Haier New Zealand Investment Holding Company Limited and subsidiaries Financial Statements for the year ended 31 December 2017
Haier New Zealand Investment Holding Company Limited Annual Report Annual Report Pursuant to section 211 (3) of the Companies Act 1993, the shareholders of Hai er New Zealand Investment Holding Company Limited ("the Company") have agreed that the annual report of the Company need not comply with paragraphs (a), and (e) to OJ of subsection (1) and subsection (2) of section 211. Accordingly, there is no information to be provided in this Annual Report other than the financial statements for the year to 31 December 2017 and the Audit report thereon, which are enclosed. The Directors of the Company authorised the financial statements for issue on 1 March 2018. For and on behalf of the Directors Director Date: 1 March 2018 Haishan Liang Director Date: 1 March 2018-1-
Income Statement Income Statement Notes Revenue Operating revenue 5 1,117,553 1,097,352 Other income 5 18 210 10,992 Total revenue & other income 1,135,763 1,108,344 Total operating expenses 6 (1,101,660) (1,146,880) Operating profit/ (loss) 34,103 (38,536) Finance costs - net 6 (41,406) (41,145) (Loss) before income tax (7,303) (79,681) Income tax benefit 7 3732 23657 Loss for the year from continuing operations (3,571) (56 024) Profit for the year attributable to: Continuing Operations Discontinued Operations Profit for the year (3,571) 55527 51 956 (56,024) 133 326 77 302 The above Income Statement should be read in conjunction with the accompanying Notes. For and on behalf of the Board. Uxia n Director Date: 1 March 2018 Haishan Liang Director Date: 1 March 2018-2-
Statement of Comprehensive Income Statement of Comprehensive Income Notes Profit for the year 51,956 77,302 Other comprehensive income: Items that may be subsequently reclassified to profit or loss: Movement in cash flow hedge reserve Exchange differences on translation of foreign operations Income tax relating to components of other comprehensive income Other comprehensive income (loss) for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year attributable to: Continuing Operations Discontinued Operations 25 (5,456) 16,882 20 23,183 (14,227) 25 1 682 (2,956) 19 410 (301) 71 366 77 001 15,839 (56,325) 55 527 133 326 71 366 77.001 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. -3- A
Statement of Financial Position As at 31 December 2017 Statement of Financial Position As at 31 December 2017 ASSETS Current assets Cash and cash equivalents Trade and other receivables Related party receivables Inventories Derivative financial instruments Current tax receivables Non-current assets held for sale Total current assets Non-current assets Property, plant and equipment Intangible assets Long term receivables Deferred tax assets Other non-current assets Total non-current assets Total assets LIABILITIES Current liabilities Trade creditors Related party payables Provisions Derivative financial instruments Tax liabilities Other current liabilities Related party borrowings Total current liabilities Non-current liabilities Provisions Derivative financial instruments Deferred tax liabilities Other non-current liabilities Related party borrowings Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Accumulated losses Reserves Total equity Notes 134,446 87,830 8 114,333 148,602 27 47,411 33,461 9 223,213 212,112 12 5,596 15,204 1,053 1,879 11 5 926 6 269 531 978 505 357 13 290,934 264,905 14 353,481 351,847 62,552 55,951 15 39,163 24,501 897 660 747 027 697 864 1,279,005 1 203 221 124,521 103,802 27 91,358 76,197 16 19,352 20,131 12 4,583 3,560 4,881 4,014 17 54,886 50,170 27 712 107 1,011,688 257 874 16 16,053 15,533 12 10 15 13,972 16,838 18 6,657 6,085 27 747 612 36,682 786 078 1,048,370 1043952 230,635 159 269 19 247,016 247,016 20 (33,417) (85,373) 20 17 036 (2,374) 230,635 159 269 The above Statement of Financial Position should be read in conjunction with the accompanying Notes. -4- A
Statement of Changes in Equity Statement of Changes in Equity Attributable to equity holders of the Company Translation Foreign Interest Contributed Accumulat of foreign exchange rate equity ed losses operations hedges hedges Total equity Balance at 1 January 2017 247 016 (85,373) (7 268) 4894 159 269 Changes in equity 2017 Other comprehensive income/ (loss) for the year Profit for the year 51 956 23,183 (3,772) 19,410 51 956 Balance at 31 December 2017 247 016 (33,417) 15 915 1 122 230 635 Balance at 1 January 2016 Changes in equity for 2016 Other comprehensive (loss)/ income for the year Profit for the year Balance at 31 December 2016 Attributable to Equity holders of the Company Translation Foreign Interest Contributed Accumulat of foreign exchange rate equity ed losses operations hedges hedges 247 016 (162,675) 6 959 (1,743) (7,289) 77 302 (14,227) 6,637 7,289 247 016 (85 373) (7.268) 4894 Total equity 82 268 (301) 77 302 159 269 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes -5-3b
Cash Flow Statement Cash Flow Statement Notes Receipts from customers Interest received Payments to suppliers and employees Income taxes paid Interest paid 1,165,266 2 (1,039,322) (10,025) 3 665 119 586 1,113,702 127 (1,051,102) (6,754) 1 170 57143 Cash flows from investing activities Sale of property, plant & equipment Purchase of property, plant & equipment Capitalisation of intangible assets Proceeds from sale of Finance business Proceeds from the sale of Production Machinery business Net cash (outflow)/ inflow from investing activities 13 14 2,129 (54,895) (21,520) 67 503 (6,783) (35,947) (16,788) 176,283 123 548 Cash flows from financing activities New non-current borrowings Repayment of borrowings Net cash (outflow) from financing activities (67,503) (67,503) 43,858 (153,915) (110,057) Net increase in cash & cash equivalents Cash & cash equivalents at the beginning of the period Effects of foreign exchange rate changes on cash & cash equivalents Cash and cash equivalents at end of the year 45,300 87,830 1 316 134 446 70,634 18,390 (1 195) 87 830 The above Cash Flow Statement is only for the Appliances business. The Cash Flows for the Finance and Production Machinery businesses are reported in Note 10. The above Cash Flow Statement should be read in conjunction with the accompanying Notes. -6- A
Contents of the notes to the financial statements 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 General information Summary of significant accounting policies Critical accounting estimates and judgements Financial risk management Revenue & other income Expenses Income tax expense Trade receivables & other current assets Inventories Sale of the Finance business (discontinued operations) Non-current assets classified as held for sale Derivative financial instruments Property, plant & equipment Intangible assets Deferred tax assets/ liabilities Provisions Other current liabilities Other non-current liabilities Contributed equity Accumulated losses and reseives Defined benefit obligations Contingencies Commitments Investments in subsidiaries Disclosure of components of other comprehensive income Government grants Related party transactions Events occurring after the Statement of Financial Position date Foreign currency exchange rates Page 8 8 16 17 17 18 19 20 20 21 22 22 24 25 26 27 28 28 29 29 31 34 34 35 36 36 36 38 39-7- A
1 General information The reporting entity is Haier New Zealand Investment Holding Company Limited (the Company) and its subsidiaries (the Group). The Company is a profit oriented limited liability entity incorporated and domiciled in New Zealand. The Company's registered office address is: 78 Springs Road, East Tamaki, Auckland, New Zealand The Financial Statements were authorised for issue by the Directors on 1 March 2018. The immediate parent of Haier New Zealand Investment Holding Company Limited is Haier (Singapore) Management Holding Co Pte Ltd (Haier Singapore). Haier New Zealand Investment Holding Company Limited owns % of Fisher & Paykel Appliances Holdings Limited and subsidiaries. The ultimate parent is the Haier Group Corporation, which is domiciled in China. Historically the Group had two principal areas of business: Appliance manufacturer, distributor and marketer (Appliances business) Financial services in New Zealand (Finance business) The principal activity of the Appliances business is the design, manufacture and marketing of major household appliances. Its major markets are New Zealand, Australia, North America and Europe. The Appliances business has manufacturing operations in China, Mexico, Italy and Thailand. The Finance business is a leading provider of retail point of sale consumer finance (including the Farmers Finance Card and Q Card), insurance services and rental & leasing finance. The Finance business was classified as "held for sale" at 31 December 2015 but was sold during the 2016 financial year, leaving the Appliances business as the primary operations of the Group. See Note 10. The Directors do not have the authority to amend the financial statements after issue. Comparatives The Income Statement for the year ended 31 December 2016 has been re-presented to remove the amounts relating to the Finance and Production Machinery businesses as these businesses were considered discontiniued operations for the years ending 31 December 2016 and 31 December 2017 respectively. The net profit arising from these two businesses are now showing in the discontinued operations line below the profit for the year of the appliance business. 2 Summary of significant accounting policies (a) Basis of preparation These general purpose financial statements for the year ended 31 December 2017 have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP) and comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and any other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. NZ IFRS - Reduced Disclosure Regime The Group has adopted External Reporting Board Standard A1 'Accounting Standards Framework (For-profit Entities Updated)' ('XRB A 1"). For the purposes of complying with NZ GAAP, the Group is eligible to apply Tier 2 For-profit Accounting Standards (New Zealand equivalents to International Financial Reporting Standards Reduced Disclosure Regime ('NZ IFRS RDR')) on the basis that it does not have public accountability and is not a large for-profit public sector entity. The Group has elected to report in accordance with NZ IFRS RDR and has applied disclosure concessions. Entities reporting and statutory base The consolidated financial statements are for Haier New Zealand Investment Holding Company Limited (the Company), which includes all its subsidiaries. Haier New Zealand Investment Holding Company Limited is a company registered under the New Zealand Companies Act 1993. As group financial statements are prepared and presented for Haier New Zealand Investment Holding Company Limited and its subsidiaries, separate financial statements for Haier New Zealand are no longer required to be prepared and presented under the Companies Act 1993. The Group and Company are reporting entities for the purpose of the Financial Reporting Act 2013 and the financial statements comply with that Act and the Companies Act 1993. These financial statements are stated in New Zealand dollars rounded to the nearest thousand unless otherwise indicated. -8- ~
In accordance with NZ IAS 1 (Revised), Presentation of Financial Statements, items which are relevant to understanding the Group's financial performance are disclosed on the face of the Income Statement. Certain comparatives have been restated in order to conform with current year presentation, Going concern The financial statements have been prepared under the going concern convention. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss. Critical accounting estimates and judgements The preparation of financial statements in conformity with NZ IFRS RDR requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are highlighted in Note 3. (b) Principles of consolidation (i) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group 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 fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquires and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non controlling interest in the acquires on an acquisition by acquisition basis, either at fair value or at the non controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred. Inter company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the group's accounting policies. (c) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity ('the functional currency'), which is currently the country of domicile for each overseas subsidiary. The consolidated financial statements are presented in New Zealand dollars, which is the Group's presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or at the hedged rate if financial instruments have been used to reduce exposure. At balance date, monetary assets and liabilities in foreign currency are translated at the year-end closing or hedged rates. Translation differences are recognised in the Income Statement, except when deferred in equity as qualifying cash flow hedges or net investment hedges. (iii) Foreign Operations The financial statements of foreign operations with a different functional currency are translated to the presentation currency at the following exchange rates: year-end closing exchange rate for assets and liabilities monthly weighted average exchange rates for revenue and expense transactions -9- ~
Exchange differences arising from the translation of any net investment in foreign operations are taken to shareholders' equity. Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operation and translated at the closing rate. (d) Revenue recognition (i) Safes of goods Revenue from sales of goods is recognised when the significant risks and rewards of ownership have transferred to the buyer. (ii) Safes of services Revenue from sales of services is recognised when the service, such as installation or repair of products, has been performed. (iii) Long-term contracts Revenue on long-term contracts is recognised over the period of the project, once the outcome can be estimated reliably. The stage of completion method is used to determine the appropriate amount of revenue to recognise at balance date. The stage of completion is determined by reference to contract terms agreed with the customer. The full amount of any expected loss, including that related to future work on the contract, is recognised in the Income Statement as soon as it becomes probable. (iv) Interest income Interest income is recognised on a time-proportionate basis using the effective interest method, which takes into account the effective yield on the financial asset. (v) Royalty income Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements. (vi) Dividend income Dividend income from investments is recognised when the shareholder's right to receive payment is established. (vii) fntercompany recharges lntercompany recharges of expenses incurred on behalf of other Group Companies are recognised on an accrual basis. (e) Government grants Government grants include government assistance relating to specific research activities, amounts received to encourage retention of employees and also amounts received to encourage set up of operations in certain regions. Grants are deducted against the expenses they are intended to compensate. (f) Income tax The income tax expense for the period is the total of the tax payable on the current period's taxable income based on the income tax rate for each jurisdiction. This is then adjusted for any changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements and any unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rate expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantially enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the company is able to control the timing of the reversal of temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. -10- A
(g) Goods and Services Tax (GST) The financial statements have been prepared so that all components are stated exclusive of GST except where the GST is not recoverable from the Inland Revenue Department (IRD) or other revenue authority. In these circumstances the GST component is recognised as part of the underlying item. Trade and other receivables and payables are stated GST inclusive. The net amount of GST recoverable from or payable to the IRD is included within these categories. (h) Leases (i) Group as lessee Leases under which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases, All other leases are classified as operating leases. Assets acquired under finance leases are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated depreciation and any impairment losses. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease. (ii) Group as lessor Assets leased out to third parties under a finance lease are recognised as a receivable at an amount equal to the present value of the minimum lease payments. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Finance lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return. (i) Trade and other receivables Trade receivables are recognised initially at fair value less transaction costs and subsequently measured at amortised cost less an allowance account for impaired receivables. The amount of any loss ls recognised in the Income Statement within Administration expenses. Collectability of trade receivables is reviewed on an ongoing basis. When there is objective evidence the Group will not be able to collect all amounts due, they are written off against the allowance account for impaired trade receivables. (j) Inventories Inventories are valued at the lower of cost, on a first in, first out basis, or net realisable value. Cost includes direct materials, direct labour, an appropriate proportion of variable and fixed overhead expenditure (the latter being allocated on the basis of normal operating capacity) but excludes finance, administration, research & development and selling & distribution overheads. Net realisable value is the estimated selling price in the ordinary course of business less all estimated costs of completion and the costs incurred in marketing, selling and distribution. (k) Financial assets and liabilities The Group's financial assets comprise such items as receivables, derivatives, related party receivables and sundry debtors. The Group classifies its financial assets as measured at either amortised cost or fair value depending on the Group's business model and the contractual cash flow characteristics of the financial assets. A financial asset is measured at amortised cost if it is held under a business model to collect contractual cash flows and the contractual cash flows comprise principal and interest payments. (i) Financial assets at amortised cost An asset is classified as amortised cost only if both the following criteria are met: - the objective of the Group's business model is to hold the asset to collect the contractual cash flows; and - the contractual terms give rise to cash flows that are solely payments of principal and interest. -11-
(ii) Financial assets at fair value If either of the two criteria above is not met, the asset is classified at fair value through the profit or loss. Derivative financial instruments are measured at fair value through the profit and loss and the Charging Group has elected to apply hedge accounting to these derivatives. (iii) Financial liabilities The Group's financial liabilities are measured at amortised cost except for the derivative financial instruments. (I) Derivative financial instruments and hedging activities The Group's activities expose it to foreign exchange risk and interest rate risk. In order to minimise any adverse effects on the financial performance of the Group, derivative financial instruments, such as foreign exchange contracts and interest rate swaps are used to hedge certain foreign exchange and interest rate exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments. Risk management is predominately controlled by the central treasury department of Fisher & Paykel Appliances Holdings Limited under policies approved by the Board of Directors. The treasury department identifies, evaluates and hedges financial risks in close co operation with the Group's operating units. The risks are measured through the highly probable forecasted interest rate risk arising from the Group's borrowings and the highly probable forecasted foreign exchange risk arising from the Group's inventory purchases. The objective of the hedges is to minimise the volatility of net interest margin of highly probable forecasted interest rate risks arising from its borrowings and to minimise the volatility of exchange rate movements on inventory purchases. During the years ended 31 December 2017 and 2016, the Group did not have any hedging instruments with terms which were not aligned with those of the hedged items. The underlying risk of the derivative contracts is identical to the hedged risk component (i.e. the foreign exchange or interest rate risk) therefore the Group has established a one to one hedge ratio. Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. The Group's hedging policy only allows for effective hedge relationships to be established. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and the hedging instrument. The Group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item, and so a qualitative assessment of effectiveness is performed. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical derivative method to assess effectiveness. Ineffectiveness is recognised on a cash flow hedge where the cumulative change in the designated component value of the hedging instrument exceeds on an absolute basis the change in value of the hedged item attributable to the hedged risk. In hedges of the above borrowings this may arise if: - the timing of the borrowings changes from what was originally estimated; and - differences arise between the credit risk inherent within the hedged item and the hedging instrument. (m) Non-current assets held for sale Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. Non-current assets held for sale are stated at the lower of their carrying amount and fair value less costs to sell. Noncurrent assets are not depreciated or amortised while they are classified as held for sale. (n) Property, plant & equipment Property, plant & equipment is stated at historical cost less accumulated depreciation and any impairment losses if applicable. Historical cost includes all expenditure directly attributable to the acquisition or construction of the item, including interest. 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 asset will flow to the Group and the cost of the asset can be measured reliably. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred. -12- Jill
Property, plant & equipment, other than Freehold Land and Capital Work in Progress, is depreciated on a straight line basis over its estimated useful life as follows: Freehold buildings Leasehold improvements Plant & equipment Fixtures & fittings Motor vehicles 50 years Life of lease 3-15 years 3-10 years 5 years Property, plant & equipment which is temporarily idle (mothballed) is held at historical cost and is depreciated on a straight-line basis over its estimated useful life as above. (o) Intangible assets Acquired intangible assets (i) Goodwill Goodwill arises on the acquisition of subsidiaries, and represents the excess of the consideration transferred over the Groups interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquires. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but carried at cost less any accumulated impairment loss. Goodwill is allocated to those cash generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segment. (ii) Patents, trademarks, licences and reacquired rights Patents, trademarks, licences and reacquired rights are finite life intangible assets and are recorded at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight-line basis over their estimated useful lives, which vary from 10 to 20 years. The estimated useful life and amortisation method is reviewed at each balance date. (iii) Computer software External software costs together with payroll and related costs for employees directly associated with the development of software are capitalised. Costs associated with upgrades and enhancements are capitalised to the extent they result in additional functionality. Amortisation is charged on a straight-line basis over the estimated useful life of the software of 2-15 years. The estimated useful life and amortisation method is reviewed at each balance date. (iv) Brands Acquired brands, for which all relevant factors indicate there is no limit to the foreseeable net cash flows, are not amortised on the basis that they have an indefinite useful life and are carried at cost less any accumulated impairment loss. (v) Customer relationships Customer relationships are finite life intangible assets and are recorded at fair value acquired less accumulated amortisation and any impairment losses. Amortisation is charged on a straight-line basis over their estimated useful life of 4-1 0 years. The estimated useful life and amortisation method is reviewed at each balance date. Internally generated intangible assets (vi) Research & development I Product Development IP Research expenditure is expensed as it is incurred. Development expenditure is expensed as incurred, unless that expenditure directly relates to new or improved products where the level of certainty of their future economic benefits and useful life is probable, in which case the expenditure is capitalised and amortised on a systematic basis reflecting the period of consumption of the benefit, which varies from 3-25 years. (p) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. -13-
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). (q) Borrowings and borrowing costs Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Income Statement over the period of the borrowings using the effective interest method. Borrowing costs are expensed, except for costs directly attributable to assets under construction, which are capitalised during the period of time that is required to complete and prepare the asset for its intended use. (r) Trade and other payables Trade and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchases of goods and services. Trade and other payables are recognised initially at fair value and, if applicable, subsequently measured at amortised cost using the effective interest method. (s) Employee benefits (i) Wages & salaries, annual leave and sick leave Liabilities for wages & salaries, including non monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Long service leave Liabilities for long service leave, which are not expected to be settled within 12 months of the balance date are measured as the present value of estimated future cash outflows from the Group in respect of services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels, experience of employee departures, periods of service and age. (iii) Defined contribution plan Contributions to the defined contribution superannuation plans are recognised as employee benefit expenses when incurred. The Group has no further payment obligations once the contributions have been paid. (iv) Defined benefit plan The cost of providing benefits is determined using the Projected Unit Credit Method, with independent actuarial valuations being carried out annually. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of the plan assets or 10% of the defined benefit obligation are charged or credited to income over the expected average remaining working lives of employees' participating in the plan. Otherwise, the actuarial gain or loss is not recognised. Net provision for post employment benefits in the Statement of Financial Position represents the present value of the Group's obligations at year end less market value of plan assets, together with adjustments for unrecognised actuarial gains and losses and unrecognised past service costs. Where the calculation results in a net benefit to the Group, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. (v) Profit-sharing and bonus plans The Group recognises a liability and an expense for bonuses and profit sharing based on a formula that takes into consideration the profit attributable to the Company's shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (t) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the effect of the time value of money is material, the amount recognised is the present value of the estimated expenditures. -14- A
(i) Warranty & Product support Haier New Zealand Investment Holding Company Ltd Provisions for warranty costs are recognised at the date of sale of the relevant products or resultant from specific issues, at management's best estimate of the expenditure required to settle the Group's liability based on historical warranty trends. Warranty terms vary, but generally are 1-2 years parts & labour (dependent on region) with selected parts (only) covered for periods up to 1 o years. Product support provision is made for costs to support older products sold in previous years which are outside warranty periods. The provision recognised is based on estimated costs to address product issues. (ii) Redundancy A redundancy provision is recognised when as part of a publicly announced restructuring plan a reliable estimate can be made of the direct costs associated with the plan and where it has raised a valid expectation of its implementation for those employees affected. (iii) Onerous contracts An onerous contract provision is recognised where the unavoidable costs of meeting the contract obligations exceed the economic benefits expected to be received under the contract. (u) Contributed equity Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (v) Dividends Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at balance date. (w) Standards, amendments and interpretations to existing standards that are not yet effective A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2018, and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below: NZ IFRS 16: Leases (Effective date: periods beginning on or after 1 January 2019) NZ IFRS 16, 'Leases', replaces the current guidance in NZ IAS 17. Under NZ IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Under NZ IAS 17, a lessee was required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). NZ IFRS 16 now requires a lessee to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts. Included is an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. The standard is effective for accounting periods beginning on or after 1 January 2019. Early adoption is permitted but only in conjunction with NZ IFRS 15, 'Revenue from Contracts with Customers. The Group intends to adopt NZ IFRS 16 on its effective date and has yet to assess its full impact. NZ IFRS 15 - Revenue from contracts with customers (effective date: periods beginning on or after 1 January 2018) NZ IFRS 15, 'Revenue from contracts with customers' deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces NZ IAS 18 'Revenue' and NZ IAS 11 'Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The Group intends to adopt NZ IFRS 15 on its effective date and it is not expected to significantly impact the Group. There are no other NZ IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. -15- A
3 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. (i) Impairment of goodwill and other indefinite life intangible assets The Group annually tests whether goodwill or brands have suffered any impairment, in accordance with the accounting policy stated in note 2(o). The recoverable amounts of cash generating units for goodwill impairment testing have been determined based on value-in-use calculations and recoverable amounts for brands have been based on relief-fromroyalty calculations. These calculations require the use of assumptions. (ii) Impairment of property, plant & equipment The Group tests for impairment of property, plant & equipment when indicators exist that an impairment may have occurred. The recoverable amount of property is based on fair market valuation less costs to sell and the recoverable amount of plant & equipment assets is based on value-in-use calculations requiring the use of assumptions. (iii) Warranty provision Provision is made for estimated warranty claims in respect of products sold which are still under warranty at balance date. The majority of these claims are expected to be settled within the next 24 months but this may extend to 10 years for certain washer components. Management estimates the present value of the provision based on historical warranty claim information and any recent specific trends that may suggest future claims could differ from historical amounts. While changes in management's assumptions would result in different valuations, management considers the effect of any likely changes would be immaterial to the Group's result or financial position. As at 31 December 2017, the Group had recognised a warranty provision amounting to $27.8 million (2016: $23.8 million). (iv) Inventories The cost of inventory is sensitive to currency fluctuations. Management applies a blended exchange rate to account for purchases covered by forward foreign exchange contracts. The provision for obsolescence has increased in the year ended 31 December 2017 to $10.2 million (2016: $9.3 million). Whilst Management are satisfied the provision is fairly stated, this involves significant judgement on forecast usage of materials. (v) Income taxes The Group is subject to income taxes in New Zealand and jurisdictions where it has foreign operations, Significant judgement is required in determining the worldwide provision for income taxes. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination may be uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. (vi) Employment benefits The Group provides long service leave benefits to employees in certain countries and calculation of the provision for the unvested component of these obligations is based on assumptions about future salary/wage increases, promotion rates and employee turnover. The discount rates used to calculate the present value of these obligations are based on 10 year Government bond yields as no deep market is deemed to exist for high quality corporate bonds in these countries. While changes in management's assumptions would result in different liabilities, management considers the effect of any likely changes would be immaterial to the Group's result or financial position. As at 31 December 2017, the Group had recognised a provision for unvested long service leave amounting to $7.2 million (2016: $8.4 million). -16- _oo
4 Financial risk management (a) Financial instruments by category Financial assets as per balance sheet Assets at fair value through profit or loss Derivatives used for hedging Loans and receivables Financial liabilities as per balance sheet Liabilities at fair value through profit or loss Derivatives used for hedging Other financial liabilities at amortised cost 3,812 7,872 1,784 7,332 232,853 227 346 238,449 242 550 4,583 3,699 (129) 836,626 851 412 841 209 854 982 5 Revenue & other income Appliances business sales of goods revenue New Zealand Australia North America Europe Rest of World Appliances business safes of other services revenue Total operating revenue Of her income Interest Appliances business fee income Net gain on disposal of property, plant and equipment Appliances business miscellaneous income Haier marketing support Income Total other income Total revenue & other income 210.043 209,769 461,978 446,928 203,696 202,463 79,595 77,239 152,501 152,366 9 740 8 587 1,117.553 1 097 352 2 108 1,310 1,256 1.520 2 7,844 3,492 7 534 6 134 18 210 10 992 1,135.763 1 108 344-17- 3b
6 Expenses Rental expense relating to operating leases Cost of goods sold ("COGS") Selling, marketing & distribution expenses Administration & other expenses Total rental expense relating to operating leases The above expenses include: Employee benefits Research & development Net foreign exchange gains Depreciation Amortisation Rental expense relating to operating leases Defined contribution superannuation expense Donations Sundry expenses External interest expense External interest income 768,735 793,884 152,241 150,280 180.684 180 106 1,101,660 1 124 270 226,731 237,700 26,883 31,105 578 7,614 40,859 37,787 22,306 29,689 22,887 22,709 13,717 13,757 24 22 46,449 45,984 (5,044) (4,839) 41 406 41 145-18- A
7 Income tax expense (a) Income tax expense I (benefit) Current tax Deferred tax (b) Numerical reconciliation of income tax expense to prima facie tax payable 12,571 (16,303) (3,732) 8,230 (30,114) (21,884) Profit before income tax expense Tax at the New Zealand tax rate of 28% Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Sale of Finance business Sale of Production Machinery business Other non-assessable income Forfeited NRWT Net derecognition of deferred tax Under provided in prior periods & other adjustments Other non-deductible amounts Difference in overseas tax rates Income tax benefit Income tax (benefit)/ expense is attributable to: Continuing operations Discontinued operations 48,224 53 645 13,503 15,518 (35,898) (15,373) (1,408) (4,215) 1,262 899 1,024 1,666 2 (219) 529 1 542 (461) (20,707) (3,271) (1,177) (3,732) (21,884) (3,732) (23,657) 1 773 (3.732) (21,884) The weighted average applicable effective tax rate for the Group was -7.7% (2016: -39.5%). -19- A Pwc
8 Trade receivables & other current assets Net trade receivables Trade receivables Allowance account for impairment of trade receivables Other debtors & prepayments 98,525 117,763 (118) (111) 98 407 117 652 15,926 30 950 114 333 148 602 Movements on the Group's provision for impairment of trade receivables are as follows: Carrying amount at the start of the year Exchange rate variance on opening balance Additional provision recognised Utilised during the year Balance at end of the year (111) (10) (156) 159 (118) (287) 15 107 54 (111) 9 Inventories Raw materials Spare parts Work in progress Finished goods 47,071 15.886 11,055 149,201 223,213 45,807 14,601 7,410 144 294 212112 Inventory expense Raw materials, consumables and changes in finished goods and work in progress recognised as cost of goods sold in the period ending 31 December 2017 was $569.7 million (2016: $588.4 million). Write downs of inventories to net realisable value recognised as an expense during the period ended 31 December 2017 amounted to $3.3 million (2016: $5.1 million). This expense is included in cost of goods sold in the Income Statement. The provision for obsolescence as at 31 December 2017 was $10.2 million (2016: $9.3 million). -20- ~
10 Sale of the Finance business (discontinued operations) (a) Financial performance and cash flow information of the Finance business The Group previously held a % shareholding in the Fisher & Paykel Finance Holdings Limited group of entities ('the Finance business'). The Finance business was sold to FlexiGroup (New Zealand) Limited on 18 March 2016, and the Group's interest in the business ceased as of that date. In the prior year, the assets and liabilities of the Finance business were presented as held for sale and have been presented below as discontinued operations for the year ended 31 December 2016. Cash flow: Operating cash flows Investing cash flows Financing cash flows Total cash flows 17,055 (1,466) (4 276) 11 313 (b) Analysis of the result of the Finance business Tax expense of the Finance business (c) Financial performance and cash flow information of the Machinery Production business 1,607 The Group previously held a % shareholding in the Fisher & Paykel Production Machinery Limited ('the Production Machinery business'). The Finance business was sold to Maniiq (Singapore) Intelligent Equipment Pte Limited on 31 August 2017, and the Group's interest in the business ceased as of that date. Cash flow: Operating cash flows Investing cash flows 801 (6,152) (95) 6 197 706 45 (d) Analysis of the result of the Production Machinery Business Tax expense of the Production Machinery business 166 166-21-...m