exception of the previously held equity investment) as of the acquisition date which are summarized below: Fair Value on Acquisition (Provisional) '000 Assets Acquired: Non-Current Assets Property, Plant and Equipment 100,885 Biological Assets 25, ,161 Current Assets Cash and Cash Equivalents 16,441 Trade Receivables and Prepayments 20,766 Inventories 6,574 43,781 Total Assets 169,942 Liabilities Assumed: Non-Current Liabilities Long-term Loan 2,883 Employee Benefits 6,798 9,681 Current Liabilities Short-term Loan 360 Trade and Other Payables 14,588 14,948 Total Liabilities 24,629 22

25 7. BUSINESS COMBINATION (Continued...) Fair Value on Acquisition (Provisional) '000 Total Identifiable Net Assets 145,313 Total Acquisition Cost 145,313 - Total Acquisition Cost: Cash Consideration 20,313 Fair Value of Previously Held Equity Interest 60,938 Fair Value of NCI 64,062 Total 145,313 Cash Outflow on Acquisition: Net Cash Acquired with the Subsidiary 16,441 Cash Paid (20,313) Net Cash Outflow (3,872) 7.2. After obtaining control on 17 Rajab 1439 A.H. (2 April 2018), HADCO further acquired 6.5% equity interest in Pure Breed on 20 Sha aban 1439 (6 May 2018), thus resulting in increase in existing controlling interest from 55.9% to 62.4%. The carrying amount of the NCI is adjusted to reflect the change in the ownership interest in Pure Breed. The Group recognized 0.1 million, the resulting difference between the amount by which the NCI is adjusted and fair value of the consideration paid, directly in equity. 8. SHARE CAPITAL The Company s share capital at 30 June 2018 amounted to 10,000 million (31 December 2017: 10,000 million) consisting of 1,000 million (31 December 2017: 1,000 million) fully paid and issued shares of 10 each. 9. LOANS 30 June 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 Islamic Banking Facilities (Murabaha) 9.1 5,674,455 5,839,187 Saudi Industrial Development Fund 9.2 1,554,032 1,733,511 Banking Facilities of Non-GCC Subsidiaries , ,248 International Finance Corporation , ,190 Agricultural Development Fund , ,912 Banking Facilities of GCC Subsidiaries , ,134 8,257,798 8,651,182 Sukuk 9.7 3,383,179 3,895,346 Notes 11,640,977 12,546,528 23

26 9. LOANS (Continued...) 30 June 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 Short-Term Loans 124, ,455 Current Portion of Long-Term Loans 2,062,483 1,820,948 Loans - Current Liabilities 2,187,052 2,003,403 Loans - Non-Current Liabilities 9,453,925 10,543,125 11,640,977 12,546, The borrowings under Islamic banking facilities (Murabaha) are secured by promissory notes given by the Group. The Islamic banking facilities (Murabaha) with a maturity period of less than two years are predominantly of a revolving nature. As at 30 June 2018, 7,225.9 million Islamic banking facilities (Murabaha) were unutilised and available for drawdown (31 December 2017: 6,462.9 million) The borrowings of the Group from the Saudi Industrial Development Fund ( SIDF ) are secured by a mortgage on specific assets equivalent to the outstanding borrowings. As at 30 June 2018, the Group had million of unutilised SIDF facilities available for drawdown with maturities predominantly greater than five years (31 December 2017: million). Assets mortgaged are subject to the restriction of disposal until the loan is settled or the disposal is approved by SIDF These banking facilities of non-gcc subsidiaries represent borrowings from foreign banking institutions. As at 30 June 2018, equivalent million (31 December 2017: million) facilities were unutilised and available for drawdown The Group has been granted new Murabaha Facility by International Finance Corporation ( IFC - Member of World Bank Group) of million in 2017, committed with maturity tenure of more than 9 years and million uncommitted. As at 30 June 2018, the Group had no unutilised IFC Murabaha facility (31 December 2017: Nil) The borrowing from Agriculture Development Fund ( ADF ) is secured by a mortgage on specific assets equivalent to the outstanding borrowings. As at 30 June 2018, the Group had no unutilised ADF facility (31 December 2017: Nil). Assets mortgaged are subject to the restriction of disposal until the loan is settled or the disposal is approved by ADF These banking facilities of GCC subsidiaries represent new borrowings of GCC subsidiaries from banking institutions of equivalent million. As at 30 June 2018, the Group had no unutilised facility (31 December 2017: Nil) On 14 Rabi Thani 1433 A.H. (7 March 2012), the Company issued its first Sukuk Series I amounting to 1,000.0 million at a par value of 1.0 million each without discount or premium. The Sukuk issuance bears a return based on Saudi Arabia Interbank Offered Rate ( SIBOR ) plus a pre-determined margin payable semi-annually in arrears. The Sukuk will be redeemed at par on its date of maturity i.e. 30 Jumada Thani 1440 A.H. (7 March 2019). On 19 Jumada Awal 1434 A.H. (31 March 2013), the Company issued its second Sukuk - Series II amounting to million at a par value of 1.0 million each without discount or premium. The Sukuk issuance bears a return based on SIBOR plus a pre-determined margin payable semi-annually in arrears. The Sukuk will be redeemed at par on its date of maturity i.e. 7 Shabaan 1441 A.H. (31 March 2020). On 19 Jumada Awal 1434 A.H. (31 March 2013), the Company issued its second Sukuk Series III amounting to million at a par value of 1.0 million each without discount or premium. The Sukuk was redeemed at par on 12 Rajab 1439 A.H. (29 March 2018). 24

27 9. LOANS (Continued...) On 3 Dhul Hijja 1436 A.H. (16 September 2015), the Company issued its third Sukuk amounting to 1,600.0 million at a par value of 1.0 million each without discount or premium. The Sukuk issuance bears a return based on SIBOR plus a predetermined margin payable semi-annually in arrears. The Sukuk will be redeemed at par on its date of maturity i.e. 20 Safar 1444 A.H. (16 September 2022). The terms of the Sukuk entitle the Company to commingle its own assets with the Sukuk assets. Sukuk assets comprise the Sukukholders share in the Mudaraba assets and the Sukukholders interest in the Murabaha transactions, together with any amounts standing to the credit of the Sukuk account and the reserve retained by the Company from the Sukuk account The loans contain certain covenants. A future breach of covenants may lead to renegotiation. The covenants are monitored on a monthly basis by Management, in case of potential breach, actions are taken by management to ensure compliance. 10. REVENUE The Group s operations and main revenue streams are those described in Note 1 and the last annual Financial Statements for the year ended 31 December The Group s revenue is derived from contracts with customers for sale of consumer products. Control of products is transferred at a point in time and directly sold to customers. The nature and effect of initially applying IFRS 15 on the Group s Condensed Consolidated Interim Financial Statements are disclosed in Note 5B. For the six month period Dairy and Juice Bakery Poultry Other Activities Total '000 '000 '000 '000 '000 ended 30 June 2018 Saudi Arabia 3,193, , ,614 85,556 4,767,017 Other GCC Countries 1,379, ,937 66,946-1,557,140 Other Countries 590,975-18,605 29, ,129 Total 5,163, , , ,105 6,963,286 Dairy and Juice Bakery Poultry Other Activities Total '000 '000 '000 '000 '000 For the six month period ended 30 June 2017 Saudi Arabia 3,308, , ,582 50,655 4,704,428 Other GCC Countries 1,634, , , ,920,062 Other Countries 472,218-17,091 30, ,392 Total 5,415, , ,775 81,517 7,143,882 25

28 11. EARNINGS PER SHARE The calculation of the basic and diluted earnings per share is as follows: April - June 2018 (Unaudited) April - June 2017 (Unaudited) January - June 2018 (Unaudited) January - June 2017 (Unaudited) '000 '000 '000 '000 Profit for the period attributable to the shareholders of the Company 660, ,114 1,004,770 1,002,384 Less: Profit attributable to Perpetual Sukukholders (19,053) (17,231) (35,878) (35,938) Earnings for the purposes of basic earnings per share 641, , , ,446 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings Weighted average number of ordinary shares for the purposes of diluted earnings 989, , , ,328 1,000,000 1,000,000 1,000,000 1,000,000 Earnings per Share (), based on Profit for the period attributable to Shareholders of the Company - Basic Diluted Weighted average number of shares are retrospectively adjusted to reflect the effect of Bonus Shares and are adjusted to take account of Treasury Shares held under the Almarai Employee Stock Options Programme. 12. SEGMENT REPORTING The Group s principal business activities involve manufacturing and trading of dairy and juice products under Almarai, Joosy Life Beyti and Teeba brands, bakery products under L usine and 7 Days brands and poultry products under Alyoum and AlBashayer brands. Other activities include Arable, Horticulture and Infant Nutrition. Selected financial information as at 30 June 2018 and 2017 and for the six month periods then ended, categorised by these business segments, is as follows: Dairy and Juice Bakery Poultry Other Activities Milk production, dairy and fruits juice product processing and distribution Bakery products manufacturing and distribution Poultry products manufacturing and distribution Arable, Horticulture and Infant Nutrition 26

29 12. SEGMENT REPORTING (Continued ) Dairy and Juice Bakery Poultry Other Activities Total '000 '000 '000 '000 ' June 2018 Revenue 5,196, , , ,234 7,508,416 Third Party Revenue 5,163, , , ,105 6,963,286 Depreciation and Amortisation Share of Results of Associates and Joint Ventures Profit / (loss) attributable to Shareholders of the Company Share of Other Comprehensive Loss of Associates and Joint Ventures (632,804) (121,125) (179,833) (92,037) (1,025,799) - - (4,699) (2,757) (7,456) 827,239 87,031 92,042 (1,542) 1,004, Profit / (loss) 825,597 85,989 92,105 (1,543) 1,002,148 Total Assets 20,020,548 2,465,969 5,438,409 3,462,216 31,387,142 Total Liabilities 14,034, ,154 1,155, ,960 16,285,752 Dairy and Juice Bakery Poultry Other Activities Total '000 '000 '000 '000 ' June 2017 Revenue 5,453, , , ,728 7,593,123 Third Party Revenue 5,415, , ,775 81,517 7,143,882 Depreciation and Amortisation Share of Results of Associates and Joint Ventures Profit / (loss) attributable to Shareholders of the Company Share of Other Comprehensive Loss of Associates and Joint Ventures (585,949) (106,052) (148,870) (71,525) (912,396) (3,411) (2,431) 937, ,431 (35,878) (51,751) 1,002, (5,201) (5,201) Profit / (loss) 913, ,573 (35,878) (51,751) 986,520 Total Assets 19,044,691 2,468,996 5,455,655 3,308,181 30,277,523 Total Liabilities 14,508, ,770 1,264, ,463 16,507, FINANCIAL INSTRUMENTS 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. Underlying the definition of fair value is the presumption that Group is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. When measuring the fair value, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. 27