ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY INDEX INDEPENDENT AUDITORS REPORT ON REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1-2

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2 INDEX PAGES INDEPENDENT AUDITORS REPORT ON REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1-2 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS 4 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 5 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 6 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

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

11 Details of subsidiary companies are as follows: Ownership Interest Name of Subsidiary Almarai Investment Company Limited Almarai Baby Food Company Limited Almarai Agricultural And Livestock Production Company Almarai Construction Company Almarai for Maintenance and Operation Company Agricultural Input Company Limited (Mudkhalat) Hail Agricultural Development Company Hail Agricultural And Livestock Production Company International Baking Services Company Limited International Pediatric Nutrition Company Modern Food Industries Company Limited Country of Business Functional Incorporation Activity Currency Direct Direct Effective (a) (a) Effective Saudi Arabia Holding Company 100% 100% 100% 100% Saudi Arabia Manufacturing Company 100% 100% 100% 100% Saudi Arabia Livestock / Agricultural Company 100% 100% 100% 100% Saudi Arabia Construction Company 100% 100% 100% 100% Saudi Arabia Maintenance and Operation 100% 100% 100% 100% Saudi Arabia Agricultural Company 52% 52% 52% 52% Saudi Arabia Poultry / Agricultural Company 100% 100% 100% 100% Saudi Arabia Poultry / Agricultural Company 100% 100% 100% 100% Saudi Arabia Dormant 100% 100% 100% 100% Saudi Arabia Dormant 100% 100% 100% 100% Saudi Arabia Bakery Company 60% 60% 60% 60% Nourlac Company Limited Saudi Arabia Trading Company 100% 100% 100% 100% Western Bakeries Company Limited Saudi Arabia Bakery Company 100% 100% 100% 100% (a) Direct ownership means directly owned by the Company or any of its subsidiaries. Share Capital 1,000, ,000,000 1,000,000 1,000,000 1,000,000 25,000, ,000,000 1,000, ,000 41,000,000 70,000,000 3,000, ,000,000 Number of Conventional Conventional Interest Income Shares Investment Borrowing Issued '000 '000 '000 1, ,000, ,993-1, , , ,000, ,335-1, , ,000-28,429-3, , ,343-9

12 Ownership Interest Country of Business Functional Name of Subsidiary Incorporation Activity Currency Direct Direct Effective Effective (a) (a) Agro Terra S.A. Argentina Dormant ARS 100% 100% 100% 100% Fondomonte South America S.A. Argentina Agricultural Company ARS 100% 100% 100% 100% Almarai Company Bahrain S.P.C. Bahrain Trading Company BHD 100% 100% 100% 100% Almarai Investment Holding Company W.L.L. Bahrain Holding Company BHD 99% 99% 99% 99% IDJ Bahrain Holding Company W.L.L. Bahrain Holding Company BHD 100% 52% 100% 52% International Dairy and Juice Limited British Virgin Islands Holding Company USD 52% 52% 52% 52% International Dairy and Juice (Egypt) Limited Egypt Holding Company EGP 100% 52% 100% 52% International Company for Manufacturing and Agricultural Industries Projects Egypt Trading Company (Beyti) (SAE) EGP 100% 52% 100% 52% Share Capital ARS 475,875 ARS 1,286,096,598 BHD 100,000 BHD 250,000 BHD 250,000 USD 7,583,334 EGP 1,101,750,000 EGP 1,717,250,000 Conventional Conventional Number of Investment Borrowing Shares Issued '000 '000 Interest Income ' , ,286,096,598-45,419-2, , , ,583,334-16, ,175, , ,725, Markley Holdings Limited Jersey Dormant GBP 100% 100% 100% 100% Al Muthedoon for Dairy Production Jordan Dormant JOD 100% 52% 100% 52% Al Atheer Agricultural Company Jordan Livestock / Agricultural Company JOD 100% 52% 100% 52% Al Namouthjya for Plastic Production Jordan Dormant JOD 100% 52% 100% 52% Al Rawabi for juice and UHT milk Manufacturing Jordan Manufacturing Company JOD 100% 52% 100% 52% (a) Direct ownership means directly owned by the Company or any of its subsidiaries. JOD 500,000 JOD 750,000 JOD 250,000 JOD 500, , , , ,

13 Name of Subsidiary Ownership Interest Conventional Conventional Interest Income Number of Country of Business Functional Share Investment Borrowing Shares Incorporation Activity Currency Direct Direct Capital '000 Effective Effective Issued (a) (a) '000 '000 Teeba Investment for Developed Manufacturing JOD Jordan JOD 100% 52% 100% 52% Food Processing Company 49,675,352 49,675, ,984 - Arabian Planets for Trading and OMR Oman Trading Company OMR 90% 90% 90% 90% Marketing L.L.C. 150, , ,156 - Alyoum for Food Products OMR Oman Dormant OMR 100% 100% 100% 100% Company L.L.C. 20,000 20, Fondomonte Inversiones S.L. Spain Holding Company EUR 100% 100% 100% 100% EUR 118,515, ,515, Hail Development Company Limited Sudan Agricultural Company SDG 100% 100% 100% 100% SDG 100, Almarai Emirates Company L.L.C. AED United Arab Trading Company AED 100% 100% 100% 100% 300,000 Emirates (Unpaid) International Dairy and Juice United Arab USD Holding Company USD 100% 52% 100% 52% (Dubai) Limited Emirates 22,042,183 22,042, BDC international L.L.C. AED United Arab Operations AED 100% 100% 100% 100% 200,000 Emirates Management (Unpaid) 200 International Dairy and Juice Farm EGP Egypt Holding Company EGP 100% 52% 100% 52% Egypt (S.A.E.) 1,000, ,000 Fondomonte Holding North America United States of USD Holding Company USD 100% 100% 100% 100% L.L.C. America 500,000 50, ,423 - Fondomonte Arizona L.L.C. United States of USD Agricultural Company USD 100% 100% 100% 100% America 500,000 50, Fondomonte California L.L.C. United States of America Agricultural Company USD 100% 100% 100% 100% Hayday Farm Operation L.L.C. United States of America Agricultural Company USD 100% 100% Nil Nil (a) Direct ownership means directly owned by the Company or any of its subsidiaries. 11

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

15 BASIS OF CONSOLIDATION (Continued ) Statement of Financial Position. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Accounting policies of subsidiaries are aligned, where necessary, to ensure consistency with the policies adopted by the Group. The Company and its subsidiaries have the same reporting periods. 4. FUNCTIONAL AND PRESENTATION CURRENCY These Condensed Consolidated Financial Statements are presented in Saudi Riyal ( ), which is the Company s functional and presentation currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated. 5. SIGNIFICANT ACCOUNTING POLICIES A. New Standards, Amendments and Standards issued and not yet effective: New Standards, Amendment to Standards and Interpretations: The Group has adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1 January 2018, the effect of application of these standards have been fully explained in note 5 B. A number of other new standards, amendments to standards are effective from 1 January 2018 but they do not have a material effect on the Group s Consolidated Financial Statements. Standards issued but not yet effective Following are the new standards and amendments to standards which are effective for annual periods beginning after 1 January 2018 and earlier application is permitted; however, the Group has not early adopted them in preparing these Condensed Consolidated Interim Financial Statements. a. IFRS 16 Leases IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier adoption is permitted. The Group has completed an initial assessment of the potential impact on its Consolidated Financial Statements but has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the financial statements in the period of initial application will depend on future economic conditions, including the Group s borrowing rate at 1 January 2019, the composition of the Group s lease portfolio at that date, the Group s latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and recognition exemptions. Thus far, the most significant impact identified is that the Group will recognise new assets and liabilities for its operating leases of depot warehouses. In addition, the nature of expenses related to those leases will now change because IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. No significant impact is expected for the Group s finance leases. 13

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

17 SIGNIFICANT ACCOUNTING POLICIES (Continued ) The Group has initially adopted IFRS 15 Revenue from Contracts with Customers (see a) and IFRS 9 Financial Instruments (see b) from 1 January The effect of initially applying these standards is mainly attributed to the following: Presentation of Revenue net off sales return (see a below); and an increase in impairment losses recognised on financial assets (see b below) (a) IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Group recognizes revenue when a customer obtains controls of the goods at a point in time i.e. on delivery and acknowledgement of goods, which is in line with the requirements of IFRS 15. Accordingly, there is no material effect of adopting IFRS 15 Revenue from Contracts with Customers on the recognition of Revenue of the Group. The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group s sale of goods are set out below. Type of Product Consumer Products of Dairy, Poultry, Bakery, Baby Foods and Other Segments Nature, timing of satisfaction of performance obligations, significant payment terms Customers obtain control of products when the goods are delivered to and have been accepted at their premises. Invoices are generated and revenue is recognised at that point in time. Credit invoices are usually payable within days. Invoice is generated and recognised as revenue net off applicable discounts which relate to the items sold. No customer loyalty points are offered to customers and therefore there is no deferred revenue to be recognised for the items sold. For contracts that permit the customer to return an item, under IFRS 15 revenue is recognised to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Therefore, the amount of revenue recognised is adjusted for expected returns, which are estimated based on the historical data. Returned goods are not useable and scrapped by the Group and related liability is recorded in Other Payables for Cash sales and adjusted against Trade Receivables in respect of credit sales. Nature of change in accounting policy Under IAS 18, revenue for contracts with customers was also recognised when the goods were delivered to and were accepted by the customers at their premises and a reasonable estimate of sales return could be made. However, estimated sales return was recognised under Cost of Sales, instead of netting off against Revenue, with a corresponding liability in Other Payables for cash sales and a provision for sales return against Trade receivables for credit sales. The impact of this change is that revenue is decreased with the amount of expected sales return. The Group has adopted IFRS 15 using the cumulative effect method, with the effect of applying this standard recognised at the date of initial application ( i.e. 1 January 2018). Accordingly, the information presented for previous year has not been restated, as previously reported, under IAS 18 and related interpretations. The following table summarises the impact of adopting IFRS 15 on the Group s Condensed Consolidated Statement of Profit or Loss for the three months period ended 31 March 2018, for the relevant Financial Statement line items affected. 15

18 SIGNIFICANT ACCOUNTING POLICIES (Continued ) Impact on the Condensed Consolidated Statement of Profit or Loss. For the three months period ended 31 March 2018 As Reported Adjustment Amounts without adoption of IFRS 15 '000 '000 '000 Revenue 3,232,205 27,096 3,259,301 Cost of Sales (1,979,394) (27,096) (2,006,490) Gross Profit 1,252,811-1,252,811 (b) IFRS 9 Financial Instruments IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below. i) Classification and measurement of financial assets and financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available for sale. The adoption of IFRS 9 has not had a significant effect on the Group s accounting policies related to financial liabilities and derivative financial instruments (for derivatives that are used as hedging instruments, see (iii) below). The impact of IFRS 9 on the classification and measurement of financial assets is set out below. Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI debt investment; FVOCI equity investment; or FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment s fair value in OCI. This election is made on an investment-by-investment basis. All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. 16

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

20 SIGNIFICANT ACCOUNTING POLICIES (Continued ) b) Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified at amortised cost. An increase of 12.6 million in the allowance for impairment over these receivables was not recognised in the opening retained earnings at 1 January 2018 on transition to IFRS 9 as the amount was not material. ii) Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39. Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Presentation of impairment Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Impairment losses related to trade receivables are presented separately in the Condensed Consolidated Statement of Profit or Loss and OCI. As a result, the Group reclassified impairment losses amounting to 5.1 million, recognised under IAS 39, from Selling and Distribution Expense to impairment loss on trade receivables in the Condensed Consolidated Statement of Profit or Loss for the three months ended 31 March iii) Hedge Accounting IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. All hedging relationships designated under IAS 39 at 31 December 2017 met the criteria for hedge accounting under IFRS 9 at 1 January 2018 and are therefore regarded as continuing hedging relationships. Under IAS 39, for all cash flow hedges, the amounts accumulated in the cash flow hedge reserve were reclassified to profit or loss as a reclassification adjustment in the same period as the hedged expected cash flows affected profit or loss. However, under IFRS 9, for cash flow hedges of foreign currency risk associated with forecast inventory purchases, the amounts accumulated in the cash flow hedge reserve are instead included directly in the initial cost of the inventory item when it is recognised. Group is already following the treatment recommended under IFRS 9 for cash flow hedges. iv) Transition The Group has taken an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are not recognised in retained earnings as at 1 January 2018 as amount was not material. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 but rather those of IAS 39. The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application. - The determination of the business model within which a financial asset is held. - The designation and revocation of previous designations of certain financial assets - The designation of certain investments in equity instruments not held for trading as at FVOCI. 18

21 6. INVESTMENTS The investments in associates, joint ventures and equity investments at FVOCI comprise of the following: Principal activity Place of Incorporation 31 March 2018 (Unaudited) 31 December 2017 (Audited) 31 March 2018 (Unaudited) 31 December 2017 (Audited) Investments in Associates and Joint Ventures (Refer note 6.1) % % '000 '000 United Farmers Holding Company Investments in Agricultural sector Saudi Arabia 33.0% 33.0% 44,341 63,588 Pure Breed Company Poultry Saudi Arabia 41.9% 41.9% 63,593 65,637 Almarai Company W.L.L. Dormant Qatar 50.0% 50.0% , , March 31 December 31 March 31 December (Unaudited) (Audited) (Unaudited) (Audited) Equity Investment at FVOCI (Refer note 6.2) Mobile Telecommunications Company % % '000 '000 Saudi Arabia - ("Zain") 2.1% 2.1% 88,974 90,711 88,974 90,711 Total 197, ,140 19

22 INVESTMENTS (Continued ) 6.1. The investments in associates and joint ventures comprise the following: 31 March 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 United Farmers Holding Company Opening balance 63,588 58,296 Repayment of loan (17,861) - Share of Other Comprehensive Loss - (5,201) Share of Results for the period / year (1,386) 10,493 Closing balance 44,341 63, March 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 Pure Breed Company Opening balance 65,637 38,112 Additions - 25,000 Share of Results for the period / year (2,044) 2,525 Closing balance 63,593 65, March 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 Almarai Company W.L.L. Opening balance Closing balance The equity investment of 12.4 million shares in Zain is measured at fair value based on quoted market price available on the Saudi Stock Exchange (Tadawul). As permitted by IFRS 9 and fully explained in Note 5B, Group has designated this investment at initial application of IFRS 9 as equity investment at FVOCI and measured at fair value. The fair valuation resulted in unrealised loss of 1.7 million for the period ended 31 March 2018 which is presented within other reserves in Condensed Consolidated Statement of Changes in Equity. The Company has pledged Zain shares to Banque Saudi Fransi ( BSF ) to secure the BSF loan to Zain KSA. 7. SHARE CAPITAL The Company s share capital at 31 March 2018 amounted to 10,000 million (31 December 2017: 10,000 million) consisting of 1,000 million (31 December 2017: 1,000 million) fully paid and issued shares of 10 each. 20

23 8. LOANS AND BORROWINGS 31 March 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 Islamic Banking Facilities (Murabaha) 8.1 5,867,853 5,839,187 Saudi Industrial Development Fund 8.2 1,632,906 1,733,511 Banking Facilities of Non-GCC Subsidiaries , ,248 International Finance Corporation , ,190 Agricultural Development Fund , ,912 Banking Facilities of GCC Subsidiaries , ,134 8,547,242 8,651,182 Sukuk 8.7 3,382,764 3,895,346 Notes 11,930,006 12,546, March 2018 (Unaudited) 31 December 2017 (Audited) '000 '000 Short Term Borrowings 155, ,455 Current Portion of Long Term Borrowings 945,468 1,820,948 Loans and Borrowings - Current Liabilities 1,101,162 2,003,403 Loans and Borrowings - Non-Current Liabilities 10,828,844 10,543,125 11,930,006 12,546, The borrowings under Islamic banking facilities (Murabaha) are secured by promissory notes given by the Group. The Islamic banking facilities (Murabaha) with a maturity period of less than two years are predominantly of a revolving nature. As at 31 March ,241.5 million Islamic banking facilities (Murabaha) were unutilised and available for drawdown. (31 December 2017: 6,462.9 million) The borrowings of the Group from the Saudi Industrial Development Fund (SIDF) are secured by a mortgage on specific assets equivalent to the outstanding borrowings. As at 31 March 2018 the Group had million of unutilised SIDF facilities available for drawdown with maturities predominantly greater than five years (31 December 2017: million). Assets held as collateral are subject to restriction of disposal until the loan is settled or the disposal is approved by SIDF These banking facilities of non GCC subsidiaries represent borrowings from foreign banking institutions. As at 31 March 2018 equivalent million (31 December 2017: million) facilities were unutilised and available for drawdown The Group has been granted new Murabaha Facility by International Finance Corporation (IFC- Member of World Bank Group) of million in 2017, committed with maturity period of more than 9 years and million uncommitted. As at 31 March 2018 the Group had no unutilised IFC facilities available The borrowing from Agriculture Development Fund (ADF) is secured by a mortgage on specific land equivalent to the outstanding borrowings. As at 31 March 2018 the Group had no unutilised ADF facilities available (31 December 2017: Nil). Assets held as collateral are subject to restriction of disposal until the loan is settled or the disposal is approved by ADF These banking facilities of GCC subsidiaries represent new borrowings of GCC subsidiaries from banking institutions of equivalent million. As at 31 March 2018 the Group had no unutilised facilities available. 21

24 LOANS AND BORROWINGS (Continued ) 8.7. On 14 Rabi Thani 1433 A.H. (7 March 2012), the Company issued its first Sukuk Series I amounting to 1,000.0 million at a par value of 1.0 million each without discount or premium. The Sukuk issuance bears a return based on Saudi Arabia Interbank Offered Rate (SIBOR) plus a pre-determined margin payable semi-annually in arrears. The Sukuk will be redeemed at par on its date of maturity i.e. 30 Jumada Thani 1440 A.H. (7 March 2019). On 19 Jumada Awal 1434 A.H. (31 March 2013), the Company issued its second Sukuk - Series II amounting to million at a par value of 1.0 million each without discount or premium. The Sukuk issuance bears a return based on SIBOR plus a pre-determined margin payable semi-annually in arrears.. The Sukuk will be redeemed at par on its date of maturity i.e. 7 Shabaan 1441 A.H. (31 March 2020). On 19 Jumada Awal 1434 A.H. (31 March 2013), the Company issued its second Sukuk Series III amounting to million at a par value of 1.0 million each without discount or premium. The Sukuk was redeemed at par on 12 Rajab 1439 A.H. (29 March 2018). On 3 Dhul Hijja 1436 A.H. (16 September 2015), the Company issued its third Sukuk amounting to 1,600.0 million at a par value of 1.0 million each without discount or premium. The Sukuk issuance bears a return based on SIBOR plus a predetermined margin payable semi-annually in arrears. The Sukuk will be redeemed at par on its date of maturity i.e. 20 Safar 1444 A.H. (16 September 2022). The terms of the Sukuk entitle the Company to commingle its own assets with the Sukuk assets. Sukuk assets comprise the Sukukholders share in the Mudaraba assets and the Sukukholders interest in the Murabaha transactions, together with any amounts standing to the credit of the Sukuk account and the reserve retained by the Company from the Sukuk account The loans contain certain covenants. A future breach of covenants may lead to renegotiation. The covenants are monitored on a monthly basis by Management, in case of potential breach, actions are taken by management to ensure compliance. 9. REVENUE The Group s operations and main revenue streams are those described in Note 1 and the last annual Consolidated Financial Statements for the year ended 31 December The Group s revenue is derived from contracts with customers for sale of consumer products. Control of products is transferred at a point in time and directly sold to customers. The nature and effect of initially applying IFRS 15 on the Group s Condensed Consolidated interim Financial Statements are disclosed in Note 5B. Dairy and Juice Bakery Poultry Other Activities Total '000 '000 '000 '000 ' March 2018 Saudi Arabia 1,461, , ,147 41,991 2,236,196 Other GCC Countries 644,959 74,030 30, ,096 Other Countries 239, , ,913 Total 2,346, , ,639 49,224 3,232,205 22

25 REVENUE (Continued ) Dairy and Juice Bakery Poultry Other Activities Total '000 '000 '000 '000 ' March 2017 Saudi Arabia 1,521, , ,524 52,388 2,251,595 Other GCC Countries 774,719 94,310 45, ,953 Other Countries 198,321-7,375 11, ,978 Total 2,494, , ,367 64,126 3,383, EARNINGS PER SHARE The calculation of the basic and diluted earnings per share as follows: 31 March 31 March (Unaudited) (Unaudited) '000 '000 Profit for the period attributable to the shareholders of the Company 344, ,271 Less: Profit attributable to Sukukholders (16,825) (18,707) Earnings for the purposes of basic earnings per share 327, ,564 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings Weighted average number of ordinary shares for the purposes of diluted earning 990, ,317 1,000,000 1,000,000 Earnings per Share (), based on Profit for the period attributable to Shareholders of the Company - Basic Diluted Weighted average number of shares are retrospectively adjusted to reflect the effect of Bonus Shares and are adjusted to take account of Treasury Shares held under the Almarai Employee Stock Options Programme. 11. SEGMENT REPORTING The Group s principal business activities involve manufacturing and trading of dairy and juice products under Almarai, Beyti and Teeba brands, bakery products under L usine and 7 Days brands and poultry products under Alyoum brand. Other activities include Arable, Horticulture and Infant Nutrition. Selected financial information as at 31 March 2018 categorised by these business segments, is as follows: Dairy and Juice Bakery Poultry Other Activities Milk production, dairy and fruits juice product processing and distribution Bakery products manufacturing and distribution Poultry products manufacturing and distribution Arable, Horticulture and Infant Nutrition 23

26 SEGMENT REPORTING (Continued ) Dairy and Juice Bakery Poultry Other Activities Total '000 '000 '000 '000 ' March 2018 Revenue 2,365, , , ,071 3,437,810 Third Party Revenue 2,346, , ,639 49,224 3,232,205 Depreciation and Amortisation (315,744) (61,367) (81,105) (42,308) (500,524) Share of Results of Associates and Joint - Ventures Profit / (loss) attributable to Shareholders of the Company Share of Other Comprehensive Loss of Associates and Joint Ventures - - (2,044) (1,386) (3,430) 281,020 39,793 25,402 (2,041) 344, Profit / (loss) 271,122 45,206 25,402 (2,042) 339,688 Total Assets 20,690,053 2,478,285 5,320,259 3,274,018 31,762,615 Total Liabilities 14,204, ,604 1,331, ,911 16,466,990 Dairy and Juice Bakery Poultry Other Activities Total '000 '000 '000 '000 ' March 2017 Revenue 2,512, , , ,115 3,517,804 Third Party Revenue 2,494, , ,367 64,126 3,383,526 Depreciation and Amortisation Share of Results of Associates and Joint Ventures Profit / (loss) attributable to Shareholders of the Company Share of Other Comprehensive Loss of Associates and Joint Ventures (294,926) (50,241) (76,888) (31,407) (453,462) (196) ,245 66,751 (29,103) (52,622) 328, (5,201) (5,201) Profit / (loss) 331,254 72,667 (29,103) (52,622) 322,196 Total Assets 18,656,554 2,461,240 5,478,451 3,136,555 29,732,800 Total Liabilities 14,776, ,210 1,233, ,321 16,608,303 The business activities and operating assets of the Group are mainly concentrated in GCC countries. The selected financial information as at 31 March 2018, categorised by these geographic segments is as follows: 12. FINANCIAL INSTRUMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Underlying the definition of fair value is the presumption that the Company is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. 24

27 FINANCIAL INSTRUMENTS (Continued ) When measuring the fair value the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. 31 March 2018 Carrying amount Fair Value Fair Value - Equity Other Amortised hedging Investment at Financial Cost Instruments FVOCI Liabilities Total Level 1 Level 2 Level 3 Total '000. Financial Assets measured at fair value Derivative Financial Instruments 46, ,937-46,937-46,937 Equity Investment at FVOCI - 88, ,974 88, ,974 46,937 88, ,911 88,974 46, ,911 Financial Assets not measured at fair value Trade and Other Receivables - - 1,683,239-1,683, Cash and Bank Balances - - 1,286,461-1,286, ,969,700-2,969, Financial Liabilities measured at fair value Derivative Financial Instruments 35, ,024-35,024-35,024 35, ,024-35,024-35,024 Financial Liabilities not measured at fair value Loans and Borrowings ,930,006 11,930,006-11,930, Bank Overdrafts , , , Trade and Other Payables ,917,902 1,917,902-1,917, ,128,368 14,128,368-14,128,

28 FINANCIAL INSTRUMENTS (Continued ) 31 December 2017 Carrying amount Fair Value Fair Value - Equity Other Amortised hedging Investment at Financial Cost Instruments FVOCI Liabilities Total Level 1 Level 2 Level 3 Total '000. Financial Assets measured at fair value Derivative Financial Instruments 26, ,288-26,288-26,288 Equity Investment at FVOCI - 90, ,711 90, ,711 26,288 90, ,999 90,711 26, ,999 Financial Assets not measured at fair value Trade and Other Receivables - - 1,409,230-1,409, Cash and Bank Balances - - 1,891,697-1,891, ,300,927-3,300, Financial Liabilities measured at fair value Derivative Financial Instruments 42, ,504-42,504-42,504 42, ,504-42,504-42,504 Financial Assets not measured at fair value Loans and Borrowings ,546,528 12,546,528-12,546, Bank Overdrafts , , , Trade and Other Payables ,893,957 1,893,957-1,893, ,696,070 14,696,070-14,696, DIVIDEND PROPOSED The Board of Directors have proposed, for shareholder s approval at the General Assembly Meeting to be held on 9 April 2018, a dividend of million ( 0.75 per share) for the year ended 31 December SUBSEQUENT EVENTS On 2 April 2018, Almarai Company, through its subsidiary HADCO, acquired a further 14% of the share capital of Pure Breed Company for a consideration of 20.3 million making Almarai s total shareholding in Pure Breed Company 55.9%. This transaction was fully financed from Almarai s operating cash flow and Pure Breed Company will be consolidated in Group s books from Quarter as control was established subsequent to the period ended 31 March In the opinion of the management, there have been no other significant subsequent events since the period end that would have a material impact on the financial position of the Group as reflected in these Condensed Consolidated Interim Financial Statements. 15. BOARD OF DIRECTORS APPROVAL These Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on 22 Rajab 1439 A.H. (8 April 2018). 26