Jamaica Producers Group Limited

Transcription

1 Jamaica Producers Group Limited Annual Report 2017

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3 Annual Report 2017 CONTENTS Annual Review 2 Notice of Meeting 3 Group Financial Highlights 4 Chairman s Statement 7 Management Discussion & Analysis 20 Board of Directors 26 Executive Team 29 Directors Report 30 Board Committees 34 Stockholdings of Directors and Officers 35 Top Ten Stockholders Auditors Report and Financial Statements 36 Auditors Report - Group 43 Group Balance Sheet 44 Group Profit and Loss Account 45 Group Statement of Profit or Loss and Other Comprehensive Income 46 Group Statement of Changes in Equity 48 Group Statement of Cash Flows 50 Notes to the Financial Statements 96 Corporate Data Form of Proxy 1

4 Jamaica Producers Group Limited NOTICE OF MEETING NOTICE IS HEREBY GIVEN that the eighty first ANNUAL GENERAL MEETING of JAMAICA PRODUCERS GROUP LIMITED (the Company ) will be held at The Spanish Court Hotel,16 Worthington Avenue, Kingston 5, at 10:00 o clock in the forenoon of Friday June 22, 2018 to transact the business more particularly set out below, and to consider, and if thought fit, to pass the resolutions as set out below: 1. To receive and consider the Directors Report, Auditors Reports and Audited Financial Statements of the Company and the Group for the year ended December 31, 2017: RESOLUTION: THAT the Directors Report, Auditors Reports and Audited Financial Statements of the Company and the Group for the year ended December 31, 2017 be and are hereby adopted. 2. To fix the remuneration of the Auditors for 2017 or to determine the manner in which such remuneration is to be fixed: RESOLUTION: THAT the remuneration of the Auditors, KPMG, having been fixed by the Directors for 2017, be and is hereby approved. 1. To ratify interim capital distributions and declare them final: RESOLUTION: THAT the interim capital distribution of 10 per stock unit of record date December 22, 2017 be and is hereby ratified and declared final for To re-appoint the Auditors: RESOLUTION: THAT the Auditors, KPMG, having indicated their willingness to continue in office, be and are hereby re-appointed for the year To elect Directors: RESOLUTIONS: a) THAT Mr. Donovan Perkins who retires by rotation, be and is hereby re-elected a Director of the Company. b) THAT Mr. Grantley Stephenson who retires by rotation, be and is hereby re-elected a Director of the Company. 6. To fix the remuneration of Directors: RESOLUTION: THAT the amount of $9,940, shown in the Accounts for the year ended December 31, 2017 for Non-Executive Directors fees be and is hereby approved. 7. To transact any other competent business. BY ORDER OF THE BOARD Simone M. Pearson Company Secretary Kingston, Jamaica April 15, 2018 A member of the Company who is entitled to attend and vote is entitled to appoint one or more proxies to attend and on a poll, to vote in his stead. A proxy need not be a member of the Company. Form of Proxy must be lodged at the Registered Office of the Company not later than forty-eight hours before the meeting. An appropriate Form of Proxy is attached, to which should be affixed adhesive stamps to the value of $

5 Annual Report 2017 GROUP FINANCIAL HIGHLIGHTS EUR 1 to J$ 3

6 Jamaica Producers Group Limited CHAIRMAN S STATEMENT For the year ended December 31, 2017, Jamaica Producers Group Limited ( JP or the Group ) earned consolidated revenues of $16.2 billion and generated $662 million of net profit attributable to shareholders. At the end of the year, the Group had shareholders equity of $11.3 billion, reflecting an increase of 8% relative to the equity of the Group at the beginning of the year profits exceeded the 2017 result because the 2016 result included gains related both to our acquisition of Kingston Wharves Limited ($2.9 billion) and the divestment of the Group s holdings in Mavis Bank Coffee Factory Limited ($650 million). JP Logistics & Infrastructure The Logistics & Infrastructure ( L&I ) Division is the Group s largest division by assets. In line with the strong performance of Kingston Wharves, the major share of the Group s profit during the year was earned in this reporting segment. In addition to Kingston Wharves (which operates a leading multi-purpose port serving the Caribbean region), this Division also includes JP Shipping Services Limited, a leading freight-forwarder providing shipping services between Caribbean ports and the United Kingdom. 4 Charles Johnston Group Chairman

7 Annual Report 2017 The L&I Division generated profit before finance cost, taxation and minority interest of of $2.2 billion in 2017 on revenues of $7.3 billion, a significant increase of 85% on the prior year. Up until June 23, 2016, Kingston Wharves was classified as an associate for accounting purposes and consequently only JP s 42% share of earnings was brought into our Profit and Loss Account up until that point in the prior year. On a like-for-like basis, the L&I Division s earnings for 2017 are up 51% on the prior year. JP Food & Drink JP s Food and Drink ( F&D ) Division is the largest contributor to the revenues of the Group. The division earned 2017 profit before finance cost and taxation of $278 million compared to the prior year result of $31 million. This Division comprises our vertically integrated portfolio of subsidiaries that are engaged in farming, food processing, distribution and retail of food and drink. The F&D business has production facilities in Europe and the Caribbean, and operates a distribution center in the United States. Our range of specialty food and drink products includes fresh juices and fresh fruit, tropical snacks, Caribbean rumbased confectionary and baked goods. The Division benefitted from a particularly strong performance from our European juice business and improved results in our Tortuga International subsidiary. Our fresh juice business entered new markets with new products and new customers and achieved record sales and profits. Tortuga International benefitted from a full year of streamlined and consolidated bakery operations, as well as a focused marketing campaign targeting the travel retail channel. Our The Group earned consolidated revenues of $16.2 billion and generated $662 million of net profit attributable to shareholders. 5

8 Jamaica Producers Group Limited tropical snack business had a steady year and commenced a series of initiatives to expand output and remove production bottlenecks. The benefit of these programmes for sales and profit performance is expected in The positive performance of Hoogesteger and Tortuga International was partially offset by poor yields leading to adverse results on our banana and pineapple farms in Jamaica. Outlook Jamaica Producers Group and its subsidiaries will continue a programme of investment that is designed to improve its product and service offering, while enhancing its operating efficiency. As part of this programme of investment, during the year, Kingston Wharves launched its new logistics facilities for the warehousing of general cargo, and the storage of bulk cargo and automotive cargo for domestic and transshipment markets. Our JP Tropical Group completed the commissioning of state-of-the-art cold storage and ripening facilities for its banana and pineapple business. This investment has significantly improved the quality and availability of our fresh produce. Our bakery and our juice plant are also undertaking positive initiatives to optimise new production lines that were introduced within the last 18 months. The plant and equipment and other resources associated with these investments are performing satisfactorily. Our commitment to the communities in which we do business remains strong. We maintained an active programme of charitable giving, primarily in programmes that support the education of young people in these communities. We are particulary focused on the parish of St. Mary where we are a leading employer in addition to contributing to sports programmes, education and citizen safety. As part of this focus we are pleased to have been able to support tertiary level scholarships of 10 students from the parish. We also agreed to serve as lead sponsor of the St. Mary s Major League Football Competition. I thank our board, management and staff for their commitment to our success, and our customers and partners for their continued support. Charles Johnston Chairman We also relocated all of our head office activities from Oxford Road in New Kingston to Newport West, where a significant share of the Group s investment activity is centred. In line with this programme, we entered the 2018 financial year operating with a lower overhead cost base from purpose-built corporate offices. 6

9 Annual Report 2017 MANAGEMENT DISCUSSION & ANALYSIS The Group and Strategy During 2017 the Group continued topursue a strategy that leverages its strengths, specifically: i. Pursuing business prospects in all aspects of specialty food and drink, ranging from agricultural production to food processing, marketing distribution and specialty retail. ii. Participating in select opportunities to develop and provide world class logistics services and infrastructure for the Caribbean. Our strategy is further underpinned by three key objectives which we believe will lead to further success in our strategic goals: 1. To be a leader in the market segments in which our businesses compete. 2. To remain open to a wide range of strategic opportunities for growth, including acquisitions and business development 3. To operate our businesses in a practical context that emphasizes integrity and strong financial returns. Jeffrey Hall Group Managing Director 7

10 Jamaica Producers Group Limited MANAGEMENT DISCUSSION & ANALYSIS Following the significant one-time shareholder gains that this strategy realised in 2016, 2017 was focused on trading growth and consolidation. In this regard it was a largely successful year, with our two largest subsidiaries Kingston Wharves Limited ( KW ) and A.L. Hoogesteger Fresh Specialist B.V. ( Hoogesteger ) registering record trading performances alongside continuing consolidation activities that have already delivered significant cost savings. These positive results were partially offset by disappointing yields and agricultural losses from our banana and pineapple farms, our smallest business unit by revenues. The Group s financial and operating reporting is aligned to our high-level strategy, with our segmental reporting split into the major lines of business in which we are engaged: (a) JP Food & Drink -- an international diversified specialty foods business, and (b) JP Logistics & Infrastructure -- a portfolio of international businesses centred around logistics and infrastructure for the Caribbean. Financial Performance Review The Group This financial performance review covers the Group s results and segmental analysis (see Note 31 in the consolidated financial statements). JP Group Revenues J$B As reported in 2016, shareholders should note the effect of three significant events when performing comparisons to prior years. Firstly, with effect from June 23, 2016, the Group, based on a change in the profile of control, began to fully consolidate its investment in KW. Consequently, for 2016 KW s revenues and costs are included in the Group s Profit and Loss on a line by line basis for the second half of the year. This was a change from the previous method of accounting for KW as an associate under the equity method whereby JP s share of KW s earnings was represented as a single line item in the Group Profit and Loss. During 2017 the revenues and costs have been included on a line by line basis for the full year. As a result of this change in 2016, the Group also recognised a one-time gain of $2.9 billion from uplifting our book value investment in KW to the current net fair value of the individual assets and liabilities of that entity. This was, as expected, not repeated in Secondly, in 2016, the disposal of our stake in Mavis Bank Coffee Factory Limited ( MBCF ) with effect from September 19, 2016 generated a one-time gain on sale of $650 million, which again was not repeated in

11 Annual Report 2017 Finally, the completion of a 5 for 1 bonus issue of shares during 2016 means that comparatives for some shareholder earning and net worth analysis have been restated throughout this Annual Report. In addition to these, during 2017, and following the consolidation of KW, the Group performed a full review of the appropriateness of its financial statement structure and classification. Arising from this review we have revised the presentation of our Group Profit and Loss Account to better reflect the Group s operations. While the revision is relatively minor, this has resulted in some prior year comparative reclassification (see Note 34 in the consolidated financial statements). During 2017, JP generated total revenues of $16.2 billion, an increase of 34% relative to A substantial part of this revenue increase arose from the aforementioned change to recognise KW as a subsidiary from mid Normalising for this change, the underlying business revenues grew by 11%. The majority of the Group s revenues are denominated in currencies other than the Jamaican dollar, particularly the euro, the US dollar and the British pound sterling. As such, straight-forward comparisons of the Group s revenues can be affected by changes in the year to year average rates of exchange used for income statement translation. During 2017, the net effect of the changes in the average rates of exchange was equivalent to less than 1% of our revenues. As such, our subsidiaries delivered in excess of 10% revenue growth in the predominantly hard-currencies in which they do business. The Group has a long-held approach of ensuring that the core part of our earnings is generated in hard currencies, either through direct ownership of overseas subsidiaries or through increasing the exports of our Jamaican-produced specialty foods and logistics services into hard currency markets. We believe this delivers excellent return to shareholders over the medium to long term. During 2017 our hard currency revenues continued to grow by double digit percentages. In 2017 our gross margins grew from 27% to 32%. Again, this was driven partly by the full year of consolidation of KW, which operates in an industry with structurally higher gross margins than those normally seen in the food and drink industry. Within JP Food & Drink division, strong margin growth in our European juice business was, however, offset by severe productivity issues at our farms Average Exchange Rates US$1 to J$ UK 1 to J$ EUR 1 to J$

12 Jamaica Producers Group Limited MANAGEMENT DISCUSSION & ANALYSIS Driving savings from consolidation was a focus for 2017, and this is reflected in a 4% saving in the underlying overhead of our Group, after normalising for the full year of KW consolidation and exchange rate movements. This saving came across the Group s operations, with significant contributions from our Caribbean Food & Drink businesses which completed the creation of a back-office shared service centre during ,076.0 JP F&D Revenues ($M) 8,805.7 With the growth in revenue leveraging an overall declining overhead base, the Group delivered a 44% increase in normalised operating profits to $2.3 billion. As part of the change of classification of KW, along with the sale of MBCF in 2016, the Group s earnings from associate companies reduced considerably. Earnings from associates will, for the time being, be limited to the Group s 30% investment in Shipping Association of Jamaica Property Limited ( SAJPL ) which is the primary contributor to associate earnings. The Group experienced non-recurring gains in 2016 of $3.6 billion, which compares to $nil in As a result, the Group s net profit dropped from $4.3 billion to $1.6 billion. Given the substantial minority interests in some of our subsidiaries, our Board and management also focuses on the profits attributable to the shareholders of JP. This result fell from $3.9 billion to $662 million. However, normalising for non-recurring gains, the Group saw its underlying shareholder profitability grow by 78%. JP Food & Drink The JP Food & Drink division comprises a portfolio of businesses that are engaged in farming, processing, marketing, distribution and/or retail of food and drink. Selling from operational bases in the Netherlands, Jamaica, the United States, the Dominican Republic, the Cayman Islands and Barbados, the segment s range of specialty food and drink products includes fresh juices, tropical snacks, fresh fruit, and Caribbean rum and rum-based food items. Our products are found across Europe and the Americas under our own brands as well as under the brands of third parties who contract with us to produce for them. The JP Food & Drink division revenues grew by 9% in Jamaican Dollar terms over Approximately 82% of the revenues of the division arise from outside of Jamaica and in currencies other than the Jamaican dollar. Eliminating changes in exchange rates, the underlying local currency revenues of the division grew by 8% in these predominantly hard currencies. The results of the division were positively affected by significant growth in sales and earnings at our European juice business, as well as, a successful consolidation and cost driven turnaround at Tortuga, our Rum Cake business, for which substantial restructuring costs had been incurred in These offset a worsening of revenues and earnings from our banana and pineapple farms in Jamaica. 10

13 Annual Report 2017 JP F&D Earnings Before Interest and Tax ($M) It should be noted that the prior year comparatives also included $72m of earnings from MBCF prior to its divestment in September As a joint venture company in JP s consolidated accounts it was accounted for under the equity method. particular growth in this regard, with export sales up by 33%. This represented the 6th year of double digit revenue growth in our export markets. Combined with continued growth in the local Dutch market, driven by ongoing new product launches, overall local currency revenue was up by 11% on Adding this volume growth onto stable gross margins and overhead platforms has delivered a near tripling of net earnings at Hoogesteger. This growth represents a good return on the strategic capital investments made at Hoogesteger over the last few years. In order to further develop our platform we are actively reviewing further capital investment to expand both capacity and service offerings. The following is a summary of the key operating subsidiaries, at 31 December 2017, within the JP Food & Drink division: A.L. Hoogesteger Fresh Specialist B.V. Hoogesteger is the largest producer of fresh fruit and vegetable juices in the Netherlands and Northern Europe, predominantly pressing, blending and bottling its high-quality output for a range of third party brands and retailers own-label. It has benefitted from creating structured long-term relationships with major customers with whom it works closely to deliver continuous new product development to keep itself at the leading edge of innovation in its market. Over the last 5 years, Hoogesteger has been executing a strategy of expansion within Europe, using both new customer relationships and new production technologies to allow it to extend its reach across Western and Northern Europe saw 11

14 Jamaica Producers Group Limited MANAGEMENT DISCUSSION & ANALYSIS JP Tropical Group JP Tropical Group ( JPTG ) is the umbrella organisation for our Caribbean food businesses. Established following a reorganisation in 2016, this business has its own dedicated leadership team tasked to realise commercial, operational and administrative synergies to drive the future growth of this division. During 2017 the business completed the creation of a shared service centre providing finance, payroll, IT and HR services to all its businesses, contributing significantly to the Group s overhead savings. Today, JPTG comprises three sub-divisions: Tortuga International Holdings Limited ( Tortuga or TIHL ), JP Foods and JP Farms. Tortuga operates the manufacturing, marketing and distribution of the Caribbean s leading food-souvenir product, the Tortuga Rum Cake, alongside Tortuga branded Rum and confectionary lines. The product is listed for sale across the Caribbean focusing on the travel retail market including most major air and cruise ports, principal hotel and gift locations and over 100 cruise ships. It also has a strong giftseason business with major retailers across the USA and the Caribbean and an established e-commerce business. Following a series of major restructuring activities in 2016, which caused material one-off costs in that year, the company returned to profitability in These restructuring activities included the closure and exit of two aged factories and consolidation into a new high-specification purpose-built bakery in Kingston, the relocation of its Miami distribution centre and a restructuring of staff roles, including the centralisation into Kingston of roles previously decentralised. 12

15 Annual Report 2017 The Jamaican snack market was characterised by increased competition which our businesses addressed through introduction of lower priced products and through the launch of the Extra Crunchy products to meet customer feedback. Price competition constrained margins such that although revenues grew, earnings were relatively flat on the prior year. Our international snack sales were also challenged by short-term supply issues for plantain although our trend of continued year-on-year growth of international banana chip volumes continued. J In addition to realising major cost savings, Tortuga was able to grow its revenue base even through disruption at several of its core airport locations, including Cayman, and significant lost revenues following the devastating 2017 hurricane season in the Northern and Eastern Caribbean. JP Foods is a leading producer, marketer and distributor of branded tropical snack products. It is also responsible for the distribution of all our fresh produce in Jamaica. The business sells snacks under the St Mary s and MonteCristi brands in the Caribbean and internationally, and also packages tropical snacks for third-party brands in English and Spanish language markets across the region. It operates out of a distribution centre in Kingston, with snack factories both in Jamaica and the Dominican Republic saw the major redevelopment of our ripening and distribution centre in the Cross Roads area of Kingston, with new high-specification ripening facilities installed to deliver a much improved quality banana to our consumers alongside an improved customer service experience to our wholesale and distribution customers. JP Farms operates 400 acres of farm in the parish of St. Mary, with a focus on the core products of bananas and pineapples. It sells its crops internally to JP Foods either for distribution as fresh, or for manufacturing into chips. The business entered 2017 with major supply issues. Adverse weather and other growing conditions during late 2016 led to a significant downturn on banana yields that, whilst being arrested in early 2017 with management and process changes, impacted the first nine-month crop cycle of As a result, revenues were down 20%. With the nature of a farm having a predominantly fixed costs base, the majority of this revenue decline falls directly to the earnings 13

16 Jamaica Producers Group Limited MANAGEMENT DISCUSSION & ANALYSIS JP L&I Earnings Before Interest and Tax ($M) line of the business, meaning losses increased substantially on the prior year. With a return to full supply in Q we expect the farm to partly recover in 2018, however, reaching long-term profitability is still some way off and requires significant expansion of our volumes to cover the overheads associated with operating a farm of this size. We continue to focus on reducing costs to accelerate this business reaching break-even. JP Logistics & Infrastructure The major holdings and operations in the JP Logistics & Infrastructure division are in logistics, transportation and port operations. JP L&I Revenues ($M) 3, , The division reported a 85% increase in revenues in 2017 and a 51% increase in earnings. As previously noted, KW, the largest component of the segment, was only fully consolidated into the Profit and Loss of the Group, including revenues, for half of Prior to this it was treated as an associate and this change significantly contributes to the variance, although the underlying growth in the segment is significantly positive. 1, , The following is a summary of the key operating subsidiaries, at 31 December 2017, within the JP Logistics & Infrastructure division. Kingston Wharves Limited ( KW ) KW is recognized as the leading private multi-purpose port terminal operator in the Caribbean by both the industry and its customers. It has won the Best Multi-Purpose Terminal of the Year at the Caribbean Shipping Associates annual conference 5 times in the last 11 years and most recently in 2015 The company operates a comprehensive range of terminal equipment across its 1,655 metre continuous quay that provides nine deep-water berths for roll-on/ roll-off, lift-on/lift-off, general break bulk, containerised cargo and bulk cargo vessels. KW s underlying revenues increased by 18% in 2017 from significant volume growth leveraging a largely flat overhead base. KW s Terminal Operations division, which manages the multi-purpose, multi-user terminal, experienced a 18% increase in revenues largely driven by domestic Jamaican cargo. Domestic container moves were up by 2% and domestic motor units up by 33%. At the same time KW s Logistics and Ancillary Services division continued to grow with revenues up by 17%. This division operates full-service logistics facilities offering services including, but not 14

17 Annual Report 2017 limited to, warehousing and inventory management, reefer management and port security operations. Its revenue growth largely came from the operationalisation of the major capital investments undertaken in warehousing and facilities during 2016 and The most significant individual investment initiative was completed in late 2017 with the opening of the Total Logistics Facility, a US$30 million project to expand the service offering through improved customer logistics operations. Additionally, in 2017 KW opened a Global Auto logistics centre which not only performs logistics operations for domestic and transhipment motor vehicles, but also provides added value services to customers. JP Shipping Services Limited ( JPSS ) JPSS is the UK leader in full service Caribbean focused logistics. With operational bases in both the Port of Newport, Wales and the London heart of the Caribbean diaspora, it serves both private and commercial customers in all aspects of full container load and less than container load logistics. KW operating earnings for both divisions were up materially, driving a net shareholder profit increase of 25% to $1.7 billion. JP s net earnings from KW after minority interest and adjustments for accounting policies grew accordingly. 15

18 Jamaica Producers Group Limited MANAGEMENT DISCUSSION & ANALYSIS Stockholders funds per stock unit $ The business has been a consistently growing contributor to Group earnings for the last 5 years. However, in 2017 a weak pound sterling and the loss of some full container load volumes set it back slightly. Growth in the consolidation operations offset much of the lost revenue and with a gradually strengthening pound sterling margins are expected to recover. $5.08 $5.23 $5.70 $9.28 $10.04 Shipping Association of Jamaica Property Limited ( SAJPL ) SAJPL is the newest member of the JP group of companies and is primarily involved in land and investment holdings in the Newport West area of Kingston. Following principal investments in 2015 and 2016, JP acquired a small additional stake in 2017 to reach a 30.5% investment when KW s 10% stake is included. JP accounts for SAJPL as an associate, thereby recording our share of earnings in a single line in the Profit and Loss Account. SAJPL continued to invest in its property portfolio during the year, expanding its location at Fourth Avenue, Newport West as well as focusing on steadily improving its rental yields. Financial Position Review Total shareholders equity grew by 8% to $11.3 billion, representing $10.04 per stock unit. The Group benefited from a point to point balance sheet date appreciation of the euro (up 13%) and pound sterling (up 5%) which offset the weakening of the Jamaican dollar to the US dollar (down 3%). Overall the Group s net gain in shareholder book value arising from foreign exchange was 2%. The Group s balance sheet continued to strengthen in all areas. Non-current assets grew 8% to $24.7 billion. The largest portion of these assets, and which also represents the largest increase over 2016, are in property, plant and equipment, which increased by $1.6 billion to $21.1 billion. The completion of KW s Total Logistics Facility and Global Auto Facility contributed to this increase. Net current assets also grew with increased revenue leading to higher receivables and a consequent increase in payables to fulfil these volumes. Our liquidity increased with our cash and short-term liquid investments increasing by 9% to $4.7 billion. The Group closely monitors our liquidity position, particularly with our continued capital expenditure plans and our debt profile in mind. We ensure that we maintain sufficient liquidity to be able to seize opportunities at the same time as meeting our commitments as they fall due. Total non-current liabilities increased by 14% to $5.5 billion. Of this, long-term debt now totals $4.0 billion. The Group refinanced debt in 2017 with the twin objectives of lowering rates and extending maturities, and resulted in short term debt falling from $1.2 billion in 2016 to $0.8 billion in We expect this process of review to continue in 2018 as we seek to take advantage of the lower interest rate environment. Our gross leverage is 42%, although when adjusted for non-controlling interest it is a more moderate 27%. The Group is acutely aware of this leverage 16

19 Annual Report 2017 Dividends per stock unit C do not expect this to stop. Looking forward we expect to identify a balance of both organic and acquisitive growth to continue the development of the Group. This growth will continue to be orientated around our two core lines of business Logistics & Infrastructure and Food & Drink, although we will continue to be opportunistic where our board and management believe value can be generated and regularly monitors our liquidity and our loan covenants, which were all comfortably met in Dividends Despite the non-recurrence of 2016 s exceptional gains of $3.6 billion, the significant improvements in operating performance allowed JP s board to maintain a higher level of dividend than has been typically paid in the last 5 years. A distribution of 10 per share in 2017, representing a total distribution of $112 million or 17% of shareholder earnings, was ahead of our documented policy of 15%. Our distribution policy is designed to balance the needs of the company for capital to finance its growth with the importance of providing annual distributions to shareholders. The Outlook 2017 represented a more introspective year for JP than previous years, with our documented goal to harvest the full potential of each of our businesses by improving operating discipline and performance, driving organic revenue growth through new markets and new products and, particularly for JP Tropical Group, by leveraging the operating synergies. The Logistics & Infrastructure division represents an area of significant growth opportunity. Jamaica and parts of the wider Caribbean are experiencing real economic growth and logistics and infrastructure are at the heart of much of this. Our investment programme must take this into account and we need to continue to develop our service offering and enhance our key customer relationships across the Caribbean. The Food & Drink division has businesses that also have tremendous growth potential, both in Europe and the Americas. In Europe we have a capital base that will also require considered investment to prepare the ground for another phase of growth, whilst in the Caribbean our capital base for snacks and rum cake is well installed but opportunities for product range extensions and new product development must continue to be realised. Our farming business must deliver increased yields and lower overheads to reduce its losses. Our Group has ambitious growth plans in place to achieve improved shareholder returns. We are satisfied that the Group structure and the management team have embraced the ambition of our board and shareholders and continue to be optimistic for the Group s ongoing development. JP has pursued a strategy centred on acquisitions and structured investments in new ventures and we 17

20 Jamaica Producers Group Limited MANAGEMENT DISCUSSION & ANALYSIS Risks In common with all businesses, JP is exposed to risks. JP s internal risk management focuses our governance procedures on risk identification, risk analysis, risk controls and risk monitoring. JP continues to invest to support our risk management processes. JP s approach to managing risk has been established and refined over many years. The core of this approach is that it begins at the highest level of management in our organisation, the Board of Directors. Our Board is ultimately responsible for our risk management processes. The board is chaired by Charles Johnston and includes a majority of non-executive directors. The Board operates with three sub-committees: a five-member Audit Committee, a three-member Compensation and Human Resources Committee and a six-member Executive Committee. The Board of Directors and its committees meet regularly throughout the year and are continually apprised of the Group s performance, financial and non-financial issues, risks, prospective future developments and opportunities, and any other matters as may be required. Additionally, each of our operating subsidiaries has its own board structure which allows for more detailed conversations on matters affecting those subsidiaries. These subsidiary board meetings occur multiple times during the year. JP has an experienced and structured internal audit function, which reports to the Audit Committee and works with management through the businesses to identify, manage and eliminate or mitigate financial risks. JP s core risks can be categorised into two areas: operational and financial. Operational Risks These are risks inherent in our business operations: 1) Natural Disasters and Continuity of Supply. Our operations in the Caribbean and Europe are substantially centred on infrastructure, manufacturing and farming facilities. Major events which affect these facilities will have a significant impact on the ability of the businesses to serve our customers. The core risk management policies revolve around strong resilience plans, both internal and third party, and ensuring that cost effective, comprehensive insurance policies are in place. Our resilience plans are formalised and, where possible, externally benchmarked, such as in the Netherlands where we are ISO22301:2012 certified in business continuity practices. In the Caribbean, having residual capacity in our snack business has provided a continuity of supply following natural disasters and we ensure this is the same for our rum cake supply as well. 2) Security and safety. The safety and security of our employees and other stakeholders is a central responsibility of the Group. Both our internal operations and our external security environment require constant vigilance to ensure this responsibility is met. To mitigate these risks all our operational sites in all our segments are tasked to operate at the forefront of country or industry best practice for health and safety. This includes regular safety inspections and dedicated management responsible for ensuring compliance with laws and regulations. We believe this is a continually evolving process and ensure that this is raised at all levels of the business. From a security perspective, we regularly engage with local stakeholder communities to ensure we are being proactive in minimising the risk, whilst continuing to invest in capital and operational expenditure to prevent and control the risk. 3) Commodity Prices. All our businesses are influenced by commodity price inflation, both directly in the form of higher raw material input prices for our food businesses or indirectly through fuel price movements impacting our logistics operations and our food distribution costs. 18

21 Annual Report 2017 In order to mitigate these risks JP has sought, where possible, to pass a substantial part of this risk on to other parties. Specifically, JP has sought to enter into either long-term customer contracts that cover fluctuations in raw material prices or medium-term supply contracts that fix the input prices. Where this is not possible, JP manages its purchases of commodities in order to minimise risks, by continually monitoring market prices and ensuring multiple supply sources to provide flexibility. JP continues to invest in supply chain optimisation in order to seize opportunities presented by economies of scale and offset part of this risk. 4) Reputational Risk. JP and its associated brands and subsidiaries operate with significant reputational assets, either in the form of a direct brand or in the form of an indirect brand through a perception of service and quality. JP and its subsidiaries highly value these assets, and management ensures that staff members are constantly aware of the quality levels, service and customer experience we seek to deliver. All our business units have established measurement criteria for monitoring this as well as training programmes to manage our employees development in this area. Financial Risks These risks arise from both our operating business units and from our substantial financial asset base. Our most significant risks are: 1) Currency Risk. With an asset base and revenues derived in multiple currency environments, JP s multinational businesses expose the Group to substantial gains and losses on foreign exchange. JP s prime exposure is to the euro, US dollar and British pound. At a business unit level, each operation naturally hedges, as far as possible, any currency risks in income and expenses through the choice of transactional currency. JP did not seek to enter into any foreign currency derivative or hedging instrument in 2017, or in the last 5 years. At a group level, JP has structured its subsidiaries and its assets in order to minimise the exposure to currency risk, however, this does not eliminate translational currency risks which, in periods of Jamaican dollar appreciation, will cause a decline in the Jamaican book values of non-jamaican assets. 2) Credit Risk. This represents the risk of failure by a third party in settling an outstanding debt to JP. At a business level, each operation is charged with managing credit risk according to the environment in which it operates. Each business formally assesses trading relationships, in conjunction with financial information, and sets limits on the amount of exposure placed on that relationship. The Group has established credit policies and has implemented warning and reporting tools to allow for oversight and escalation of issues when they arise. 3) Interest Rate Risk. This represents the risk to the value or cash flows of a financial instrument from fluctuations in interest rates. JP has a moderate level of debt with an adjusted debt to equity ratio of 27% in At the end of 2017 the majority is denominated in Jamaican dollars. We have a preference for fixed interest rates or capped variable (particularly for Jamaican dollar debt) rates in order to mitigate risk of future interest rate increases. Our overseas debt has a blend of fixed and variable interest rates, and is closely monitored to balance our exposure. The interest rate on our interest-bearing assets is fixed, however, we manage the balance between risk and rewards by monitoring the maturity profile of these assets. 19

22 Jamaica Producers Group Limited BOARD OF DIRECTORS Charles H. Johnston Chairman Charles H. Johnston, CD, BSc (Econ.) is the Executive Chairman of Jamaica Fruit and Shipping Company Limited and its subsidiaries. He joined the Board of Jamaica Producers Group in 1975 and has served as Chairman since He is a past president of the Shipping Association of Jamaica and is an honorary member of that Association s Management Committee. He serves on several other boards including Kingston Wharves Limited, the Jamaica Public Service Company Limited, the Customs Advisory Board, the Shipping Association of Jamaica Property Limited, Kingston Logistics Center Limited and German Ship Repair Jamaica Limited. He is also a member of the King s House Foundation. Mr. Johnston is a graduate of the University of Pennsylvania, Wharton School of Economics and Finance. In 2006 he was conferred with the Order of Distinction in the Class of Commander and was also honoured by the Jamaica College Old Boys Association with the Carlton Alexander Award for Excellence. In 2008 he was inducted into the Hall of Fame of the Private Sector Organisation of Jamaica and he was awarded a Jamaica Observer Lifetime Achievement Award in Jeffrey McG. Hall, BA, MPP, JD was appointed Group Managing Director of Jamaica Producers Group in 2007 after joining the Board in 2004 and the Group in He serves on the Board s Executive Committee. Mr. Hall is Chairman of Kingston Wharves Limited, Scotia Group Jamaica Limited, the Bank of Nova Scotia Jamaica Limited and Scotia Investments Jamaica Limited, and is a director of Blue Power Group Limited, the National Housing Trust and the Shipping Association of Jamaica Property Limited. He previously served as a director of the Bank of Jamaica and the Jamaica Stock Exchange. Mr. Hall received his Bachelor of Arts degree (with honours) in Economics from Washington University, his Masters degree in Public Policy from Harvard University and his Juris Doctorate (with honours) from Harvard Law School. He has practised law as a member of the New York Bar. Jeffrey McG. Hall Group Managing Director 20

23 Annual Report 2017 The Hon. Oliver F. Clarke, OJ, JP, BSc (Econ.), FCA, LLD (Hon.) is the Chairman of the RJRGleaner Communications Group, The Gleaner Company (Media) Limited, 1834 Investments Limited, The Jamaica National Group Limited and JN Bank. He was appointed to the Board of Jamaica Producers in 2008 and serves on the boards of several other companies. He is a Past President of the Private Sector Organisation of Jamaica and was inducted into their Hall of Fame in In 1998, Mr. Clarke was awarded the Order of Jamaica. Mr. Clarke is a graduate of the London School of Economics. He is an Accountant and Justice of the Peace. Oliver F. Clarke Patricia R. Francis Patricia R. Francis, CD, BSc, a leader in global trade and development, is Chairman of the Government of Jamaica Trade Facilitation Task Force and is the former Executive Director of the International Trade Centre ( ITC ), a joint agency of the World Trade Organisation and the United Nations. Prior to joining the ITC, Mrs. Francis served as the president of JAMPRO (Jamaica Trade and Invest). She also served twice as the President of the World Association of Investment Promotion Agencies, the China-Caribbean Business Council, the Commonwealth s Eminent Persons Group, the African Caribbean & Pacific ( ACP ) Eminent Persons Group which reviewed the ACP future relationships with the European Union and served as Chairman of the Public Sector Transformation and Modernisation Committee She currently serves on the advisory boards of the IESE Graduate Business School, SciencePo Masters in Public Administration, B & D Trawling Limited and Portland JSX and in 2016 she served as head of the UN Secretary-Generals High Level Panel on Women s Economic Empowerment. Mrs. Francis is a graduate of the University of Miami and was appointed to the Board of Jamaica Producers Group in In 2006 she was conferred with the Commander of the Order of Civil Merit by the Government of Spain, and in 2015 was conferred with the Order of Distinction in the Class of Commander by the Government of Jamaica. 21

24 Jamaica Producers Group Limited BOARD OF DIRECTORS Sanya Goffe, LLB (Hons.), LEC was called to the Jamaican Bar in 2003 and is a Partner in the law firm Hart Muirhead Fatta with a practice focused in the areas of pensions law, intellectual property law, capital markets and commercial law. She serves as a director of NCB Financial Group Jamaica Limited, National Commercial Bank Jamaica Limited and the Pension Funds Association of Jamaica (PFAJ) and is Chairperson of the Legislative and Governance Committee of the PFAJ. Sanya presently serves as a member of the Jamaican Bar Association s Commercial Law, Intellectual Property Law and Publications Committees. Sanya is also a member of the UK Association of Pension Lawyers and the International Pension and Employee Benefits Lawyers Association. She is a graduate of the University of the West Indies and the Norman Manley Law School. Sanya M. Goffe Dr. the Hon. Marshall McG. Hall, OJ, CD, PhD was the Group Managing Director from 1979 until his retirement in He serves on the Board s Audit, Compensation and Human Resources, and Executive Committees in addition to being a Board member of the Group s subsidiary companies. He is a director of Kingston Wharves Limited and currently serves on the Police Services Commission and the Police Civilian Oversight Authority. He was formerly Executive Chairman of Jamaica Public Service Company and a Professor at the University of the West Indies and Washington University. Dr. Hall was inducted into the Private Sector Organisation of Jamaica Hall of Fame in He was conferred with the Order of Jamaica in Dr. Hall holds a BSc from Columbia University and a PhD from the University of Wisconsin. Marshall McG. Hall 22

25 Annual Report 2017 Dahlia Kelly, BSc is the Managing Director of Patsy Kelly and Associates, an Executive Placement Service. She was appointed to the Board of Jamaica Producers in 1988, is a member of the Audit and Executive Committees and has served in various positions at Jamaica Producers Group. Mrs. Kelly serves on the board of the Urban Development Corporation where she chairs the Human Resource Committee and is a Trustee of the Sydney A. Phillips Scholarship Trust. She is a graduate of the University of the West Indies. Dahlia E. Kelly Kathleen A. J. Moss, BSc, MBA, CBV is a Management Consultant and Chartered Business Valuator with Sierra Associates, an independent advisory and business valuation firm that she established in She was appointed to the Board of Directors of Jamaica Producers Group in She is a member of the Executive, and Compensation and Human Resources Committees and chairs the Audit Committee. Mrs. Moss serves on the Boards of JN General Insurance Company, where she is Chairman, Kingston Wharves Limited, PanJam Investment Limited, The Jamaica National Group and its subsidiaries JN Bank and The JN Financial Group and Assurance Brokers Jamaica Limited. She is a trustee of the Violence Prevention Alliance and chairs the Finance Committee of the Archdiocese of Kingston. Mrs. Moss is a member of the Canadian Institute of Chartered Business Valuators and is a graduate of the University of the West Indies and McGill University. Kathleen A.J. Moss 23

26 Jamaica Producers Group Limited BOARD OF DIRECTORS Donovan H. Perkins, BA (Hons.), MBA was recruited by Pan Jamaican and returned home from the United States in He spent the next 24 years building Sagicor s Commercial and Investment Banking franchises via a series of mergers and acquisitions in the domestic banking sector. He retired at the end of 2017 as President & CEO of Sagicor Bank Jamaica, a position he has held since returning to Jamaica. Mr. Perkins has served as a Director of Jamaica Producers Group since He also sits on the Board of PanJam Investment Limited and Sagicor Investments Jamaica Limited. He previously served as Chairman of the Jamaica Stock Exchange, Chairman of the Tourism Linkages Council, Deputy Chairman of the National Water Commission and Vice President of the Private Sector Organisation of Jamaica. Mr. Perkins holds a BSc in Finance (Hons.) from the University of South Florida and an MBA with concentrations in Finance and Marketing from The Darden School at the University of Virginia. Donovan H. Perkins Grantley St. J. Stephenson Grantley Stephenson, CD, JP, FJIM, MBA is the Chief Executive Officer of Kingston Wharves Limited. He joined the board of Jamaica Producers Group in Mr. Stephenson is the Honorary Consul General for the Kingdom of Norway. He is a director of Security Administrators Limited, Harbour Cold Stores Limited, The Shipping Association of Jamaica, The Shipping Association of Jamaica Property Limited, ADVANTUM, Assessment Recoveries Limited and is a fellow of the Jamaica Institute of Management. He was educated at the College of Arts, Science and Technology (now UTECH), the University of the West Indies (UWI) and the University of Plymouth. He holds a Master s degree in Business Administration (MBA) from the UWI. In 2007 he was conferred with the Order of Distinction in the Class of Commander and in 2013 he was awarded the Royal Norwegian Order of Merit, the highest nonnational award. In 2017, the Caribbean Maritime University conferred on him the honorary degree of Doctor of Science in Port Management, honoris causa, in recognition of his contribution to the country and region s maritime and shipping development.. 24

27 Annual Report 2017 Alvin G. Wint Alvin Wint, CD, BSc, MBA, DBA is Emeritus Professor of International Business at the University of the West Indies (UWI). He has served the UWI in various capacities such as Special Adviser to the Vice Chancellor, Pro Vice Chancellor and Professor of International Business. He joined the Board of Jamaica Producers Group in 1998 and is a member of the Group s Audit Committee. He also serves on the Board of the National Commercial Bank Jamaica Limited (NCB) and several of its subsidiaries and is the Chairman of the NCB Group Audit Committee. Professor Wint serves as Chairman of the Generation Procurement Entity (GPE) and the Statistical Institute of Jamaica, and provides public service in many other capacities nationally and regionally. He holds a BSc from the University of the West Indies, an MBA from Northeastern University, a doctorate in International Business from Harvard University, has published extensively in the fields of international competitiveness and international investment policy, and has provided advisory services to several multilateral institutions. He has received numerous scholarly and professional awards including the UWI Vice-Chancellor s Award for Excellence. In 2015 Professor Wint was conferred with the Order of Distinction in the Class of Commander. Aubrey E. Ffrench (Hon. Director since 2007) joined the staff of Jamaica Producers Group in 1961 and was appointed a member of the Board in Prior to that, he served Jamaica Producers Group in several capacities including Accountant, Manager and as Company Secretary for over 33 years at his retirement in Aubrey E. Ffrench 25

28 Jamaica Producers Group Limited EXECUTIVE TEAM Corporate Office Jeffrey McG. Hall - CEO Alan Buckland - Group Finance Director Simone Pearson - Corporate Secretary/Group General Counsel V. Andrew Whyte - Group Treasurer Lisa McG. Johnston - Corporate Affairs Manager Taneka Whyte-Groves - Corporate Financial Controller 26

29 Annual Report 2017 SUBSIDIARY COMPANIES Hoogesteger Edo Abels - Managing Director Marco Zohlandt - Deputy Managing Director & Financial Controller Richard Vrugt - Operations Manager JP Tropical Group David Martin - Managing Director Antoinette Livingston - Financial Controller Marcus Simmonds - General Manager, Tortuga International Benjamin Valdez - General Manager, JP Snacks Mario Figueroa - Farm Manager, JP Farms 27

30 Jamaica Producers Group Limited SUBSIDIARY COMPANIES Kingston Wharves Grantley Stephenson CD JP - CEO Clover Moodie - Group Chief Financial Officer Mark Williams - Chief Operating Officer JP Shipping SHIPPING SERVICES Robert Smith - General Manager John Davies - Financial Controller Jim Davies - Depot Manager 28

31 Annual Report 2017 DIRECTORS REPORT The Directors present this report, the Chairman s Statement and the Audited Financial Statements of the Company and the Group for the year 2017 to the 81st Annual General Meeting. FINANCIAL STATEMENTS The Group s financial statements are shown on pages 43 to 95 of this publication. Highlights are: $M $M Gross operating revenue 16,517 12,075 Group profit attributable to shareholders 662 3,940 Retained earnings January 1 8,066 4,018 Retained earnings December 31 8,777 8,066 Profit per stock unit:- based on stock units in issue after excluding stocks held by the ESOP Stockholders Funds per stock unit at December 31 net of stock units held by the ESOP, amounted to $10.78 $10.01 CAPITAL DISTRIBUTION Interim of 10 cents ( cents) per ordinary stock unit Paid January 18, 2018 (2016 distribution paid January 31, 2017) No final dividend is recommended in respect of AUDITORS The Auditors, KPMG, Chartered Accountants, 6 Duke Street, Kingston, Jamaica have expressed their willingness to continue in office. DIRECTORS Your Directors who served diligently during the year are:- The Hon. Oliver F. Clarke, OJ, JP, BSc (Econ.), FCA, LLD (Hon.) Mrs. Patricia R. Francis, CD, BSc Mrs. Sanya M. Goffe, LLB (Hons.), LEC Mr. Jeffrey McG. Hall, BA, MPP, JD - Group Managing Director Dr. the Hon. Marshall McG. Hall, OJ, CD, PhD Mr. Charles H. Johnston, CD, BSc (Econ.) - Chairman Mrs. Dahlia E. Kelly, BSc Mrs. Kathleen A. J. Moss, BSc, MBA, CBV Mr. Donovan H. Perkins, BA (Hons.), MBA Mr. Grantley St. J. Stephenson, CD, JP, FJIM, MBA Prof. Alvin G. Wint, CD, BSc, MBA, DBA Mr. Donovan Perkins and Mr. Grantley Stephenson retire by rotation and being eligible, offer themselves for re-election in accordance with the Articles of Incorporation. C. H. Johnston Chairman April 15,

32 Jamaica Producers Group Limited BOARD COMMITTEES AUDIT COMMITTEE Mrs. Kathleen Moss (independent) - Chair Dr. the Hon. Marshall Hall Mr. Charles Johnston (independent) Prof. Alvin Wint (independent) The Board has established three committees, each with clearly defined terms of reference, procedures, responsibilities and powers as set out in JP s Corporate Governance Policy. AUDIT COMMITTEE Mrs. Kathleen Moss (independent) Dr. the Hon. Marshall Hall Mr. Charles Johnston (independent) Prof. Alvin Wint (independent) Mrs. Dahlia Kelly (independent) - Chair Mrs. Dahlia Kelly (independent) Composition The Audit Committee is appointed by the Board and is comprised of at least three (3) members who should be Non- Executive Directors, the majority of whom should be identified by the Board as independent. The Board Chairman shall not be appointed Chairman of the Audit Committee. The Audit Committee currently comprises five Non-Executive Directors of which four have been identified by the Board as independent. Independence is based on the criteria set out in JP s Corporate Governance Policy, and takes into account any employment by, or material business relationship of a Director with the Company or Group within the last three years, whether any immediate family member of the Director is a non-independent Director or Senior Officer of the Company, and whether the Director is employed as a Senior Officer of another company where any of the Company s directors or senior officers serve on that company s board of directors. The Board reviews the independence of all Directors on an ongoing basis. Functions Monitors the adequacy and effectiveness of JP Group s systems of risk management and internal control Reviews JP Group s annual and interim financial statements and related accounting policies and assumptions and any accompanying reports or related policies and statements Monitors and reviews the effectiveness of JP Group s internal audit function Monitors and reviews the external auditor s independence, objectivity and effectiveness Develops and implements policy on the engagement of the external auditor to supply non-audit services Reviews and approves related party transactions. 30

33 Annual Report 2017 COMPENSATION AND HUMAN RESOURCES COMMITTEE (CHRC) Mr. Charles Johnston - Chair Dr. the Hon. Marshall Hall Mrs. Kathleen Moss COMPENSATION AND HUMAN RESOURCES COMMITTEE (CHRC) Mr. Charles Johnston - Chair Dr. the Hon. Marshall Hall Mrs. Kathleen Moss Composition The Board appoints not less than two (2) and up to four (4) Directors excluding Executive directors to the CHRC. Functions This committee is responsible for keeping under review the composition of the Board and succession to it. The CHRC makes recommendations to the Board in consultation with the Company s Chairman and Group Managing Director concerning potential appointments, having regard to the balance and structure of the Board and the required blend of skills and experience. The CHRC serves inter alia to: nominate potential candidates and evaluate the suitability of those candidates for future Board membership propose potential candidates to the Board for approval approach the potential candidate and upon positive response, introduce the candidate to the Board The CHRC also conducts an annual review of the remuneration policies for Executive Directors and Senior Officers of JP Group as well as material employee benefits and compensation plans and programmes. This review includes an assessment of whether the JP Group s compensation plans are consistent with sustainable achievement of its business objectives, the prudent management of its operations and the risks to which it is exposed, and assesses adherence to JP Group s processes, policies, procedures and controls. The CHRC reviews the JP Group s senior level organisation structure and management succession plan at least annually. 31

34 Jamaica Producers Group Limited BOARD COMMITTEES EXECUTIVE COMMITTEE Mr. Charles Johnston - Chair Mr. Jeffrey Hall Dr. the Hon. Marshall Hall Mrs. Dahlia Kelly EXECUTIVE COMMITTEE Mr. Charles Johnston - Chair Mr. Jeffrey Hall Dr. the Hon. Marshall Hall Mrs. Dahlia Kelly Mrs. Kathleen Moss Composition The Executive Committee is appointed by the Board and comprises not more than six (6) Directors. Mrs. Kathleen Moss Functions The Executive Committee is responsible for carrying out, at short notice, a review of critical business decisions for which Executive Management is required or has elected to obtain the support, advice and/or approval of the Board. 32

35 Annual Report 2017 CORPORATE GOVERNANCE CORPORATE GOVERNANCE FOCUS In 2017 JP Group renewed its focus on corporate governance. The Board conducted a review of the company s Corporate Governance Policy in February 2017, which was revised in line with best practice standards and approved. The Corporate Governance Policy is available for download on the Company s website. The Board also kept abreast of developments in the area of corporate governance such as the Corporate Governance Index introduced by the Jamaica Stock Exchange, and the recent amendment to the Companies Act. The Board has six regularly scheduled meetings each year and participates in a focused two-day strategic retreat to review the Group s proposed budget and strategic plans for the coming year. The Board also convenes special meetings for matters which require immediate attention outside of the regularly scheduled Board meetings. For 2017, six regularly scheduled meetings were held; no special meetings of the Board were convened. The table below provides details on the attendance of directors at Board and Committee meetings. Directors Attendance Annual General Meeting Board Meetings Audit Committee Meetings CHRC Meetings Executive Committee Meetings Number of Meetings for the year Charles Johnston Jeffrey Hall 1 6 N/A N/A 2 Oliver Clarke 0 5 N/A N/A N/A Patricia Francis 1 5 N/A N/A N/A Sanya Goffe 1 5 N/A N/A N/A Marshall Hall Dahlia Kelly N/A 2 Kathleen Moss Donovan Perkins 1 5 N/A N/A N/A Grantley Stephenson 1 5 N/A N/A N/A Alvin Wint N/A N/A BOARD PERFORMANCE EVALUATION The performance of the Board is evaluated annually as part of the continual development of the Board s working methods and efficiency. The purpose of the evaluation is to gather the Board members views on the performance of the Board and its Committees, the measures which can be taken to improve the Board s efficiency, and whether the Board has a well-balanced mix of competencies. The Board conducted its annual performance evaluation in December 2017 through a written survey among all Board members, in which they were required to rate each subject on a scale of one to four, with four signifying strong agreement and one signifying strong disagreement, with each subject. Directors were also required to provide other ideas and suggestions as to how the performance of the Board can be improved. The results of the evaluation have been reported to and discussed by both the Board and the Compensation and Human Resources Committee. 33

36 Jamaica Producers Group Limited STOCKHOLDINGS OF DIRECTORS AND OFFICERS December 31, 2017 December 31, 2017 DIRECTORS Shareholdings in which Personal Director/Officer has shareholdings a controlling interest Total The Hon. O. F. Clarke - 10,049,094 10,049,094 Mrs. P. R. Francis Mrs. S. M. Goffe Mr. J. McG. Hall 30,465,222-30,465,222 Dr. the Hon. M. McG. Hall - 100,999, ,999,669 Mr. C. H. Johnston 3,884,334 99,794, ,678,897 Mrs. D. E. Kelly 730, ,998 Mrs. K.A.J. Moss 16,249,428 20,111,040 36,360,468 Mr. D. H. Perkins 130, ,872 Mr. G. St. J. Stephenson Prof. A.G. Wint 49,368-49,368 OFFICERS Mr. Alan Buckland 972, ,286 Mr. David Martin 360, ,000 Ms. Simone M. Pearson Mr. Robert W. Smith 90,000-90,000 Mr. Edo Abels TRUSTEES Jamaica Producers Group Limited ESOP 77,311,976-77,311,976 34

37 Annual Report 2017 TOP TEN STOCKHOLDERS December 31,

38 Jamaica Producers Group Limited KPMG Chartered Accountants P.O. Box 76 6 Duke Street Kingston Jamaica, W.I. +1 (876) firmmail@kpmg.com.jm INDEPENDENT AUDITORS REPORT To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on the Audit of the Financial Statements Opinion We have audited the consolidated financial statements of Jamaica Producers Group Limited ("the company") and its subsidiaries (collectively, the group ), set out on pages 43 8 to to 60, 95, which comprise the group balance sheet as at December 31, 2017, the group profit and loss account, statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the group as at December 31, 2017, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the Jamaican Companies Act. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the group in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. R. Tarun Handa Cynthia L. Lawrence Rajan Trehan Norman O. Rainford Nigel R. Chambers W. Gihan C. De Mel Nyssa A. Johnson Wilbert A. Spence Rochelle N. Stephenson 36 KPMG, a Jamaican partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

39 Annual Report 2017 Page 2 INDEPENDENT AUDITORS REPORT To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on the Audit of the Financial Statements (continued) Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1 Impairment of goodwill and intangible assets Key Audit Matter The carrying value of the group's goodwill and intangible assets may not be recoverable due to changes in the business and economic environment in which specific subsidiaries operate. These factors create inherent uncertainty in forecasting and require significant judgement in estimating and discounting future cash flows that support the assessment of recoverability. See Note 14 of the consolidated financial statements. How the matter was addressed in our audit Our audit procedures included testing the reasonableness of the group's forecasts and discounted cash flow calculations, including: Using our own valuation specialists to evaluate the assumptions and methodologies used by management; Comparing the group's assumptions to externally derived data as well as our own assessments of key inputs, such as projected economic growth, competition, cost inflation and discount rates, as well as performing sensitivity analysis on the assumptions; Assessing the adequacy of the group's disclosures about the assumptions and the sensitivity of the impairment assessment to changes in key assumptions. 37

40 Jamaica Producers Group Limited Page 3 INDEPENDENT AUDITORS REPORT To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on the Audit of the Financial Statements (continued) 2 Valuation of property, plant and equipment The key audit matter There is a significant risk that the carrying value of the Group s investment in property, plant and equipment may not be recoverable because of technological change, the competitive and regulatory environment, and challenging economic conditions that affect the Group s ability to generate sufficient cash inflows from the number of customers or the rates charged to those customers. How the matter was addressed in our audit Our audit procedures in response to this matter, included, among others: Enquiring of management whether there were indicators that the relevant assets may be impaired or that the estimated useful lives were not appropriate, in light of the management s plans for the business, the state and performance of the assets, changes in technology and other external factors that might adversely affect the Group s ability to generate cash inflows from the assets; Inspecting documentary evidence related to management s assessment of assets for evidence of impairment concerns; Assessing the physical condition of selected assets for evidence of impairment. Other Information 38 Management is responsible for the other information. The other information comprises the information in the company s annual report for the year ended December 31, 2017, but does not include the financial statements and our auditor s report thereon. The annual report is expected to be made available to us after the date of this auditors report. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

41 Annual Report 2017 INDEPENDENT AUDITORS REPORT To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on the Audit of the Financial Statements (continued) Other Information (continued) When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with IFRS and the Jamaican Companies Act, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the group s financial reporting process. Auditors Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is included in the Appendix to this auditors report. This description, which is located at pages 41 to 42, forms part of our auditors report. 39

42 Jamaica Producers Group Limited Page 5 INDEPENDENT AUDITORS REPORT To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on additional matters as required by the Jamaican Companies Act We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. In our opinion, proper accounting records have been maintained, so far as appears from our examination of those records, and the financial statements, which are in agreement therewith, give the information required by the Jamaican Companies Act in the manner required. The engagement partner on the audit resulting in this independent auditors report is Nigel Chambers. Chartered Accountants Kingston, Jamaica March 1,

43 Annual Report 2017 INDEPENDENT AUDITORS REPORT To the Members of JAMAICA PRODUCERS GROUP LIMITED Appendix to the Independent Auditors report As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. 41

44 Jamaica Producers Group Limited Page 7 INDEPENDENT AUDITORS REPORT To the Members of JAMAICA PRODUCERS GROUP LIMITED Appendix to the Independent Auditors report We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matters or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 42

45 Annual Report 2017 GROUP BALANCE SHEET December 31, 2017 Notes $'000 $ 000 CURRENT ASSETS Cash and cash equivalents 3(c) 885, ,914 Short-term investments 3(d),4-828,920 Securities purchased under resale agreements 3(e),5 3,805,031 2,830,027 Accounts receivable 6 2,450,355 1,857,690 Taxation recoverable 23,944 32,745 Inventories 7 765, ,510 Total current assets 7,929,804 6,913,806 CURRENT LIABILITIES Accounts payable 8 3,432,056 2,530,926 Taxation 173,250 89,727 Loans and borrowings ,256 1,213,145 Total current liabilities 4,377,562 3,833,798 WORKING CAPITAL 3,552,242 3,080,008 NON-CURRENT ASSETS Biological assets 9 119, ,934 Interest in associated companies 10(a) 625, ,122 Investments 12 97, ,190 Intangible assets 14 1,635,472 1,699,185 Deferred tax assets 15 2,245 3,347 Property, plant and equipment 16 21,083,079 19,487,117 Retirement benefit asset 17(a) 1,174, ,177 Total non-current assets 24,738,733 22,966,072 Total assets less current liabilities 28,290,975 26,046,080 EQUITY Share capital , ,214 Reserves 19 11,148,619 10,306,274 Attributable to equity holders of the parent 11,260,833 10,418,488 NON-CONTROLLING INTEREST 11 11,484,023 10,779,986 Total equity 22,744,856 21,198,474 NON-CURRENT LIABILITIES Deferred tax liabilities 15 1,183,851 1,186,280 Loans and borrowings 20 4,004,476 3,384,564 Retirement benefit obligations 17(b) 357, ,762 5,546,119 4,847,606 Total equity and non-current liabilities 28,290,975 26,046,080 The financial statements on pages 43 8 to 60 95, were approved for issue by the Board of Directors on March 1, 2018, and signed on its behalf by: Chairman C. H. Johnston J. Hall Managing Director The accompanying notes form an integral part of the financial statements. 43

46 Jamaica Producers Group Limited GROUP PROFIT AND LOSS ACCOUNT Year ended December 31, 2017 Notes $'000 $'000 Gross operating revenue 21 16,156,712 12,075,623* Cost of operating revenue (11,013,714) ( 8,833,215)* Gross profit 5,142,998 3,242,408 Other income 74, ,792* Selling, administration and other operating expenses 22 ( 2,931,669) ( 2,578,009)* Profit from operations 2,285, ,191 Share of profits in associated companies 3, ,688 Gain on disposal of joint venture 10(c) - 649,910 Gain on recognition of subsidiary 13-2,916,869 Profit before finance cost and taxation 2,289,437 4,842,658 Finance cost 23 ( 308,805) ( 309,587) Profit before taxation 1,980,632 4,533,071 Taxation charge 24 ( 356,661) ( 222,950) Profit for the year 1,623,971 4,310,121 Attributable to: Parent company stockholders 661,884 3,940,446 Non-controlling interest , ,675 Dealt with in the financial statements of: 1,623,971 4,310,121 The company ( 107,452) 15,461 Subsidiary companies 743,120 3,526,895 Associated companies 10(b) 26, ,090 Profit per ordinary stock unit: ,884 3,940,446 Based on stock units in issue Excluding stock units held by ESOP *The comparative information has been restated to compare with the 2017 presentation. (see note 34) 44 The accompanying notes form an integral part of the financial statements.

47 Annual Report 2017 GROUP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Year ended December 31, 2017 Notes $'000 $'000 Profit for the year 1,623,971 4,310,121 Other comprehensive income/(loss): Items that will not be reclassified to profit or loss: Remeasurement of post-employment benefits , ,906 Deferred tax effect on remeasurement of post employment benefits ( 14,713) ( 28,583) Items that may be reclassified to profit or loss: Exchange gains on translating foreign operations 189,069 86,397 Share of other comprehensive gain of associated companies 10(b) - 5,768 Net change in fair value of available-for-sale investments - ( 17,659) Realised revaluation gains on available-for-sale investments transferred to profit and loss account - ( 16,686) 306, ,143 Total comprehensive income for the year 1,930,175 4,609,264 Attributable to: Parent company stockholders 910,922 4,074,560 Non-controlling interest 1,019, ,704 1,930,175 4,609,264 The accompanying notes form an integral part of the financial statements. 45

48 Jamaica Producers Group Limited GROUP STATEMENT OF CHANGE IN EQUITY Year ended December 31, 2017 Fair Reserve Parent company Non - Share Share Capital value for own Retained stockholders controlling Total capital premium reserves reserve shares profits equity interest equity $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 (note 18) (note 19) Balances at December 31, , ,087 2,352,782 34,345 (160,281) 4,018,371 6,399, ,458 6,560,464 Total comprehensive income: Profit for the year ,940,446 3,940, ,675 4,310,121 Other comprehensive income/(loss) Remeasurement of defined benefits asset plan/obligations , , , ,906 Deferred tax effect on remeasurement of defined benefit asset and obligations ( 12,005) ( 12,005) ( 16,578) ( 28,583) Exchange gains arising on retranslation of foreign operations , ,335 25,062 86,397 Share of other comprehensive income of associated companies ,768 5,768-5,768 Net change in fair value of available-for-sale investments ( 17,659) - - ( 17,659) - ( 17,659) Realised revaluation gains on available-for-sale investments transferred to profit ( 16,686) - - ( 16,686) - ( 16,686) Total other comprehensive income/(loss) ,335 ( 34,345) - 107, , , ,143 Total comprehensive income for the year ,335 ( 34,345) - 4,047,570 4,074, ,704 4,609,264 Transactions with owners of the company Issue of shares bonus issue 93,512 - ( 93,512) Own shares sold by ESOP ,370-63,370-63,370 Distributions to non-controlling interests ( 282,035) ( 282,035) Distributions to stockholders (note 26) - - ( 124,523) ( 124,523) - ( 124,523) Unclaimed distributions to stockholders (note 26) - - 6, ,075-6,075 93,512 - ( 211,960) - 63,370 - ( 55,078) ( 282,035) ( 337,113) Changes in ownership interests Acquisition of subsidiary with NCI ,365,859 10,365,859 Balances at December 31, , ,087 2,202,157 - ( 96,911) 8,065,941 10,418,488 10,779,986 21,198,474 Retained in the financial statements of: The company 112, ,087 1,398, ,874,716 4,520,533 Subsidiary companies ,641 - ( 96,911) 5,138,223 5,844,953 Associated companies and joint venture ,002 53,002 Balances at December 31, , ,087 2,202,157 - ( 96,911) 8,065,941 10,418,488 The accompanying notes form an integral part of the financial statements. 46

49 Annual Report 2017 GROUP STATEMENT OF CHANGE IN EQUITY (Cont d) Year ended December 31, 2017 Reserve Parent company Non - Share Share Capital for own Retained stockholders controlling Total capital premium reserves shares profits equity interest equity $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 (note 18) (note 19) Balances at December 31, , ,087 2,202,157 ( 96,911) 8,065,941 10,418,488 10,779,986 21,198,474 Total comprehensive income: Profit for the year , , ,087 1,623,971 Other comprehensive income/(loss) Remeasurement of defined benefits asset and obligations ,376 55,376 76, ,848 Deferred tax effect on remeasurement of defined benefit asset and obligations ( 6,179) ( 6,179) ( 8,534) ( 14,713) Exchange gains arising on retranslation of foreign operations , ,841 ( 10,772) 189,069 Total other comprehensive income ,841-49, ,038 57, ,204 Total comprehensive income for the year , , ,922 1,019,253 1,930,175 Transactions with owners of the company Own shares sold by ESOP ,492-24,492-24,492 Distributions to non-controlling interests ( 315,216) ( 315,216) Distributions to stockholders (note 26) - - ( 104,483) - - ( 104,483) - ( 104,483) Unclaimed distributions to stockholders (note 26) , ,414-11, ( 93,069) 24,492 - ( 68,577) ( 315,216) ( 383,793) Balances at December 31, , ,087 2,308,929 ( 72,419) 8,777,022 11,260,833 11,484,023 22,744,856 Retained in the financial statements of: The company 112, ,087 1,297,716-2,767,264 4,312,281 Subsidiary companies - - 1,011,213 ( 72,419) 5,929,425 6,868,219 Associated companies and joint venture ,333 80,333 Balances at December 31, , ,087 2,308,929 ( 72,419) 8,777,022 11,260,833 The accompanying notes form an integral part of the financial statements. 47

50 Jamaica Producers Group Limited GROUP STATEMENT OF CASH FLOWS Year ended December 31, 2017 Notes $'000 $'000 CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year 1,623,971 4,310,121 Adjustments for: Depreciation - property, plant and equipment , ,443 Amortisation intangible assets ,348 64,949 Amortisation biological assets 9 53,685 46,850 Exchange movement in working capital 4,321 20,097 Current taxation charge 24(a) 372, ,755 Deferred tax, net 24(a) ( 16,058) ( 1,805) Employee benefits, net ( 25,620) ( 15,804) Gain on acquisition of subsidiary 13 - (2,916,869) Gain on disposal of joint venture 10(c) - ( 649,910) Loss/(gain) on disposal of property, plant and equipment and investments 1,760 ( 52,145) Share of profit in associated companies and joint venture ( 3,784) ( 453,212) Amortisation of bond issue cost 20 14,658 7,509 Interest earned 23 ( 100,435) ( 43,427) Interest expense , ,587 3,135,499 1,362,139 (Increase)/decrease in current assets: Accounts receivable ( 592,665) ( 104,682) Taxation recoverable 8,801 ( 13,258) Inventories ( 33,710) ( 103,663) Increase/(decrease) in current liabilities: Accounts payable 1,061,484 70,911 Tax paid ( 311,628) ( 159,645) Net cash provided by operating activities 3,267,781 1,051,802 CASH FLOWS FROM INVESTING ACTIVITIES Additions to biological assets 9 ( 21,536) ( 63,250) Short-term investments 828,920 ( 828,920) Interest received 100,435 40,253 Securities purchased under resale agreements ( 975,004) 580,803 Additions to property, plant and equipment 16 (2,267,831) (1,870,997) Additions to intangible assets 14 ( 1,566) ( 16,668) Proceeds from disposal of investments and property, plant and equipment, net of own shares sold by ESOP 28, ,404 Proceeds from disposal of joint ventures, net of costs - 799,272 Cash acquired in recognition of subsidiary ,801 Interest in associated companies and joint venture ( 19,282) ( 48,625) Long-term loans receivable 12,972 39,179 Net cash used by investing activities (2,314,767) ( 832,748) 48 The accompanying notes form an integral part of the financial statements.

51 Annual Report 2017 GROUP STATEMENT OF CASH FLOWS (Cont d) Year ended December 31, $'000 $'000 CASH FLOWS FROM FINANCING ACTIVITIES Short term credit lines - ( 84,821) Loans and borrowings 156, ,253 Interest paid (263,491) (248,352) Distributions to non-controlling interests (489,429) (118,992) Distributions to stockholders, net (124,523) ( 62,423) Net cash (used)/provided by financing activities (720,741) 58,665 Net increase in cash and cash equivalents 232, ,719 Cash and cash equivalents at beginning of the year 632, ,091 Exchange gains/(losses) on foreign currency cash and cash equivalents 20,040 ( 5,896) Cash and cash equivalents at end of the year 885, ,914 The accompanying notes form an integral part of the financial statements. 49

52 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS Year ended December 31, The company Jamaica Producers Group Limited ( the company ) is incorporated and domiciled in Jamaica. The company s registered office is located at 4 Fourth Avenue, Newport West, Kingston 13. The main activities of the company, its subsidiaries (collectively, group ) and associates (note 33) are port terminal operations; logistics; the cultivation, marketing and distribution of fresh produce; food and juice manufacturing; land management and the holding of investments. During the prior year the group s investment in Kingston Wharves Limited (KW), which had previously been accounted for as an associate, met the required parameters for recognition as a subsidiary (note 13) and was recognised as such, effective June 23, Also, during the prior year, the group divested its 50% joint venture interest in Mavis Bank Coffee Factory Limited [note 10(c)]. 2. Statement of compliance and basis of preparation (a) Statement of compliance The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations issued by the International Accounting Standards Board and comply with the provisions of the Jamaican Companies Act. Certain new, revised and amended standards and interpretations came into effect during the current financial year. The group has assessed them and has adopted those which are relevant to its financial statements but their adoption did not result in any changes to amounts recognised or disclosed in these financial statements. At the date of authorisation of the financial statements, certain new and amended standards have been issued which are not yet effective and which the group has not early-adopted. The group has assessed the relevance of all such new standards and amendments with respect to its operations and has determined that the following may be relevant: IFRS 9, Financial Instruments, which is effective for annual reporting periods beginning on or after January 1, 2018, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial assets and liabilities, including a new expected credit loss model for calculating impairment of financial assets and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. Although the measurement bases for financial assets amortised cost, fair value through other comprehensive income (FVOCI) and fair value though profit or loss (FVTPL) - are similar to IAS 39, the criteria for classification into the appropriate measurement categories are significantly different. IFRS 9 also replaces the incurred loss model in IAS 39 with an expected credit loss model, which means that a loss event will no longer need to occur before an impairment allowance is recognised. 50

53 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Statement of compliance and basis of preparation (continued) (a) Statement of compliance (continued) Standards issued but not yet effective IFRS 15, Revenue from Contracts with Customers is effective for periods beginning on or after January 1, It replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue Barter Transactions Involving Advertising Services. The new standard applies to contracts with customers. However, it does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. It also does not apply if two entities in the same line of business exchange non-monetary assets to facilitate sales to other parties. Furthermore, if a contract with a customer is partly in the scope of another IFRS, then the guidance on separation and measurement contained in the other IFRS takes precedence. IFRIC 22, Foreign Currency Transactions and Advance Consideration, effective for annual reporting periods beginning on or after January 1, 2018, addresses how to determine the transaction date when an entity recognises a non-monetary asset or liability (e.g. nonrefundable advance consideration in a foreign currency) before recognising the related asset, expense or income. It is not applicable when an entity measures the related asset, expense or income on initial recognition at fair value or at the fair value of the consideration paid or received at the date of initial recognition of the non-monetary asset or liability. An entity is not required to apply this interpretation to income taxes or insurance contracts that it issues or reinsurance contracts held. The interpretation clarifies that the transaction date is the date on which the company initially recognises the prepayment or deferred income arising from the advance consideration. For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. The group is assessing the impact that these standards will have on its 2018 financial statements. IFRS 16, Leases, which is effective for annual reporting periods beginning on or after January 1, 2019, eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Lessees will be required to bring all major leases onbalance sheet, recognising new assets and liabilities. The on-balance sheet liability will attract interest; the total lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. Optional lessee exemption will apply to short- term leases and for low-value items with value of US$5,000 or less. Lessor accounting remains similar to current practice as the lessor will continue to classify leases as finance and operating leases. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers is also adopted. The group is assessing the impact that this amendment will have on its 2019 financial statements. 51

54 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS Year ended December 31, Statement of compliance and basis of preparation (continued) (a) Statement of compliance (continued) Standards issued but not yet effective (continued) Improvements to IFRSs contain amendments to certain standards applicable to the group as follows: IAS 28, Investments in Associates and Joint Ventures, effective retrospectively for annual reporting periods beginning on or after January 1, 2018, has been amended to clarify or state the following: (i) (ii) A venture capital organisation, or other qualifying entity, may elect to measure its investments in an associate or joint venture at fair value through profit or loss. This election can be made on an investment-by-investment basis. A non-investment entity investor may elect to retain the fair value accounting applied by an investment entity associate or investment entity joint venture to its subsidiaries. This election can be made separately for each investment entity associate or joint venture. The group is assessing the impact that these amendments will have on its financial statements when they become effective. IFRIC 23, Uncertainty Over Income Tax Treatments, is effective for annual reporting periods beginning on or after January 1, Earlier application is permitted. IFRIC 23 clarifies the accounting for income tax treatments that have yet to be accepted by tax authorities is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. An entity has to consider whether it is probable that the relevant tax authority would accept the tax treatment, or group of tax treatments, that is adopted in its income tax filing. If the entity concludes that it is probable that the tax authority will accept a particular tax treatment in the tax return, the entity will determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings and record the same amount in the financial statements. The entity will disclose uncertainty. If the entity concludes that it is not probable that a particular tax treatment will be accepted, the entity has to use the most likely amount or the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The decision should be based on which method provides better prediction of the resolution of the uncertainty. 52

55 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Statement of compliance and basis of preparation (continued) (a) Statement of compliance (continued) Standards issued but not yet effective (continued) IFRIC 23, Uncertainty Over Income Tax Treatments, continued If facts and circumstances change, the entity is required to reassess the judgements and estimates applied. IFRIC 23 reinforces the need to comply with existing disclosure requirements regarding: - judgements made in the process of applying accounting policy to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; - assumptions and other estimates used; and - potential impact of uncertainties that are not reflected in the financial statements. The group is assessing the impact that the standard will have on its 2019 financial statements. (b) Basis of preparation The financial statements are prepared on the historical cost basis, except for available-for-sale investments which are measured at fair value. The financial statements are presented in Jamaica dollars (J$), which is the functional currency of the company. (c) Use of estimates and judgment The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of, and disclosures relating to assets, liabilities, contingent assets and contingent liabilities at the reporting date and the income and expenses for the year then ended. Actual amounts could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next financial year are discussed below: 53

56 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Statement of compliance and basis of preparation (continued) (c) Use of estimates and judgment (continued) (i) Impairment losses on receivables In determining amounts recorded for impairment losses in the financial statements, management makes judgements regarding indicators of impairment, that is, whether there are indicators that there may be a measurable decrease in the estimated future cash flows from receivables, for example, default or adverse economic conditions. Management also makes estimates of the likely estimated future cash flows from impaired receivables, as well as timing of such cash flows. Historical loss experience is applied where indicators of impairment are not observable on individually significant receivables with similar characteristics, such as credit risks. (ii) Impairment of goodwill and other intangible assets Impairment of goodwill and other intangibles is dependent upon management s internal assessment of future cash flows from the intangibles and cash-generating units that gave rise to the goodwill. That internal assessment determines the amount recoverable from future use of cash generating units in respect of goodwill. The estimate of the amount recoverable from future use of those units is sensitive to the discount rates used (note 14). (iii) Depreciation methods, useful lives and residual values Depreciation methods, useful lives and residual values rely on judgment and estimates by management, one of which is that the relevant assets will continue to be used for their current purpose within the company. In addition, useful lives and residual values vary between individual assets and are dependent upon continuation of the current level of maintenance. Should there be a change in the present use or level of maintenance this could change the charge for depreciation and net book value of property, plant and equipment (note 16) within the next financial year. 3. Significant accounting policies (a) Basis of consolidation (i) Business combinations Business combinations are accounted for using the acquisition method from the date on which control is transferred to the group. Control is the power to govern the relevant financial and operating policies of an entity so as to obtain benefits from its activities. The group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquired entity; plus 54

57 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (a) Basis of consolidation (continued) (i) Business combinations (continued) The group measures goodwill at the acquisition date as (continued): if the business combination is achieved in stages, the fair value of the pre-existing interest in the acquired entity; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognised in profit or loss. Any contingent consideration payable is measured at fair value at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities that the group incurs in connection with a business combination, are expensed as incurred. (ii) Non-controlling interests Non-controlling interests are measured at their proportionate share of the acquiree s identifiable net assets from the acquisition date. Changes in the group s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any difference between the change in the carrying value of non-controlling interest and the fair value of consideration paid or received is recognised directly in equity. (iii) Subsidiaries Subsidiaries are those entities controlled by the group. The group controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. The consolidated financial statements include the financial statements of all subsidiaries, including an Employees Share Ownership Plan (ESOP) classified as a structured entity (note 19), made up to December 31, The company and its subsidiaries are collectively referred to as group. (iv) Loss of control On the loss of control, the group derecognises the assets and liabilities of a subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the group retains any interest in a former subsidiary, then such interest is measured at fair value at the date that control is lost. 55

58 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (a) Basis of consolidation (continued) (v) Joint venture arrangements A joint venture is a contractual arrangement in which the group has joint control and whereby the group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Joint ventures are recognised initially at cost, including transaction costs. Subsequent to initial recognition, the consolidated financial statements include the group s share of the profit or loss and other comprehensive income of joint ventures using the equity method, until the date on which joint control ceases. If the group s share of losses exceeds its interest in a joint venture the group s carrying amount is reduced to $nil and recognition of further losses is discontinued, except to the extent that the group has incurred legal or constructive obligations or made payments on behalf of a joint venture. If the joint venture subsequently reports gains, the group resumes recognising its share of those gains only after its share of gains equals the share of losses not recognised. (vi) Associates Associates are those entities over which the group has significant influence, but not control or joint control over the financial and operating polices, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognised at cost, including transaction costs. The group s investment is carried at its share of the fair value of net identifiable assets of the associate net of any impairment loss identified on acquisition. The group s share of associates post-acquisition profits or losses is recognised in profit or loss and its share of post-acquisition movements in reserves is recognised in other comprehensive income to the extent that the profits, losses or movements are consistent with the group s significant accounting policies. Should the group s share of losses in an associate equal or exceed its interest in the associate, including any other unsecured receivables, the group will not recognise further losses unless it has incurred obligations or made payments on behalf of the associate. (vii) Transactions eliminated on consolidation Balances and transactions between companies within the group, and any unrealised gains arising from those transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions between the group and its associates and joint ventures are eliminated to the extent of the group s interest in the associate or joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. 56

59 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (b) Foreign currencies The group's foreign assets and liabilities are translated at the buying rates of exchange ruling at the reporting date [note 32(b)(ii)]. Items in the foreign subsidiaries' profit and loss accounts are translated at rates of 1 to J$ (2016: J$166.62), US$1 to J$ (2016: J$124.78), 1 to J$ (2016: J$136.68), being the weighted average rates of exchange for the year. Other transactions in foreign currencies are converted at the rates of exchange at the dates of those transactions. Gains and losses arising from translating profit or loss items are included in profit or loss. Unrealised portions of such gains are ultimately transferred to capital reserve. Exchange differences arising on other changes to stockholders' interests are reflected in other capital reserves [note 18(ii)]. (c) Cash and cash equivalents Cash comprises cash in hand, on demand and on call deposits with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value and are held for the purpose of meeting short-term cash commitments, rather than for investment or other purposes. (d) Short-term investments Short-term investments comprise fixed deposits with banks, money market securities and loans and receivables maturing within one year. They are acquired for their earnings potential and for balancing the group s risks on its investment portfolio. Their nature, liquidity and risk are similar to those of cash and cash equivalents. (e) Securities purchased under resale agreements Securities purchased under resale agreements ( reverse repos ) are short-term transactions in which the purchaser makes funds available to other parties and in turn receives securities which it agrees to resell on a specified date at a specified price. Reverse repos are accounted for as short-term collateralised lending. The difference between the sale and repurchase consideration is recognised on the effective interest basis over the period of the transaction and is included in interest income. (f) Trade and other receivables Trade and other receivables are measured at amortised cost, less impairment losses. (g) Inventories Inventories are measured at the lower of cost, determined principally on the first-in first-out basis, and net realisable value. Net realisable value is the estimated selling price less the estimated costs of completion and selling expenses. 57

60 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (h) Trade and other payables Trade and other payables, including provisions, are measured at amortised cost. A provision is recognised in the balance sheet when the group has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (i) Biological assets Biological assets represent the cost of primarily pineapple and banana plants which are capitalised up to maturity. These are measured at cost, less accumulated amortisation and impairment losses. The costs are normally amortised over a period of two years for pineapples and seven years for bananas. (j) Investments Investments with fixed or determinable payments and which are not quoted in an active market are classified as loans and receivables and are measured at amortised cost, less impairment losses. Where the group has the positive intent and ability to hold securities to maturity, they are classified as held-to-maturity, recognised initially at cost and subsequently measured at amortised cost, less impairment losses. Other investments held by the group are classified as available-for-sale and are measured at fair value with changes in fair value recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses in the case of monetary items, such as debt securities. Where these investments are derecognised, the cumulative gain or loss previously recognised in other comprehensive income is recognised in profit or loss. Where fair value cannot be reliably measured, these investments are measured at cost. Available-for-sale investments include certain debt and equity securities. The fair value of quoted available-for-sale investments is their bid price. Available-for-sale investments are recognised/derecognised by the group on the date it commits to purchase or sell the investments. Other investments are recognised/ derecognised on the day they are transferred. (k) Intangible assets and goodwill (i) (ii) Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units (note 14) and tested annually for impairment. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the equity accounted investee as a whole. Other intangible assets Other intangible assets that are acquired by the group and have finite useful lives are measured at cost less accumulated amortisation and impairment losses. 58

61 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (k) Intangible assets and goodwill (continued) (iii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. (iv) Amortisation Except for goodwill, intangible assets are amortised on the straight-line basis in profit or loss over their estimated useful lives, from the date that they are available for their intended use by management. The estimated useful lives are as follows: brands and trademarks 25 years customer relationships years other identified intangible assets 3-5 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted as appropriate. (l) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are measured at cost, less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets include the costs of material and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the present value of costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to the acquisition or construction of qualifying assets are recognised as part of the cost of the qualifying asset. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. (ii) Leased assets Leases under which the group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leasing arrangements are measured at an amount equal to the lower of the fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation, calculated in accordance with the policy in (iv) below, and impairment losses. After deducting interest attributable to future periods, the net amount payable is included in accounts payable. 59

62 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (l) Property, plant and equipment (continued) (iii) Subsequent costs The group recognises the cost of replacing part of an item of property, plant and equipment in the carrying amount of such an item when that cost is incurred, if it is probable that the future economic benefits embodied with the item will flow to the group and the cost of the item can be measured reliably. (iv) Depreciation Property, plant and equipment, including leased assets, with the exception of freehold land, on which no depreciation is provided, are depreciated on the straight-line basis at annual rates, varying between 2% and 50%, estimated to write down the assets to residual values over their expected useful lives. Computer software and equipment are depreciated on the straight-line basis at rates between 25% and 50% per annum. Depreciation methods, useful lives and residual values are reassessed at each reporting date. (m) Impairment The carrying amounts of the group s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount. For impairment testing, assets are grouped together into the smallest group of assets that generates cash flows that are largely independent of the cash flows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs that are expected to benefit from the synergies of the combinations. Impairment losses in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to CGUs and then to reduce the carrying amount of other assets in the unit on a pro-rata basis. Impairment losses are recognised in group profit or loss. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset and that the loss event has an impact on the future cash flows on the asset that can be estimated. Objective evidence that financial assets are impaired can include default or delinquency by a customer or counterparty, or indicators that the customer or counterparty will enter bankruptcy. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. When a decline in the fair value of an available-for-sale investment has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised in other comprehensive income is recognised in profit or loss, even though the investment has not been derecognised. 60

63 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (m) Impairment (continued) The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss previously recognised in profit or loss. (i) Calculation of recoverable amount The recoverable amount of the group s investments in held-to-maturity securities and loans and receivables is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted. The recoverable amount of other assets or CGUs is the greater of their value in use and fair value less cost to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGUs to which the asset belongs. (ii) Reversals of impairment An impairment loss in respect of a held-to-maturity security, loan or receivable is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (n) Loans payable Loans payable are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, loans are measured at amortised cost using the effective interest method. (o) Employee benefits Employee benefits are all forms of consideration given by the group in exchange for service rendered by employees. These include current or short-term benefits such as salaries, bonuses, national insurance contributions, annual leave and non-monetary benefits such as medical care and housing, post-employment benefits such as pensions and other long-term employee benefits such as termination benefits. Employee benefits that are earned as a result of past or current service are recognised in the following manner: Current employee benefits are recognised as a liability, net of payments made, and charged as expense. The expected cost of vacation leave that accumulates is recognised when the employees become entitled to the leave. 61

64 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (o) Employee benefits (continued) Pension obligations The group, through its subsidiaries, participates in retirement plans, the assets of which are generally held in separate trustee-administered funds. The pension plans are funded by payments from employees and by the group, taking into account the recommendations of qualified actuaries. The group has defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service and compensation. The asset or liability recognised in respect of the defined benefit pension plan is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets, together with adjustments for past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in the profit or loss. The group also participates in defined contribution plans whereby it pays contributions to privately administered pension plans which are administered by trustees. Once the contributions have been paid, the group has no further payment obligations. The contributions are charged to the profit or loss in the period to which they relate. Other retirement obligations The group, through its subsidiaries, provides post-employment health care and life insurance benefits to certain retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments, and changes in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries. 62

65 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (o) Employee benefits (continued) Termination benefits Termination benefits are payable when employment is terminated by the group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits at the earlier of the following dates: (a) when the group can no longer withdraw the offer of those benefits; and (b) when the group recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value. (p) Revenue Revenue from the sale of goods is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer and the group is reasonably certain that economic benefit will be received. Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the service at the reporting date. (q) Finance costs Finance costs represent interest payable and amortised upfront borrowing costs on borrowings calculated using the effective interest method. (r) Interest income Interest income is recognised in profit or loss as it accrues, taking into account the effective interest rate on the asset. (s) Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income, in which case it is also recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 63

66 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Significant accounting policies (continued) (t) Segment reporting An operating segment is a component of the group: (i) (ii) (iii) that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the group s other components. whose operating results are reviewed regularly by the Chief Executive Officer (CEO) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. 4. Short-term investments This comprises fixed deposits. 5. Securities purchased under resale agreements The fair value of the underlying securities purchased under resale agreements approximated $3,936,790,000 (2016: $2,959,139,000). 6. Accounts receivable $'000 $'000 Trade receivables 2,061,288 1,521,969 Staff receivables 9,610 12,579 Other receivables and prepayments 499, ,744 2,570,125 1,993,292 Less: allowance for impairment ( 119,770) ( 135,602) The movement in allowance for impairment during the year is as follows: 2,450,355 1,857, $'000 $'000 Balance at beginning of year 135,602 41,694 Impairment losses recognised 62,407 83,798 Impairment losses reversed ( 633) ( 247) Amounts written-off as uncollectible ( 1,092) ( 5,909) Amounts recovered during the year ( 76,459) ( 5,665) Arising on acquistion of subsidiary - 23,421 Exchange loss on retranslation ( 55) ( 1,490) Balance at end of year 119, ,602 64

67 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Accounts receivable (continued) The allowance for impairment is used to record impairment losses, unless the group is satisfied that no recovery of the amount owing is possible, at which point the amount considered irrecoverable is written-off directly against the receivable. The aging of trade receivables at the reporting date was: Gross Impairment Gross Impairment $'000 $'000 $'000 $'000 Not past due 975, ,874 - Past due 0-30 days 700, ,316 - Past due days 205,895 17, ,641 2,285 Past due 121 days - 1 year 165,702 74,723 61,306 54,135 More than 1 year 14,503 14,503 10,832 10, Inventories 2,061, ,771 1,521,969 67, $'000 $'000 Raw materials and consumables 276, ,384 Processed goods 127, ,654 Spare parts and other 361, , , , Accounts payable $'000 $'000 Trade payables 2,665,862 1,833,374 Dividend payable 104, ,937 Accrued expenses and other payables 661, , Biological assets 3,432,056 2,530, $'000 $'000 Balance at beginning of the year 151, ,534 Increase due to new plantings 21,536 63,250 Amortisation in year ( 53,685) ( 46,850) Balance at end of the year 119, ,934 65

68 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Interest in associated companies and joint venture The group s associated company and joint venture investments, which are recognised using the equity method, are set out below: (a) Interest in associates $ 000 $ 000 (i) Tortuga Cayman Limited 104,053 92,707 (ii) Shipping Association of Jamaica Property Limited 521, , , ,122 (i) (ii) The group holds a 40% holding in Tortuga Cayman Limited, a company that manufactures and distributes baked products, through its subsidiary Tortuga International Holdings Limited. The company directly holds 20% of the shares of Shipping Association of Jamaica Property Limited (SAJP). From June 23, 2016, the group indirectly holds a further 10% shareholding in SAJP, following the recognition of Kingston Wharves as a subsidiary. (b) The following table analyses, in aggregate, the share of profits and other comprehensive income of associates $'000 $'000 Share of: Profit from continuing operations 26, ,090 Other comprehensive income - 5,768 Total comprehensive income 26, ,858 (c) Interest in joint venture On September 19, 2016, the group sold its entire investment in joint venture, Mavis Bank Coffee Factory Limited, with a carrying value of $149.4 million, for consideration of $829.4 million. The group incurred costs of $30.1 million relating to the disposal and recorded a net gain on sale of $649.9 million. 66

69 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Non- controlling interest The following table summarises information relating to each of the group s subsidiaries that has material non-controlling interest (NCI), before any intra-group eliminations Kingston Tortuga Other - Kingston Tortuga Other- Wharves International immaterial Wharves International immaterial Limited Holdings Limited NCI Total Limited Holdings Limited NCI Total NCI percentage 58% 38% 58% 38% $'000 $'000 $ 000 $ 000 $'000 $'000 $ 000 $ 000 Non-current assets 20,599, ,059-19,408,455 1,002,576 - Current assets 5,165, ,311 1,389 4,148, ,427 16,625 Non-current liabilities ( 3,963,076) ( 198,111) - ( 3,262,153) ( 238,054) ( 87,197) Current liabilities ( 2,114,682) ( 191,969) (166,161) ( 1,679,864) ( 252,551) ( 85,475) Net assets/(liabilities) 19,686, ,290 (164,772) 18,615, ,398 (156,047) Carrying amount of NCI 11,379, ,400 (226,690) 11,484,023 10,663, ,922 (227,811) 10,779,986 Revenue 6,369, ,320-2,937, ,793 34,799 Profit/(loss) for the year 1,701,905 ( 4,615) 2, ,788 ( 130,794) ( 41,568) Other comprehensive income/(loss) 117,716 ( 28,430) - 241,323 66,144 - Total comprehensive income/(loss) 1,819,621 ( 33,045) 2, ,111 ( 64,650) ( 41,568) Profit/(loss) allocated to NCI 962,715 ( 1,749) 1, , ,594 ( 49,551) ( 20,368) 369,675 Other comprehensive income/(loss) allocated to NCI 67,938 ( 10,772) - 57, ,967 25, ,029 Cash flows from operating activities 3,000, ,111-1,637,585 28,368 ( 43,100) Cash flows from investment activities ( 1,966,319) ( 22,028) - ( 1,954,682) ( 177,689) 93,730 Cash flows from financing activities ( 124,423) ( 105,744) - 198, ,128 ( 45,129) Net increase/(decrease) in cash and cash equivalents 909,623 36,339 - ( 118,238) ( 1,193) 5,501 67

70 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Investments This represents a long-term third party loan of US$1.3 million receivable on an amortised basis with equal monthly payments over fifteen years, including a one-year principal moratorium the first year. The loan, which earns interest at 3% per annum, is secured by a first mortgage over property and liens over plant, equipment, inventories and any other assets owned by the borrower. In addition, a first lien is held over the shares held by the borrower in former subsidiaries that own the aforementioned assets pledged as security. An impairment allowance of US$378,000 (2016: US$378,000) was recognised against this loan. 13. Recognition of subsidiary With effect from June 23, 2016, the group acquired control of Kingston Wharves Limited ( KW ), formerly an associate of the group. KW operates a multi-purpose shipping terminal and provides ancillary logistics services. The group holds 42% of the issued share capital directly, and following the acquisition of Shipping Association of Jamaica Property Limited (note 10(a)(ii)) it has a participating interest in that associate s 10% holding of the issued share capital of KW. (a) The following summarises the fair value of the identifiable assets and liabilities recognised by the group at June 23, 2016: 2016 $'000 Net identifiable assets and liabilities Property, plant and equipment 16,416,880 Intangible assets 531,755 Retirement benefit asset 619,083 Other non-current assets 85,867 Cash and cash equivalents 295,801 Short term investments 3,055,330 Other current assets 829,909 Current liabilities ( 1,233,484) Long-term loans and borrowings ( 1,388,676) Deferred tax liability ( 1,157,191) Retirement benefit liability ( 245,378) Non-controlling interest ( 85,998) Net assets recognised 17,723,898 Less: Non-controlling interest arising on recognition (10,279,861) Net identifiable assets acquired 7,444,037 The fair value of certain material asset categories was established as follows: (i) Property, plant and equipment: The value of land was assessed through market comparison techniques by qualified independent valuation assessors. The value of buildings and certain equipment was assessed through cost techniques, specifically the depreciated replacement cost methodology to account for physical deterioration as well as functional and economic obsolescence. 68

71 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Recognition of subsidiary (continued) (a) (continued) (ii) Intangible assets: The value of brands and trademarks was assessed through market benchmarking information provided by independent sources. The value of customer relationships was assessed through the multi-period excess earnings method, performed by a qualified independent valuator. (b) The net gain on recognition of KW as a subsidiary is calculated as below: 2016 $'000 Fair value of net assets acquired 7,444,037 Less: Investment in KW as an associate held by the group at June 23, 2016 (4,473,605) Less: costs directly associated with the transaction ( 53,563) Gain on acquisition of subsidiary 2,916, Intangible assets Brands Other and Customer identifiable trademarks relationships intangibles Goodwill Total $'000 $'000 $'000 $'000 $'000 Cost: December 31, , ,391 31, ,221 1,497,557 Additions ,668-16,668 Recognition of subsidiary 106, ,000 11, ,755 Exchange adjustments 26,919 15,160 2,035 18,978 63,092 December 31, , ,551 61, ,199 2,109,072 Additions - - 1,566-1,566 Transfer ,516-17,516 Exchange adjustments ( 11,587) ( 6,526) ( 1,581) 32,276 12,582 December 31, , ,025 79, ,475 2,140,736 Amortisation and impairment: December 31, ,435 61,705 16, , ,914 Charge for the year 20,439 36,788 7,722-64,949 Exchange adjustments 4,944 4,393 1,234 11,453 22,024 December 31, , ,886 25, , ,887 Charge for the year 24,534 57,837 17, ,348 Transfers - - 6,582-6,582 Exchange adjustments ( 2,933) ( 2,612) ( 1,078) ( 4,930) ( 11,553) December 31, , ,111 49, , ,264 Net book values: December 31, , ,914 29, ,139 1,635,472 December 31, , ,665 35, ,933 1,699,185 December 31, , ,686 14, ,408 1,174,643 69

72 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Intangible assets (continued) In testing goodwill for impairment, recoverable amounts of cash-generating units are estimated based on value-in-use. Where the recoverable amounts exceed the carrying amounts, no impairment allowance is made. The recoverable amounts of cash-generating units are arrived at by estimating their future cash flows and discounting those cash flows using long-term discount rates applicable to the countries in which the businesses operate. Future sustainable cash flows are estimated based on the most recent forecasts, after taking account of past experience. In all cases projected cash flows are estimated over 5 years, followed by a terminal value calculated based on the discount rates and growth rates in the table below. Each unit is regarded as saleable to a third party at a future date at a price sufficient to recover its carrying amount of goodwill. Key assumptions are set out below: Discount Growth Discount Growth Cash-generating units (CGUs) rate rate rate rate Juice manufacturing business 10% 3% 10% 3% Other food manufacturing business 15% 3% 15% 3% Logistics business 10% 3% 10% 3% Other units 15% 3% 15% 3% 15. Deferred tax asset/(liability) The deferred tax asset/(liability) is attributable to the following: Deferred tax Asset Liability Net $'000 $'000 $'000 $'000 $'000 $'000 Property, plant and equipment 658 1,630 (1,092,041) (1,115,942) (1,091,383) (1,114,312) Employee benefits - - ( 90,755) ( 69,832) ( 90,755) ( 69,832) Other liabilities 1,587 1,717 2,665 2,508 4,247 4,225 Other assets - - ( 3,720) ( 3,014) ( 3,715) ( 3,014) 2,245 3,347 (1,183,851) (1,186,280) (1,181,606) (1,182,933) Movement on the net deferred tax (liability)/asset during the year: $'000 $'000 Net deferred tax (liability)/asset at beginning of year (1,182,933) 956 Recognition of subsidiary - (1,157,191) Effect of re-measurement of post-employment benefits ( 14,713) ( 28,583) Recognised in taxation charge [note 24(a)(ii)] 16,058 1,805 Translation (loss)/gain in the year ( 18) 80 (1,181,606) (1,182,933) 70

73 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Property, plant and equipment Freehold Leasehold Equipment, Workland and land and vehicles and inbuildings buildings furniture progress Total $'000 $'000 $'000 $'000 $'000 Cost: December 31, ,109, ,121 2,248,293 83,495 3,778,331 Additions 316,589 56,151 1,094, ,194 1,870,997 Disposals - ( 82,514) ( 402,989) - ( 485,503) Recognition of subsidiary 13,426,282-1,937,012 1,053,586 16,416,880 Transfers 1, ( 1,471) - Exchange adjustments 5,824 1,223 6,647 ( 211) 13,483 December 31, ,859, ,981 4,883,026 1,539,593 21,594,188 Additions 75,798 35, ,925 1,737,139 2,267,831 Disposals - ( 2,573) ( 41,747) - ( 44,320) Transfers 2,647, ,465 (2,812,619) ( 17,516) Exchange adjustments 128,840 ( 152) 145,755 10, ,092 December 31, ,711, ,225 5,553, ,762 24,085,275 Depreciation and impairment: December 31, , ,375 1,350,713 67,268 1,946,419 Charge for the year 194,706 18, ,090 3, ,443 Eliminated on disposals - ( 78,379) ( 268,729) - ( 347,108) Exchange adjustments ( 2,772) 755 ( 1,397) ( 269) ( 3,683) December 31, , ,170 1,375,677 70,227 2,107,071 Charge for the year 336,027 9, ,456 3, ,129 Transfer - - ( 6,582) - ( 6,582) Eliminated on disposals - ( 1,730) ( 28,996) - ( 30,726) Exchange adjustments 42,580 ( 67) 79,232 9, ,304 December 31, , ,426 1,871,787 83,379 3,002,196 Net book values: December 31, ,885, ,799 3,681, ,383 21,083,079 December 31, ,411,591 98,811 3,507,349 1,469,366 19,487,117 December 31, ,359 64, ,580 16,227 1,831, Retirement benefit asset and obligations The group participates in benefit plans for its employees. These can be summarised as follows: (i) (ii) Four defined contribution schemes for qualifying employees in Jamaica and another in the United Kingdom. An industry-wide multi-employer defined benefit scheme in the Netherlands. The subsidiary is required to contribute a specified percentage of payroll costs to the scheme to fund the benefits. This percentage may increase or decrease as a result of changes in actuarial valuations. The only obligation of the group with respect to this scheme is to make the specified contributions. Accordingly, it is treated as a defined contribution scheme for the purpose of the group s accounting. 71

74 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Retirement benefit asset and obligations (continued) (iii) (iv) A defined benefit scheme for certain employees of its subsidiary also in the Netherlands. The group has contracted out all legal and constructive commitments of this scheme to an insurance company and is only obliged to make annual specified contributions. Accordingly, this scheme is treated as a defined contribution scheme for the purpose of the group s accounting. A defined contribution scheme and a defined benefit scheme operated by Kingston Wharves Limited (KW). KW also provides other retirement benefits giving rise to obligations. The assets of the funded plans are held independently in separate trustee administered funds. The effect on the statement of financial position, profit for the year and other comprehensive income are as follows: $ 000 $'000 Balance sheet asset/(obligations) for: Pension benefits asset 1,174, ,177 Other retirement benefits obligation ( 357,792) (276,762) (Credit)/charge to profit or loss for: Pension benefits ( 41,963) ( 20,489) Other retirement benefits 32,240 29,319 ( 9,723) ( 8,830) (Credit)/charge to other comprehensive income on remeasurements for: Pension benefits ( 191,828) (281,330) Other retirement benefits 59,980 11,424 (a) Defined benefit pension plan ( 131,848) (269,906) The Kingston Wharves scheme is open to all permanent employees of the subsidiary. Under the scheme, retirement benefits are based on average salary during the three years preceding retirement. The scheme is funded by employee contributions at 5% and employer contributions of 5% of salary, as recommended by independent actuaries. Members may also make voluntary contributions of up to 5% of their earnings. The assets of the plan are held independently of the group s assets in a separate trusteeadministered fund. The plan is valued by independent actuaries annually using the projected unit credit method. The latest actuarial valuation was carried out as at December 31, The defined benefit asset recognised in the balance sheet is determined as follows: $ 000 $ 000 Fair value of plan assets 3,020,836 2,588,704 Present value of fund obligations (1,846,161) (1,652,527) Asset in the balance sheet 1,174, ,177 72

75 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Retirement benefit asset and obligations (continued) (a) Defined benefit pension plan (continued) Movements in the amounts recognised in the balance sheet: $ 000 $ 000 Assets at start of year 936,177 - Additions from acquisition of subsidiary (note 13) - 619,083 Amounts recognised in statement of comprehensive income 233, ,819 Contributions paid 4,707 15,275 Asset at end of year 1,174, ,177 The movement in the fair value of plan asset: $ 000 $ 000 Balance at start of year 2,588,704 - Arising on acquisition of subsidiary - 2,166,696 Interest income 231, ,007 Re-measurements - Return on plan assets, excluding amounts included in interest expense 236, ,888 Members contributions 27,119 28,086 Employers contributions 4,707 15,275 Benefits paid ( 67,804) ( 94,237) Transfers - ( 11) Balance at end of year 3,020,836 2,588,704 The movement in the present value of the funded obligations is as follows: $ 000 $ 000 Balance at start of year 1,652,527 - Arising on acquisition of subsidiary - 1,547,613 Current service cost 73,322 64,892 Interest cost 152, ,718 Re-measurements - Loss from change in financial assumptions 44,918 9,536 Members contributions 12,497 12,810 Benefits paid ( 67,804) ( 94,237) Transfers in - 11 Gain on curtailment ( 21,649) ( 20,816) Balance at end of year 1,846,161 1,652,527 As at the last valuation date, the present value of the defined benefit obligation was comprised of approximately $900,692,000 relating to active employees, $51,063,000 relating to deferred members, $697,736,000 relating to members in retirement and $3,036,000 representing other liabilities. 73

76 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Retirement benefit asset and obligations (continued) (a) Defined benefit pension plan (continued) The amounts recognised in the profit and loss account are as follows: $ 000 $ 000 Current service cost 58,700 49,616 Interest income ( 79,014) ( 49,289) Gain on curtailment ( 21,649) ( 20,816) Total, included in staff costs ( 41,963) ( 20,489) Plan assets are comprised as follows: $ 000 % $ 000 % Quoted equity securities 1,388, , Government of Jamaica securities 943, ,043, Corporate bonds and promissory notes 155, , Repurchase agreements 269, , Leases 18, , Real estate 108, , Other 138, , ,020, ,588, The pension plan assets include ordinary stock units of Kingston Wharves Limited with a fair value of $330,000,000 (2016: $240,000,000). Expected contributions to the post-employment plan for the year ending December 31, 2017 are $3.2 million. The significant actuarial assumptions used were as follows: Discount rate 8.00% 9.00% Future salary increases 5.50% 6.50% Expected pension increase 3.75% 4.50% Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each territory. These assumptions translate into an average life expectancy in years for a pensioner retiring at age

77 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Retirement benefit asset and obligations (continued) (a) Defined benefit pension plan (continued) The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: Impact on post-employment obligations Change in Increase in Decrease in assumption assumption assumption $ 000 $ 000 $ 000 $ 000 Discount rate 1% 1% (225,791) (196,819) 224, ,903 Future salary increases 1% 1% 39,329 31,342 ( 36,336) ( 29,928) Expected pension increase 1% 1% 215, ,488 (177,649) (158,022) Life expectancy 1% 1% 30,675 27,504 ( 33,767) ( 28,954) The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, as changes in some of the assumptions may be correlated. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period. (b) Other retirement benefits Through its subsidiary, Kingston Wharves Limited, the group operates both a group health plan and a group life plan. KW covers 100% of the premiums of both plans. However, pensioners under the health plan have the option to pay an additional premium for single dependent or multiple dependents coverage. The method of accounting and the frequency of valuations for these plans are similar to those used for the pension scheme. In addition to the assumptions used for the pension scheme, the main actuarial assumption is a long term increase in health costs of 8% per year for the insured group health plan. The insured group life plan assumes a salary rate increase of 6.5% per year. The amounts recognised in the balance sheet were determined as follows: $ 000 $ 000 Liability at start of year 276,762 - Arising on recognition of subsidiary - 245,378 Amounts recognised in the statement of comprehensive income 92,220 40,743 Contributions paid ( 11,190) ( 9,359) Liability at end of year 357, ,762 75

78 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Retirement benefit asset and obligations (continued) (b) Other retirement benefits (continued) Movement in the present value of the defined benefit obligation: $ 000 $ 000 Balance at start of year 276,762 - Arising on recognition of subsidiary - 245,378 Current service cost 15,125 12,234 Interest cost 25,576 21,319 Gain on curtailment ( 8,461) ( 4,234) Included in staff costs in profit and loss account 32,240 29,319 Re-measurements - Loss from change in financial assumptions, being total included in other comprehensive income 59,980 11,424 Benefits paid ( 11,190) ( 9,359) Balance at end of year 357, ,762 The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: Impact on post-employment obligations Change in Increase in Decrease in Assumption Assumption Assumption $ 000 $ 000 $ 000 $ 000 Life Discount rate 1% 1% ( 3,600) ( 2,545) 4,318 3,043 Future salary increases 1% 1% 1, ( 1,093) ( 758) Medical Discount rate 1% 1% (45,990) (35,591) 59,747 45,997 Future medical cost rate 1% 1% 59,747 46,807 (45,990) (35,591) (c) Risks associated with pension plans and other post-employment plans Through its defined benefit pension plans and post-employment medical plans, the subsidiary is exposed to a number of risks, the most significant of which are detailed below: Asset volatility The plan liabilities are calculated using a discount rate set with reference to Government of Jamaica bond yields; if plan assets underperform this yield, this will create a deficit. However, the subsidiary believes that due to the long-term nature of the plan liabilities, a level of continuing equity investment is an appropriate element of the long term strategy to manage plans efficiently. 76

79 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Retirement benefit asset and obligations (continued) (c) Risks associated with pension plans and other post-employment plans (continued) Changes in bond yields A decrease in Government of Jamaica bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plan s bond holdings. Inflation risk 18. Share capital Higher inflation will lead to higher liabilities. The majority of the plan s assets are unaffected by fixed interest bonds, meaning that an increase in inflation will reduce the surplus or create a deficit. Life expectancy The majority of the plan's obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plan's liabilities. This is particularly significant, where inflationary increases result in higher sensitivity to changes in life expectancy. The weighted average duration of the defined benefit obligation for pension scheme is 15 years. The weighted average duration of the defined benefit obligation for post-employment medical and life insurance benefits is 16 years. Authorised: 1,500,000,000 ordinary shares at no par value $'000 $'000 Stated capital: Issued and fully paid 1,122,144,036 (2016: 1,122,144,036) ordinary stock units at no par value 112, ,214 The company s stated capital does not include share premium, which is retained in capital reserves (note 19) in accordance with Section 39 (7) of the Jamaican Companies Act. 19. Reserves $'000 $'000 Capital: Share premium (note 18) 135, ,087 Reserve for own shares [see (i) below] ( 72,419) ( 96,911) Other [see (ii) below] 2,308,929 2,202,157 2,371,597 2,240,333 Revenue: Retained profits 8,777,022 8,065,941 11,148,619 10,306,274 77

80 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Reserves (continued) (i) Reserve for own shares is included in these financial statements by consolidation of the company s Employees Share Ownership Plan (ESOP), which is regarded as a structured entity and is required to be consolidated under IFRS10. The reserve comprises the cost of the company s shares held by the group through the ESOP, less net gains on shares sold. The consolidated financial statements include the group's share of profits or loss of the ESOP based on management accounts for the year ended December 31, The results of operation of this entity are immaterial in relation to the group. The number of stock units held by the ESOP at December 31, 2017 was 77,311,976 (2016: 81,845,976). Based on the bid price, less a 15% discount normally allowed to staff, the value of those stock units at December 31, 2017 was $1,097,443,000 (2016: $642,123,000). The fair value of these stock units is not recognised in the group s reserve for own shares until sold. (ii) (iii) Other capital reserves comprise gains on disposal of property, plant and equipment and investments up to December 31, 2017, unrealised exchange gains and unclaimed distributions to stockholders (note 26). Losses in a subsidiary, in excess of the non-controlling interest in the equity of the subsidiary, were included in the group s results prior to Should the subsidiary subsequently report profits, such profits would be included in the group results, until the non-controlling interest s share of losses, previously absorbed by the group, has been recovered. 20. Long-term loans $'000 $'000 Syndicated third party and bank loans 4,636,230 4,455,259 Finance leases 65,017 69,423 Other third party 87,197 87,197 4,788,444 4,611,879 Less: Transaction costs Brought forward from prior year ( 14,170) ( 21,679) Incurred in the year ( 12,200) - Amortised in interest expense for the year 14,658 7,509 ( 11,712) ( 14,170) Total carrying value of long-term loans 4,776,732 4,597,709 Less: current portion ( 772,256) (1,213,145) 4,004,476 3,384,564 78

81 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Long-term loans (continued) The terms and conditions of outstanding loans were as follows: Nominal Year of Face Carrying Face Carrying Currency interest rate maturity value value value value $ 000 $ 000 $ 000 $ 000 Secured syndicated third party loan JMD 9.50% , ,824 Secured syndicated third party loan JMD 8.31% , ,618 Secured syndicated third party loan JMD 9.00% ,511,712 1,511, Secured bank loan GBP 2.50% ,720 61,720 66,070 66,070 Secured bank loan JMD 9.50% , , , ,580 Secured bank loan JMD 11.00% ,400 98, , ,200 Secured bank loan JMD 11.85% , , , ,857 Secured bank loan USD 4.85% , , , ,509 Secured bank loan JMD 8.90% , , , ,593 Secured bank loan USD 5.00% , , , ,071 Secured bank loan JMD 8.00% , , Secured bank loan JMD 8.00% ,281,610 1,281, , ,000 Secured bank loan JMD 8.49% ,094 5,094 6,327 6,327 Secured revolving loan facility USD 5.50% ,232 37, , ,927 Secured loan JMD 7.00% , , , ,490 Secured loan JMD 10.00% ,751 18,751 35,840 35,840 Secured loan JMD 8.90% ,440 9, Unsecured bank loan JMD 8.50% , ,000 Other unsecured loan JMD nil n/a 2,932 2,932 2,932 2,932 Finance lease EUR 3.50% ,017 65,017 69,423 69,423 Other related party JMD 5.00% ,197 87,197 87,197 87,197 Other JMD n/a n/a - - 2,421 2,421 4,788,444 4,788,444 4,611,879 4,611,879 (i) On September 29, 2017, the company issued a Corporate bond for $1,500,000,000. This note is secured by shares in Kingston Wharves Limited and is repayable by September The note is to be repaid by semi-annual payments and a lump sum payment of $700,000,000 in the final year. The interest rate on the loan is fixed at 9% p.a. for the first five years and thereafter at the GOJ 6-month Weighted Average Treasury Bill Yield (WATBY) plus 200 basis points, capped at 12% p.a. The proceeds of this note were principally used to refinance two previous notes. (ii) During 2016, upon recognition of Kingston Wharves Limited (KW) as a subsidiary (note 13) the group recognised loans and borrowings of $1,925,832,000, of which $1,388,676,000 was due after one year. During the current year KW drew down $666,610,000 on an established $1.8 billion facility, of which $615,000,000 was drawn down in the prior year. This facility was established to finance capital expenditure. The interest rate varies over the life of the loan, with rates initially fixed at 8.5% p.a. and capped at 9.5% p.a. for the remaining life. The total facility has a two-year moratorium on principal and is thereafter repayable in 19 instalments of $63,000,000, with a final payment of $603,000,

82 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Long-term loans (continued) (iii) During 2017, KW entered into a financing arrangement to fund capital expenditure totalling $451.5m. This is a secured loan repayable over 80 months at a fixed interest rate of 8.25% p.a. (iv) During the second half of 2016, KW entered into a one year financing arrangement with the vendor of a portion of land acquired. During 2017 the terms of this arrangement were renegotiated and the balance is repayable over 15 years at a fixed interest rate of 7.00% p.a. (v) During 2016, another subsidiary entered into two new financing arrangements to fund capital expenditure and working capital. The financing comprises $150,672,673 term loan repayable in equal instalments over 84 months at a fixed interest rate of 9.5% p.a. and a US$800,000 revolving working capital facility available for three years with a fixed interest rate of 5.5% p.a., with each draw-down having a 12 month tenure. (vi) During 2016, the company entered into a 12-month unsecured borrowing facility for $120,000,000 at a fixed rate of 8.5% p.a. for seven months moving to WATBY+250bps for the remaining term. This was repaid in (vii) The loan from other related party of $87.2 million is due to a company that holds 35% of the equity in Four Rivers Mining Company Limited. The loan is due on demand. 21. Gross operating revenue Gross operating revenue comprises the gross sales of goods and services of the group and commission earned by the group on consignment sales. This is shown after deducting returns, rebates and discounts, consumption taxes and eliminating sales within the group. 22. Disclosure of expenses $'000 $'000 Selling, administrative and other expenses: Advertising, promotion and selling costs 194, ,521* Auditors remuneration 59,085 48,513 Bad debt 40,062 21,878* Bank charges and merchant fees 65,630 42,072* Depreciation and amortisation 126, ,108 Directors' emoluments: Fees 9,940 10,740 For management 44, ,247 Donations 28,400 19,791* Insurance 84,382 59,691* IT and communication 182, ,051* Legal, professional and consultancy 138, ,976 Office and general costs 66,842 47,550* Other property related costs 124, ,692* Property rental 58,382 75,686* Staff costs 1,334,650 1,282,709* Transport, automobile and associated costs 75,414 35,167* Travel 51,432 59,146* Utilities 104,908 54,330* Other 141,747 47,141* Total selling, administrative and other expenses 2,931,669 2,578,009 *The comparative information has been restated to compare with the 2017 presentations.

83 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Financial income and expenses $ 000 $ 000 Financial income: Interest income on available-for-sale financial assets 81,727 35,223 Interest income on bank deposits, loans and receivables 18,708 8,204 Dividend income on available-for-sale financial assets Net gain on available-for-sale financial assets transferred from equity - 16,686 Net foreign exchange (losses)/gains ( 91,698) 80,244 9, ,069 Financial expenses: Interest expense on financial liabilities measured at amortised cost (314,207) (283,813) Net foreign exchange gain/(loss) 5,402 ( 25,774) (308,805) (309,587) Net financial expenses (299,641) (168,518) 24. Taxation (a) The taxation charge is based on the group s results for the year, as adjusted for tax purposes, and comprises: (i) $'000 $'000 Current tax charge: Jamaican corporation tax 266, ,099 United Kingdom corporation tax 9,271 15,850 Netherlands corporation tax 113,560 42,917 Other corporation tax 5,322 - Tax on associated companies ( 22,432) 60, , ,755 (ii) Deferred taxation (note 15): Origination and reversal of temporary differences ( 16,058) ( 1,805) Total taxation charge in group profit and loss account 356, ,950 (b) Reconciliation of tax expense The effective tax rate for 2017 was 18.0% (2016: 4.9%), compared to the statutory tax rate of 25% (2016: 25%). The actual charge differs from the "expected" tax charge for the year as follows: 81

84 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Taxation (continued) (b) Reconciliation of tax expense (continued) $'000 $'000 Profit before taxation 1,980,632 4,533,071 Computed "expected" tax charge at 25% (2016: 25%) 495,158 1,133,268 Taxation difference between profit for financial statements and tax reporting purposes on: Effect of non-standard tax rates and tax rates of foreign jurisdictions ( 317,675) ( 176,257) Unrelieved tax losses less tax relief utilised 55,538 63,685 Lower associated company tax rate - ( 36,557) Gain on disposal of property, plant and equipment and investments 541 ( 206,769) Other gains arising on consolidation - ( 729,217) Other related capital adjustments and disallowed expenses 123, ,797 Actual tax charge 356, ,950 (c) As at December 31, 2017, the company and certain subsidiaries had taxation losses, subject to agreement by the Commissioner General, Tax Administration Jamaica, of approximately $3,283,000,000 (2016: $2,632,000,000) available for relief against future taxable profits. Of this amount, $570,819,000 (2016: $570,819,000) is available for offset against specific income such as farming profits. As of January 1, 2014, tax losses may be carried forward indefinitely; however, the amount that can be utilised is restricted to 50% of chargeable income (before prior year losses) in any one year. A deferred tax asset of $820,750,000 (2016: $658,000,000) in respect of taxation losses of certain companies has not been recognised by the group, as management considers its realisation within the foreseeable future to be too uncertain. 25. Profit per ordinary stock unit The profit per ordinary stock unit is calculated by dividing the profit for the year attributable to shareholders of $661,884,000 (2016: $3,940,446,000), attributable to the company s stockholders, by a weighted average number of ordinary stock units held during the year, as follows: Weighted average number of ordinary stock units: Issued ordinary stock units at January 1 1,122,144,036 1,122,144,036 Effect of own shares held by ESOP during the year ( 81,581,986) ( 85,562,569) Weighted average number of ordinary stock units in issue during the year 1,040,562,050 1,036,581,467 Profit per ordinary stock unit in issue Profit per ordinary stock unit excluding ESOP holdings

85 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Distributions to equity holders of parent $'000 $'000 Ordinary dividends: First interim payable in respect of (2016: 12 ) per stock unit gross - parent 112, ,657 Distributions to ESOP [note 19(i)] ( 7,731) ( 10,134) 104, ,523 Unclaimed distributions written back to capital reserves [note 19(ii)] ( 11,414) ( 6,075) 27. Operating lease arrangements 93, ,448 (a) Non-cancellable operating lease commitments as lessee Annual commitments under non-cancellable operating leases expire as follows: $'000 $'000 Within one year 44,373 41,722 In the second to fifth years, inclusive 77,278 63, , ,735 (b) Non-cancellable operating lease receivables as lessor The group earned property rental income of $118,797,000 (2016: $34,599,000) under operating leases. Commitments for income under non-cancellable operating leases at yearend are as follows: $'000 $'000 Within one year 133,673 38,674 In the second to fifth year inclusive 107,449 91,842 After five years 15,894 35, Commitments for expenditure 257, ,935 As at December 31, 2017, capital expenditure authorised and committed amounted to approximately $72,000,000 (2016: $971,047,000). 83

86 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Related parties (a) Identity of related parties The group has related party relationships with its directors, officers and senior executives of subsidiaries. The company s executive directors, officers and the senior executives of subsidiaries are collectively referred to as key management personnel. (b) Transactions with directors and other key management personnel Directors and officers of the company, their immediate relatives and entities over which they have significant influence control 32.2% (2016: 32.4%) of the voting shares of the company. In addition to their salaries, the group contributes to various post-employment benefit plans on behalf of key management personnel. The compensation of key management personnel based in Jamaica and overseas is as follows: $'000 $'000 Short-term employment and other benefits 307, ,434 Payroll taxes employer contributions 18,777 15,242 Post-employment benefits 18,113 18,481 Termination benefits 12,879 21,514 Total remuneration 357, ,671 84

87 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Related parties (continued) (c) Transactions with other related parties, directors and key management personnel in other capacities Terms (Payable)/receivable and Transactions in year at end of year conditions $ 000 $ 000 $ 000 $ 000 * Category and nature of relationship Nature of Transactions Transactions with joint ventures and associates: 50% joint venture Management services income to group - (22,762) - - 1, 2, 3 50% joint venture Interest income on loans from group - (16,811) - - 2, 3 Transactions with key management personnel or entities under their control and/or significant influence: i) Company under their control Insurance premiums charged to group 12,036 10, , 2, 3 ii) Company under their control Management services charged to group 9,561 9,358 ( 9,308) ( 9,561) 2, 3, 4 iii) Company under their control Shipping agency services charged to group 7,734 8, , 2, 3 iv) Company under their control Charges paid on behalf of the group ( 7,399) ( 5,291) - - 1, 2, 3 v) Company under their control Collections from third parties on behalf of the group (80,999) (76,306) 30,082 37,276 1, 2, 3 vi) Company under their control Sales by the group (72,306) (33,578) 22,443 21,067 2, 3, 4 vii) Company under their control Legal services to the group 1,345 13, , 2, 3 viii) Company under their control Professional services to the group 742 1, , 2, 3 * The number in each row represents the terms and conditions that are applicable to the stated transactions and their meanings are as follows: 1. Credit of up to 30 days 2. Unsecured 3. Settlement in cash 4. Credit over 30 days 85

88 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Segment reporting Segment information is presented in respect of the group s strategic business segments. The identification of business segments is based on the group s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment, as well as those that can be allocated on a reasonable basis. The group uses profit or loss before finance cost and taxation to measure performance and allocate resources. The group s business is organised into three business segments: (a) (b) (c) JP Food & Drink - This comprises businesses that are engaged in agriculture, processing, distribution and/or retail of food and drink. JP Logistics & Infrastructure This comprises businesses that are engaged in logistics, transportation, port operations, construction aggregates and related industries. Corporate Services This comprises interest and investment income, net of the cost of corporate functions not directly charged to business units. JP Logistics & Corporate JP Food & Drink Infrastructure Services Total * * * $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Gross revenue 8,811,498 8,076,084 7,346,209 3,968,218 87, ,574 16,245,279 12,198,876 Inter- segment revenue ( 5,756) ( 82,811) ( 123,253) ( 88,567) ( 123,253) Revenue from external customers 8,805,742 8,076,084 7,346,209 3,968,218 4,761 31,321 16,156,712 12,075,623* Interest income ,652 29,382 23,783 14, ,435 43,427 Segment profit/(loss) 277,994 31,184 2,160,490 1,429,866 ( 149,047) 3,381,608 2,289,437 4,842,658 Finance cost- interest expense ( 308,805) ( 309,587) Profit before taxation 1,980,632 4,533,071 Taxation charge ( 356,661) ( 222,950) Non-controlling interest ( 962,087) ( 369,675) Profit attributable to equity holders of the parent 661,884 3,940,446 Segment assets 5,477,081 4,608,460 26,641,403 24,094, ,053 1,176,426 32,668,537 29,879,878 Segment liabilities (1,657,652) (1,288,013) ( 7,955,181) ( 6,997,122) ( 310,848) ( 396,269) ( 9,923,681) ( 8,681,404) Capital expenditure 377, ,932 1,850,138 1,409,091 40,001 60,974 2,267,831 1,870,997 Depreciation and amortisation ( 320,896) ( 295,362)( 561,983) ( 264,473) ( 72,283) ( 63,407) ( 955,162) ( 623,242) The revenues and earnings on subsidiaries and associates acquired or disposed of during the year are included up to the date of acquisition or disposal. *The comparative information has been restated to compare with 2017 presentation. (see note 34). 86

89 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Segment reporting (continued) Segment information below represents segment revenue based on the country receiving the benefit of our products/services and segment assets based on the country in which the owner is registered. Revenues Non-current assets * $'000 $'000 $ 000 $ 000 Jamaica 8,423,411 4,996,104 21,687,727 20,035,235 Netherlands 4,828,051 4,495,427 1,679,838 1,512,124 United Kingdom 232, , , ,850 United States of America 661, ,838 7,581 11,811 Other Caribbean countries 681, ,667 1,218,871 1,265,052 Other European countries 1,289, , Other countries 40,614 25, ,156,712 12,075,623 24,738,733 22,966,072 Revenues from one customer of the JP Food and Drink segment represents approximately $4,112 million (2016: $4,404 million) of the group s total revenues. *The comparative information has been restated to compare with the 2017 presentation (see note 34). 32. Financial instruments A financial instrument is any contract that gives rise to a financial asset of an enterprise and a financial liability or equity instrument of another enterprise. For the purpose of the financial statements, financial assets have been determined to include cash and cash equivalents, shortterm investments, securities purchased under resale agreements, accounts receivable and investments. Financial liabilities include bank overdrafts, credit facilities and short-term loans, accounts payable and long-term loans. (a) Fair value of financial instruments Fair value amounts represent estimates of the arm s length consideration for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties who are under no compulsion to act. Fair value is best evidenced by a quoted market price, if one exists. The fair value of cash and cash equivalents, short-term investments, securities purchased under resale agreements, accounts receivable, credit facilities and short-term loans and accounts payable are assumed to approximate their carrying values due to their relatively short-term nature. The fair value of investments, as disclosed in note 12, are assumed to be cost, less allowance for impairment. The fair value for long-term loans is assumed to approximate carrying value, as no discount on settlement is anticipated. 87

90 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Financial instruments (continued) (b) Financial instrument risks The group has exposure to the following risks from its use of financial instruments: credit risk, liquidity risk and market risk including interest rate risk, currency risk and price risk. Information about the group s exposure to each of the above risks and the group s objectives, policies and processes for measuring and managing risk is detailed below. The Board of Directors has overall responsibility for the establishment and oversight of the group s risk management framework. The risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the group s activities. Management s standards and procedures aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. (i) Credit risk Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. This arises principally from cash and cash equivalents, financial investments, securities purchased under resale agreements and accounts receivable. The maximum exposure to credit risk at the reporting date is equal to the carrying value. The group manages this risk as follows: Cash and cash equivalents and short-term investments The group maintains cash resources with reputable financial institutions. The credit risk is considered to be low and no allowance for impairment is deemed necessary. Securities purchased under resale agreements The group holds collateral for securities purchased under resale agreements, with a fair value of $3,936,790,000 (2016: $2,959,139,000). No allowance for impairment is deemed necessary. Accounts receivable The group has a credit policy in place to minimise exposure to credit risk inherent in trade accounts receivable. Credit evaluations are performed on all customers requiring credit. Credit terms are negotiated based on a mix of terms acceptable to both parties. The group provides credit up to 60 days, dependent on other pricing arrangements that may be beneficial to the relationship. A continuing relationship with customers is dependent upon adherence to the credit terms. 88

91 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Financial instruments (continued) (b) Financial instrument risks (continued) (i) Credit risk (continued) Accounts receivable (continued) The group has a policy in place to provide for impairment on all debts more than ninety (90) days past due, except for specific balances where circumstances provide evidence that recovery is not in doubt. Staff and other receivables are subject to credit terms consistent with staff guidelines and other factors, including Jamaican GCT, and the Netherlands and U.K. VAT. These guidelines include the provision of collateral as security for credit extended. Impairment allowances are made on the basis of reviews of specific balances that are inconsistent with staff guidelines or the terms relating to other receivables. Non-current investments The loan to the purchaser of former subsidiaries, net of impairment allowance, is considered to be adequately secured. No further allowance for impairment is deemed necessary. There were no changes in the group s approach to managing credit risk during the year. (ii) Market risk Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices will affect the group s income or the fair value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on assets. The group manages this risk by conducting research and monitoring the price movement of securities on the local and international markets. There were no changes in the group s approach to managing market risk during the year. Currency risk Foreign currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. 89

92 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Financial instruments (continued) (b) Financial instrument risks (continued) (ii) Market risk (continued) Currency risk (continued) The group is exposed to foreign currency risk on transactions that are denominated in currencies other than the Jamaican dollar. The main currencies giving rise to this risk are the Euro (EUR), United States dollar (USD) and Pound Sterling (GBP). The group manages this risk by matching foreign currency assets with liabilities as far as possible. Interest on borrowings is denominated in currencies that match the cash inflows generated by the underlying operations in which the borrowings are invested. This provides an economic hedge and no derivatives are entered into. There were no changes in the group s approach to managing foreign currency risk during the year. The net foreign currency assets/(liabilities) at year-end were as follows: USD GBP EUR USD GBP EUR $'000 $'000 $000 $'000 $'000 $'000 Financial assets Cash and cash equivalents 2, ,858 2, Short term investments , Securities purchased under resale agreements 16, , Accounts receivable 6, ,102 3,305 1,023 4,698 Investments Financial liabilities Accounts payable ( 2,980) ( 1,111) ( 6,530) ( 2,019) ( 1,093) ( 4,526) Current maturities of long term loans ( 1,662) ( 48) ( 93) ( 800) ( 48) ( 93) Long-term loans - ( 325) ( 349) ( 4,696) ( 373) ( 442) Financial instruments position 21,012 ( 50) 1,988 19, ( 66) Other assets 9,969 1,884 12,709 10,558 1,886 12,881 Other liabilities ( 4) ( 11) ( 550) - ( 53) - Gross balance sheet position 30,977 1,823 14,147 30,057 1,919 12,815 Other assets/liabilities represent balances denominated in the respective foreign currencies that are expected to be realised or settled in those currencies. 90

93 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Financial instruments (continued) (b) Financial instrument risks (continued) (ii) Market risk (continued) Foreign currency sensitivity analysis The following tables detail the group s sensitivity to a 10% strengthening or 2% weakening of the relevant currencies against the Jamaica dollar and the resultant net exchange gains/(losses) based on net foreign currency assets/(liabilities) at year-end. These percentages represent management s assessment of the reasonably possible change in foreign currency rates. This analysis assumes that all other variables, in particular interest rates, remain constant and is performed on the same basis as the previous year. Effect of a 10% depreciation of the Jamaican dollar: Equity Profit Equity Profit $'000 $'000 $'000 $'000 USD 139,733 ( 62) 145,208 8,555 GBP 30, , EUR 208, ,305 - Effect of a 2% appreciation of the Jamaican dollar: Equity Profit Equity Profit $'000 $'000 $'000 $'000 USD (27,947) 12 (29,042) (1,711) GBP ( 6,013) ( 15) ( 6,020) ( 6) EUR (41,632) - (33,261) - Buying exchange rates used at year-end: Interest rate risk USD1 to J$ GBP1 to J$ EUR1 to J$ Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The group contracts material financial liabilities at fixed interest rates for the duration of the term. Credit facilities are subject to interest rates which may be varied with appropriate notice by the lender. 91

94 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Financial instruments (continued) (b) Financial instrument risks (continued) (ii) Market risk (continued) Interest rate risk (continued) At the reporting date the interest rate profile of the group s interest-bearing financial instruments was: $'000 $'000 Fixed rate instruments: Financial assets 3,902,844 3,658,947 Financial liabilities (4,045,031) (2,793,995) 142, ,952 Variable rate instruments: Financial liabilities ( 731,701) (1,803,714) There were no changes in the group s approach to managing interest rate risk during the year. Cash flow sensitivity analysis for variable rate instruments An increase of 250 basis points (bps) or a decrease of 100 bps in interest rates at the reporting date would have (decreased)/increased profit for the year by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. This analysis is performed on the same basis for the previous year bps 100 bps 250 bps 100 bps increase decrease increase decrease $'000 $'000 $'000 $'000 Variable rate instruments (14,634) 7,317 (36,074) 18,037 (iii) Liquidity risk Liquidity risk, also referred to as funding risk, is the risk that the group will not be able to meet its financial obligations as they fall due and/or encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at, or close to, its fair value. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed facilities. The management of the group aims at maintaining flexibility in funding by ensuring that sufficient cash resources are held or placed in short-term marketable instruments to meet financial obligations when they fall due. There were no changes in the group s approach to liquidity risk management during the year. 92

95 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Financial instruments (continued) (b) Financial instrument risks (continued) (iii) Liquidity risk (continued) The tables below show the undiscounted cash flows of non-derivative financial liabilities based on the earliest date on which the group can be required to pay. The analysis also assumes that all other variables, in particular interest and exchange rates, remain constant. Weighted average Contractual interest Carrying cash rate amount flows year years % $'000 $'000 $'000 $' Secured syndicated loan ,511,712 2,089, ,114 1,856,029 Bank loans ,124,518 3,977, ,525 3,162,482 Other related party loan ,197 87,197 87,197 - Accounts payable 3,432,056 3,432,056 3,432,056-8,155,483 9,585,403 4,566,892 5,018, Secured syndicated loan ,670,442 2,138, ,786 1,550,631 Bank loans ,784,817 3,316,875 1,003,968 2,312,907 Other related party loan ,197 95,917 4,360 91,557 Accounts payable 2,530,926 2,530,926 2,530,926-7,073,382 8,082,135 4,127,040 3,955,095 (iv) Capital management There were no changes in the group s approach to capital management during the year. The Board s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the group defines as total stockholders equity, excluding non-controlling interest. The level of dividends to ordinary stockholders is also monitored in accordance with the group s stated dividend policy. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. Neither the company nor any of its subsidiaries is subject to externally imposed capital requirements. 93

96 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Subsidiary, associated and joint venture companies The company has the following subsidiary, associated and joint venture companies. Inactive subsidiaries are excluded. % equity held Principal place of business SUBSIDIARY COMPANIES JP Tropical Group Limited Jamaica Agualta Vale Limited Jamaica Agri Services Limited Jamaica Eastern Banana Estates Limited Jamaica St. Mary Banana Estates Limited Jamaica P.S.C. Limited Jamaica Jamaica Producers Shipping Company Limited Jamaica JP Tropical Foods Limited Jamaica JBFS Investments Limited Jamaica Crescent Developments Limited Jamaica Central American Banana (2005) Limited Cayman Islands Antillean Foods, Inc Cayman Islands JP Shipping Services Limited England and Wales Kingston Wharves Limited Jamaica Harbour Cold Stores Limited Jamaica Security Administrators Limited Jamaica Western Storage Limited Jamaica Western Terminals Limited Jamaica Four Rivers Mining Company Limited Jamaica JP International Group Limited Cayman Islands Cooperatief JP Foods U.A The Netherlands A.L. Hoogesteger Fresh Specialist B.V The Netherlands Tortuga International Holdings Company Limited St. Lucia Tortuga (Barbados) Limited Barbados Tortuga Imports, Inc U.S.A. Tortuga Caribbean Rum Cake Jamaica Limited Jamaica Tortuga Caribbean Limited Jamaica ASSOCIATED COMPANIES Tortuga Cayman Limited 40 Cayman Islands Shipping Association of Jamaica Property Limited 30 Jamaica 94

97 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) Year ended December 31, Reclassification Consequent on managements review of the financial reporting classifications, certain comparative figures in the profit and loss account have been reclassified for consistency with the 2017 presentation, as follows: As previously reported Adjustments As restated $ 000 $ 000 $ 000 Gross operating revenue 12,139,235 ( 63,612) 12,075,623 Cost of revenue ( 8,579,606) (253,609) ( 8,833,215) Selling, administrative and other operating expenses ( 2,831,618) 253,609 ( 2,578,009) Other income 101,180 63, ,792 95

98 Jamaica Producers Group Limited CORPORATE DATA 96 Directors Mr. Charles H. Johnston, CD, BSc (Econ.) - Chairman Mr. Jeffrey McG. Hall, BA, MPP, JD - Group Managing Director The Hon. Oliver F. Clarke, OJ, JP, BSc (Econ.), FCA, LLD (Hon.) Mrs. Patricia R. Francis, CD, BSc Mrs. Sanya M. Goffe, LLB (Hons.), LEC Dr. the Hon. Marshall McG. Hall, OJ, CD, PhD Mrs. Dahlia E. Kelly, BSc Mrs. Kathleen A. J. Moss, BSc, MBA, CBV Mr. Donovan H. Perkins, BA (Hons.), MBA Mr. Grantley St. J. Stephenson, CD, JP, FJIM, MBA Prof. Alvin G. Wint, CD, BSc, MBA, DBA Company Secretary Simone M. Pearson, LL.B, LL.M, Attorney-at-Law Registered Office 4 Fourth Avenue Newport West, Kingston 13 Jamaica, W.I. Tel: (876) Fax: (876) headoffice@jpjamaica.com Website: Registrar & Transfer Agent KPMG Regulatory & Compliance Services 6 Duke Street Kingston, Jamaica, W.I. Auditors KPMG Chartered Accountants 6 Duke Street Kingston, Jamaica, W.I. Bankers The Bank of Nova Scotia Jamaica Limited Corner Duke & Port Royal Streets Kingston, Jamaica, W.I. National Commercial Bank Jamaica Limited The Atrium 32 Trafalgar Road Kingston 10, Jamaica, W.I. Citibank, N.A. 19 Hillcrest Avenue Kingston 6, Jamaica, W.I. Main Operating Entities A.L. Hoogesteger Fresh Specialist B.V. Domineeslaan BW Zwanenburg The Netherlands Tel: (31) Kingston Wharves Limited Kingport Building Third Street Newport West Kingston 11, Jamaica, W.I. Tel: (876) JP Shipping Services Limited Main ABP Building, South Entrance Alexandra Dock Newport NP202NP United Kingdom Tel: (44) JP Tropical Foods Limited 14 Retirement Road Kingston 5, Jamaica, W.I. Tel: (876) Tortuga International Holdings Limited 1st Floor, Bourbon House, Bourbon Street P.O. Box 1695 Castries, St. Lucia Tel: (345) corporateaffairs@tortugaimports.com Cayman office Tel: (345) customerservice@tortugaimports.com Jamaica office Tel: (876) tortuga@cwjamaica.com Miami office Tel: (305) Antillean Foods, Inc. Carretera Mao-Guayubin, Km. 23 Cana Chapeton, Monte Cristi Dominican Republic Tel: (809)

99 Annual Report 2017 CORPORATE DATA (Cont d) Joint Venture & Associated Companies The Shipping Association of Jamaica Property Limited 4 Fourth Avenue P.O. Box 1050 Kingston 13, Jamaica, W.I. Tel: (876) /2 Tortuga Cayman Limited P.O. Box Grand Cayman KY Cayman Islands, B.W.I. Tel: (345) Corporate Governance The Corporate Governance Policy and the Securities Trading Policy are available on our website at: under For investor relations contact Simone Pearson, Corporate Secretary. Attorneys-at-law Harrison & Harrison Suite 1, 16 Hope Road Kingston 10 Hart Muirhead Fatta 53 Knutsford Boulevard Kingston 5 Patterson Mair Hamilton Temple Court 85 Hope Road Kingston 6 97

100 98 Jamaica Producers Group Limited

101 Annual Report 2017 COMPANY ONLY 99

102 Jamaica Producers Group Limited CONTENTS Auditors Report and Financial Statements 2 Auditors Report - Company 8 Company Balance Sheet 9 Company Statement of Profit or Loss and Comprehensive Income 10 Company Statement of Changes in Equity 11 Company Statement of Cash Flows 12 Notes to the Financial Statements 100

103 Annual Report 2017 KPMG Chartered Accountants P.O. Box 76 6 Duke Street Kingston Jamaica, W.I. +1 (876) firmmail@kpmg.com.jm INDEPENDENT AUDITORS REPORT To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on the Audit of the Financial Statements Opinion We have audited the separate financial statements of Jamaica Producers Group Limited ( the company ), set out on pages 87 to 38, 39, which comprise the unconsolidated balance sheet as at December 31, 2017, the unconsolidated profit and loss account, statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the company as at December 31, 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the Jamaican Companies Act. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KPMG, a Jamaican partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. R. Tarun Handa Cynthia L. Lawrence Rajan Trehan Norman O. Rainford Nigel R. Chambers W. Gihan C. De Mel Nyssa A. Johnson Wilbert A. Spence Rochelle N. Stephenson 2 101

104 Jamaica Producers Group Limited Page 2 INDEPENDENT AUDITORS REPORT (CONT D) To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on the Audit of the Financial Statements (cont d) Key Audit Matter Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. This matter was addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Impairment of investment in subsidiaries Key Audit Matter The carrying value of the company s investments in subsidiaries may not be recoverable due to changes in the business and economic environment in which specific subsidiaries operate. These factors create inherent uncertainty in forecasting and require significant judgement in estimating and discounting future cash flows that support the assessment of recoverability. How the matter was addressed in our audit In this area our audit procedures included testing the reasonableness of the company's forecasts and discounted cash flow calculations, including: Comparing the company's assumptions to externally derived data as well as our own assessments of key inputs, such as projected economic growth, competition, cost inflation and discount rates, as well as performing sensitivity analysis on the assumptions. Comparing the sum of the discounted cash flows to the carrying value of investment in subsidiaries. Assessing the adequacy of the company's disclosures in the financial statements

105 Annual Report 2017 Page 3 INDEPENDENT AUDITORS REPORT (CONT D) To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on the Audit of the Financial Statements (cont d) Other Information Management is responsible for the other information. The other information comprises the information in the company s annual report for the year ended December 31, 2017, but does not include the financial statements and our auditor s report thereon. The annual report is expected to be made available to us after the date of this auditors report. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with IFRS and the Jamaican Companies Act, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the company s financial reporting process

106 Jamaica Producers Group Limited Page 4 INDEPENDENT AUDITORS REPORT (CONT D) To the Members of JAMAICA PRODUCERS GROUP LIMITED Report on the Audit of the Financial Statements (cont d) Auditors Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee, that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is included in the Appendix to this auditors report. This description, which is located at pages 6 to 7, forms part of our auditors report. Report on additional matters as required by the Jamaican Companies Act We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. In our opinion, proper accounting records have been maintained, so far as appears from our examination of those records, and the financial statements, which are in agreement therewith, give the information required by the Jamaican Companies Act in the manner required. The engagement partner on the audit resulting in this independent auditors report is Nigel Chambers. Kingston, Jamaica March 1,

107 Annual Report 2017 Page 5 INDEPENDENT AUDITORS REPORT (CONT D) To the Members of JAMAICA PRODUCERS GROUP LIMITED Appendix to the Independent Auditors report As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation

108 Jamaica Producers Group Limited Page 6 INDEPENDENT AUDITORS REPORT (CONT D) To the Members of JAMAICA PRODUCERS GROUP LIMITED Appendix to the Independent Auditors report (continued) We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine the matters that were of most significance in the audit of the separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication

109 Annual Report 2017 COMPANY BALANCE SHEET December 31, 2017 Notes $'000 $'000 CURRENT ASSETS Cash and cash equivalents 3(b),4 58,779 72,874 Securities purchased under resale agreements 3(d) 231,671 - Accounts receivable 5 17,164 12,207 Taxation recoverable Total current assets 307,926 85,081 CURRENT LIABILITIES Accounts payable 6 406, ,623 Loans and borrowings , ,072 Total current liabilities 506, ,695 WORKING CAPITAL DEFICIT ( 198,312) ( 894,614) NON-CURRENT ASSETS Interests in subsidiary and associated companies 7 5,793,503 6,558,662 Investments 8-3,800 Property, plant and equipment 9 105,378 88,515 Total non-current assets 5,898,881 6,650,977 Total assets less current liabilities 5,700,569 5,756,363 EQUITY Share capital , ,214 Reserves 11 4,200,067 4,408,319 Total equity attributable to stockholders 4,312,281 4,520,533 NON-CURRENT LIABILITIES Loans and borrowings 12 1,388,288 1,235,830 Total equity and non-current liabilities 5,700,569 5,756,363 The financial statements on pages 78 to 39, 38 were approved by the Board of Directors on March 1, 2018 and signed on its behalf by: C. H. Johnston Chairman J. Hall Managing Director The accompanying notes form an integral part of the financial statements

110 Jamaica Producers Group Limited COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPHENSIVE INCOME Year ended December 31, 2017 Notes $'000 $'000 Gross operating revenue: Management fees - subsidiaries 39,110 86,287 - other - 22,762 Interest - subsidiaries 38,391 50,446 - other 5,076 3,579 Dividends and capital distributions , ,942 Rent - subsidiaries 11,309 3,749 - other 3,903 4, , ,311 Administration and other operating expenses 14 (275,331) (461,389) Profit from operations 51,145 5,922 Net (loss)/gain from fluctuation in exchange rates ( 28,930) 90,754 (Loss)/gain on disposal of investments and property, plant equipment ( 1,217) 16,866 Decrease in impairment allowance on loans and receivables - subsidiaries 7 12,631 68,491 Sundry income 4,421 - Profit before finance cost and taxation 38, ,033 Finance cost - interest 13 (145,321) (166,349) (Loss)/profit before taxation (107,271) 15,684 Taxation 15 ( 181) ( 223) (Loss)/profit for the year (107,452) 15,461 Other comprehensive income: Items that may be reclassified to profit or loss: Realised revaluation gains on available-for-sale investments transferred to profit and loss account - ( 34,185) Total comprehensive loss for the year (107,452) ( 18,724) The accompanying notes form an integral part of the financial statements

111 Annual Report 2017 COMPANY STATEMENT OF CHANGES IN EQUITY Year ended December 31, 2017 Fair Share Share Capital value Retained Total capital premium reserves reserve profits equity $'000 $'000 $'000 $'000 $'000 $'000 (note 10) Balances at December 31, , ,087 1,620,610 34,185 2,859,255 4,667,839 Total comprehensive income: Profit for the year ,461 15,461 Other comprehensive income Realised revaluation gains on availablefor-sale investments transferred to profit and loss account ( 34,185) - ( 34,185) Total comprehensive loss for the year ( 34,185) 15,461 ( 18,724) Transactions with owners of the company Unclaimed distributions to stockholders written back (note 16) - - 6, ,075 Distributions to stockholders (note 16) - - ( 134,657) - - ( 134,657) Issue of shares bonus issue (note 10) 93,512 - ( 93,512) Balances at December 31, , ,087 1,398,516-2,874,716 4,520,533 Total comprehensive income: Loss for the year, being other Comprehensive loss ( 107,452) ( 107,452) Transactions with owners of the company Unclaimed distributions to stockholders written back (note 16) , ,414 Distributions to stockholders (note 16) - - ( 112,214) - - ( 112,214) Balances at December 31, , ,087 1,297,716-2,767,264 4,312,281 The accompanying notes form an integral part of the financial statements

112 Jamaica Producers Group Limited COMPANY STATEMENT OF CASH FLOWS Year ended December 31, Notes $'000 $'000 CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit for the year (107,452) 15,461 Adjustments for: Depreciation 9 18,598 16,557 Net unrealised exchange gains 29,720 ( 87,544) Loss/(gain) on disposal of property, plant and equipment and investments 1,217 ( 16,866) Decrease in provision for diminution in value of interest in subsidiaries 7 ( 12,631) ( 68,491) Impairment loss on trade receivables 154 4,297 Amortisation of bond issuance costs 14,658 7,509 Interest income 13 ( 43,467) ( 54,025) Interest expense , ,349 46,118 ( 16,753) (Increase)/decrease in current assets: Accounts receivable ( 4,382) 7,178 Taxation recoverable ( 312) 2,153 (Decrease)/increase in current liabilities: Accounts payable ( 30,360) 138,420 Unclaimed dividends 24,707 11,414 Net cash (used)/provided by operating activities 35, ,412 CASH FLOWS FROM INVESTMENT ACTIVITIES Securities purchased under resale agreements (231,919) 362,755 Additions to property, plant and equipment 9 ( 40,002) ( 60,974) Net movement in investments 3,800 40,975 Interest received 58,955 67,988 Interests in subsidiary and associated companies 727,401 (387,196) Proceeds from disposal of investments and property, plant and equipment 3,324 63,031 Net cash provided by investment activities 521,559 86,579 CASH FLOWS FROM FINANCING ACTIVITIES Distribution to stockholders (134,657) ( 74,810) Interest paid (149,181) (170,866) Loans and borrowings (292,272) 7,564 Net cash used by financing activities (576,110) (238,112) Net decrease in cash and cash equivalents ( 18,780) ( 9,121) Effect of foreign exchange movement 4, Cash and cash equivalents at beginning of year 72,874 81,396 Cash and cash equivalents at end of year 58,779 72,874 The accompanying notes form an integral part of the financial statements

113 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS December 31, The company Jamaica Producers Group Limited (the company) is incorporated and domiciled in Jamaica. The company s registered office is located at 4 Fourth Avenue, Newport West, Kingston 13. Its principal activities are the provision of administration services to its subsidiaries and associates (note 21) and the holding of investments. 2. Statement of compliance and basis of preparation (a) Statement of compliance: The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations, issued by the International Accounting Standards Board and comply with the provisions of the Jamaican Companies Act. Certain new, revised and amended standards and interpretations came into effect during the current financial year. None of these pronouncements had a material impact on the financial statements. At the date of authorisation of the financial statements, certain new, revised and amended standards and interpretations, have been issued which are not yet effective and which the company has not early-adopted. The company has assessed the relevance of all such new standards, amendments and interpretations with respect to its operations and has determined that the following may be relevant: IFRS 9, Financial Instruments, which is effective for annual reporting periods beginning on or after January 1, 2018, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial assets and liabilities, including a new expected credit loss model for calculating impairment of financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. Although the measurement bases for financial assets amortised cost, fair value through other comprehensive income (FVOCI) and fair value though profit or loss (FVTPL) - are similar to IAS 39, the criteria for classification into the appropriate measurement categories are significantly different

114 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Statement of compliance and basis of preparation (continued) (a) Statement of compliance (continued): IFRS 9, Financial Instruments, continued IFRS 9 also replaces the incurred loss model in IAS 39 with an expected credit loss model, which means that a loss event will no longer need to occur before an impairment allowance is recognised. The company is assessing the impact that the standard will have on its 2018 financial statements. IFRS 15, Revenue from Contracts with Customers is effective for periods beginning on or after January 1, It replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue Barter Transactions Involving Advertising Services. The new standard applies to contracts with customers. However, it does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. It also does not apply if two companies in the same line of business exchange non-monetary assets to facilitate sales to other parties. Furthermore, if a contract with a customer is partly in the scope of another IFRS, then the guidance on separation and measurement contained in the other IFRS takes precedence. The company is assessing the impact that the standard will have on its 2018 financial statements. Amendments to IFRS 2, Classification and Measurement of Share-based Payment Transactions, effective for annual reporting periods beginning on or after January 1, 2018, clarifies the following: (i) (ii) Cash-settled share-based payment is measured using the same approach as for equity-settled share-based payments, i.e., the modified grant date method. The new requirements do not change the cumulative amount of expense that is ultimately recognised, because the total consideration for a cash-settled share-based payment is still equal to the cash paid on settlement. For classification purposes, an exception is made for a share-based payment transaction with employees to be accounted for as equity settled if: (a) the terms of the arrangement permit or require a company to settle the transaction net by withholding a specified portion of the equity instruments to meet the statutory tax withholding requirement and; (b) the entire share-based payment transaction would otherwise be classified as equity-settled if there were no net settlement feature

115 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Statement of compliance and basis of preparation (continued) (a) Statement of compliance (continued): IFRS 16, Leases, which is effective for annual reporting periods beginning on or after January 1, 2019, eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Lessees will be required to bring all major leases on-balance sheet, recognising new assets and liabilities. The on-balance sheet liability will attract interest; the total lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. Optional lessee exemption will apply to short- term leases and for low-value items with value of US$5,000 or less. Lessor accounting remains similar to current practice as the lessor will continue to classify leases as finance and operating leases. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers is also adopted. The company is assessing the impact that this amendment will have on its 2019 financial statements. Amendments to IFRS 2, Classification and Measurement of Share-based Payment Transactions, continued (iii) The approach in accounting for a modification of a share-based payment from cash-settled to equity-settled. The new requirements could affect the classification and/or measurement of these arrangements and potentially the timing and amount of expense recognised for new and outstanding awards. The company is assessing the impact that this amendment will have on its 2018 financial statements. (b) Basis of preparation: These separate financial statements are intended to show the affairs of the company as a stand-alone business. They are not intended to, and do not, show the consolidated financial position, results of operations and cash flows of the group. The company's interests in subsidiaries [note 21] are shown at cost, less allowance for diminution in value [note 3(i)]. Unless otherwise indicated, references to financial statements herein are to the un-consolidated financial statements

116 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Statement of compliance and basis of preparation (continued) (b) Basis of preparation (continued): The financial statements are prepared on the historical cost basis, except for available-for-sale investments which are measured at fair value. The financial statements are presented in Jamaica dollars (J$), which is the functional currency of the company. The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amount of, and disclosures relating to assets, liabilities, contingent assets and contingent liabilities at the reporting date and the income and expenses for the year then ended. Actual amounts could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next financial year are discussed below: (i) Impairment assessments Impairment allowances against the carrying value of interest in subsidiaries and associated companies (note 7) are determined from a comparison between carrying amounts and an estimate of the net present value of future cash flows. That estimate is based on forecasts and an assessment of risk and uncertainty by management. Those estimates could be subject to significant variation from year to year. (ii) Depreciation methods, useful lives and residual values Depreciation methods, useful lives and residual values rely on judgment and estimates by management, one of which is that the relevant assets will continue to be used for their current purpose within the company. In addition, useful lives and residual values vary between individual assets and are dependent upon continuation of the current level of maintenance. Should there be a change in the present use or level of maintenance this could change the charge for depreciation and net book value of property, plant and equipment (note 9) within the next financial year

117 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Significant accounting policies (a) Foreign currencies: Except for investments in foreign subsidiaries, foreign currency balances at the reporting date are translated at the buying rates of exchange ruling at that date [note 20(b)(ii)]. Investments in foreign subsidiaries are carried at historical rates of exchange. Transactions in foreign currencies are converted at the rates of exchange ruling at the dates of those transactions. Gains and losses arising from fluctuations in exchange rates are included in profit or loss. (b) Cash and cash equivalents: Cash comprises cash in hand and demand and call deposits with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments, rather than for investment or other purposes. (c) Short-term investments: Short-term investments comprise fixed deposits with banks, money market securities and loans and receivables due within one year. They are acquired for their earnings potential and for balancing the company s risks on its investment portfolio. Their nature, liquidity and risk are similar to those of cash and cash equivalents. (d) Securities purchased under resale agreements: Securities purchased under resale agreements ( reverse repos ) are short-term transactions in which the company makes funds available to other parties and in turn receives securities which it agrees to resell on a specified date at a specified price. Reverse repos are accounted for as short-term collateralised lending. The difference between the sale and repurchase consideration is recognised on the accrual basis over the period of the transaction and is included in interest income. (e) Trade and other receivables: Trade and other receivables are measured at amortised cost, less impairment losses

118 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Significant accounting policies (continued) (f) (g) Trade and other payables: Trade and other payables, including provisions, are measured at amortised cost. A provision is recognised when the company has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Investments: Investments with fixed or determinable payments and which are not quoted in an active market are classified as loans and receivables and are measured at amortised cost, less impairment losses. Where the company has the positive intent and ability to hold securities to maturity, they are classified as held-to-maturity, recognised initially at cost and subsequently measured at amortised cost, less impairment losses. Other investments held by the company are classified as available-for-sale and are measured at fair value with changes in fair value recognised in other comprehensive income, except for impairment losses, and, in the case of monetary items such as debt securities, foreign exchange gains and losses. Where these investments are derecognised, the cumulative gain or loss previously recognised in other comprehensive income is transferred to profit or loss. Where fair value cannot be reliably measured, these investments are measured at cost. Available-for-sale investments include certain equity securities. The fair value of quoted available-for-sale investments is their bid price. Available-for-sale investments are recognised/derecognised by the company on the date it commits to purchase or sell the investments. Other investments are recognised/derecognised on the day they are transferred to/by the company. (g) Property, plant and equipment: (i) Owned assets Items of property, plant and equipment are measured at cost, less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to the acquisition or construction of qualifying assets, are recognised as part of the cost of those qualifying assets. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the company and it can be measured reliably. The cost of day-to-day servicing of property, plant and equipment is recognised in profit or loss, as it is incurred

119 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Significant accounting policies (continued) (g) Property, plant and equipment: (ii) Depreciation Property, plant and equipment, with the exception of freehold land on which no depreciation is provided, are depreciated on the straight-line basis at annual rates estimated to write-off the assets over their expected useful lives. Depreciation methods, useful lives and residual values are reassessed at each reporting date. The depreciation rates are as follows: Leasehold land and buildings 5% Freehold buildings 5% Furniture and equipment 10% Motor vehicles 20% Computer software and equipment 33⅓% (h) Impairment: The carrying amounts of the company s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset and that the loss event has an impact on the future cash flows on the asset that can be estimated. Objective evidence that financial assets are impaired can include default or delinquency by a customer or counterparty or indicators that the customer or counterparty will enter bankruptcy. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. When a decline in the fair value of an available-for-sale investment has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in profit or loss even though the investment has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and current fair value, less any impairment losses previously recognised in profit or loss

120 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Significant accounting policies (continued) (i) Impairment (continued): [i] Calculation of recoverable amount The recoverable amount of the company s investments in held-to-maturity securities, loans and receivables is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted. The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating unit to which the asset belongs. [ii] Reversals of impairment An impairment loss in respect of a held-to-maturity security, loan or receivable is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (i) Employee benefits: Employee benefits are all forms of consideration given by the company in exchange for service rendered by employees. These include current or short-term benefits such as salaries, bonuses, NIS contributions, annual leave, and non-monetary benefits such as medical care and housing; post-employment benefits such as pensions; and other long-term employee benefits such as termination benefits. Employee benefits that are earned as a result of past or current service are recognised in the following manner: short-term employee benefits are recognised as a liability, net of payments made, and charged as expense

121 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Significant accounting policies (continued) (j) Employee benefits (continued): Employee benefits that are earned as a result of past or current service are recognised in the following manner (continued): the expected cost of vacation leave that accumulates is recognised when the employee becomes entitled to the leave. post-employment benefits are pensions provided through a defined contribution pension plan in which the company participates. The company s contributions to the plan are charged to profit or loss in the period in which they are due. (k) Revenue: Revenue from services rendered is recognised in profit and loss in proportion to the stage of completion of the transaction at the reporting date. (l) Finance costs: Finance costs represent interest payable on borrowings together with amortised transaction costs and are recognised in profit or loss using the effective interest method. (m) Interest income: Interest income is recognised in profit or loss as it accrues, taking into account the effective yield on the asset. (n) Dividend income: Dividend income is recognised on the date that the company s right to receive payment is established. (o) Royalty income: Royalty income is recognised in profit or loss on an accrual basis in accordance with the substance of the relevant agreement

122 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Significant accounting policies (continued) (p) Taxation: Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income, in which case it is also recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (q) Loans payable: Loans payable are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, loans are measured at amortised cost using the effective interest method. (r) Subsidiary and associated companies: Interests in subsidiary and associated companies are measured at cost, less allowance for impairment. 4. Cash and cash equivalents $'000 $'000 Cash and bank balances 58,779 72,

123 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Accounts receivable $'000 $'000 Staff receivables 2,507 4,661 Prepayment 12,045 4,651 Other receivables and prepayments 8,935 9,284 23,487 18,596 Less: Allowance for impairment ( 6,323) ( 6,389) 17,164 12,207 The movement in the allowance for impairment in respect of accounts receivable during the year is as follows: $'000 $'000 Balance at January 1 6,389 2,092 Impairment provision written off ( 52) - Impairment losses recognised 154 4,297 Exchange gain ( 168) - Balance at end of year 6,323 6,389 An allowance for impairment in respect of accounts receivable is used to record impairment losses, unless the company is satisfied that no recovery of the amount owing is possible, at which point the amount considered irrecoverable is written-off against the receivable directly. 6. Accounts payable $'000 $'000 Dividends payable 112, ,657 Accrued staff costs 46,512 88,896 Accrued expenses 46,686 65,966 Interest payable 34,672 38,532 Loan from ESOP (i) 116,995 83,173 Trade payables 2,993 15,130 Unclaimed dividends 24,707 11,414 Other 21,459 11, , ,

124 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Interests in subsidiary and associated companies $'000 $'000 Subsidiary companies: Shares, at cost 4,129,526 4,129,526 Loan accounts receivable 295, ,616 Current accounts receivable 2,375,422 2,755,682 Less: Impairment allowance ( 336,206) ( 350,051) Loan accounts payable ( 439,264) ( 443,793) Current accounts payable ( 274,580) ( 96,388) Interest in subsidiaries 5,750,433 6,515,592 Associated companies: Shares 43,070 43,070 Interests in subsidiary and associated companies 5,793,503 6,558,662 Shares held in a subsidiary are pledged as security against corporate bonds (note 12). The recoverable amount of the company s investment in each subsidiary is reviewed annually for impairment. The impairment review at the end of the year resulted in a decrease in the impairment allowance by $12,631,000 (2016: $68,491,000). Net of exchange rate fluctuation of $1,214,000 (2016: nil). 8. Investments $'000 $'000 Loans and receivables: Corporate bonds ,800-3,

125 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Property, plant and equipment Freehold Leasehold Equipment, Work -in- land and land and vehicles and progress buildings buildings furniture Total $'000 $'000 $'000 $'000 $'000 Cost: December 31, ,471 7,662 11, , ,337 Additions - 38,719-22,255 60,974 Transfers ( 1,471) 1, Disposals ( 14,743) ( 14,743) December 31, ,852 11, , ,568 Additions 12,019 25,571-2,412 40,002 Disposals ( 16,663) ( 16,663) December 31, ,019 73,423 11, , ,907 Depreciation: December 31, ,119 73,875 82,994 Charge for the year ,647 16,557 Eliminated on disposals ( 8,498) ( 8,498) December 31, ,684 81,024 91,053 Charge for the year - 2, ,013 18,598 Eliminated on disposals ( 12,122) ( 12,122) December 31, ,365 10,249 84,915 97,529 Net book values: December 31, ,019 71,058 1,051 21, ,378 December 31, ,507 1,616 39,392 88,515 December 31, ,471 7,662 2,181 39,029 50,

126 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Share capital Authorised: 1,500,000,000 ordinary shares at no par value Stated capital, comprising issued and fully paid stock units: Carrying Carrying Stock units Value Stock units Value $ 000 $ 000 At beginning of year 1,122,144, , ,024,006 18,702 Bonus issue ,120,030 93,512 At end of year 1,122,144, ,214 1,122,144, ,214 The company s stated capital does not include share premium which is retained in capital reserves (note 11) in accordance with Section 39 (7) of the Companies Act. During the prior year, the company completed a bonus issue of shares. Stock holders were issued 5 new shares for every one share held at that date, which increased the number of shares in issue from 187,024,006 to 1,122,144,036. A sum of $93,512,003 of capital reserves was applied in making a full payment for the issue of 935,120,030 shares at $0.10 per share. 11. Reserves $'000 $'000 Capital: Share premium (note 10) 135, ,087 Other 1,297,716 1,398,516 Total capital 1,432,803 1,533,603 Revenue: Retained profits 2,767,264 2,874,716 4,200,067 4,408,319 Other capital reserves comprise gains on disposal of property, plant and equipment and investments until December 31, 2001, unrealised exchange gains and unclaimed dividends to stockholders (note 16). The company declared a special capital distribution of $0.10 (2016: $0.12) per share unit effective December 22, 2017 (note 16)

127 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Loans and borrowings $'000 $'000 Corporate bonds 1,500,000 1,660,072 Bank loans - 120,000 1,500,000 1,780,072 Less upfront borrowing costs: Balance at start of the year ( 14,170) ( 21,679) Incurred during the year ( 12,200) - Amortised in interest expense for the year 14,658 7,509 ( 11,712) ( 14,170) Total carrying value of long-term loans 1,488,288 1,765,902 Less: Current portion long term loan ( 100,000) ( 530,072) 1,388,288 1,235,830 (a) On September 29, 2017, the company issued a Corporate bond for $1,500,000,000. This note is secured by shares in Kingston Wharves Limited and is repayable by September The note is to be repaid by semi -annual payments and a lump sum payment of $700,000,000 in the final year. The interest rate on the loan is fixed at 9% p.a. for the first five years and thereafter at the GOJ 6 month Weighted Average Treasury Bill Yield (WATBY) plus 200 basis points, capped at 12% p.a. The proceeds of this note were principally used to refinance Corporate bonds issued in prior years. (b) Corporate bond 1 represented a $1,000,000,000 loan, secured by shares in Kingston Wharves Limited and repayable by the year 2020 in yearly instalments of $50,000,000 for the first four years, the sixth year and the seventh year, and lump sum payments of $400,000,000 and $300,000,000 in the fifth and final year respectively. Interest was fixed at 8.9% until March 31, 2015, after which it increased to 9.5% until March and thereafter was at the Weighted Average Treasury Bill Yield (WATBY) plus 250 basis points and capped at 14%. This note was prepaid during the year. (c) Corporate bond 2 represented a $1,000,000,000 loan, secured on shares in Kingston Wharves Limited and was repayable by the year 2019 in annual instalments of $50,000,000 for the first four years and a lump sum payment of $800,000,000 in the final year. The applicable interest rate was the Weighted Average Treasury Bill Yield (WATBY) plus 250 basis points capped at a rate of 12% for the first two years and thereafter at 14% until maturity. This note was prepaid during the year. (d) During the prior year the company entered into a bank loan of $120,000,000 payable over a period of 12 months. The interest rate was fixed at 8.5% for the first seven (7) months, and thereafter at the six- month Weighted Average Treasury Bill Yield (WATBY) plus 250 basis points. This was repaid during the year

128 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Financial income and expenses $'000 $'000 Financial income: Interest income on bank deposits, loans and receivables 43,467 54,025 Dividend income on available-for-sale financial assets 228, ,942 Net foreign exchange gain - 90, , ,721 Financial expenses: Interest expense on financial liabilities measured at amortised cost (145,321) (166,349) Net foreign exchange loss ( 28,931) - (174,252) (166,349) Net finance income 97, , Disclosure of expenses $'000 $'000 Administrative and other expenses: Advertising & promotion 930 2,417 Audit 11,452 10,105 Bad debt 154 4,133 Bank charges 1,125 1,659 Depreciation 18,598 16,558 Directors Emoluments Fees 8,371 8,990 Donations 9,974 9,448 Insurance 1,419 1,932 IT & Communications 9,604 26,762 Legal & professional 20,521 27,946 Office costs 1,665 2,616 Other property costs, maintenance, security, cleaning 6,766 15,682 Rent 15,324 15,862 Staff costs 121, ,179 Transport, automobile and associated costs 5,201 7,236 Travel 19,270 21,952 Utilities 2,928 2,755 Other 20,061 8,157 Total administrative and other operating expenses 275, ,

129 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Taxation (a) (b) The taxation charge is based on the company s results for the year, as adjusted for tax purposes and comprises: $'000 $'000 Current tax expense: Withholding tax at source on dividend Minimum business tax Reconciliation of actual taxation charge: The effective tax rate for 2017 was 0.2% (2016: 1.4%) compared to a statutory rate of 25% (2016: 25%). The actual tax charge differs from the expected tax charge for the year as follows: $'000 $'000 (Loss)/profit before taxation (107,271) 15,684 Computed "expected" tax charge at 25% ( 26,818) 3,921 Taxation difference between profit for financial statements and tax reporting purposes on: Loss/(gain) on sale of investment and property, plant and equipment 304 ( 4,217) Foreign currency loss/(gain) on capital items 9,579 (25,379) Capital adjustments ( 3,158) (17,123) Disallowed income and expenses, depreciation and other items 20,274 43,021 Actual tax charge recognised in the profit and loss account (c) At December 31, 2017, taxation losses subject to agreement by the Commissioner General, Tax Administration Jamaica, available for relief against future taxable profits amounted to approximately $1,463,136,000 (2016: $1,198,016,000). As of January 1, 2014, tax losses may be carried forward indefinitely; however, the amount that can be utilised is restricted to 50% of chargeable income (before prior year losses) in any one year. A deferred tax asset of $365,784,000 (2016: $299,504,000) has not been recognised as management considers its realisation within the foreseeable future to be uncertain

130 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Distributions to stockholders $'000 $'000 Ordinary dividends: First interim paid in respect of $0.10 (2016: $0.12 ) per stock unit - gross 112, ,657 Unclaimed dividends written back to capital reserves (note 11) ( 11,414) ( 6,075) 100, ,582 During the prior year, the company completed a bonus issue of 5 shares for every existing share held by registered shareholders of the company (note 10). 17. Contingent liabilities The company has given a commitment to one of its subsidiaries of its intention to provide financial support as is necessary for its operations throughout That subsidiary has a net shareholders surplus of $124.1 million at December 31, 2017 (2016: deficit of $648.7 million). 18. Operating lease arrangements Non-cancellable operating lease receivables Operating leases relate to property owned by the company or property leased from its subsidiaries with lease or sub-lease terms of between 2 to 5 years, with options to extend for a further 1 to 5 years. The lessees do not have the option to purchase the property at the expiry of the lease period. The company earned property rental income of $15,212,000 (2016: $8,295,000) under operating leases. Direct operating expenses arising on the property in the period was $1,038,000 (2016: $1,421,000). Commitments for income under non-cancellable operating leases at year-end are as follows: $'000 $'000 Within one year 14,272 13,927 In the second to fifth year inclusive 37,389 48,708 51,661 62,

131 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Related parties (a) Identity of related parties: The company has related party relationships with its directors and officers. The company s executive directors and officers are collectively referred to as key management personnel. (b) Transactions with directors and other key management personnel: Directors and officers of the company, their immediate relatives and entities over which they have significant influence control 32.2% (2016: 32.4%) of the voting shares of the company. In addition to their salaries, the company contributes to various post-employment benefit plans on behalf of key management personnel $'000 $'000 Short-term employment and other benefits 68, ,685 Post-employment benefits 7,966 12,251 Termination benefits - 18,569 Total remuneration, included in directors emoluments and staff costs, where applicable (note 14) 76, ,

132 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Related parties (continued) (c) Transactions with other related parties, directors and key management personnel in other capacities: Terms Transactions in year (Payable)/receivable and (income)/expense at end of year conditions $ 000 $ 000 $ 000 $ 000 * Category and nature of relationship Nature of transactions Transactions with joint venture and associate: 50% joint venture partner Management services charged by company - ( 22,762) - - 2,3,4 50% joint venture partner Interest on loans charged by company - ( 442) - - 2,3,4 42% Associate Dividend income 228, , , ,147 3 Transactions with directors and key management personnel or entities under their control and/or significant influence: Company under their control Insurance premiums charged to company by broker 1,576 1, ,2,3 Company under their control Professional fees charged to company 3, ,2,3 * The number in each row represents the terms and conditions that are applicable to the stated transactions and their meanings are as follows: 1. Credit of up to 30 days 2. Unsecured 3. Settlement in cash 4. Credit over 30 days

133 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Financial instruments A financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. For the purpose of the financial statements, financial assets have been determined to include cash and cash equivalents, securities purchased under resale agreements, accounts receivable and investments. Financial liabilities include long-term loans and accounts payable. (a) Fair value of financial instruments: Fair value amounts represent estimates of the arm s length consideration for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties who are under no compulsion to act. Fair value is best evidenced by a quoted market price, if one exists. The fair value of cash and cash equivalents, securities purchased under resale agreements, accounts receivable and accounts payable are assumed to approximate their carrying values due to their relatively short-term nature. The fair value of long-term loans is assumed to approximate the carrying value as the interest rate reflects the market rate. Fair value of quoted investments is the market value. This method falls within the level 1 fair value hierarchy and is defined as quoted prices (unadjusted) in an active market for identical assets. The fair values of other investments are assumed to be cost, less allowance for impairment. (b) Financial instrument risks: The company has exposure to the following risks from its use of financial instruments: credit risk, liquidity risk and market risk including interest rate risk, currency risk and price risk. Information about the company s exposure to each of the above risks, the company s objectives, policies and processes for measuring and managing risk is detailed below. The Board of Directors has overall responsibility for the establishment and oversight of the company s risk management framework. The risk management policies are established to identify and analyse the risks faced by the company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the company s activities. Management standards and procedures aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations

134 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Financial instruments (continued) (b) Financial instrument risks (continued): (i) Credit risk Credit risk is the risk of financial loss to the company if a counterparty to a financial instrument fails to meet its contractual obligations. This arises principally from amounts due from customers, securities purchased under resale agreements, other investments and cash and cash equivalents. The maximum exposure to credit risk at the reporting date is equal to its carrying value: The company manages this risk as follows: Cash and cash equivalents and short-term investments The company maintains cash resources and short-term deposits with reputable financial institutions. The credit risk is considered to be low. No allowance for impairment is deemed necessary. Securities purchased under resale agreements Assigned collateral, with a fair value of $273,658,000 (2016: $Nil) for the company, was held for securities purchased under resale agreements [note 3(d)]. No allowance for impairment is deemed necessary. Accounts receivable The company has a credit policy in place to minimize exposure to credit risk inherent in trade accounts receivable. Credit terms are negotiated based on a mix of terms acceptable to both parties. The company has a policy in place to provide for impairment on all debts more than ninety (90) days past due, except for specific balances that relate to special circumstances that provide fresh evidence that recovery is not in doubt. Staff and other receivables are subject to credit terms consistent with staff guidelines and other factors, including Jamaican GCT. These guidelines include the provision of collateral as security for credit extended

135 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Financial instruments (continued) (b) Financial instrument risks (continued): (i) Credit risk (continued) Accounts receivable (continued) Impairment allowances are made for specific balances that are inconsistent with staff guidelines or the terms relating to other receivables. Non-current investments Credit risk on non-current investments is considered to be minimal. No allowance for impairment is deemed necessary. The maximum exposure to credit risk is represented by the carrying amount of each financial asset. There were no changes in the company s approach to managing credit risk during the year. (ii) Market risk Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices will affect the company s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return on assets. The company manages this risk by conducting research and monitoring the price movement of securities on the local and international markets. There were no changes in the company s approach to managing market risk during the year. Currency risk Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The company is exposed to foreign currency risk on transactions that are denominated in currencies other than the Jamaica dollar. The main currencies giving rise to this risk are the Pound Sterling (GBP) and United States dollar (USD)

136 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Financial instruments (continued) (b) Financial instrument risks (continued): (ii) Market risk (continued) Currency risk (continued) The company manages this risk by matching foreign currency assets with liabilities as far as possible. Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations in which the borrowings are invested. This provides an economic hedge and no derivatives are entered into. There were no changes in the company s approach to managing foreign currency risk during the year. There were no material foreign currency financial assets/(liabilities) at yearend. Foreign currency sensitivity analysis The following table details the company s sensitivity to a 10% strengthening or 2% weakening of the relevant currencies against the Jamaica dollar and the resultant net exchange gains/(losses) based on the net foreign currency assets/(liabilities) at year-end. These percentages represent management s assessment of the reasonably possible change in foreign currency rates. This analysis assumes that all other variables, in particular interest rates, remain constant. This analysis is performed on the same basis as in the previous year. (i) 10% (2016: 10%) Depreciation of JMD Effect on profit USD 112, ,616 GBP ( 50) ( 49)

137 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Financial instruments (continued) (b) Financial instrument risks (continued): (ii) Market risk (continued) Currency risk (continued) Foreign currency sensitivity analysis (continued) (ii) 2% (2016: 2%) Appreciation of JMD Effect on profit USD (22,409) (27,123) GBP Buying exchange rates at: December USD 1 to JMD GBP 1 to JMD EUR 1 to JMD Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Bank loans and overdrafts are subject to interest rates which may be varied by appropriate notice from the lender. At the reporting date the interest rate profile of the company s interestbearing financial instruments was: $'000 $'000 Fixed rate instrument Financial Liabilities 1,500,000 1,660,072 There were no changes in the company s approach to managing interest rate risk during the year

138 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Financial instruments (continued) (b) Financial instrument risks (continued): (iii) Liquidity risk Liquidity risk, also referred to as funding risk, is the risk that the company will not be able to meet its financial obligations as they fall due and/or encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at, or close to, its fair value. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed facilities. The management of the company aims at maintaining flexibility in funding by ensuring that sufficient cash resources are held or placed in short-term marketable instruments to meet financial obligations when they fall due. There were no changes in the company s approach to liquidity risk management during the year. The following tables show the undiscounted cash flows of non-derivative financial liabilities based on the earliest date on which the company can be required to pay. The analysis also assumes that all other variables, in particular interest and exchange rates, remain constant. Weighted average Contractual interest Carrying cash Over 5 rate amount flows year years years % $ 000 $ 000 $ 000 $ 000 $ Corporate bonds 9 1,500,000 2,249, , ,705 1,036, Corporate bonds 8.9 1,660,072 2,170, ,293 1,600,038 - Accounts payable 120, , , Short term loan , , , ,229,695 2,740,820 1,140,782 1,600,

139 Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Financial instruments (continued) (c) Capital management The Board s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the company defines as total shareholders equity, excluding minority interest. The level of dividends to ordinary shareholders is also monitored in accordance with the company s stated dividend policy. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes in the company s approach to capital management during the year. Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements. 21. Subsidiary and associated companies The company has the following subsidiary and associated companies. The results of these companies are not included in these financial statements [see note 2 (b)]. Subsidiaries of subsidiaries are indented under their respective parent in the list below. Inactive subsidiaries are excluded. % equity held Place of business SUBSIDIARY COMPANIES JP Tropical Group Limited Jamaica Agualta Vale Limited Jamaica Agri Services Limited Jamaica Eastern Banana Estates Limited Jamaica St. Mary Banana Estates Limited Jamaica P.S.C. Limited Jamaica Jamaica Producers Shipping Company Limited Jamaica JP Tropical Foods Limited Jamaica JBFS Investments Limited Jamaica Crescent Developments Limited Jamaica Central American Banana (2005) Limited Cayman Islands Antillean Foods, Inc Cayman Islands JP Shipping Services Limited England and Wales

140 Jamaica Producers Group Limited NOTES TO THE FINANCIAL STATEMENTS (Cont d) December 31, Subsidiary and associated companies (continued) SUBSIDIARY COMPANIES (CONTINUED) % equity held Place of business Kingston Wharves Limited Jamaica Harbour Cold Stores Limited Jamaica Security Administrators Limited Jamaica Western Storage Jamaica Western Terminals Limited Jamaica Four Rivers Mining Company Limited Jamaica JP International Group Limited Cayman Islands Coöperatief JP Foods U.A The Netherlands A.L.Hoogesteger Fresh Specialist B.V The Netherlands Tortuga International Holdings Limited St. Lucia Tortuga (Barbados) Limited (formerly Bakers Choice Inc.) Barbados Tortuga Imports, Inc U.S.A Tortuga Caribbean Rum Cake Jamaica Limited Jamaica Tortuga Caribbean Jamaica Limited Jamaica ASSOCIATED COMPANIES Tortuga Cayman Limited Cayman Islands Shipping Association of Jamaica of Property Limited Jamaica

141 FORM OF PROXY JAMAICA PRODUCERS GROUP LIMITED I/We... (Block Capitals) of being a member/members of the above-mentioned Company HEREBY APPOINT or failing him/her... as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on Friday June 22, 2018 at 10:00 a.m. and at any adjournment thereof. DATED this...day of Signed. If you wish your proxy to vote in a particular manner, please indicate. RESOLUTION 1: RESOLUTION 2: RESOLUTION 3: RESOLUTION 4: RESOLUTION 5 (a): RESOLUTION 5 (b): RESOLUTION 6: RESOLUTION 7: FOR AGAINST Notes 1. This Form of Proxy must be lodged at the Registered Office of the Company not later than forty-eight hours before the meeting. 2. Any alterations in this Form of Proxy should be initialed. 3. In the case of joint holders, the signature of one holder will be sufficient but the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, seniority being determined by the order in which the names stand on the Register. 4. If the appointer is a Corporation this Form of Proxy must be executed under its Common Seal. 5. An adhesive stamp for $ must be affixed to this Form of Proxy. Place $100 adhesive stamp here

142

143 Jamaica Producers Group Limited 4 Fourth Avenue, Newport West, Kingston 13, Jamaica