ANNUAL REPORT 2018 FOUNDATION BUILDING QEXCELLENCE

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1 ANNUAL REPORT 2018 FOUNDATION BUILDING QEXCELLENCE

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3 AS WE RE QEXPORTING EVEN MORE Founded in 2010, QEX is a New Zealandbased cross-border logistics company, delivering New Zealand and Australian products to individual consumers in China has been an exciting year for QEX. Demand in its market is growing significantly. We, with our commercial partners, are meeting that demand. We see opportunities to expand and improve our business and are working hard to bring those opportunities to fruition. 02 A solid result 03 Operational highlights 04 Chairman s report 06 CEO s report 08 What is QEX Logistics? 09 Business overview 10 Significant growth and development 12 Exporting to China 14 Financial statements 21 Notes to the consolidated financial statements 46 Independent auditor s report 49 Statutory information 53 Directory

4 02 QEX LOGISTICS ANNUAL REPORT 2018 A solid result REVENUE $31.5M 42% FROM 2017 PROFIT BEFORE TAX (29)% FROM 2017* $1.85M TOTAL ASSETS 115% FROM 2017 $12.3M SHARE PRICE UP FROM 25c +200% SHAREHOLDERS 177 * DUE TO INITIAL LISTING COSTS

5 OPERATIONAL HIGHLIGHTS 03 Operational highlights UPSKILLING STAFF NEW WAREHOUSE FACILITY IN AUCKLAND IMPLEMENTATION OF A LOGISTICS SOFTWARE SYSTEM COMMERCIAL PARTNERSHIPS Upskilling staff to enable accreditation approvals with the Ministry for Primary Industries, NZ Customs, the Civil Aviation Authority and IATA. The accreditations will all contribute to QEX cutting out intermediaries and improving services to customers. QEX now has 24 staff in New Zealand and 20 in China, up from 29 a year ago. NZ EMPLOYEES 24 UP FROM 18 In January this year QEX moved into a new warehouse near Auckland International Airport. The new facility significantly increased QEX s footprint from its former Onehunga site and consists of 2359m 2 of storage and warehouse area (previous site 1100m 2 ) and 515m 2 of office area (previous site 100m 2 ).This has enabled QEX to increase inventory to meet the demand for products such as infant formula and milk powder. QEX is rolling out global logistics software solution CargoWise One across New Zealand. The cloudbased software system is designed to improve productivity through increased automation and visibility of data. The system will go live in September, and QEX intends to roll it out in China once it has been fully tested in New Zealand. QEX has significant commercial partnerships in place, and has added two more. The company is now the exclusive supplier for Munchkin baby products from New Zealand into China, through its joint venture company ANZ Brand House. It is also finalising a direct supply agreement with Danone. CHINA EMPLOYEES 20 UP FROM 11 STORAGE 2359m 2 OFFICE AREA 515m 2

6 04 QEX LOGISTICS ANNUAL REPORT 2018 to expand our business The right time Conor English CHAIRMAN OF DIRECTORS Chairman s report

7 CHAIRMAN S REPORT 05 When I became QEX s chair, I joined a company with an ambitious and smart leadership team. The Board is pleased to present this annual report, QEX Logistics Limited s first as a listed company. QEX, a company that was founded just eight years ago, has delivered a substantial increase in revenues from the previous year, to $31.5 million. Profit before tax decreased to $1.85 million from $2.6 million the previous year, primarily as a result of initial costs associated with listing. QEX s NXT listing, on 15 February, has given it a higher profile, and will enable it to raise capital and fund its expansion plans. The Group is now looking to increase efficiencies through the supply chain, and push further into growing the New Zealand, Australian and Chinese markets. As part of this, we are exploring acquisition options that can open opportunities for sustainable growth. It s such an exciting time for QEX. The Group has become a vital link for New Zealand and Australian manufacturers and daigou delivering products to consumers in China. The opportunity is significant if it can be captured not just because of China s 1.4 billion population, but because of the growing interest in quality products and e-commerce. QEX has positioned itself to take advantage of this trend. It needs to be highly adaptable, and able to respond rapidly to shifting business demands. In a world where technology and competition are evolving apace, agility is a vital component of successful businesses. QEX seeks to deliver on this need. When I became QEX s chair, I joined a company with an ambitious and smart leadership team. Ronnie Xue and his team understood the value of listing, and the benefits that would flow from a higher profile, transparent financials and the ability to raise capital for investment. QEX which is still a young company - has this year undergone an immense transition, as it evolved from being a private, familyrun business to a public traded entity. And the market has shown support for its leadership and business model, driving the share price up from 25 cents on listing to 75 cents now. QEX now has 177 shareholders and we are grateful for and respect their interest in our company. Through this process, Ronnie and his team have built a constructive, adaptable culture. There is a sense of energy, of being a part of something that offers real value to customers. QEX also has a deep commitment to the safety and wellbeing of its staff, and they have a passion for the business. We know there will always be competition in this space, and that we will inevitably face headwinds as we continue to grow. But QEX is a smart and agile business, and we seek to continue to be a leader in our field and to grow shareholder value. Conor English CHAIRMAN OF DIRECTORS

8 06 QEX LOGISTICS ANNUAL REPORT 2018 for customers, suppliers and partners Delivering excellence Ronnie Xue CEO CEO s report

9 CEO S REPORT 07 Listing on the NXT has enabled us to fund our continued growth and has led to significant new opportunities for the company. The 2018 financial year was a time of immense change for QEX Logistics Limited. It culminated in the company listing on the New Zealand Stock Exchange s NXT, on 15 February This was a hugely significant milestone for QEX, and one that marked a vital first step in our ambitions as a public entity. When my wife, Doreen, and I began building the business, from a garage in Auckland eight years ago, we realised we were tapping into an area of huge demand. QEX s expansion was rapid, and becoming a listed company was an aim from our early years. Listing on the NXT has enabled us to fund our continued growth and has led to significant new opportunities for the company. We are now positioning QEX for a listing on the NZX main board, which we intend to do as soon as the proposed new NZX rule changes and structure are finalised. At the same time, we are focusing on building a full-circle service - from e-commerce to delivery - that meets the increasing demands of global trade. These demands are reflected in our financial results. Revenue in 2018 increased 42% to over $31.5 million, from $22 million the year before. Milk powder revenue, in particular, was a key driver behind this strong growth. We were able to source product, even when there was a shortage, as a result of our position as a preferred partner to manufacturers. Competitive pricing enabled us to keep up with demand and satisfy our customers needs. This year s profit was $1.85 million, down from $2.6 million the year before. This was due to the initial costs of $579,317 incurred in preparing the company to become public and list on the NXT. Employee costs have risen 103%, largely in response to our significant business growth and due to our acquisition of Shanghai Ditu last year. We have also moved into a much larger warehouse by Auckland International Airport. Net cash outflow from operations was $3.17 million, due to the Group s rapid expansion and increase in inventory to meet customer demand. This additional funding for operations is vital to ensure we are positioned to grow. Total cash movement is a net cash inflow of $1.6 million, including new equity and debt funding. Since balance date, we have established two important supply agreements. The company now has an exclusive supplier arrangement with Munchkin baby products from New Zealand into China through our new joint venture company, ANZ Brand House. We are also finalising a direct supply agreement with Danone. We are streamlining our logistics chain, including working to become registered as an agent for the International Air Transport Association, or IATA. We are also seeking accreditation with other entities, including the Ministry for Primary Industries, NZ Customs Service and the Civil Aviation Authority. These accreditations will give us increased efficiencies to ensure we can continue to offer competitive pricing and further develop our position as a preferred logistics partner. In April, we hosted New Zealand Trade and Enterprise in Shanghai and discussed opportunities to broaden our logistics support to manufacturers of products including ice cream, peanut butter and wine. We are very grateful to everyone who has contributed to QEX s success. It has been an exciting journey so far. We look forward to your ongoing support as we continue to grow. Jingjie (Ronnie) Xue CEO

10 08 QEX LOGISTICS ANNUAL REPORT 2018 What is QEX Logistics? QEX Logistics Limited is an Auckland-based, cross-border logistics company that facilitates the: STORAGE SUPPLY PACKAGING CUSTOMS CLEARANCE DELIVERY OF NEW ZEALAND & AUSTRALIAN PRODUCTS INTO CHINA QEX s main exports are dairy products, including infant formula and milk powder, and health supplements. The products are purchased from stores, online and e-commerce sites by individual consumers in China, or through a daigou. QEX then manages all aspects of supply and delivery. FOUNDED IN 2010 The company was founded in 2010 by Ronnie Xue, and in 2013 became the first RMP-certified cross-border logistics company in New Zealand, ensuring quality of the product. NEW ZEALAND S FASTEST GROWING COMPANY 13TH QEX was ranked as New Zealand s 42nd fastest growing company by Deloitte in 2016 and this ranking rose to 13th in FEBRUARY 2018 The company listed on the New Zealand Stock Exchange s NXT in February 2018.

11 WHAT IS QEX LOGISTICS? QEX OVERVIEW 09 QEX overview: Making global trade easy In 2010, QEX founder Ronnie Xue identified a gap in the market for providing logistics services to support the export of New Zealand products, particularly infant formula and milk powder, into China. Just eight years later, QEX has grown from its first home, in an Auckland garage, to a listed company with a market capitalisation of nearly $40 million. In 2017, the company purchased Shanghai Ditu International Freight Forwarder Co., Limited (Shanghai Ditu) in China and in 2018 expanded into Australia. QEX effectively acts as an economic bridge between Australasia and China. The company ensures the reliable, transparent, and traceable delivery of products like infant formula, milk powder and healthcare products, direct to consumers. By doing so, QEX creates a one-stop-shop for New Zealand companies, manufacturers and daigou. QEX s status as a listed company has enabled it to raise capital including $2.5 million just prior to listing - and develop commercial partnerships with major manufacturers. Its customers and suppliers include Fonterra (Anchor), Danone, Munchkin, Countdown and Health Element. Demand in this market is high, as New Zealand and Australian products are known in China for their quality. QEX is also able to offer highly competitive pricing for its services. China is New Zealand s top trading partner, with $15.3 billion in exports traded for the year ended March Dairy products were the main export product, worth $4 billion. QEX is currently exploring acquisition opportunities and streamlining its supply chain as it expands to meet significant market demand. QEX intends to list on the NZX s main board as soon as the proposed new NZX rule changes and structure are finalised. Ronnie Xue founded QEX Logistics in In January this year QEX moved into a warehouse near Auckland International Airport.

12 10 QEX LOGISTICS ANNUAL REPORT 2018 Significant growth and development QEX listed on the NXT in February this year. Ronnie Xue and his wife, Doreen Wu, launch trading for QEX on the New Zealand Stock Exchange. The shares listed at 25 cents and are now trading at 75 cents.

13 SIGNIFICANT GROWTH AND DEVELOPMENT 11 The new warehouse enables the company to expand its New Zealand services and operations. The new facility significantly increased QEX s footprint from its former Onehunga site and consists of 2359m 2 of storage and warehouse area.

14 12 QEX LOGISTICS ANNUAL REPORT 2018 Exporting to China QEX Logistics has followed a deliberate strategy of focusing on the Chinese market. This has enabled it to grow its business and leverage its expertise to fuel the company s rapid growth. China presents significant opportunities, with burgeoning growth in online shopping and cross-border e-commerce. The introduction of China s two-child policy in early 2016 has underpinned strong demand for infant formula from New Zealand. According to Statistics New Zealand, for the year ended March 2018, China was New Zealand s top export destination, at $15.3 billion. Dairy products earned $4 billion. Statistics New Zealand figures also show a dramatic rise in two-way trade with China. Trade has more than tripled over the last decade, from $8.6 billion in 2007 to $26.1 billion in the 2017 calendar year. The Statistics New Zealand figures also showed in 2017 New Zealand had its highest level of dairy product exports to China since 2013/2014. As the statistics show, China is a very significant market. Currently, nearly all of QEX s revenues are generated from the export of infant formula and milk powder, and logistics, crossborder delivery and customs clearance of parcels to individual consumers in China. While there are risks associated with such a concentrated geographical exposure, QEX believes continuing to build its market in China will provide further significant growth opportunities for the Group. QEX s short- to medium-term plan is to continue its focus on China. The company s deep understanding of the market including the regulatory environment means it can continue to adapt and respond to any challenges or changes that may arise.

15 EXPORTING TO CHINA 13 PARCELS DELIVERED IN FY ,000 TONNES OF NZ MILK POWDER EXPORTED TO CHINA IN FY18 2,136 SHANGHAI WE SUPPORT OVER 300 NEW ZEALAND BUSINESSES INTO CHINA SYDNEY MELBOURNE AUCKLAND

16 14 QEX LOGISTICS ANNUAL REPORT 2018 Financial statements 16 Directors responsibility statement 17 Consolidated statement of profit or loss and other comprehensive income 18 Consolidated statement of financial position 19 Consolidated statement of changes in equity 20 Consolidated statement of cash flows 21 Notes to the consolidated financial statements 46 Independent auditor s report 49 Statutory information 53 Directory

17 FINANCIAL STATEMENTS 15

18 16 QEX LOGISTICS ANNUAL REPORT 2018 Directors responsibility statement For the year ended 31 March 2018 The directors are pleased to present the consolidated financial statements of QEX Logistics Limited (the Company ) and its subsidiaries (together the Group ) for the year ended 31 March The directors are responsible for ensuring that the financial statements present fairly the financial position of the Group as at 31 March 2018 and the financial performance and cash flows for the year ended on that date in accordance with generally accepted accounting practice in New Zealand. The directors consider that the financial statements of the Group have been prepared using appropriate accounting policies consistently applied and supported by reasonable judgements and estimates and that all the relevant financial reporting and accounting standards have been followed. The directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Group and facilitate compliance of the financial statements with the Companies Act The directors authorised these Consolidated Financial Statements under section 211(1)(k) of the Companies Act 1993 on 28 June Signed for and on behalf of the Board: Conor English Director Jingjie Xue Director

19 FINANCIAL STATEMENTS 17 Consolidated statement of profit or loss and other comprehensive income For the year ended 31 March 2018 $NZ Notes Revenue 5 31,524,578 22,233,833 Cost of sales (26,458,843) (18,388,798) Gross profit 5,065,735 3,845,035 Other income Interest received ,109 54,982 Expenses Administrative expenses (1,544,300) (557,001) Employee benefits expenses 8 (1,469,520) (724,874) Depreciation and amortisation expenses 6.2 (86,362) (65,028) Finance costs 6.1 (142,593) (8,942) (3,242,775) (1,355,845) Gain on acquisition of subsidiary ,879 Profit before tax 1,846,069 2,592,051 Income tax expense 7.1 (656,184) (716,112) Profit for the year 1,189,885 1,875,939 Other comprehensive income Items that may be classified subsequently to profit or loss Exchange differences on translating foreign operations 59,902 - Total comprehensive income for the year 1,249,787 1,875,939 Attributable to: Owners of the company 1,249,787 1,875,939 Earnings per share From continuing operations Basic (per share) Diluted (per share) The accompanying notes form an integral part of these financial statements and should be read in conjunction with them.

20 18 QEX LOGISTICS ANNUAL REPORT 2018 Consolidated statement of financial position At 31 March 2018 $NZ Notes Assets Cash 10 1,751, ,091 Trade receivables and other current assets 11 6,219,312 2,351,041 Inventories 12 3,781,635 1,275,999 Loan to shareholder ,431,000 Total current assets 11,752,923 5,212,131 Non-current assets Property, plant and equipment , ,997 Intangible assets 14 5,320 - Deferred tax ,909 50,769 Total non-current assets 517, ,766 Total assets 12,270,429 5,695,897 Current liabilities Trade payables and other current liabilities 15 2,894,339 1,902,522 Borrowings 16 2,319, ,861 Tax payable , ,216 Total current liabilities 6,053,020 3,439,599 Total liabilities 6,053,020 3,439,599 Net assets 6,217,409 2,256,298 Capital Share capital 17 2,575, Share based payment reserve ,324 - Retained earnings 19 3,446,082 2,256,197 Foreign currency translation reserve 59,902 - Total equity 6,217,409 2,256,298 These financial statements were approved by the Board on 28 June Signed for and on behalf of the Board: Conor English Director Jingjie Xue Director The accompanying notes form an integral part of these financial statements and should be read in conjunction with them.

21 FINANCIAL STATEMENTS 19 Consolidated statement of changes in equity For the year ended 31 March 2018 $NZ Notes Share capital Share based payments reserve Retained earnings Foreign currency translation reserve Total Balance at 1 April , ,358 Profit for the year - - 1,875,939-1,875,939 Other comprehensive income Total comprehensive income for the year - - 1,875,939-1,875,939 Issue of ordinary shares Distributions to owner Balance at 31 March 2017 and 1 April ,256,197-2,256,298 Profit for the year - - 1,189,885-1,189,885 Other comprehensive income Exchange differences on translating foreign operations ,902 59,902 Total comprehensive income for the year - - 1,189,885 59,902 1,249,787 Issue of ordinary shares 17 2,575, ,575,000 Share options issued , ,324 Distributions to owners Balance at 31 March ,575, ,324 3,446,082 59,902 6,217,409 The accompanying notes form an integral part of these financial statements and should be read in conjunction with them.

22 20 QEX LOGISTICS ANNUAL REPORT 2018 Consolidated statement of cash flows For the year ended 31 March 2018 $NZ Notes Cash flows from operating activities Receipts from customers 29,621,728 21,863,801 Payments to suppliers and employees (32,029,639) (21,297,107) Cash (used in)/generated from operations (2,407,911) 566,694 Interest received 23,109 - Interest paid (141,796) (8,942) Income taxes paid (641,588) (149,557) Net cash (used in)/generated by operating activities 28 (3,168,186) 408,195 Cash flows from investing activities Payments for property, plant and equipment (106,845) (332,792) Payments for intangible assets (6,051) - Payment for purchase of subsidiary 25.1 (720,800) - Cash received on acquisition of subsidiary - 72,535 Net cash used in investing activities (833,696) (260,257) Cash flows from financing activities Increase in trade finance 1,592, ,861 Proceeds from issue of shares 17 2,575,001 - Proceeds from shareholder loan 1,465, ,115 Payment to shareholder on loan (34,317) (1,652,812) Net cash generated from/(used in) financing activities 5,598,405 (335,836) Net increase/(decrease) in cash and cash equivalents 1,596,523 (187,898) Cash and cash equivalents at the beginning of the year 154, ,989 Effects of exchange rate changes on cash balances held in foreign currencies 1,362 - Cash and cash equivalents at the end of the year 10 1,751, ,091 The accompanying notes form an integral part of these financial statements and should be read in conjunction with them.

23 NOTES TO THE FINANCIAL STATEMENTS 21 Notes to the consolidated financial statements For the year ended 31 March General information These financial statements are for QEX Logistics Limited ( the Company ) and its subsidiaries (together the Group ). The Company and one of its subsidiaries, New Y Trading Limited, are incorporated and domiciled in New Zealand. The Company s other subsidiaries, Shanghai Ditu International Freight Forwarder Co., Limited and New Y Trading (AUS) Pty Limited are registered and domiciled in China and Australia respectively. The address of the Company s registered office and the Group s primary place of business is 70 Richard Pearse Drive, Mangere, Auckland, New Zealand. The Group s ultimate controlling party is Jingjie Xue. The Group operates a public shipping and delivery business that specialises in delivering parcels (including customs clearance) to China for online business sellers in New Zealand and Australia, as well as the sale of milk powder for consumers in China. During the year the Group commenced logistic services for an Australian-based customer. Other than this opportunity there have been no significant change in the nature of the Group s business activities during the financial year. 2. Significant accounting policies 2.1 Statement of compliance and reporting framework The consolidated financial statements have been prepared in accordance with New Zealand generally accepted accounting practice (NZ GAAP). For the purposes of complying with NZ GAAP, the Group is a for-profit entity. The financial statements comply with International Financial Reporting Standards and New Zealand equivalents to International Financial Reporting Standards ( NZ IFRS ). The Company is an FMC reporting entity under the Financial Markets Conduct Act These financial statements have been prepared in accordance with the requirements of the Financial Markets Conduct Act Basis of preparation The consolidated financial statements have been prepared on a historical cost basis except for any financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of NZ IFRS 2: Share-based Payment, leasing transactions that are within the scope of NZ IAS 17: Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in NZ IAS 2: Inventories or value in use in NZ IAS 36: Impairment of Assets. The financial statements have been presented in New Zealand dollars. 2.3 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company s voting rights in an investee are sufficient to give it power, including: the size of the Company s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Company, other vote holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings.

24 22 QEX LOGISTICS ANNUAL REPORT 2018 Notes to the consolidated financial statements continued For the year ended 31 March Basis of consolidation continued Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation Changes in the Group s ownership interests in existing subsidiaries Changes in the Group s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/ permitted by applicable NZ IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under NZ IAS 39: Financial Instruments, when applicable, the cost on initial recognition of an investment in an associate or a joint venture Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that: deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with NZ IAS 12: Income Taxes and NZ IAS 19: Employee Benefits respectively; liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with NZ IFRS 2 at the acquisition date; and assets (or disposal groups) that are classified as held for sale in accordance with NZ IFRS 5: Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill acquired in a business combination is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer s previously held interest in the acquire (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. When a business combination is achieved in stages, the Group s previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

25 NOTES TO THE FINANCIAL STATEMENTS Reorganisation of Group and Investment in New Y Trading Limited The Company was incorporated on 14 September On 31 March 2017 the shareholder of the Company undertook a corporate restructure process to facilitate a compliance listing on the NXT. As a consequence the Company acquired 100% of the shares of the already operating New Y Trading Limited. Both companies were 100% owned by the same ultimate controlling party at that time of the restructure and immediately after. The corporate restructure did not represent a business combination in accordance with NZ IFRS 3: Business Combinations. The appropriate accounting treatment for recognising the new group structure was on the basis that the transaction was a form of capital restructure and group reorganisation. The financial statements for the year ended 31 March 2017 have been prepared as a continuation of the combination of QEX Logistics Limited s and New Y Trading Limited s pre reorganisation financial results. Therefore, the comparative financial statements include the financial results of the Group from acquisition on 31 March 2017 and the combined results of the pre reorganisation companies from 1 April 2016 to the date of acquisition Investments in associates and joint ventures An associate is an entity over which the Group 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. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with NZ IFRS 5. Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group s share of losses of an associate or a joint venture exceeds the Group s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of NZ IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with NZ IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with NZ IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

26 24 QEX LOGISTICS ANNUAL REPORT 2018 Notes to the consolidated financial statements continued For the year ended 31 March Investments in associates and joint ventures continued The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment is classified as held for sale. When the Group retains an interest in the former associate or joint venture and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with NZ IAS 39. The difference between the carrying amount of the associate or joint venture at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate or joint venture is included in the determination of the gain or loss on disposal of the associate or joint venture. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate or joint venture on the same basis as would be required if that associate or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate or joint venture would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests. When the Group reduces its ownership interest in an associate or a joint venture but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. When a group entity transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognised in the Group s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group. 2.4 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, excluding goods and services tax, and discounts Sale of goods Revenue derived from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Deferred revenue relates to items where the related goods have not been delivered and the title has not passed as at balance date. As such, these are included in the consolidated statement of financial position as a liability ( deferred revenue ) Customs clearance, logistics and consulting services Revenue derived from customs clearance, logistics and consulting services are recognised as the services are performed. Deferred revenue relates to items where the services have not been performed as at balance date. As such, these are included in the consolidated statement of financial position as a liability ( deferred revenue ) Interest income Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount on initial recognition. 2.5 Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

27 NOTES TO THE FINANCIAL STATEMENTS Income tax Income tax expense comprises both current and deferred tax Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 2.7 Goods and services tax Revenue, expenses, assets and liabilities are recognised net of the amount of goods and services tax (GST) except: where the amount of GST incurred is not recovered from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or for receivables and payables, which are recognised inclusive of GST. The net amount of GST recoverable or payable to the taxation authority is included as part of receivables or payables. 2.8 Foreign currencies The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and position of each group entity are expressed in New Zealand dollars, which is the functional currency of the Company and the presentation currency for the consolidated financial statements. In preparing the financial statements of each individual group entity, transactions in currencies other than the entity s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognised in the profit or loss in the period in which they arise except for exchange differences on transactions entered into in order to hedge certain foreign currency risks. For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group s foreign operations are translated into New Zealand dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity.

28 26 QEX LOGISTICS ANNUAL REPORT 2018 Notes to the consolidated financial statements continued For the year ended 31 March Property, plant and equipment Building improvements, furniture and fittings, motor vehicles, office equipment and plant and equipment are stated at cost less accumulated depreciation. Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight line or diminishing value method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The following depreciation rates are used in the calculation: Building improvements 9-10% Motor vehicles 20-30% Office equipment 30-70% Plant and equipment 13-50% Furniture and fittings 16% An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss Intangible assets Acquired intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses Inventories Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in, first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material) Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

29 NOTES TO THE FINANCIAL STATEMENTS Financial assets Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss (FVTPL), held-to-maturity investments, available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, bank balances and cash, and loan to shareholder) are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For all other financial assets, objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or breach of contract, such as a default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial reorganisation; or the disappearance of an active market for that financial asset because of financial difficulties. For certain categories of financial assets, such as trade receivables, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. For financial assets measured at amortised cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.