Fujairah Building Industries P.J.S.C. and its subsidiaries (the "Group") Fujairah - United Arab Emirates Independent auditor's report and

Transcription

1 Fujairah Building Industries P.J.S.C. and its subsidiaries (the "Group") Independent auditor's report and consolidated financial statements For the year ended December 31, 2017

2 Table of contents Pages General information 1 Report of the Board of Directors 2 & 3 Independent auditor's report 4-7 Consolidated statement of financial position 8 Consolidated statement of profit or loss 9 Consolidated statement of other comprehensive income 10 Consolidated statement of changes in shareholders' equity 11 Consolidated statement of cash flows 12 Notes to the consolidated financial statements 13-39

3 General information Principal Office Address : P. O. Box: 383 T: F: office@fujfbi.ae Website : The Auditors : Horwath Mak P. O. Box:

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6 ~ Crowe Horwath Horwath Mak MemberCroweHorwathInternational Suite 51, Fujairah Insurance Bldg. P. O. Box: 1650, Fujairah, UAE. T F M E admin.fujairah@crowehorwath.ae Ref: JM/ARlF-18/008 independent auditor's report To, The Shareholders Mis. Fujairah Building Industries P.J.S.C. Report on the audit of the consolidated financial statements Opinion We have audited the accompanying consolidated financial statements of Mis. Fujairah Building Industries P.J.S.c., (the "Entity") and its subsidiaries (collectively referred to as the "Group") which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in shareholders' equity, consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the requirements of Code of Ethics for Professional Accountants, issued by International Ethics Standards Board for Accountants (IESBA) together with ethical requirements that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matter Without qualifying our opinion, we draw attention to note 3.4 to the consolidated financial statements which indicates that the Board of Directors resolved to cease operations of a subsidiary entity, Mis Emirates Ceramic Factory in order to curtail losses. In view of this, the going concern assumption is no longer valid for this subsidiary entity, and accordingly its assets and liabilities are included in these consolidated financial statements on the basis of the accounting convention of realisablelsettlement values. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Registered with the Fujairah Muncipality, Government of Fujairah (#27705) 4 11R~ ".:.r DIFC

7 A. Crowe Horwath Horwath Mak Member Crowe Horwath International Suite 51, Fujairah Insurance Bldg. P. O. Box: 1650, Fujairah, UAE. T F M E admin.fujairah@crowehorwath.ae Key audit matters (continued) Key audit matter How our audit addressed the kev audit matter a. Allowance for slow-movinz inventories Inventories are valued at lower of cost or net - Inquiry and discussions with the management to understand the realisable value (NRV). Estimation of NRV is based process of identifying slow/non-moving and non-usable items and on the most reliable evidence available at the end of the assumptions/basis used in quantifying the allowance for slowthe reporting period, of the amount the inventories moving items. are expected to realise through sale or use considering the ageing and physical condition of the - Review of procedures, testing accuracy of data used by the inventories. These estimates also take into management to estimate NRV and allowance for slow-moving items. consideration fluctuations of price or cost directly ti t t. ft th d f th - Review of aged inventory reports to assess the reasonableness of reia Ing 0 even s occurnng a er e en 0 e rti. d t th t t th t h t the allowance for slow-moving Items, Identity slow-moving Items, repo 109 peno 0 e ex en a suc even s diti. ti t th d f th and inquired/analyzed movement of these items subsequent to the confirm con I Ions exis 109 a e en 0 e reporting. peno.. d M anagement h as rna d e an year end. allowance for slow-moving items based on these - Selected a sample of inventory items and compared the carrying estimates. We focused on this area because of the value of those items with the subsequent selling prices and customer significance of the estimates and judgements contracts. involved. - Compared the gross profit margin for current year with prior year. Discussed, any significant variations in the margin with the management as this could be due to inventory valuation issues. b. Allowance for doubtful trade receivables - Verified the existence and physical condition of randomly selected items held by the Group. As at December 31, 2017, the Group's trade - Review and analysis of the Group's credit and collection policies receivables amounted to AED 74,798,456, with an and inquiry about any changes from the prior year. allowance for doubtful debts of AED 18,021,765. R' f 'h d I... I iznifi. d - evrew 0 management s met 0 0 ogy used to determine the The detertnination mvo ves sigru icant JU gement, as.. f d. bl.,.. Impairment 0 tra e recetva es. to whether a receivable IS recoverable or Impairment is required. Factors considered by management - Assessment of controls over approval of credit limit awarded to the include the age of overdue balances, ability to customers. recover the amount through legally enforceable _ Evaluation of the securities obtained from the customers for rights, existence of disputes, recent historical a d equacy. collection patterns and any other available information concerning the creditworthiness of the counterparty.we focused on this area because of the - Analysis of aged trade receivables and inquiry over recoverability. significance of the estimates and judgements _ Analysis of historical patterns relating to the collection of trade involved. receivables. - Reviewed payments received subsequent to year end. Registered with the Fujairah Muncipality, Government of Fujairah (#27705) 5 11'~ ".;.y DIFC

8 A Crowe Horwath Horwath Mak Member Crowe Horwath International Suite 51, Fujairah Insurance Bldg. P. O. Box: 1650, Fujairah, UAE. T F M E adminjujairah@crowehorwath.ae Other information The Board of Directors and management are responsible for the other information. The other information comprises report of the Board of Directors (but does not include the consolidated financial statements and our auditor's report thereon) which we obtained prior to the date of the auditor's report and the complete annual report is expected to be made available to us after the date of this auditor's report. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read the annual report of the Group, 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 consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements In accordance with International Financial Reporting Standards and in compliance with the applicable provisions of the UAE Federal Law No. (2) of and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group'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 Group 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. Auditor's responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with lsas 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 consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated 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 Group's ability to continue as a going concern. Ifwe conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern. Registered with the Fujairah Muncipality, Government of Fujairah (#27705) 6 11;~ "'.y DlFC

9 A Crowe Horwath Horwath Mak Member Crowe Horwath International Suite 51, Fujairah Insurance Bldg. P. O. Box: 1650, Fujairah, UAE. T F M E admin.fujairah@crowehorwath.ae Auditor's responsibilities for the audit of the consolidated financial statements (continued) Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated 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. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements Further, as required by the UAE Federal Law No. (2) of2015, we report that, i) we have obtained all the information and explanations which we consider necessary for our audit; ii) the consolidated financial statements have been prepared and comply in all material respects with the applicable provisions of the UAE Federal Law No (2) of2015, and Articles of Association of the Entity; iii) proper books of account have been maintained by the Group; iv) the contents of the report of the Board of Directors which relates to the consolidated financial statements are in agreement with the Group's books of account; v) note 5 to the consolidated financial statements discloses the Group's purchases, sales and holding of investments during the year ended December 31,2017; vi) note 27 to the consolidated financial statements discloses material related party transactions and the terms under which they were conducted; and vii) based on the information that has been made available to us nothing has come to our attention which causes us to believe that the Group has contravened, during the financial year ended December 31, 2017, any of the applicable provisions of the UAE Federal Law No. (2) of2015 or of the Entity's Articles of Association which would materially affect its activities or its consolidated financial position as at December 31,2017. For Horwath Mak Senior Partner Reg. No. 548 February 18, 2018 Registered with the Fujairah Muncipality, Government of Fujairah (#27705) 7 11~~ ""-7 DIFC

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13 Consolidated statement of changes in shareholders' equity for the year ended December 31, 2017 (In Arab Emirates Dirhams) Share capital Statutory reserve Investments revaluation reserve Retained earnings Total shareholders' equity Balance as at December 31, ,987,500 28,348,713 30,367,248 29,201, ,904,779 Net profit for the year ,008,805 15,008,805 Change in fair value of available-for-sale investments - - 4,183,457-4,183,457 Total comprehensive income - - 4,183,457 15,008,805 19,192,262 Transferred to statutory reserve - 1,500,881 - (1,500,881) - Balance as at December 31, ,987,500 29,849,594 34,550,705 42,709, ,097,041 Net profit for the year ,483,013 25,483,013 Change in fair value of available-for-sale investments - - 4,768,292-4,768,292 Total comprehensive income - - 4,768,292 25,483,013 30,251,305 Transferred to statutory reserve - 2,548,301 - (2,548,301) - Dividends paid (6,799,375) (6,799,375) Remuneration to the Board of Directors (570,000) (570,000) Balance as at December 31, ,987,500 32,397,895 39,318,997 58,274, ,978,971 The accompanying notes form an integral part of these consolidated financial statements. The report of the auditors is set out on pages 4 to 7. 11

14 Statement of cash flows for the year ended December 31, 2017 (In Arab Emirates Dirhams) Cash flows from operating activities Profit for the year from continuing operations 28,037,215 19,699,879 (Loss) for the year from discontinued operations (2,554,202) (4,691,074) Adjustments for: Depreciation on property, plant and equipment 31,568,462 32,602,421 Impairment on property, plant and equipment 501,887 1,285,957 (Gain)/loss on disposal of property, plant and equipment (598,000) 85,956 Allowance for doubtful debts 4,020,262 6,026,941 Allowance for doubtful debts reversed (121,316) (507,594) Allowance for slow-moving inventories 14,182,462 4,882,344 Finance cost 3,132,038 3,919,275 Provision for employees' end of service benefits 1,317,056 1,217,599 Operating profit before changes in operating assets and liabilities 79,485,864 64,521,704 (Increase)/decrease in current assets Inventories (359,875) 14,975,245 Trade receivables 1,359,752 (2,618,627) Advances, deposits and other receivables 75,796 2,047,492 Increase/(decrease) in current liabilities Trade and other payables (8,576,725) 4,006,689 Cash generated from operations 71,984,812 82,932,503 Employees' end-of-service benefits paid (2,443,469) (1,265,282) Net cash from operating activities 69,541,343 81,667,221 Cash flows from investing activities Investment in fixed deposits (7,000,000) (8,000,000) Purchase of available-for-sale investments - (64,355) Acquisition of property, plant and equipment (15,074,222) (34,209,594) Proceeds from disposal of property, plant and equipment 598,000 2,068,376 Net cash (used in) investing activities (21,476,222) (40,205,573) Cash flows from financing activities (Repayments) of term loans (22,792,273) (26,610,060) Finance cost (3,258,076) (3,976,829) Proceeds from term loans 3,000,000 15,000,000 (Repayments) of other bank borrowings (23,736,066) (11,630,847) (Payment) of finance lease liability - (336,694) Dividends paid (6,799,375) - Remuneration to the Board of Directors (570,000) - Net cash (used in) financing activities (54,155,790) (27,554,430) Net (decrease)/increase in cash and cash equivalents (6,090,669) 13,907,218 Cash and cash equivalents, beginning of the year 18,214,151 4,306,933 Cash and cash equivalents, end of the year 12,123,482 18,214,151 Represented by: Cash in hand 142, ,703 Bank balances - current accounts 11,981,000 18,075,448 12,123,482 18,214,151 The accompanying notes form an integral part of these consolidated financial statements. The report of the auditors is set out on pages 4 to 7. 12

15 1 Legal status and business activities 1.1 M/s. Fujairah Building Industries P.J.S.C. (the Entity ) was incorporated as a public joint stock company in the Emirate of Fujairah, United Arab Emirates, by an Emiri Decree issued by His Highness, The Ruler of Fujairah. The Entity s ordinary shares are listed on the Abu Dhabi Securities Exchange The Entity and its subsidiaries (note 3.3) are collectively referred to as the Group. The principal activities of the Group are unchanged since the previous year and comprise production of concrete blocks, interlocks, kerbstones, ceramic tiles, rockwool insulation materials, marble products, terrazzo tiles and quarry products. The registered address of the Entity is P.O. Box: 383,. 1.5 These consolidated financial statements incorporate the operating results of the industrial licenses (note 3.3) issued by different municipalities in the Emirate of Fujairah. 2 New and amended standards 2.1 New and revised IFRSs applied with no material effect on the consolidated financial statements The Group has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods. Amendments in Disclosure Initiative (Amendments to IAS 7 "Statement of Cash Flows") that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The liabilities arising from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. Annual Improvements to IFRSs cycles: The amendments clarify that the disclosure requirements of IFRS 12 apply to interests in entities that are classified as held for sale, except for summarized financial information. The following amended standards and interpretations are not expected to have significant impact on the Group's financial statements; Effective for annual periods New and revised standards and amendments Annual Improvements to IFRS Standards Cycle on December 8, 2016, amending the standards: IFRS 1 "First-time Adoption of International Financial Reporting Standards" and IAS 28 "Investments in Associates and Joint Ventures". IFRIC 22 "Foreign Currency Transactions and Advance Consideration": The interpretation clarifies the date of the transaction for the exchange rate to be used on initial recognition of a related asset, expense or income where an entity pays or receives consideration in advance for foreign currency denominated contracts. Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2 "Share-based Payment") contains the clarifications and amendments: The amendments pertains to accounting for cash-settled share-based payment transactions that include a performance condition;classification of share-based payment transactions with net settlement features; accounting for modifications of share-based payment transactions from cash-settled to equity-settled. The amendments are to be applied prospectively. However, retrospective application is allowed if this is possible without the use of hindsight. IFRS 9 "Financial Instruments": Issued on 24 July 2014 is the IASB's replacement of IAS 39 "Financial Instruments: Recognition and Measurement". The Standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard as it completed each phase. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after January 1, 2018 with early adoption permitted (subject to local endorsement requirements). 13 beginning on or after January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018

16 2 New and amended standards (continued) 2.1 New and revised IFRSs applied with no material effect on the consolidated financial statements (continued) New and revised standards and amendments Applying IFRS 9 "Financial Instruments" with IFRS 4 "Insurance Contracts" (Amendments to IFRS 4) to address concerns about the different effective dates of IFRS 9 and the new insurance contracts standard. An entity choosing to apply the overlay approach retrospectively to qualifying financial assets does so when it first applies IFRS 9. IFRS 9 "Financial Instruments": Prepayment Features with Negative Compensation (Amendments to IFRS 9) to address the concerns about how IFRS 9 classifies particular prepayable financial assets. The amendments are to be applied retrospectively for fiscal years beginning on or after January 1, 2019; early application is permitted. Amended by Transfers of Investment Property (Amendments to IAS 40 "Investment Property"): An entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management s intentions for the use of a property by itself does not constitute evidence of a change in use. IFRS 15 "Revenue from Contracts with Customers": IFRS 15 was issued which established a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 "Revenue", IAS 11 "Construction Contracts", and the related interpretations when it becomes effective. IFRS 16 "Leases": The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17 "Leases" and related interpretations. Earlier adoption permitted if IFRS 15 "Revenue from Contracts with Customers" has also been applied. IFRS 17 "Insurance Contracts" was issued in May 2017 as a replacement of IFRS 4 "Insurance Contracts". It requires a current measurement model where estimates are remeasured each reporting period. 3 Significant accounting policies 3.1 Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and applicable requirements of UAE Laws. These consolidated financial statements are presented in Arab Emirates Dirhams (AED) which is the Group's functional and presentation currency. 3.2 Basis of preparation These consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, and assets and liabilities of a subsidiary, M/s. Emirates Ceramic Factory, that are measured at realisable/settlement values as explained in note 3.4. Historical cost is generally based on the fair value of the consideration given in exchange for assets or goods or services. The principal accounting policies applied in these consolidated financial statements are set out below. 14 Effective for annual periods beginning on or after January 1, 2018 January 1, 2019 July 1, 2018 January 1, 2018 January 1, 2019 January 1, 2021 Management anticipates that these new standards, interpretations and amendments will be adopted in the consolidated financial statements as and when they are applicable and adoption of these new standards, interpretations and amendments, may have no material impact on the consolidated financial statements in the period of initial application.

17 3 Significant accounting policies (continued) 3.3 Basis of consolidation These consolidated financial statements comprise the financial information of the Entity and its subsidiaries (the "Group"). Details of the subsidiaries of the Entity as at the reporting date are as follows: Sl. No. Name of subsidiary Place of incorporation Industrial license no. 1 Fujairah National Quarry Fujairah - U.A.E % Fujairah Concrete Products Fujairah - U.A.E % 1978 Acquisition year Principal product Quarry products Blocks, interlocks and kerbstones Emirates Ceramic Factory 3 Fujairah - U.A.E % 2006 Ceramic tiles (discontinued operations) 4 Fujairah Rockwool Factory Fujairah - U.A.E % 2006 Fujairah Marble and Tiles 5 Fujairah - U.A.E % 2007 Factory All significant transactions and balances between the Entity and its subsidiaries are eliminated. 3.4 Discontinued operations of a subsidiary Percentage of ownership Rockwool insulation materials Marble products and terrazzo tiles A subsidiary is consolidated from the acquisition date, which is the date the Entity gains control over the subsidiary, and lasts till the Entity loses that control. Control usually occurs when the Entity has the power to govern the financial and operating policies of the subsidiary for the purpose of benefiting from its activities. During the current year and the prior year, there were neither acquisitions nor loss of control and the percentage of ownership in the subsidiaries remained same. During May 2015, management decided to cease production and completely shutdown the plant and machinery to curtail losses of M/s. Emirates Ceramic Factory, a subsidiary. In the meeting of the Board of Directors held on November 5, 2015, it was resolved that plant and machinery be designated as held for sale. During January 2016, the sale was initiated. In view of the above, as the going concern assumption is not valid for M/s. Emirates Ceramic Factory, its assets and liabilities are included in these consolidated financial statements on the basis of the accounting convention of realisable/settlement values whereby assets are carried at amount of cash and cash equivalents that could currently be obtained by selling the assets in an orderly disposal and liabilities are carried at the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business. Realisable/settlement values of assets and liabilities are based on the management's best estimate considering any impairment to the historical cost and presented as current assets and current liabilities. Property, plant and equipment of the M/s. Emirates Ceramic Factory, held for sale since November 5, 2015, are measured at lower of carrying amount and fair value less cost to sell. All operations of M/s. Emirates Ceramic Factory are treated as discontinued operations (note 28) as per International Financial Reporting Standards. 3.5 Current/non-current classification Assets and liabilities are presented in the consolidated statement of financial position based on current/non-current classification. 15

18 3 Significant accounting policies (continued) 3.5 Current/non-current classification (continued) An asset is current when it is expected to be realised or intended to be sold or consumed in the normal operating cycle or held primarily for the purpose of trading or expected to be realised within twelve months after the reporting period, or cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when it is expected to be settled in the normal operating cycle or it is held primarily for the purpose of trading or it is due to be settled within twelve months after the reporting period, or there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. 3.6 Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 inputs are quoted price (unadjusted) in active market for identical asset or liabilities that the entity can access at the measurement date, Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly, and Level 3 inputs are unobservable inputs for the asset or liability. 3.7 Foreign currency In preparing these consolidated financial statements, transactions in currencies other than the Group's functional currency are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognised in profit or loss in the period in which they arise. Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available-for-sale, are included in other comprehensive income. 16

19 3 Significant accounting policies (continued) 3.8 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and identified impairment loss, if any. The cost comprises of the purchase price, together with any incidental expense of acquisition. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance expenses are charged to profit or loss during the financial period in which they are incurred. Depreciation is charged so as to write off the cost of property, plant and equipment (other than capital work-in-progress), using the straight-line method over their useful lives as follows: Years Buildings and leasehold improvements 4 to 20 Plant and machinery 1 to 15 Heavy equipment and light vehicles 1 to 12 Furniture and fixtures 1 to 6 Buildings and leasehold improvements are being depreciated over the period from when it became available for use up to the end of the lease term. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Capital work in progress Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. 3.9 Impairment of tangible assets At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. 17

20 3 Significant accounting policies (continued) 3.10 Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument Financial assets Financial assets are classified into the following specified categories: 'financial assets at fair value through profit or loss, 'held-to-maturity' investments', 'available-for-sale' financial assets and 'loans and receivables'. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Available-for-sale investments Available-for-sale investments are non-derivatives that are either designated in this category or not classified in any of the other categories are stated at fair value or cost at the end of each reporting period. Available-for-sale investments are initially measured at fair value plus transactions costs, if any. After initial recognition, available-for-sale investments are measured at fair value unless fair value is undeterminable. The fair value of availablefor-sale monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate prevailing at the end of the reporting period. The foreign exchange gains or losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset. Other foreign exchange gains and losses are recognised in other comprehensive income. Available-for-sale investments that do not have a quoted market price in an active market and whose fair value cannot be measured reliably are measured at cost less any identified impairment losses at the end of each reporting period. Gains and losses arising from the changes in the fair value are recognised directly in equity in the investments revaluation reserve with the exception of impairment losses. Where the investment is disposed off or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in profit or loss. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group s loans and receivables comprise "trade receivables", "advances, deposits and other receivables" and "cash and cash equivalents" in the consolidated statement of financial position. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Trade receivables, advances, deposits and other receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables, advances, deposits and other receivables are initially recognised at fair value and subsequently are measured at amortised cost reduced by appropriate allowance for estimated doubtful debts. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. 18

21 3 Significant accounting policies (continued) 3.11 Financial assets (continued) Impairment of financial assets The Group assesses at the end of each reporting period, whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are recognized only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The Group may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in profit or loss. Assets classified as available-for-sale The Group assesses at the end of each reporting period, whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss) is removed from equity and recognised in profit or loss. Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another Group. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. All financial liabilities are recognised initially at fair value and, in the case of loans, borrowings and payables, net of directly attributable transaction costs. The Group's financial liabilities include trade and other payables, bank borrowings including bank overdraft and dividends to shareholders. 19

22 3 Significant accounting policies (continued) 3.12 Financial liabilities (continued) Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers and are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.trade and other payables are recognised initially at fair value and subsequently are measured at amortised cost using effective interest method. Bank borrowings Bank borrowings are recorded at the proceeds received, net of direct issue costs, if any. Finance charges are accounted on accrual basis and are added under payables (current liabilities) to the extent that they are not settled in the period in which they arise. Dividends to shareholders Dividends to shareholders are recorded as payable in the period in which such dividends are approved by the shareholders. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group s obligations are discharged, cancelled or they expire. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously Inventories Inventory of raw materials, spare parts and consumables are valued at the lower of weighted average cost or net realizable value. Inventories of finished goods and work-in-progress are valued at the lower of average production cost or net realizable value. Cost of inventories comprises of costs of purchase, and where applicable cost of conversion and other costs that has been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 20