2019 ANNUAL REPORT
A proud Jamaican Company since 1962
RESILIENCE | SUSTAINABILITY | GROWTH
Annual Report 2019 CONTENTS
Performance Highlights 5
Our Vision & Strategy 6
Notice of Annual General Meeting 7
Corporate Data 8
Chairman’s Report to Stockholders 9
Board of Directors 11
Directors’ Report 15
Stockholders as at March 31, 2019 16
Our Policies and Principles 17
Corporate Governance 21
Operating Environment 28
Risk Management 30
Ten-Year Financial Review 33
Leadership Team 35
Management Discussion & Analysis 38
Managing Director’s Overview 39
Financial Performance 41
Marketing 46
Trade Marketing and Distribution 46
Brand Marketing 47
Legal and External Affairs 49
Corporate Social Responsibility 51
Human Resources 52
Audited Financial Statements 54 PERFORMANCE HIGHLIGHTS
Share Market Capitalization Trading Profit Gross Operating Price ($) (J$Billion) Margin Revenue (J$ Billion) - 11.1% - 11.1% - 1.6pp + 2.9%
Stockholders’ Return on Dividend Paid Per stock Earnings per stock unit Net Profit Equity unit (¢) (¢) (J$ Billion) + 84.4% + 6.7% -2.2% - 2.0%
Shareholders’ Equity to Total Assets Ratio - 13pp OUR VISION & STRATEGY
Our Vision & Mission Our vision is to achieve and maintain leadership of the Jamaican Tobacco Industry in order to create long term shareholder value.
Our Strategy We hold steadfast to the strategy of our parent Company, British American Tobacco, in creating shareholder value, delivering profit growth and long term business sustainability. The four pillars of this strategy are Growth, Productivity, Sustainability and developing a Winning Organization.
Growth Productivity British American Tobacco and its subsidiary companies, including Carreras, focus on key strategic segments of As a member of the British American Tobacco Group, the market that offer the best prospects for long term our overall approach to productivity is about using our growth, including driving our premium segment. We global resources to increase profits and generate funds also believe it is important to continue to develop and for reinvesting in our business. utilise innovative, differentiated products and offer our consumers added value from our brands.
Sustainability
Winning Organization We will continue to balance our commercial objectives with the expectations of a broad range of stakeholders, We are confident in BAT’s strategies for Growth, thus ensuring a sustainable business. Productivity and Sustainability but to deliver our vision we must also have the right people and the right working environment. That is the essence of the Winning Organization strategy. Strategic Report Governance Management's Discussion & Analysis Financial Statements
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Fifty-Seventh Annual General Meeting of the Stockholders of CARRERAS LIMITED will be held at the Jamaica Pegasus Hotel, 81 Knutsford Boulevard, Kingston 5 on Wednesday, September 4, 2019 at 2:00 p.m. for the following purposes:
1. To receive the Audited Financial Statements 4. To confirm the remuneration of the and the Reports of the Auditors and Directors for Non-Executive Directors the year ended March 31, 2019 To consider and (if thought fit) pass the following To consider and (if thought fit) pass the following Resolution: Resolution: “THAT the amount shown in the Financial “THAT the Audited Financial Statements and the Statements of the Company for the year ended Reports of the Auditors and Directors for the March 31, 2019 for emoluments received by the year ended March 31, 2019 be and are hereby Non-Executive Directors for their services as adopted.” Directors be and is hereby approved.”
2. To appoint Auditors and authorise the Directors 5. To approve and ratify dividends and special to fix the remuneration of the Auditors capital cash distribution:
To consider and (if thought fit) pass the following To consider and (if thought fit) pass the following Resolution: Resolution:
“THAT KPMG, Chartered Accountants, having “THAT the interim dividends of $0.21 paid on agreed to continue in office as Auditors, be and June 28, 2018; $0.16 (ordinary) and special are hereby appointed Auditors of the Company to capital cash distribution of $0.11 paid on hold office until the next Annual General Meeting August 30, 2018; $0.19 paid on Dec. 13, 2018; at a remuneration to be fixed by the Directors of and $0.18 paid on March 14, 2019, making a the Company.” total of $0.85 for the Year, be and are hereby ratified.” 3. To elect Directors 6. To consider any other business which may (a) The Directors due to retire in accordance with properly be transacted at an Annual General the provisions of Article 101 of the Articles of Meeting. Incorporation are Mr. Oliver Holmes and Mrs. Janene Shaw and, being eligible, offer By Order of the Board themselves for re-election.
To consider and (if thought fit) pass the following Resolutions:
(i) “THAT Mr. Oliver Holmes be and is hereby re-elected a Director of the Company.” Janene Shaw Company Secretary (ii) “THAT Mrs. Janene Shaw be and is hereby re-elected a Director of the Company.” Registered Office: 13A Ripon Road, Kingston 5
(b) Messrs. Rafael Marquez, Arturo Campero and May 22, 2019 Juan Carlos Restrepo Piedrahita were appointed as Directors since the last Annual Important Notice for Members who are General Meeting of the Company and, being not able to attend: eligible, offer themselves for election. Any member of the Company entitled to attend and To consider and (if thought fit) pass the following vote at this meeting is also entitled to appoint one or Resolutions: more proxies to attend and vote in his/her stead. Such proxies need not be members of the Company. i) “THAT Mr. Rafael Marquez be and is hereby A suitable Form of Proxy is enclosed. elected a Director of the Company.” Form of Proxy must be lodged with the Registrar ii) “THAT Mr. Arturo Campero be and is hereby and Transfer Office: Sagicor Bank Jamaica elected a Director of the Company.” Limited, Group Legal Trust & Corporate Services, 28 – 48 Barbados Avenue, Kingston 5, not less iii) “THAT Mr. Juan Carlos Restrepo Piedrahita than forty-eight (48) hours before the time be and is hereby elected a Director of the appointed for holding the meeting. Company.”
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CORPORATE DATA
BOARD OF DIRECTORS MANAGEMENT TEAM
Oliver Holmes - Chairman NAME DESIGNATION Arturo Campero Michael Bernard Marcus Steele Managing Director Matthew Hogarth Janene Shaw Finance Director Rafael Marquez Ashleigh-Ann Arnold Legal and External Affairs Manager Janene Shaw Portia Darsoo Human Resource Business Partner Marcus Steele Jason Fournillier Trade Marketing & Distribution Manager Rohan Campbell Marketing Deployment Manager
LOCATION DEPOTS
CARRERAS LIMITED 35½ Hagley Park Road, Kingston 10 13A Ripon Road 6 Allan Avenue, Port Antonio, Portland Kingston 5 1-2 Villa Road, Mandeville, Manchester Telephone: +1 (876) 749 9800 74 Main Street, Ocho Rios, St Ann Fax: +1 (876) 906 9284 26 Humber Avenue, Montego Bay, St James E-Mail: [email protected] Website: www.carrerasltd.com
COMPANY SECRETARY: Janene Shaw REGISTERED OFFICE: 13A Ripon Road Kingston 5 AUDITORS: KPMG 6 Duke Street Kingston BANKERS: The Bank of Nova Scotia Jamaica Limited Scotiabank Centre Cnr. of Duke & Port Royal Streets Kingston REGISTRAR AND TRANSFER OFFICE: Sagicor Bank Jamaica Limited Group Legal Trust & Corporate Services R. Danny Williams Building 28 – 48 Barbados Avenue Kingston 5
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CHAIRMAN’S REPORT TO STOCKHOLDERS
Shareholders: Chairman I am pleased to report that your Company performed creditably Oliver Holmes in 2018-2019. This year, despite the increasingly complex and challenging trading environment, we were able to build on past successes and minimize the negative effects of elements of the operating environment. Carreras delivered strong results despite the continued presence of the illicit cigarette trade and consumer affordability. This year, our Operating Revenue increased by 2.8%, from $12.6 billion to $12.9 billion. However, due to increased investment in strategic initiatives to bolster our drive for growth, we recorded Profit After Tax of $3.4 billion, marginally below 2017-2018 results of $3.5 billion, a 2.2% decline. It is worth noting that the 21.4% increase in the Special Consumption Tax (SCT) in March 2017 which was preceded by increases both in May 2016 and in March 2015 of 16.7% and 14.3%, respectively, is an experience from which we are still recovering. We, however, remain optimistic about the continued recovery of our volumes during 2019 that will be driven by various strategies being implemented by Management.
Despite the challenges, your Company has not wavered in its commitment to excellence, maintaining enviable shareholder value. For the 2018/19 financial year, Stockholders’ Return on Equity totaled 255.1%, compared to 170.7% in 2018, indicating growth over the prior year. Dividends paid for the year totaled $4.1 billion or $0.85 per share, a 15% increase over the corresponding period last year. Similarly, the dividend yield increased over last year, being 9% for 2018/19 compared to 7% for the prior year. This is primarily due to the completion of the
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liquidation process of Cigarette Company of Jamaica Limited (CCJ), which commenced in 2004 and ended this year. CCJ was voluntarily dissolved by the Registrar of Companies and its final distribution of $534.0 million (net) during the year allowed Carreras to make a special distribution to its stockholders on August 30th, 2018.
Shareholders, we have been able to consistently deliver value by leveraging the strength of our brands. To efficiently place our brands in the hands of distributors and customers, we continue to revise our route to market approach, covering wider geographical areas while delivering more to our customers. These initiatives will lead your Company to further growth in the medium to long term. Our capable management team continues to integrate new approaches into Janene Shaw, Finance Director & Company Secretary, efficient paradigms to decrease costs. The power of our Carreras, accepts the Stock Exchange’s Best Practices brands and our distribution approach are key parts of Award for 1st Runner-Up, Best Performing Company for the backbone of the strategy to handle the still-present 2017. illicit cigarette trade. endeavors. We extend an enthusiastic welcome to Messrs. Rafael Marquez and Arturo Campero, appointed The conversation regarding the illicit-trade is ongoing. on November 7, 2018 and Mr. Juan Carlos Restrepo During the year, we continued to place significant Piedrahita, appointed effective July 24, 2019. Fellow focus on sustaining the awareness of its impact directors, a sincere thank you for your stewardship. among key stakeholders including the Government, Your guidance and commitment to high corporate law enforcement and our customers, through various governance principles are highly appreciated. You are media and communication initiatives. We also saw pillars of the Company’s continued success. historic levels of illegal cigarette seizures which both the Police and Jamaica Customs are to be commended Carreras remains one of the strongest companies for, and which no doubt, demonstrates their resolve currently operating in Jamaica. It is supported by in reducing the presence of illicit cigarettes within the insightful strategies, focused execution and masterful domestic market. We, however, continued to make management. Being led by the achievement-oriented recommendations to the Government on solutions to Marcus Steele, underpinned by a qualified and the issue which include implementing a sustainable experienced management team, the staff is poised to excise strategy and stronger border and port protection continue to execute clear and effective action plans mechanisms, among others. that generate results. I would like to thank our staff for their dedication, hard work and ability to deliver, During the year, we continued to demonstrate our despite the challenges. The positive outlook of the philanthropy and social responsibility, delivering multi- management and staff is a key input in Carreras’ interventions and initiatives to better the lives of our continued ability to deliver superior shareholder people. Empowering through education, therefore, value. I would also like to thank our loyal customers continues to be a priority for us. This year, we awarded and consumers, who despite increasing economic 42 scholarships to students attending various Jamaican challenges and uncertainty, continue to trust, support colleges and universities, continuing our 51-year and enjoy our brands. We find your continued support tradition. The 2018-2019 year was another in which our highly encouraging. Shareholders, thank you for your activities went beyond profit and improved the quality confidence in your Company and its ability to innovate of life for several Jamaicans. and grow.
Good governance and responsible corporate behavior With our dedication to dynamic innovative actions, remain a priority for our business and during the year, your Company remains strong and growth oriented. The BAT launched several key initiatives to empower business ecosystem continues to be a complex space employees and business units like Carreras, to to navigate but we have become increasingly skilled better identify and mitigate challenges related to in doing so. With a fundamental focus on delivering key compliance areas such as anti-bribery and anti- value to shareholders, customers and consumers, the corruption (ABAC) laws. prospects for stable, solid growth is encouraging. The trust and support of our various stakeholders make us As is customary in this forum, we say farewell and confident that Carreras will remain strong in the future. thank you to those directors who have resigned: Mrs. Rosa Pereira Sigala, Mrs. Maria Gabriela Rincon and Oliver W. Holmes Mrs. Brenda Wilbert. Thank you for your service to Chairman the board. We wish you success in all your future
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BOARD OF DIRECTORS
Oliver HOLMES Marcus STEELE NatioNality: Jamaican NatioNality: Jamaican PositioN: Chairman of the Board of Directors of Carreras PositioN: Managing Director of Carreras Limited since Ltd. since November 2015; Non-Executive and Independent March 2013; appointed to the Board of Directors since October Director since February 2007; Chairman of the Nomination 2007. and Compensation Committee since January 2016; appointed to the Corporate Governance Committee since June 2017. other aPPoiNtmeNts: Director of Proven Wealth Limited and Non-Executive Director at Peak Bottling Company Limited other aPPoiNtmeNts: Founder and Managing Director and Catherine’s Peak Bottling Company Limited; Chairman of of Capital Options Ltd., Chairman of the Board of Allied the Board of Directors of Demerara Tobacco Company since Insurance Brokers Ltd., Chairman of Wigton Windfarm Ltd. February 2018. and Member of the Board of Barnett Ltd. skills & exPerieNce: Mr. Steele frst joined Carreras skills & exPerieNce: Mr. Holmes is the Managing Group Limited in the Company’s Tobacco division, Cigarette Director of Capital Options, a fnancial advisory frm he Company of Jamaica Limited, in the capacity of Management founded in 1997. Prior to establishing Capital Options, Mr. Accountant in April 1998. In June 1999, he was promoted to Holmes was the Chief Operating Offcer of Manufacturers Finance Planning Manager and Marketing Finance Manager Merchant Bank Ltd. and prior to that Vice President of in June 2001. In May 2002, he was appointed Finance Citibank N. A. He served as a senior manager in virtually all Planning Manager with overall responsibility for management aspects of Citibank and its subsidiaries operations in Jamaica, of Marketing and Operations Finance. In March 2004, Mr. including Vice President - Corporate Finance, Financial Steele was seconded to British American Tobacco (BAT) Controller – Citibank Jamaica and its subsidiaries, Corporate Caribbean and Central America’s Area Offce in Costa Rica Banking Group Head, Managing Director - Citifnance Limited, as the Country Readiness Manager for the Caribbean with Manager - Centralized Operations and Chief Inspector for responsibility for leading the migration of the Caribbean legal the Caribbean region. During his career at Citibank, he led or entities into the regional shared service centre. In July 2005, participated in many notable transactions in the Jamaican and he was appointed Finance Planning and Reporting Manager international markets, and, at Capital Options, has continued for BAT’s operations in the Caribbean and Central America to close notable transactions in the areas of capital raising, where he focused on fnancial reporting, strategy and planning. mergers & acquisitions, fnancial advisory and private equity Mr. Marcus Steele was then appointed to the Board of in the Jamaican and Caribbean Markets. Directors of Carreras Limited on October 1, 2007 and served as Finance Director and Company Secretary up until August QualificatioNs: B.Sc. Management Studies (Hons.); 2011 when he was seconded to the Trinidad branch of another M.Sc. Accounting BAT Company, Carisma Marketing Services Limited, in the position of Country Manager with responsibility for the general committees: Chairman, Nomination & Compensation management of the Company’s businesses across 24 markets Committee; Member, Corporate Governance Committee in the English, French and Dutch Caribbean.
QualificatioNs: Graduate of St. Jago High School. Chartered Accountant; B.Sc. Accounting, University of the West Indies; MBA, Florida International University. Executive Programme in General Management, Harvard Business 11 Carreras Limited Annual Report 2019 School. Financial Statements Management's Discussion & Analysis Governance Strategic Report
BOARD OF DIRECTORS
Michael BERNARD Janene SHAW NatioNality: Jamaican NatioNality: Jamaican PositioN: Non-Executive and independent Director since PositioN: Finance Director and Company Secretary. 2010. Executive Director (as Managing Director)from 2005 to Appointed to the Board of Directors since May 2015. 2010. Appointed to the Audit Committee on May 17, 2011 and has been Chairman since February 3, 2016. skills & exPerieNce: Mrs. Shaw has over 25 years’ experience and a proven track record in fnancial other aPPoiNtmeNts: Executive Chairman of Peak management, accounting and auditing. Janene is responsible Bottling Company Limited and Chairman of Spike Industries for the Strategic Financial Management of the Company and Limited. He is a Non-Executive Director of Salada Foods also performs the role of Company Secretary. Limited, GK General Insurance Company Limited, New Transport Group Limited, Sterling Investments Limited and Prior to joining Carreras, Janene was employed at J. Wray & Hardware & Lumber Limited. Chairman of the Board of Nephew Limited / Lascelles deMercado & Co. Limited where Management of Jamaica College. she held various senior fnance positions being General Manager, Finance & Administration – JWN Agricultural skills & exPerieNce: Mr. Bernard frst joined Carreras Division, Group Financial Offcer and Accounting and Group Limited in 1988 and in 1991 he was appointed General Treasury Director. Prior to that, Janene was employed at Manager of the Jamaica Biscuit Company. In 1995 he PriceWaterhouseCoopers where she gained progressive audit assumed concurrently, the positions of Managing Director of experience to the level of Audit Manager. two subsidiaries; the Cigarette Company of Jamaica Limited and Agricultural Products of Jamaica Limited. In 1997, he QualificatioNs: Chartered Accountant; B.Sc. Accounting, was appointed to the Board of Directors of Carreras Limited University of the West Indies, Mona. Member of the Institute until 2000 when he was seconded to the USA subsidiary of of Chartered Accountants of Jamaica; Member of the British American Tobacco, Brown and Williamson Tobacco Association of Certifed Chartered Accountants in the U.K. Corporation. He regained leadership of the Cigarette Company of Jamaica Limited at the end of 2001 and was re-appointed to the Board of Carreras Group Limited in 2004. In 2005, Michael was appointed Managing Director of Carreras Limited, the role he held until retirement in 2010.
QualificatioNs: BA; B.Sc. summa cum laude Business Administration, Forest Management respectively, Washington State University; MBA, the Harvard Graduate School of Business Administration. 2010 recipient of the Carlton Alexander Award for Excellence; Fellow of the Jamaica Institute of Management.
committees: Chairman, Audit Committee
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BOARD OF DIRECTORS
Arturo CAMPERO Rafael MARQUEZ NatioNality: Venezuelan NatioNality: Venezuelan PositioN: Appointed to the Board of Directors on November PositioN: Area Director, SANCAR Cluster, appointed to the 7, 2018 Board of Directors on November 7, 2018
other aPPoiNtmeNts: Vice President Financial Planning skills & exPerieNce: Mr. Rafael Marquez joined and Shared Services, RAI Services Company BAT Venezuela through Cigarrera Bigott in 1985 as an Operations Trainee. Since then he has been involved in many skills & exPerieNce: Mr. Arturo Campero is a qualifed cross-functional initiatives, including senior roles in Trade professional business manager with a proven track record in Marketing, Brand Marketing, Human Resources and General Finance. Arturo has over 18 years of international experience Management. Over the course of his 34 years in BAT, Rafael within the British American Tobacco (BAT) group, his most has had a truly international career, having worked in several recent being Finance Director of the South America North countries across the globe, including Suriname (1990 – 91), El & Caribbean (SANCAR) cluster, acting as a key member Salvador (1998-2000), Perú (2000-2002), Korea (2006-2010) of the leadership team, driving the Revenue Sustainability and Singapore (2010-2011), before returning to Venezuela agenda for the Area. Before assuming this role, he held other for the third time in 2011 as General Manager. In April 2017, senior positions within the BAT Group including: Regional he was appointed Area Director for the South America North Commercial Finance Manager and Regional Corporate (SAN) cluster, which includes Colombia and Venezuela. In Finance Manager, both roles at British American Tobacco 2018, the SAN Cluster was expanded to include the Caribbean Americas located in Brazil, Strategy & Planning Manager markets (SANCAR). Venezuela, Operation Finance Manager Venezuela, Leaf Finance Manager, Marketing Finance and Treasury in QualificatioNs: BSc., Colegio Le Salle La Colina; MSc Venezuela. In May 2019, Arturo was appointed to the role Mechanical Engineering, Universidad Simon Bolivar; MBA, of Vice President Financial Planning and Shared Services, Universidad Simon Bolivar. Reynolds American Inc Services Company
QualificatioNs: BSc. Business Administration (General Management), Metropolitan University, Caracas, Venezuela Master in Finance, Institute of Advanced Studies (IESA) Business School, Caracas, Venezuela.
committees: Member, Audit Committee
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BOARD OF DIRECTORS
Matthew HOGARTH NatioNality: Jamaican PositioN: Non-Executive and independent Director, appointed to the Board of Directors on February 4, 2016; member of the Audit Committee since February 4, 2016 and the Nomination and Compensation Committee since May 25, 2016; Chairman of the Corporate Governance Committee since February 2, 2017.
other aPPoiNtmeNts: Managing Partner at MH&CO., Attorneys- at- Law. Non-Executive Director of IronRock Insurance Company Limited, Jamaica Stock Exchange; CAC 2000 Limited; Marander Industries Limited.
skills & exPerieNce: Mr. Hogarth is an Attorney-at-Law. Over his years in practice, he has managed numerous corporate bank loan transactions for numerous international blue chip companies, private equity and debt transactions, mergers and acquisitions, Initial Public Offerings (IPOs), stock exchange listings, private business and legal audits and has acted in numerous cross-border matters including the management and strategy of insolvency and receivership assignments, including advising the Liquidator or Receiver on legal issues. He also has considerable experience with both residential and commercial real estate transactions, including real estate investment vehicles and structures. Mr. Hogarth has a reputation for being solution-oriented, detailed, thorough and for his profciency at creating practical corporate structures that marry business and the law. He received his LL.B (with Honours) from the University of Liverpool.
QualificatioNs: LL.B (with Honours), University of Liverpool. Called to the bar in multiple jurisdictions including Jamaica, New York State, The British Virgin Islands, Saint Lucia and Barbados. Member of the American Bar Association, the Jamaican Bar Association, the BVI Bar Association, INSOL International (International Association of Restructuring, Insolvency & Bankruptcy Professionals) and the American Bankruptcy Institute. Legal member of the Private Sector Organization of Jamaica’s Listed Company’s Committee.
committees: Chairman, Corporate Governance Committee; Member, Audit Committee; Member, Nomination & Compensation Committee
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DIRECTORS’ REPORT
The Directors are pleased to submit their Report and Audited Financial Statements for the year ended March 31, 2019. The following are selected highlights:
Financial Results
Year ended Year ended March 31, 2019 March 31, 2018 $000s $000s Profit before income tax 4,515,929 4,637,326 Income tax for the year (1,109,027) (1,152,696) Total profit after tax 3,406,902 3,484,630 Less: minority interest (53) (34) Net profit for the year attributable to stockholders 3,406,849 3,484,596 Revenue reserves at beginning of year 1,920,034 2,006,755 Total revenue reserves 5,326,883 5,491,351 Appropriations have been made as follows: Dividends and Distributions (4,126,240) (3,592,256) Deferred tax on reserves of subsidiaries in liquidation 22,010 (586) Defined benefit plan actuarial gains/losses, net of tax 19,875 21,525 Transfer tax paid on intra-group distributions (28,384) -
1,214,144 1,920,034
Earnings per stock unit for year: 70.2¢ 71.8¢
The following payments were made during the year: Mrs. Rosa Pereira Sigala, Mrs. Maria Gabriela Rincon and Mrs. Brenda First quarter ended Jun 30, 2018 - $0.21 per stock unit (Ordinary) Wilbert resigned and the Board Second quarter ended Sept 30, 2018 - $0.16 per stock unit (Ordinary) wishes to express its appreciation to them for their invaluable - $0.11 per stock unit (Special capital contribution to the Company. cash distribution) Third quarter ended Dec 31, 2018 - $0.19 per stock unit (Ordinary) The Directors due to retire in accordance with the provisions of Fourth quarter ended Mar 31, 2019 - $0.18 per stock unit (Ordinary) the Articles of Incorporation are Mr. Oliver Holmes and Mrs. Janene Shaw No further final dividend payment is proposed in respect of 2018/2019. and, being eligible, offer themselves for re-election. The Directors have approved an interim dividend of $0.14 per stock unit, to be paid on June 27, 2019. ON BEHALF OF THE BOARD
Auditors KPMG have expressed their willingness to continue in office and offer themselves for re-appointment.
Janene Shaw (Secretary) Directors Messrs. Rafael Marquez and Arturo Campero were appointed on November 7, 2018 and Mr. Juan Carlos Restrepo Piedrahita was appointed effective July 24, 2019 and, being eligible, offer themselves for election.
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STOCKHOLDERS AS AT MARCH 31, 2019
Ten Largest Stockholders as at March 31, 2019 Stock units held Rothmans Holdings (Caricom) Limited 2,446,508,260 Sagicor PIF Equity Fund 279,484,650 National Insurance Fund 214,184,690 SJIML A/C 3119 121,781,360 JCSD Trustee Services Ltd. – SIGMA OPTIMA 107,617,151 L.B.J. Overseas Ltd. 102,117,115 Grace Kennedy Limited Pension Scheme 74,337,030 ATL Group Pension Fund Trustee Nominee 62,726,740 NCB Insurance Co. Ltd. A/C WT 109 47,500,000 SJLIC for Scotiabridge Retirement Scheme 41,255,790 TOTAL 3,497,512,786
Directors & Connected Persons
Stock Units Held Mr. Michael Bernard Nil Mr. Arturo Campero Nil Mr. Matthew Hogarth (Connected Party) 8,000 Mr. Oliver Holmes Nil Mr. Rafael Marquez Nil Mrs. Janene Shaw Nil Mr. Marcus Steele Nil
There has been no change in the Directors’ stockholding interests occurring between the end of the company’s financial year and the date of the Notice convening the Annual General Meeting.
At no time during or at the end of the financial year has any Director had any material interest in any contract or arrangement in relation to the business of the company.
Executive & Senior Management: Mr. Marcus Steele Nil Mrs. Janene Shaw Nil Mrs. Ashleigh Arnold Nil Miss Portia Darsoo Nil Mr. Jason Fournillier Nil Mr. Rohan Campbell Nil
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OUR POLICIES AND PRINCIPLES
We are committed to operating at the highest Our Business Principles standards of corporate conduct and transparency. The Principle of Mutual Benefit This section provides greater insight into British is the basis on which we build our relationships American Tobacco’s (BAT) policies and principles with our stakeholders. We are primarily in business underpinning the Winning Organisation and to build long term shareholder value and we Sustainability aspects of our strategy. These believe the best way to do this is to seek to policies and principles have been endorsed and understand and take account of the needs of all adopted by the Carreras Leadership Team and our stakeholders. support the effective identification, management and mitigation of key risks and issues for our business in these and other areas. The Principle of Responsible Product Stewardship is the basis on which we meet consumer demand Our Guiding Principles for a legal product that is generally accepted as a cause of serious diseases. Accordingly, We continue to live the Guiding Principles of our products and brands should be developed, British American Tobacco which form the core manufactured and marketed in a responsible of our culture and guide how we deliver our manner. strategy. The Principle of Good Corporate Conduct Enterprising Spirit We value enterprise from all is the basis on which all our businesses should of our employees, giving us a great breadth of ideas be managed. Business success brings with it an and viewpoints to enhance the way we do business. obligation for high standards of behaviour and We have the confidence to passionately pursue integrity in everything we do and wherever growth and new opportunities while accepting the we operate. These standards should not be considered entrepreneurial risk that comes with compromised for the sake of results. it. We are bold and strive to overcome challenges. This is the cornerstone of our success.
Open Minded Our corporate culture is a great Our Marketing Principles strength of the business and one of the reasons we We believe in upholding high standards of have been, and will continue to be, successful. We corporate behaviour. We agree that the tobacco are forward-looking and anticipate consumer needs, industry should be regulated, but we also think we winning with innovative, high-quality products. should be able to communicate in a responsible We listen to, and genuinely consider, other way with adult tobacco consumers about our perspectives and changing social expectations. We products. We are committed to the responsible are open to new ways of doing things. marketing of all our products to adult consumers aged 18 and over. Our marketing is governed by Freedom Through Responsibility We give our the BAT International Marketing Principles which people the freedom to operate, providing them provide a consistent and responsible approach with the benefits of our scale but the ability to to marketing our products. We expect all our succeed. We always strive to do the right thing, suppliers, agents and third-parties to comply with: exercising our responsibility to society and other stakeholders. We use our freedom to take decisions ➠ The relevant BAT marketing principles as a and act in the best interest of consumers. minimum standard where they are stricter than local laws; or Strength from Diversity We respect and ➠ Local laws or other local marketing codes celebrate each other’s differences and enjoy where they are stricter than, or override, working together. We harness diversity – of our BAT marketing principles. people, cultures, viewpoints, brands, markets and ideas – to strengthen our business. We value what makes each of us unique.
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Below are the 3 main principles which guide the way we market and distribute our brands responsibly. 11 Our marketing will be responsible, accurate and not misleading.
2 Our marketing will be directed at adult consumers.
Our marketing will make clear that it originates from British American 3 Tobacco and that it is intended to promote the sale of our brands.
Our Standards of Business Conduct Our Standards of Business Conduct express the high standards of business integrity that British American Tobacco (BAT) requires from employees worldwide.
The Standards of Business Conduct set out specific guidelines which provide support and guidance for employee conduct. Whistle blowing procedures are also put in place so that any employee who suspects wrongdoing can raise his/her concern in confidence.
The Standards cover four broad areas which govern general business conduct, as well as provide guidance for employees in making appropriate decisions and judgements in the course of work. These areas are:
➠ Whistleblowing; ➠ Personal and Business Integrity; ➠ Workplace and human Rights; ➠ Public Contributions; ➠ Corporate Assets and Financial Integrity; ➠ National and International Trade.
Each employee is expected to know, understand and practice the standards, as appropriate, and review and sign in accordance with the policy, on an annual basis.
During the year, as part of the annual employee sign off process, all employees had to complete a short training course on the Standards, either through the Standards of Business Conduct e-learning portal or through presentations shared by their respective line managers.
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Anti-Bribery and Corruption Procedure In 2018, BAT successfully deployed several key initiatives to empower employees and business units across the Group to better identify and mitigate challenges related to key compliance areas such as anti-bribery and anti- corruption (ABAC) laws. To raise awareness of these issues with employees, an e-learning was delivered to a targeted cross-functional global audience selected on the basis of their potential interaction with government officials. To complement this, employee webcasts were also hosted for BAT managers across the world.
Additionally, to assist business units in identifying Standards of Business Conduct related issues (in particular relating to bribery and corruption) in connection with third parties retained by subsidiary Companies like Carreras, a new Third-Party Procedure was launched during the year. This procedure mandates a consistent methodology for pre-contractual due diligence on prospective third-party business partners and is complemented by mandatory mitigation packages (such as training and contractual clauses) for medium and high-risk third parties.
This due diligence also provides a retrospective review of third parties with which the Company did business before the Third-Party Procedure came into effect.
Our Environmental Policy Framework for Corporate Social We are are committed to meeting consumer needs in Investment an environmentally responsible and sustainable way. We We are committed to giving back to the communities in are also committed to operating responsibly in both the which we operate. We also encourage our employees direct operations that we control, and throughout the to play an active role both in their local and business wider supply chain that we influence. Responsibility is communities. Our Corporate Social Investment policy is one of the cornerstones of our strategy, and we believe supported by the BAT Group Strategic Framework for that good environmental practice is good business corporate and social initiatives (CSI), which sets out the practice. Group CSI strategy and how local operating companies are to develop, deliver and monitor community We will comply with all legal and regulatory investment programmes within three themes: requirements governing environmental management, Sustainable Agriculture and Environment; Empowerment implement environmental management practices and Civic Life. internally and monitor compliance to them.
Our Health and Safety Policy Supplier Code of Conduct We recognize the paramount importance of the health, The BAT Supplier Code of Conduct sets out the safety and welfare of all employees and non-company minimum standards, group companies expect of personnel in the successful conduct of our business. We suppliers. Our ultimate goal is to drive the continuous are therefore committed to the prevention of injury improvement of standards within our supply chain and ill-health and strive for continual improvement in and as such, we are committed to working with such our health and safety management and performance, suppliers over time to help them achieve adherence with through setting clear objectives, including the the requirements of this Code. monitoring and measurement of key performance indicators.
British American Tobacco believes in the active participation of each employee and others as appropriate, in promoting, achieving and maintaining the highest standards of health and safety, in so far as it is reasonably practicable.
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Policies/Principles Summary Areas covered Key Stakeholder Groups
Anti-bribery and corruption, conflicts of interest, and entertainment and gifts. Respect in the workplace, including promoting equality and diversity, preventing harassment and bullying, and safeguarding employee wellbeing. Respect for human rights, including prevention of child labour Employees and contractors, BAT Standards of Business and exploitation of labour, and Governments and regulators, local Conduct respect for freedom of association. communities and society Political contributions and charitable contributions.
Financial integrity, accurate accounting and record-keeping, and information security. Anti-illicit trade, competition and anti-trust, and sanctions compliance. Whistleblowing
Employees and contractors, Health, safety and welfare of all suppliers, business partners, employees, other members of our farmers, local communities and workforce and third-party personnel. Health and Safety Policy society
Our commitments to carrying out our business in an environmentally Employees and contractors, responsible and sustainable way, suppliers, business partners, Environment Policy including agricultural, manufacturing and farmers, local communities and distribution operations. society
Employment practices, including commitments to diversity, reasonable working hours, family friendly policies, Employment Principles employee wellbeing, talent, performance Group employees and equal opportunities, and fair, clear and competitive remuneration and benefits.
Standards required of Suppliers of BAT operating Companies worldwide, including business integrity, anti- bribery and corruption, environmental Suppliers and business partners, sustainability and respect for human Supplier Code of Conduct employees and contractors, local rights (covering equal opportunities communities and society and fair treatment, health and safety, prevention of harassment and bullying, child labour, and exploitation of labour, and freedom of association).
Sets out BAT’s Group strategy and NGOs and development agencies, Strategic Framework for a framework for Corporate Social local communities and society corporate social investment Investment
International Marketing Provides a consistent and responsible Employees, suppliers, agents and Principles approach to marketing our products. third-parties
For more information on our policies and principles, please visit our website www.carrerasltd.com.
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CORPORATE GOVERNANCE
BOARD MISSION The Board of Directors is collectively responsible for the success of the company. The Board remains committed to providing entrepreneurial leadership of Carreras within a framework of prudent and effective controls which enables risk to be assessed and managed. The Board is responsible for overseeing the company’s strategic aims; ensuring that the necessary financial and human resources are in place for the company to meet its objectives; and reviewing management performance. The Board also upholds the company’s values and standards and ensures that its obligations to the company’s shareholders and others are understood and met.
Responsibilities of Board members Appointments to the Board (Chairman, Non-Executive Directors, There is a formal, rigorous and transparent procedure Company Secretary) for the appointment of new directors to the Board. There is a clear division of responsibilities at the head Appointments to the Board are made on merit and of the company between the running of the Board against objective criteria. Care is also taken to ensure and the executive responsibility for the running of the that appointees have enough company’s business. No one individual has unfettered time available to devote to powers of decision. the job. This is particularly important in the case of Chairman chairmanship. The Board also The Chairman is responsible for leadership of the Board, satisfies itself that plans are in ensuring its effectiveness on all aspects of its role and place for orderly succession setting its agenda. The Chairman is also responsible for appointments to the Board for ensuring that the directors receive accurate, and to senior management, timely and clear information. He also ensures effective so as to maintain an communication with Shareholders. appropriate balance of skills and experience within the Non-Executive Directors company and on the Board. As part of their role as members of a unitary Board, non- executive directors constructively challenge and help develop proposals on strategy. Non-executive directors also scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They ensure the integrity of financial information and that financial controls and systems of risk management are robust and defensible.
Directors can obtain independent professional advice in the course of their duties, if necessary, at the company’s expense.
Company Secretary Election and re- The Company Secretary plays a key role in assisting election all directors to obtain the information they need to All directors are submitted carry out their roles effectively. She is responsible for re-election at regular for ensuring that Board processes and procedures are intervals, subject to continued appropriately followed and that they support effective satisfactory performance. The decision making and governance in accordance with the Board ensures planned and Companies Act. progressive refreshing of the Board.
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Independence of Directors Corporate Governance Committee (CGC) Independence is based on criteria agreed by the Board and includes: Ј a Director that has not within the last three years been an employee of the Company or a related company; Matthew Ј a Director that has not within the last three years HOGARTH had a material business relationship with the Company either directly or as a shareholder, director or senior employee of a body that has a relationship CHAIRMAN with the Company either as a supplier, a customer or competitor of the Company; Ј a Director that has not within the last three years received additional remuneration from the Company Relationship with the Board and other (apart from a director’s compensation) nor committees participated in the Company’s performance-related pay scheme; The role of the CGC and its relationship with the Board and other committees is as set out in the Charter Ј a Director whose spouse, child(ren) or dependent(s) approved by the Board and to the extent that the CGC are not advisors, directors or senior employees of undertakes tasks on behalf of the Board, the results are the Company; reported to, and considered by, the Board. The CGC Ј a Director who does not represent a significant is charged with a review of the Board, its committees shareholder. and their respective functions on an annual basis and to ensure that they execute their responsibilities efficiently The Board is not aware of any relationships or and with transparency and accountability. circumstances affecting the Directors’ independent judgement. Authority & Responsibilities The Committee shall support the Board in the BOARD COMMITTEES administration and exercise of the Board’s management Committee Chairmen of the Company by carrying out the following: The Board committee chairmen are responsible for the leadership of the respective Board committees and Corporate Governance Principles that each respective Board committee executes on Ј Developing, recommending and reviewing corporate their respective charters and mandates, as approved governance principles applicable to the Board. by the Board. The Board committee chairmen are Ј Ensuring that the Board and is committees are also responsible for: in compliance with all regulatory composition requirements, which shall include requirements for a. fixing the agenda for director independence. the relevant Board committee meetings Ј Reviewing, no less than once annually, the adequacy and to ensure that of the charters of the Board and its various all relevant matters subcommittees, including the adequacy of this are tabled for Charter, and submit to the Board any suitable consideration (as recommendations in relation to the amendment of requested by the same. members of that Ј Reviewing, no less than once annually, the committee, the wider Company’s Articles of Incorporation and overall Board, or otherwise); corporate governance policy and practices and b. reporting to the submit to the Board any suitable recommendations Board at each Board in relation to the amendment of same. meeting; and Ј Preparing the annual Corporate Governance c. reporting to the Statement for inclusion in the Company’s Annual shareholders. Report to its shareholders. Ј Ensuring that there is accurate, timely and full financial governance reporting with strong internal controls and risk management. Ј Ensuring that material information regarding the Company’s operations are disclosed in a timely manner to the public and regulatory entities.
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Ј Keeping abreast of the latest regulatory requirements, trends and guidance in corporate governance and updating the Board on corporate governance issues, The Key Activities of the where necessary. Corporate Governance Committee Evaluation of Board & its Committees – for the fnancial year included: Structure, Composition and Function Ј Ensuring that the Board is structured and selected to ensure effectiveness, 1. A review of the Charter was conducted and there independence and protection of the were no amendments proposed. The Charter public’s interests through appropriate remains relevant and provides the context for the selection and operating processes. CGC to fulfil its mandate to assist the Board in Ј Establishing and facilitating an effective ensuring that its composition, structure, policies process for the annual evaluation of the and processes for managing the Company are in Board and its committees, which shall keeping with world corporate governance best include the development of self-audit practice standards and also to ensure adherence to checklists which take into account their the relevant legal and regulatory framework. respective mandates and the level of contribution of individual directors. The 2. The Board commenced the annual Board Self Committee shall report to the Board Evaluation exercise which will be facilitated by an the results of its annual evaluations independent external company. The evaluation and, based on those results, may make measures the performance and effectiveness of recommendations in respect of the the Board, its committees, the Executive and Non- structure and effectiveness of the Board Executive Directors and the Chairman. and any of its committees. This exercise will be concluded in the first quarter Ј Overseeing the development and implementation of a Board induction of the 2019/2020 Financial Year. process for new directors and a programme of continuing director 3. The CGC shortlisted priorities for the ensuing year to development and training, as needed. include: Ј Considering possible conflicts of ➠ Strengthening of a Conflicts of Interest Policy and interests of directors and making relevant introduction of Conflicts of Interest Register. proposals to the Board in relation to its ➠ findings. Self-audit checklist on a quarterly basis to ensure compliance with the Companies Act (as amended). Ј Reviewing any change in status and ➠ professional affiliation of current Introduction of a Corporate Governance directors, which shall include fulfilment of Assessment Tool to facilitate a review of the main independence requirements, and making Board by the Committee. relevant proposals to the Board in relation ➠ Annual review of the Terms of Reference for Board to its findings. Committees to ensure their effectiveness and recommend any necessary changes to the Board. Meetings of the CGC ➠ Annual review of the Articles of Incorporation, at The Chairman of the CGC, in consultation the beginning of the fiscal year by our Attorney to with the Company Secretary, decide the confirm whether or not any antecedent events had frequency and timing of its meetings. occurred in the past year and going into this fiscal year in respect to amendments in the Companies The membership of the CGC during the Act, etc. that required consideration by the 2018/2019 financial year were Mr. Matthew Company. Hogarth (Chairman), Mr. Oliver Holmes and Mrs. Rosa Pereira Sigala (up to February 6, ➠ Directors’ Corporate Governance Training - 2019). Mr. Juan Carlos Restrepo Piedrahita majority of the Directors have had on-going will join on July 24, 2019. Mr. Marcus Steele training. (Managing Director) and Mrs. Janene Shaw (Finance Director/Company Secretary) are permanent invitees. Looking Forward The CGC shall continue to ensure that the Company is aligned with corporate governance best practices and that it continues its sterling reputation as a leader in this area.
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Audit Committee Relationship with the Board The role of the Audit Committee is for the Board to decide and to the extent that the Michael Audit Committee undertakes tasks on behalf of the board, the results are reported to, BERNARD and considered by, the board. In doing so it identifies any matters in respect of which CHAIRMAN it considers that action or improvement is needed and make recommendations as to the steps to be taken.
The Board has established formal and transparent arrangements for considering how they should apply the fnancial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors.
The main role and responsibilities of the Audit reporting or other matters. The audit committee’s Committee include: objective should be to ensure that arrangements are in place for the proportionate and independent Ј to monitor the integrity of the financial statements investigation of such matters and for appropriate of the company, and any formal announcements follow-up action. relating to the company’s financial performance, reviewing significant financial reporting judgements Ј to have primary responsibility for making contained in them; a recommendation on the appointment, reappointment and removal of the external auditors. Ј to review the company’s internal financial controls and risk management systems; The Audit Committee of the Board comprises of three members who are non-executive directors, the majority Ј to monitor and review the effectiveness of the of whom is identified by the Board as independent company’s internal audit function; directors. At least one member of the Audit Committee has recent and relevant financial experience. Ј to make recommendations to the Board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment, Meetings of the Audit Committee re-appointment and removal of the external auditor The Chairman of the Audit Committee, in consultation and to approve the remuneration and terms of with the Company Secretary, decide the frequency and engagement of the external auditor; timing of its meetings. Ј to review and monitor the external auditor’s independence and objectivity and the effectiveness Four (4) meetings are held during the year to coincide of the audit process, taking into consideration with key dates within the financial reporting and audit relevant professional and regulatory requirements; cycle. The company’s external audit lead partner is invited regularly to attend the meetings. Ј to develop and implement policy on the engagement of the external auditor to supply non-audit services, The Audit Committee met with the external auditors, taking into account relevant ethical guidance without management, to discuss matters relating to its regarding the provision of non-audit services by remit and any issues arising from the audit. the external audit firm; and to report to the Board, identifying any matters in respect of which The Committee members are: Mr. Michael Bernard it considers that action or improvement is needed (Chairman), Mr. Matthew Hogarth, and Mr. Arturo and making recommendations as to the steps to be Campero. Mr. Marcus Steele (Managing Director) and taken. Mrs. Janene Shaw (Finance Director) are permanent invitees. Ј to review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial
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Nomination and Compensation Committee The Key Activities of the Audit Committee for the
fnancial year included: Oliver HOLMES Ј Reviewed and after consultation with management and external CHAIRMAN auditors, recommended to the Board, unaudited quarterly financial statements and the 2019 audited annual financial statements for its Relationship with the Board approval and release to stockholders. The Committee shall make recommendations to the Board in specific regard to the re-appointment of Ј Recommended to the Board for any Non-executive Director at the conclusion of their approval: specified term of office after reviewing the Director’s performance; the re-election by shareholders of any ➠ Dividend payments director under the retirement or by rotation provisions ➠ Related Party Transactions in the Company’s Articles of Incorporation; and the continuation in office of any Director at any time. ➠ Key Business Risks The main role and responsibilities of the nomination and compensation committee include: The Committee considered Ј To determine the the following in making its framework and policy recommendations: on terms of engagement including the specific Ј Reliability and integrity of the compensation of each accounting principles and practices, executive director and financial statements and other each member of the financial reporting; Senior Management Team [“Leadership Ј Internal audit functions of the Team”] of the company, Company; including entitlements where applicable under Ј Risk management functions and any share incentive processes of the Company; schemes and the pensions schemes and Ј Qualifications, independence and any compensation performance of the external auditors payments. of the Company; Ј To make recommendations Ј System of internal controls to the Board on and procedures established by suitable candidates for management and review of their appointment as Board effectiveness; directors and to make recommendations to Ј The Company’s compliance with the Board as to the suitability of candidates for legal and regulatory requirements. appointment as executive directors of the company. Fees payable to non-executive directors are determined by the Board on the recommendations of the chairman and chief executive officer.
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The Committee is authorized by the Board to obtain, at the company’s expense, such outside legal or other independent professional advice as it considers necessary and, in particular, is responsible for the The Key Activities of appointment of any compensation consultants, Executive Recruitment & Placement Services [head- the Nomination and hunters] or any other professional service provider who may advise the Committee. Where such consultants are Compensation Committee for appointed, the Committee is required to make available a statement of whether they may have any other the fnancial year included: connections with the Company.
In line with the mandate given under Section Meetings of the Nomination and Compensation 5 of the Terms of Reference which states that Committee the Committee is to “be responsible for identifying The Committee was appointed by the Board on and nominating candidates for the approval of September 8, 2009 and comprises three members. the Board, to fill vacancies on the Board or senior The quorum is three and in the absence of a member, management team, ensuring that such candidates, he will select another director to be his alternate at as well as fitting the specific profiles, are capable the meeting. The Chairman and the Managing Director of taking a broad view of the company’s overall of Carreras Limited are required to attend meetings of the Committee on the occasion of a discussion interest,” of compensation and to discuss the performance of the following were done: the Executive Directors and other members of the i. On receipt of resignations from three Senior Management Team [except when their own Directors appointed by the BAT Group, compensation is under review], and to make proposals the Committee reviewed the dossiers of as appropriate. proposed replacement candidates and deliberated on their qualifications and suitability for the roles on the Board. Once suitable candidates were agreed among the The Committee is authorized Committee members, recommendations by the Board to obtain, at the were made to the Board to fill the vacancies. ii. The dossiers of candidates for two senior company’s expense, such outside management vacancies were reviewed and legal or other independent recommendations were made to the Board regarding Head of Trade Marketing & professional advice as it considers Distribution and HR Business Partner. necessary... iii. The Committee ratified the bonus payment for the year 2018 and offered its congratulations to the management and staff for delivering a good year’s results. The Committee members are: Mr. Oliver Holmes iv. The Committee ratified the salary increases (Chairman), Mr. Matthew Hogarth and Mrs. Brenda which were implemented on April 1, 2019 Wilbert (resigned November 7, 2018). Mr. Marcus Steele based on the annual compensation and (Managing Director) is a permanent invitee to the benefit survey results. meetings.
Please note that our Corporate Governance guidelines are available on our website at www.carrerasltd.com
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The table below provides details on the Directors’ attendance at Board and Committee Meetings:
Nomination & Corporate Audit Name of Director Board Compensation Governance Committee Committee Committee Arturo Campero* 3 2 n/a n/a Michael Bernard 7 4 n/a n/a Matthew Hogarth 6 4 2 1 Oliver Holmes 7 n/a 2 1 Rafael Marquez* 3 n/a n/a n/a Rosa Pereira Sigala** 7 n/a n/a - Maria Gabriela Rincon** 4 3 n/a n/a Janene Shaw 6 3 n/a 1 Marcus Steele 6 3 2 1 Brenda Wilbert** 5 n/a 2 n/a
* Messrs. Arturo Campero and Rafael Marquez joined on November 7, 2018
** Mrs. Maria Gabriela Rincon and Mrs. Brenda Wilbert resigned on November 7, 2018 Mrs. Rosa Pereira Sigala resigned on February 6, 2019
Number of meetings held during the Financial Year
Board 7 Audit Committee 4 Nomination and Compensation Committee 2 Corporate Governance Committee 1 formal meeting and several telephone discussions
Ashleigh Arnold, Legal & External Affairs Manager, Carreras, being presented with the 2nd Runner Up, Best Website Award at the 2018 Jamaica Stock Exchange (JSE) Best Practices Awards by Professor Neville Ying, Chairman, JSE Best Practices Awards Committee: Carreras has been winning an Award in the Best Website category since 2012.
Awards in the category recognize the highest standards in the quality and efficiency of the dissemination of information to shareholders and the investing public through their website.
27 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
OPERATING ENVIRONMENT
Global growth which peaked at close to 4% in 2017, 2.20% 2.00% softened to 3.6% in 2018 and is projected to decline 1.80% 1.40% further to 3.3% in 2019. Global economic activity 1.10% slowed notably in the second half of 2018, reflecting 0.80% a convergence of factors affecting major economies. -0.10% These factors included the decline of China’s growth following a combination of regulatory tightening and an Apr-Jun 2017 Jul-Sept 2017 Oct-Dec 2017 Jan-Mar 2018 Apr-Jun 2018 Jul-Sept 2018 Oct-Dec 2018 increase in trade tensions with the United States. The euro economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards. External Quarterly Gross Domestic Product demand softened especially from emerging Asia. Japan was affected by natural disasters. Overall, trade tensions increasingly took a toll on business confidence In relation to its fiscal performance, the Government with financial conditions tightening firstly in emerging of Jamaica (GOJ) continued the trend of solid markets and then later to advanced economies. With performance for the 2018/19 fiscal year and remains this weakness expected to persist in 2019, the World committed to maintaining its primary surplus and public Economic Outlook, projects a decline in growth for 70% sector overall balance targets under its International of the global economy. The outlook for many countries Monetary Fund (IMF) Stand-By Arrangement. For the remains challenging with considerable uncertainties in second consecutive year, the Central Government’s the short term. operations recorded a cumulative fiscal surplus, being $24.4 billion for fiscal year ended March 2019 and Against this background, for 2018/19, Jamaica’s macro- $8.7 billion for the corresponding period last year. economic fundamentals reflected increasing stability The fiscal out-turn reflected a faster pace of growth throughout the financial year with indicators overall in revenues and grants compared with the increase in trending positively. The positive prospects of the expenditure. The performance of revenue and Grants Jamaican economy are underpinned by adequate for the 12-month period to March 2019 was attributable reserves, sustainable balance of payments, strong fiscal to higher tax receipts, non-tax receipts and grants performance and low inflation. compared to the prior year. The overperformers included GCT, customs duty and income tax. The Jamaican economy continued to show signs of recovery and projections for economic output remains Through successive years of fiscal discipline, the positive. The preliminary Gross Domestic Product country’s debt-to-GDP ratio is expected to reduce to (GDP) estimate for the calendar year 2018 shows a 96% at the end of the fiscal year ended March 31, 2019. 1.9% growth, indicating recovery over 2017. 2017’s This figure will represent the country’s lowest level of disappointing growth of 0.5% was due mainly to severe debt in nearly two decades and the first time that the floods and other adverse weather conditions during the debt-to-GDP ratio has dipped below 100% over that first half of the year. The economy rebounded in 2018 period. This will be considered a significant milestone with improved performances particularly in both the given the historical context of high debt to GDP levels Services and the Goods Producing Industries. over the years, which reached an all-time high of 212.40% in 1984. For 2018, the growth in real GDP reflected increased external demand from Jamaica’s main trading partners, The current economic trend indicates low single digit which supported increased exports of some goods inflation rates which is due in part to continued low and services. Improvements were also noted in commodity prices. At March 31, 2019, point-to-point stopover visitor arrivals, mining and quarrying, major inflation rate stood at 3.4% compared to 2.4% at infrastructure developments, residential and commercial December 2018 but remained below the lower limit of buildings, road construction and rehabilitation activities. the target band of 4.0 per cent to 6.0 per cent. This increase largely reflected the impact of higher prices for For the March 2019 quarter, the Jamaica economy is agricultural foods, processed foods and other services. estimated to have grown in the range of 1% to 2%. This The effect of these increases was partly offset by a is above the 1.4% recorded for March 2018 quarter but decline in electricity costs. Over the next two years, below the growth of 2% for the December 2018 quarter. inflation is projected to average 4.5%, falling below the lower limit of the BOJ’s target band at various points The prevailing expectation is that there will be modest during the period, then gradually approach the 5.0% acceleration in growth over the next two years. The target. This forecast is mainly predicated on low, albeit government’s tax cuts, announced in the 2019 Budget, improving domestic demand, relative to capacity and which could spur economic activity, provides an upside moderate increases in international commodity prices. to economic growth. The economy is projected to grow by 1.7% in 2019.
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Mth PTP 5% 12.9 12.7 3.90% 12.2 4% 3.40% 11.3 3% 10.4 2% 9.6 9.7 0.80% 1% -0.10% 8.4 8.7 0% 8.0 -1% -2% Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19
Inflation Unemployment Rate
During our financial year, the JMD: USD exchange rate Crime and violence levels remain high with a homicide depreciated at a rate of 0.38% relative to the 2.0% rate of 47 per 100,000 of population for 2018. This appreciation observed in the previous financial year. rate is almost three times higher than the average for There were significant periods of volatility during the Latin America and the Caribbean, which has the highest year with the monthly average exchange rates at a high homicide rate globally of 16 per 100,000 of population. of $136.90 in August 2018 and a low of $125.35 in April 2018. At the end of March 2019 quarter, the weighted In relation to the tobacco industry, the incidence of the average selling rate of the Jamaican dollar vis-á-vis the US illicit trade in cigarettes remains a major concern. dollar of J$126.47 = US$1.00, represented an appreciation Internal studies have shown that almost a third of of 0.98% relative to the previous quarter. Looking ahead, the cigarettes consumed in Jamaica are illicit. The in the short-term, we can expect the exchange rate to illicit trade in cigarettes forms a part of the informal vary in either direction in accordance with demand and segment of the Jamaican economy which is estimated supply. In the longer term, the JMD/USD exchange rate to be between 40% to 60% of the formal economy. should reflect the differential between Jamaica and its This segment includes small businesses, self-employed main trading partners, USA and Canada. individuals and participants in drug-trading and other illegal activities. Apart from the fact that revenues For our financial year, the Jamaican dollar depreciated generated are not reported to the tax authorities, there against the Great Britain Pound by 3.7% to end at is also an element of criminality involved since some J$165.53 = £1.00 at March 31, 2019. areas of the informal economy are crime related.
J$/U$ J$/GBP Despite Jamaica’s progress in maintaining macro- 178.11 economic stability and fostering growth, stronger and 165.53 more resilient economic growth is needed to eliminate poverty and boost shared prosperity. This underscores the need to continue to address the threats that persist. 125.99 126.47 Studies done by both the World Economic Forum and the World Bank have highlighted some of these. The World Economic Forum, Global Competitiveness Report 2017-18, cited that 15.5% of Jamaica business persons Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 identified crime and theft as the most problematic factor for doing business, while 12.6% identified tax rates and 9.7% identified corruption as the greatest problem. The World Bank study, Doing Business 2018, Exchange Rates ranked Jamaica at a low of 5 out of 190 countries in (BOJ Weighted Average Selling Rate) terms of ease of starting a business, and 122 out of 190 countries in terms of ease of paying taxes.
Net International Reserves as at March 2019 Overall Jamaica’s outlook remains positive. Economic stood at US$3,084.83 million and represents 20.05 fundamentals in Jamaica are expected to remain strong weeks of reserves of goods and services imports. over the short to medium term. Within the context of This represented 8.05 weeks over the international a projected 3.3% growth in global economy in 2019, The benchmark of 12 weeks of goods imports. IMF is projecting growth in GDP of 1.7% for Jamaica for the same period. The IMF further projects growth for Unemployment rates fell to 8% in January 2019, Jamaica to increase to 1.9% in 2020 and 2.4% in 2024. representing a reduction of 1.6 percentage points The main drivers of growth are expected to be in Mining relative to 9.6% in January 2018. The largest increase & Quarrying, Construction, Agriculture and Hotels & in the number of employed persons by industry group Restaurant Industries. Key downside risks that could included Real Estate and Hotels and Restaurant. Despite derail growth prospects include a slowdown in global this reduction, more needs to be done to address the growth, macroeconomic and/or weather-related shocks, relatively high levels of youth employment, which is policy reversal of the structural reforms, and a high currently at 21.8% (January 2018: 23.7%). crime rate.
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RISK MANAGEMENT
The effective management of risks is crucial to the fulfillment of Carreras Limited’s Mission and Vision. Our risk management framework supports our strategy for maintaining a long-term sustainable business. Carreras Limited manages its risks on an enterprise-wide basis across core business processes, starting at the strategic planning level, through to execution, evaluation and continuous monitoring.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.
During the year, the Directors have carried out a robust assessment of the key risks and uncertainties facing the Company, including those that threaten its business model, future performance, solvency or liquidity.
The key risks facing the Company have remained broadly unchanged over the past year. Our number one risk remains Competition from illicit trade. The Company continues to experience high levels competition from illicit trade, either local taxes being evaded, smuggled illicit cigarettes or counterfeits.
In relation to capital management, the Company’s objectives are to safeguard its ability to continue as a going concern in order to provide returns for shareholders. The Board monitors the return on capital / stockholders’ return on equity, which is defined as net operating income divided by shareholders’ equity. For the 2018/19 financial year, the return on capital at 255.1%, is showing improvement over last year’s 170.7%.
The Board of Directors have no reason to believe that its policy to maintain a strong capital base so as to preserve investor, creditor and market confidence and to sustain the future development of the business will not continue into the foreseeable future.
RISK MANAGEMENT APPROACH The Risk Management Committee (RMC) which is comprised of the senior management team has responsibility for identifying, assessing, managing and monitoring risks likely to face the Company and implement effective mitigating controls to manage these risks. Clear accountability is attached to each risk through the risk owner. The deliberations of RMC meetings are reported to the Board of Directors through the Audit Committee of the Board.
Carreras believes that its risk appetite and tolerance limits are the foundation of its risk management framework; which ultimately establishes the risk culture for the Company.
KEY BUSINESS RISKS Currently there are several risks that are identified by the RMC as significant enough to be monitored. These risks, along with management’s mitigation measures are assessed at least on a quarterly basis.
Based on the Company’s risk appetite and risk tolerance, the Company actively manages the key business risks covering External Environment, Regulatory, People and Processes and Operational.
Below are some of the key risks that the Directors believe to be the most important after assessment of the likelihood and potential impact on the business. Not all of these risks are within the control of the Company and other factors besides those listed may affect the Company’s performance. Some risks may be unknown at the present and other risks, currently regarded as less material could become material in the future.
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External Environment Risks: Regulatory Risks: Competition from illicit trade – either local Significant increases or structural changes in taxes evaded, smuggled illicit cigarettes or tobacco - related taxes (excise) counterfeits The Company is exposed to unexpected and/or With affordability being a major issue for the Jamaican significant excise increases or changes to the structure cigarette consumer, resulting from the macro- thereof. Excise increases for the three consecutive economic environment, as well as increased prices years, 2015 to 2017 proved to be significant and of legal cigarette brands as a result of frequent and excessive and have resulted in a transfer of volumes excessive excise increases, illicit cigarettes have from the legal industry to the illicit trade in cigarettes. become more attractive as they do not pay the This was particularly so in 2017 when a 21.4% increase requisite taxes, and as such, are sold at significant in tobacco excise was implemented. Not only did the lower prices than legitimate brands. In addition, most industry experience a reduction in sales volumes, but of these illicit cigarettes are sold at the lower segment the Government lost well needed revenues compared of the market and in contravention of regulatory to their intake in 2016. We note that the Government requirements. This results in lower volumes and profits has prudently not levied any further increases since for legitimate players like Carreras. Furthermore, that time and we encourage that the industry be the investment in trade marketing and distribution is provided with an opportunity to stabilize and recover undermined. sales volumes. In addition, we further encourage the implementation of a sustainable excise strategy. Management’s Response: Robust Anti-Illicit Trade Strategy, Active engagement with key external Significant increases in tobacco excise affects the stakeholders, Cross-industry and multi-sector ability of consumers to pay for legitimate brands, cooperation, Proactive excise engagement with thus increasing the attractiveness and demand for low Government, Building brand equity for our low price priced cigarettes. This ultimately results in reducing offer, Strategic engagements and Price campaigns/ legal industry volumes as well as the erosion of the consumer engagement activities. brand value of legitimate brands. Excessive increases over time will erode revenue and profit growth and result in the failure of the Company to meet the Aggressive competitive environment - Legal expectations of its shareholders. (Low Price Ofers/Grabba) The Jamaican tobacco industry is dynamic with new Management’s Response: Proactive Stakeholder players offering brands in the low-priced segment of Engagement towards ensuring a sustainable excise the market. Other tobacco products (OTP), Mainly strategy by the Government, portfolio reviews to Grabba, continue to have an increasing presence ensure appropriate balance and coverage across price within the market based on the demand for the segments, monitoring of economic indicators and product. Consumer affordability issues pose a risk in Government revenues. consumers switching from the Company’s value for money brands to these ultra-low price offers. Tobacco regulation that inhibits growth Management’s Response: Expansion of distribution strategy network, Product innovation, Understanding and The enactment of regulation that is unbalanced and advancing strategic engagement with all the tiers of impractical, and significantly impairs the Company’s the tobacco retailing universe. ability to communicate with consumers, differentiate our products in the marketplace and launch future products, pose a risk to the Company’s long-term Increase in crime and violence leading to sustainability. Particularly, this could lead to an adverse increased volatility on routes impact on the ability to compete within the legal High levels of crime and violence levels have continued tobacco industry and with increased illicit trade. to be a factor in Jamaica. This impact is characterized by possible attacks on our staff members including loss Management’s response: Proactive and robust of life, financial losses due to loss of assets, limited stakeholder engagement and litigation strategy access to market and disruption to normal business for balanced regulations. Ongoing monitoring of processes and operations. Overall sustained crime and marketing plans to ensure compliance with internal violence will threaten business sustainability. self-regulations and local legislation.
Management’s Response: Rationalize routes with higher security risk, increase in security coverage on routes with higher risk profile, Implementation of new Route to Market Model
31 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
People and Processes Risk: Operational Risks: Losing key talent Concentration of credit risk with large credit Carreras’ business objective is to attract, develop customers and retain the right people to drive and deliver The Company has a significant concentration of credit competitive advantage and superior performance. As risk with large credit customers with material balances the market becomes more saturated and globalized, both individually and in aggregate. Credit risk is the competition for talent has become fiercer. As such, risk of loss arising from a counterparty to a financial if the value proposition from the organization is not contract failing to discharge its obligations. aligned with the demands of these talent the risk of losing them to other organizations becomes imminent. Management’s Response: Continuous engagement with large customers, on-going assessment of Management’s Response: Strong retention plan recoverability of balances which may be impacted by benchmarking against the top ten companies’ changes in the economic and business environment, compensation, Focus on succession planning, Employee expansion of the distribution network, Credit Risk engagement strategy. Insurance.
Foreign currency risk The Company incurs foreign currency risk primarily on purchases that are denominated in currency other than the Jamaica dollar, consequently, strengthening or weakening of the currencies against the Jamaica dollar would result in increased profit or loss to the Company. Sales of cigarettes are exclusively in the domestic market.
Management’s Response: Maintain US Dollar holding to cover at least twice the US Dollar liability, Continuous review of cost base, Liquidate foreign currency liabilities timely.
Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments associated with its liabilities. Liquidity problems may result from an inability to sell a financial asset quickly at, or close to, its fair value. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and ensuring the availability of funding through an adequate amount of committed facilities.
Management’s Response: Maintain a substantial portion of highly liquid cash reserves, Ongoing monitoring of current ratio.
Carreras Limited Annual Report 2019 32 Strategic Report Governance Management's Discussion & Analysis Financial Statements
TEN-YEAR FINANCIAL REVIEW
(all figures expressed in thousands of dollars except where otherwise noted)
Restated FINANCIAL YEAR 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2011/12 2010/11 2009/10 2012/13 PROFIT & LOSS SUMMARY
GROSS OPERATING REVENUE 12,906,497 12,550,132 13,509,228 11,980,138 11,208,369 10,342,006 12,241,512 11,022,746 12,935,692 10,410,178
TRADING PROFIT 4,499,362 4,587,300 4,933,927 3,736,050 3,804,121 3,199,787 3,844,022 3,437,158 4,291,204 3,514,143 INCOME FROM NON ROUTINE TRANSACTIONS - - - - - 1,787,365 5,083,600 - - -
TOTAL TRADING PROFIT 4,499,362 4,587,300 4,933,927 3,736,050 3,804,121 4,987,152 8,927,622 3,437,158 4,291,204 3,514,143
INVESTMENT & INTEREST INCOME 67,467 89,326 108,262 176,612 146,141 174,719 158,294 125,672 138,890 269,142 OPERATING PROFIT 4,566,829 4,676,626 5,042,189 3,912,662 3,950,262 5,161,871 9,085,916 3,562,830 4,430,094 3,783,285 EMPLOYEE BENEFIT INCOME (50,900) (39,300) (32,300) (9,100) (11,900) 22,600 (233,100) 363,400 550,400 711,200 PROFIT BEFORE TAXATION 4,515,929 4,637,326 5,009,889 3,903,562 3,938,362 5,184,471 8,852,816 3,926,230 4,980,494 4,494,485 PROFIT AFTER TAXATION 3,406,902 3,484,630 3,806,322 3,011,333 2,942,960 4,003,175 6,234,234 2,597,220 3,314,076 3,001,875 PROFIT ATTRIBUTABLE TO STOCKHOLDERS 3,406,849 3,484,596 3,806,233 3,011,191 2,942,914 3,999,992 6,234,059 2,597,229 3,314,097 3,001,869
BALANCE SHEET SUMMARY
FIXED ASSETS 383,017 337,251 300,150 236,485 248,256 204,632 158,650 145,150 140,190 114,724
SHARE CAPITAL 121,360 121,360 121,360 121,360 121,360 121,360 121,360 121,360 121,360 121,360 RESERVES 1,214,144 1,920,034 2,006,755 1,654,302 3,050,396 4,073,129 3,562,164 2,818,195 3,210,417 2,669,801
STOCKHOLDERS’ EQUITY 1,335,504 2,041,394 2,128,115 1,775,662 3,171,756 4,194,489 3,683,524 2,939,555 3,331,777 2,791,161
FINANCIAL RATIOS TRADING PROFIT MARGIN 34.9% 36.6% 36.5% 31.2% 33.9% 30.9% 31.4% 31.2% 33.2% 33.8% OPERATING PROFIT/OPERATING REVENUE 35.4% 37.3% 37.3% 32.7% 35.2% 32.6% 32.7% 32.3% 34.2% 36.3% STOCKHOLDERS’ RETURN ON EQUITY 255.1% 170.7% 178.9% 169.6% 92.8% 95.4% 169.2% 88.4% 99.5% 107.5% EARNINGS PER STOCK UNIT (from normal operations) * 70.2¢ 71.8¢ 78.4¢ 62.0¢ 60.6¢ 54.7¢ 55.1¢ 53.5¢ 68.2¢ 61.8¢ EARNINGS PER STOCK UNIT (from non-routine transactions) - - - - - 27.6¢ 73.3¢ - - - P/E RATIO 13.4 14.8 9.4 10.7 6.6 4.3 4.1 11.8 8.9 7.8
DISTRIBUTION - PER STOCK UNIT* 85.0¢ 74.0¢ 71.0¢ 89.4¢ 80.9¢ 70.4¢ 117.9¢ 56.0¢ 50.0¢ 70.0¢ OTHER DATA
SHARE CAPITAL - STOCK UNITS IN ISSUE (‘000) 4,854,400* 4,854,400* 485,440 485,440 485,440 485,440 485,440 485,440 485,440 485,440 CLOSING STOCK PRICE ($) - MARCH 31 9.43 10.61 7.40 6.61 3.99 3.55 5.29 6.30 6.05 4.85 DIVIDEND PAID 4,126,240 3,592,256 3,446,624 4,342,104 3,930,709 3,418,898 5,723,338 2,718,464 2,427,200 3,398,080 DEPRECIATION CHARGED 88,156 77,084 57,407 62,506 65,887 50,556 46,616 55,349 48,884 40,833 EXCHANGE GAIN / (LOSS) (16,705) (7,632) 52,202 30,692 45,591 88,953 160,582 19,369 (48,911) 4,945 WEIGHTED AVERAGE BUYING EXCHANGE RATES: US$ 1 to J$ 123.5735 124.6545 127.7664 122.0421 115.0435 109.5744 98.8865 87.3000 85.7486 89.5082
* Each ordinary share was sub-divided into 10 ordinary shares (10:1) at close of business on September 20, 2017
33 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
(all figures expressed in thousands of dollars except where otherwise noted)
Restated FINANCIAL YEAR 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2011/12 2010/11 2009/10 2012/13 PROFIT & LOSS SUMMARY
GROSS OPERATING REVENUE 12,906,497 12,550,132 13,509,228 11,980,138 11,208,369 10,342,006 12,241,512 11,022,746 12,935,692 10,410,178
TRADING PROFIT 4,499,362 4,587,300 4,933,927 3,736,050 3,804,121 3,199,787 3,844,022 3,437,158 4,291,204 3,514,143 INCOME FROM NON ROUTINE TRANSACTIONS - - - - - 1,787,365 5,083,600 - - -
TOTAL TRADING PROFIT 4,499,362 4,587,300 4,933,927 3,736,050 3,804,121 4,987,152 8,927,622 3,437,158 4,291,204 3,514,143
INVESTMENT & INTEREST INCOME 67,467 89,326 108,262 176,612 146,141 174,719 158,294 125,672 138,890 269,142 OPERATING PROFIT 4,566,829 4,676,626 5,042,189 3,912,662 3,950,262 5,161,871 9,085,916 3,562,830 4,430,094 3,783,285 EMPLOYEE BENEFIT INCOME (50,900) (39,300) (32,300) (9,100) (11,900) 22,600 (233,100) 363,400 550,400 711,200 PROFIT BEFORE TAXATION 4,515,929 4,637,326 5,009,889 3,903,562 3,938,362 5,184,471 8,852,816 3,926,230 4,980,494 4,494,485 PROFIT AFTER TAXATION 3,406,902 3,484,630 3,806,322 3,011,333 2,942,960 4,003,175 6,234,234 2,597,220 3,314,076 3,001,875 PROFIT ATTRIBUTABLE TO STOCKHOLDERS 3,406,849 3,484,596 3,806,233 3,011,191 2,942,914 3,999,992 6,234,059 2,597,229 3,314,097 3,001,869
BALANCE SHEET SUMMARY
FIXED ASSETS 383,017 337,251 300,150 236,485 248,256 204,632 158,650 145,150 140,190 114,724
SHARE CAPITAL 121,360 121,360 121,360 121,360 121,360 121,360 121,360 121,360 121,360 121,360 RESERVES 1,214,144 1,920,034 2,006,755 1,654,302 3,050,396 4,073,129 3,562,164 2,818,195 3,210,417 2,669,801
STOCKHOLDERS’ EQUITY 1,335,504 2,041,394 2,128,115 1,775,662 3,171,756 4,194,489 3,683,524 2,939,555 3,331,777 2,791,161
FINANCIAL RATIOS TRADING PROFIT MARGIN 34.9% 36.6% 36.5% 31.2% 33.9% 30.9% 31.4% 31.2% 33.2% 33.8% OPERATING PROFIT/OPERATING REVENUE 35.4% 37.3% 37.3% 32.7% 35.2% 32.6% 32.7% 32.3% 34.2% 36.3% STOCKHOLDERS’ RETURN ON EQUITY 255.1% 170.7% 178.9% 169.6% 92.8% 95.4% 169.2% 88.4% 99.5% 107.5% EARNINGS PER STOCK UNIT (from normal operations) * 70.2¢ 71.8¢ 78.4¢ 62.0¢ 60.6¢ 54.7¢ 55.1¢ 53.5¢ 68.2¢ 61.8¢ EARNINGS PER STOCK UNIT (from non-routine transactions) - - - - - 27.6¢ 73.3¢ - - - P/E RATIO 13.4 14.8 9.4 10.7 6.6 4.3 4.1 11.8 8.9 7.8
DISTRIBUTION - PER STOCK UNIT* 85.0¢ 74.0¢ 71.0¢ 89.4¢ 80.9¢ 70.4¢ 117.9¢ 56.0¢ 50.0¢ 70.0¢ OTHER DATA
SHARE CAPITAL - STOCK UNITS IN ISSUE (‘000) 4,854,400* 4,854,400* 485,440 485,440 485,440 485,440 485,440 485,440 485,440 485,440 CLOSING STOCK PRICE ($) - MARCH 31 9.43 10.61 7.40 6.61 3.99 3.55 5.29 6.30 6.05 4.85 DIVIDEND PAID 4,126,240 3,592,256 3,446,624 4,342,104 3,930,709 3,418,898 5,723,338 2,718,464 2,427,200 3,398,080 DEPRECIATION CHARGED 88,156 77,084 57,407 62,506 65,887 50,556 46,616 55,349 48,884 40,833 EXCHANGE GAIN / (LOSS) (16,705) (7,632) 52,202 30,692 45,591 88,953 160,582 19,369 (48,911) 4,945 WEIGHTED AVERAGE BUYING EXCHANGE RATES: US$ 1 to J$ 123.5735 124.6545 127.7664 122.0421 115.0435 109.5744 98.8865 87.3000 85.7486 89.5082
* Each ordinary share was sub-divided into 10 ordinary shares (10:1) at close of business on September 20, 2017
Carreras Limited Annual Report 2019 34 Strategic Report Governance Management's Discussion & Analysis Financial Statements
LEADERSHIP TEAM
NatioNality: Jamaican PositioN: Managing Director of Carreras Limited since March 2013; appointed to the Board of Directors since October 2007.
other aPPoiNtmeNts: Director of Proven Wealth Limited and Non-Executive Director at Peak Bottling Company Limited and Catherine’s Peak Bottling Company Limited; Chairman of the Board of Directors of Demerara Tobacco Company since February 2018.
skills & exPerieNce: Mr. Steele frst joined Carreras Group Limited in the Company’s Tobacco division, Cigarette Company of Jamaica Limited, in the capacity of Management Accountant in April 1998. In June 1999, he was promoted to Finance Planning Manager and Marketing Finance Manager in June 2001. In May 2002, he was appointed Finance Planning Manager with overall responsibility for management of Marketing and Operations Finance. In March 2004, Mr. Steele was seconded to British American Tobacco (BAT) Caribbean and Central America’s Area Offce in Costa Rica as the Country Readiness Manager for the Caribbean with responsibility for leading the migration of the Caribbean legal entities into the regional shared service centre. In July 2005, he was appointed Finance Planning and Reporting Manager for BAT’s operations Marcus STEELE in the Caribbean and Central America where he focused on fnancial reporting, strategy and planning. Mr. Marcus Steele was then appointed to the Board of Directors of Carreras Limited on October 1, 2007 and served as Finance Director and Company MANAGING DIRECTOR Secretary up until August 2011 when he was seconded to the Trinidad branch of another BSc., ACCA, CA, MBA, GMP (HBS) BAT Company, Carisma Marketing Services Limited, in the position of Country Manager with responsibility for the general management of the Company’s businesses across 24 markets in the English, French and Dutch Caribbean.
QualificatioNs: Graduate of St. Jago High School. Chartered Accountant; B.Sc. Accounting, University of the West Indies; MBA, Florida International University. Executive Programme in General Management, Harvard Business School.
NatioNality: Jamaican PositioN: Finance Director and Company Secretary
other aPPoiNtmeNts: Appointed to the Board of Directors on May 27, 2015
skills & exPerieNce: Janene is a qualifed Chartered Accountant with over 25 years’ experience and a proven track record in fnancial management, accounting and auditing. Janene is responsible for the Strategic Financial Management of the Company and also performs the role of Company Secretary. Prior to joining Carreras, Janene was employed at J. Wray & Nephew Limited / Lascelles deMercado & Co. Limited where she held various senior fnance positions, being General Manager, Finance & Administration – JWN Agricultural Division, Group Financial Offcer and Accounting and Treasury Director. Prior to that, Janene was employed at PriceWaterhouseCoopers where she gained progressive audit experience to the level of Audit Manager.
QualificatioNs: BSc. Accounting, University of the West Indies, Mona Campus Member of the Institute of Chartered Accountants of Jamaica Member of the Association of Certifed Chartered Accountants, U.K Janene SHAW
(FINANCE DIRECTOR & COMPANY SECRETARY) FCA, FCCA, BSc.
35 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
NatioNality: Jamaican PositioN: Legal and External Affairs Manager
other aPPoiNtmeNts: Director, The Stationery Centre, Director, Nature Preservation Foundation, Jamaica Chamber of Commerce Representative on the Government of Jamaica and European Union Poverty Reduction Steering Committee
skills & exPerieNce: Ashleigh-Ann Arnold was appointed as the Legal and External Affairs Manager, Carreras Limited in March 2016. She previously served as the Legal and External Affairs Executive for Carreras since 2008 and concurrently since 2014, Legal and External Affairs Executive for 11 Markets in the Northern Caribbean for Carisma Marketing Services, another British American Tobacco Company. After joining the Company in 2005 as a Management Trainee, Ashleigh was promoted to the role of Corporate and Regulatory Affairs Executive during which time she played an integral role in the execution of the Company’s reputation and regulatory strategy. In February 2012, she was seconded to British American Tobacco Caribbean and Central America’s (BATCCA) Area Offce in Costa Rica as the Area Corporate Social Responsibility & Regulations Executive where she was responsible for developing and coordinating BATCCA’s corporate social responsibility initiatives and regulatory strategy in 30 Ashleigh-Ann ARNOLD markets across the Caribbean and Central America.
QualificatioNs: BSc. (Cum Laude) Integrated Marketing Communications, Winthrop (LEGAL & EXTERNAL AFFAIRS University, USA MANAGER) MA (Dist.), Communications Studies, University of the West Indies, Mona BSc. (Hons), MA (Dist)
NatioNality: Jamaican PositioN: Marketing Deployment Manager
other aPPoiNtmeNts: Adjunct Lecturer at the University of Technology
skills & exPerieNce: Rohan Campbell joined the Company in December 2011 as an Area Sales Manager, managing four depots in the Western Region. From November 2014 to June 2015, Rohan served as the Acting Trade Marketing & Distribution Manager. In September 2015, Rohan assumed the role of Project Coordinator for the DX change over, having special responsibility for redesigning the Company’s route to market/distribution structure, leading to a signifcant reduction in distribution cost. In April 2017, Rohan was seconded on an International Assignment to BAT’s Caribbean and Central American Area Offce in the capacity of Area Brand Executive. In this role, Rohan had oversight for brand building for the aspirational premium portfolio in 22 markets across the Caribbean. During this assignment, he also assumed the role of Marketing Deployment Manager, double-hatting to manage the portfolio and marketing efforts for the Caribbean cluster. Before joining Carreras, Rohan held several marketing and sales management positions including Business Unit Manager at HD Hopwood and Company and Dairy Sales Manager at World Brand Services (a Division of Grace Rohan CAMPBELL Kennedy). Throughout his career, Rohan can be credited for successfully launching several new products, resulting in increased market penetration as well as implementing several staff recognition initiatives. (MARKETING DEPLOYMENT MANAGER) QualificatioNs: BSc. (Hons) in Management Studies BSc. (Hons), MBA (Dist.) MBA Marketing (Dist.), both from the University of the West Indies
Carreras Limited Annual Report 2019 36 Strategic Report Governance Management's Discussion & Analysis Financial Statements
NatioNality: Trinidadian PositioN: Human Resource Business Partner
skills & exPerieNce: Portia Darsoo was promoted to the position of Human Resource Business Partner for Carreras in January 2019. She joined the HR team at West Indian Tobacco in 2014, holding different positions in both the Commercial and Operation areas of the business. In April 2017, she was promoted to the position of Aurora Project Lead – Caribbean and Central America in BAT´s Costa Rica offce where she was responsible for the modifcation and implementation of a Global HR project for nine (9) end markets. In February 2018, she was seconded to BAT´s Colombia offce in the position of Human Resource Business Partner as part of the SANCAR (South America North and the Caribbean) integration for her expertise in Caribbean HR. Portia has over 12 years’ experience in HR and has worked both in the Manufacturing and Financial Sectors in Trinidad and Tobago, prior to joining BAT. She is experienced in Talent Acquisition, HRIS Implementation, Training and Development, Performance Management, Project Management and Labor Relations.
QualificatioNs: BSc (Hons) Management Studies and Sociology, University of the West Indies, St Augustine Portia DARSOO MSc (Dist.) Human Resource Management, Heriot-Watt University
HUMAN RESOURCE BUSINESS PARTNER BSc. (Hon), MSc (Dist)
NatioNality: Trinidadian PositioN: Trade Marketing and Distribution Manager
skills & exPerieNce: Jason Fournillier was appointed to the position of Trade Marketing and Distribution Manager for Carreras Limited in January 2019. Jason began his career with the BAT Family in 2004 at West India Tobacco Ltd. as a Trade Marketing Executive, after four months moving on to specialize in the Horeca Channel (Horeca -Hotel, Restaurant, Café). Over the years, Jason has worked in BAT Caribbean & Central America in several roles including Marketing Management Trainee, specializing in Trade Research and Retail Communication, Trade Marketing & Distribution Manager & Area Manager and Marketing Process Lead. As Marketing Process Lead for the Global SAP Transformation Program which involved the development of a communication platform for SAP and roll out, Jason led of one of BAT’s largest ever business transformation programs across the Caribbean and Central America. In BAT Spain, he successfully standardized Retail Audit and GCS information for Spain Mainland, Portugal and The Canary Islands. He has also served as Managing Director for Demerara Tobacco, where he developed a regulatory engagement platform for Tobacco Control/Illicit Trade. In July 2016 he became Territory Manager for CARISMA Marketing BAT SANCAR (Colombia, Venezuela, Caribbean) where he led the rebuilding Jason FOURNILLIER and retooling of the export arm of West Indian Tobacco Ltd. Before, beginning his career with the BAT Family, for nine years Jason held various positions in the banking TRADE MARKETING AND sector, moving through the ranks to the position of Corporate Loans Offcer. DISTRIBUTION MANAGER QualificatioNs: Business Manager Transition Program, British American Tobacco. BSc. BSc. Management Studies (Special), University of the West Indies
37 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
MANAGEMENT DISCUSSION & ANALYSIS
Carreras Limited Annual Report 2019 38 Strategic Report Governance Management's Discussion & Analysis Financial Statements
MANAGING DIRECTOR’S OVERVIEW
The year has been simultaneously Managing Director rewarding and challenging. The challenges met and overcome by the Carreras team, demonstrate Marcus Steele resilience, innovation, strength and agility. Despite an increasingly complex operating environment, the management team has remained fully committed to delivering enviable returns to our shareholders through various strategic initiatives. During the year, these key initiatives included efforts to achieve greater route to market efficiencies, leveraging the strength of our brands and increasing the core competencies of staff. Our approach to solving complex issues and executing our strategic plans helps to ensure that we continue to deliver value to our shareholders and certifies our commitment to a strong Carreras.
The performance this past year is reflective of an operating environment defined by decreased customer purchasing power and overall affordability challenges by some of our consumers, who in search of lower price alternatives, may participate in the very active and prevalent illicit cigarette trade. Given these external factors, we have had to place greater focus on keeping our brands healthy and at the forefront of innovation, as well as continually refine our route to market approach. The investment in these strategic priorities led to a 9% increase in our administrative, distribution and marketing expenses. Consequently, Profit after Tax declined by 2.2%, from $3.5 Billion in 2018 to $3.4 billion in 2019. However, I should highlight that Operating Revenue increased by 2.8%, $12.6 Billion in 2018 compared to $12.9 Billion in 2019, representing a slight recovery in sales volumes after the 21.4% March 2017 Special Consumption Tax increase. The Compound Annual Growth rate over the five- year period for Profit After Tax
39 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
and Operating Expenses is 3.7% and 0.30% respectively, serves as the legal alternative to the illicit cigarette indicating a trend of overall growth. brands. Ultimately, our brands remain robust, vibrant and effective. We maintain that a natural consequence of frequent and excessive increases in tobacco excise is increased We have sustained our image as a successful Company interest in the illicit trade by consumers seeking a through the transformative effect capable staff cheaper alternative. In 2018, the Company continued has on any action plan. In 2018, we implemented a to work with the authorities to educate customers and multi-faceted, accessible HR system, various training consumers about the illegality and risks of consuming opportunities and the resolution of ongoing requests. unregulated, illegal or smuggled products. We also As Carreras endeavours to continue to be a place of staged a successful Anti-Illicit Trade Conference which choice to work, we continue to be a place of choice for was held to; sensitize key stakeholders in the fight success. Programmes such as Leading Self and Leading against the illicit trade on the size and scale of the issue, Managers and British American Tobacco (BAT) Global present a global perspective and best practice solutions Graduate Programme have extended our ability to from a widely recognized expert on International illicit detect and nurture future leaders within the Company. trade, and highlight the need to further refine the Our commitment to continuous development of our private-public collaborative framework, all of which we staff has allowed us to work across departmental see as critical components of any strategy to reduce lines to build collaborative roadmaps to joint action, the incidence of illegal cigarettes. The commitment of triggering an increased ability to move the needle the authorities to stemming the proliferation of illegal in areas of great importance. We also continued to cigarettes was reinforced in the observed collaboration empower our employees on “Delivery with Integrity” between the Police and the Jamaica Customs Agency, as through various training platforms such as e-learning well as the respective vigorous efforts of each agency, and webcasts, that will allow them to better identify that led to historic illegal cigarette seizures during and mitigate challenges related to key compliance the year. It underscored the collaborative power of areas such as anti-bribery and anti-corruption (ABAC) partnerships in achieving much greater collective impact laws. This was a BAT-wide initiative aimed at driving a than would be possible by any one organization or consistent approach to compliance across the Group. sector working in isolation. I extend my sincere thanks to every single employee. In the stepwise decision-making process, there exist Our impressive and loyal employees continue to serve certain prerequisites for customer action. With the as foundational building blocks in constructing strategy presence of the illicit trade, one of the most important and executing tactical adjustments. We have enjoyed prerequisites for Carreras to satisfy is the availability further commitment to work-life-balance, productivity of our key brands. We therefore continue to revise and success, and will make every effort to continue our route to market approach. Team members were doing so. given renewed training and new opportunities for advancement. Additionally, this year, with the aid of I also offer my gratitude to the Chairman and the entire increased security staff and a plan to deliver to more board. Their advice, leadership and expertise over areas than ever before, we had great success. In order to the past year have been invaluable. Thank you to our reclaim areas dominated by the illicit trade and perform customers and consumers, thank you for your loyalty. market disruption in the areas where it is present, We will do our best to continue to earn your continued how we get our products to customers remains a key support and trust. strategy. Managing our operations efficiently, responsibly and The value of efficiently delivering our products is effectively remains a priority for the Management inextricably linked to our ability to capture the hearts Team. As we keep our finger on the pulse regarding and minds of our consumers through marketing. This emerging technologies, we will continue to stabilize year, the marketing team did just that. Through our volume base and secure opportunities to deliver customer-feedback and in-field observation, we have sustainable growth by delivering customized attractive developed a deep understanding of the Jamaican value propositions to different segments of the market. consumer, culminating with a deeper appreciation of how much a single event or moment can affect a Quality staff recruitment, agile management and skilled person’s relationship with a brand. manoeuvring will continue to dominate our execution. This year, Carreras was strong. In the years to come, we We also maintained the diversity of our offerings, as are confident the Company will grow even stronger. well as the high standard of our products. Craven A and Matterhorn are still the number one brands in their Marcus Steele respective categories, while Pall Mall is effective in offering a high quality and cost-effective brand that Managing Director
Carreras Limited Annual Report 2019 40 Strategic Report Governance Management's Discussion & Analysis Financial Statements
FINANCIAL PERFORMANCE
Carreras Limited earned Operating Revenue of $12.9 billion (2018: $12.6 billion) and delivered a Profit After Tax of $3.4 billion (2018: $3.5 billion) for the financial year ended March 31, 2019. The Company experienced a 2.8% growth in Operating Revenue, signaling a slight recovery in sales volumes compared to the 2018 financial year. We are encouraged by this volume recovery and once again reaffirm our commitment to be the world’s best at satisfying consumer moments in tobacco and beyond.
Our strategy and focus for the 2019 financial year included the stabilization and recovery of volumes and providing value to consumers. Our core brands – Craven “A” and Matterhorn, performed well during the period, and continued to be the choice of adult tobacco smokers.
The sharp decline in volumes that followed the $4.1 billion or $0.85 per share, a 15% increase over the 2017 increase in tobacco excise has been widely corresponding period last year. Similarly, the dividend communicated. So too has been the fact that excessive yield increased over last year, being 9% for 2018/19 increases in tobacco excise have resulted in the transfer compared to 7% for the prior year. of volumes from the legal trade to the illicit trade in cigarettes. Within this context, we are pleased that our The liquidation process for Cigarette Company of 2019 strategy and focus to recover volumes has been Jamaica Limited (CCJ), which commenced in 2004, met with some success, representing a pivotal point for was completed during the year. CCJ was dissolved the business. by the Registrar of Companies, Companies Office of Jamaica, on November 9, 2018. Having received its final Although there were increases in Operating Revenue distribution from CCJ of $534.0 million (net) during the and Gross Operating Profit, increases in Administrative, year, Carreras Limited in turn made a special distribution Distribution and Marketing Expenses have outweighed to its stockholders on August 30, 2018. these, resulting in a 2.2% decline in Profit After Tax compared to the previous financial year. The increase Overall, the Company had a rewarding financial in Distribution and Marketing Expenses are mainly year. The outlook continues to be positive and the responsible for the growth in overheads. Firstly, the Company remains “fit for the future” having laid a solid Company increased investments behind our core brands, foundation over the years and established a process of Craven “A” and Matterhorn in order to reinforce the continuous improvement. Thus, ensuring a talented, brand value proposition to our customers. Secondly, diverse, highly motivated and committed team, an because of the increased levels of crime, we reorganized exceptional portfolio of brands which remain the choice the sales routes to avoid certain high-risk areas and of consumers, and an excellent route to market platform increased the security around our sales personnel. This to safeguard the sustainability of the business for all resulted in increased security costs. Thirdly, during the stakeholders. year, the Company commenced the investment in its new route to market structure. This structure which is Key performance indicators reflecting the Company’s scheduled for implementation in our upcoming financial results for the 2018 /19 financial year along with year, will focus on the re-organisation of the sales force comparatives are: and the distribution routes. It is worthy to note, that having increased cigarette prices in March 2017 because 2019 2018 of the significant 21.4% increase in Special Consumption Trading profit margin 34.9% 36.6% Tax on tobacco, the Company has not taken a price increase during the two years subsequent, that is, since Operating profit / Operating Revenue 35.4% 37.3% March 2017 to present, despite an increase in its cost Cash provided by operations $3.7B $3.3B base. Earnings per stock unit 70.2¢ 71.8¢ As in previous years, we have continued to focus on Stockholders’ return on equity 255.1% 170.7% creating value for our stockholders. For the 2018/19 financial year, Stockholders’ Return on Equity totaled Distribution per stock unit 85¢ 74¢ 255.1%, compared to 170.7% in 2018, indicating growth Dividend yield 9% 7% over the prior year. Dividends paid for the year totaled
41 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
Profit After Tax The Company’s share price closed at $9.43 at March 31, 2019 (March 31, 2018: $10.61) reflecting an 11% decline 2014/15 2015/16 2016/17 2017/18 2018/19 over the previous year. During the previous year, the 3,806 Company implemented at 10:1 stock split which resulted 3,485 3,407 in the stock trading at prices as high as 37% above the 2,943 3,011 closing price just prior to the announcement of the split by the Board of Directors and the immediate period that followed. Such increases are normal in the event of a stock split.
At a price of $9.43 at March 31, 2019, the Price Earnings Ratio is 13.4 times, comparable to that of the industry. Over the 5-year period from 2014/15 – 2018/19, the Compound Annual Growth Rate for the Company’s share price approximates to 24.0%. 2014/15 2015/16 2016/17 2017/18 2018/19 Dividends Profit after Tax (in Millions of JMD) The Company distributed $4.1 billion (2018: $3.6 billion) to shareholders for the 2018/19 financial year, representing a dividend of 85¢ per stock unit (2018: 5-year CAGR: 3.7% 74¢ per stock unit), an increase of 15% over the prior year. This year’s dividends include $534.0 million or 11¢ per stock unit in relation to CCJ’s final distribution The Company recorded Profit After Tax of $3.41 billion on liquidation. Overall, the increased amounts paid (2018: $3.49 billion), a 2.2% decrease compared to the to stockholders reflect the continued importance of prior year. The Compound Annual Growth Rate for providing annual distributions. the 5-year period, 2014/15 to 2018/19, which indicates a creditable performance over the period, reflects an 2014/15 2015/16 2016/17 2017/18 2018/19 average growth of 3.7% in the Company’s Profit After 0.89 Tax per annum. 0.85 0.81 0.74 For the 2018/19 financial year, the main line items 0.71 contributing to this year’s out-turn are summarized. Operating Revenue grew by 2.8% driven by a small uptick in volumes whilst Cost of Operating Revenue comprising Special Consumption Tax, Customs Administration Fee and material and related costs increased by 3.5%, mainly in correlation to Operating Revenue. There was an 9.3% increase in Administrative, Distribution and Marketing Expenses compared to 2014/15 2015/16 2016/17 2017/18 2018/19 the previous period, attributable mainly to increased Distribution and Marketing expenses. Dividend per Share (Note: As a result of the 10:1 stock split which was effective September 20, 2017, dividend per share for previous years have been restated for comparison purposes.)
Share Price (JMD) 5-year CAGR 24.0%
(Note: As a result of the 10:1 stock split which was effective September 20, 2017, the share price for previous years has been restated for comparison purposes.)
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PROFIT AND LOSS ANALYSIS Almost 10 million sticks of cigarettes (equivalent of one 40 ft. container) was seized by the authorities, Operating Revenue this with a value of approximately $500 million. We continue to wish for more successes in this area, as 2014/15 2015/16 2016/17 2017/18 2018/19 apart from the impact of the illicit trade in cigarettes on the legal industry, the Government stands to lose 13,509 12,906 billions of dollars in revenues. Additionally, as the 11,980 12,550 11,208 quality assurance processes of illicit cigarettes are compromised, they pose an even greater risk to the health of its consumers.
Within this context, the strength of our brands continues to be reflected in the Company’s revenue performance. The Company has continued to invest in its core brands, Craven “A” and Matterhorn and remains 2014/15 2015/16 2016/17 2017/18 2018/19 resolute in its commitment to consumers – to be best at satisfying consumers moments in tobacco and beyond.
Operating Revenue (in Millions of JMD) Cost of Operating Revenue 5-year CAGR: 3.6% 2014/15 2015/16 2016/17 2017/18 2018/19 6,970
6,470 Carreras Limited reported Operating Revenue of $12.9 6,244 6,249 billion for the year ended March 31, 2019, representing an increase of $356.4 million or 2.8% compared to 5,867 the prior year; being positively impacted by a slight recovery in sales volumes. The Compound Annual Growth Rate for the 5-year period was approximately 3.6%, showing sustained year-on-year growth. 2014/15 2015/16 2016/17 2017/18 2018/19 The industry in general and the Company has seen a sharp decline in sales volume since the 21.4% excise increase was implemented on March 13, 2017. We are Cost of Operating Revenue (in Millions of JMD) aware that this exorbitant increase was preceded by increases both in May 2016 and in March 2015 of 16.7% and 14.3%, respectively, Cost of Operating Revenue which includes mainly Special Consumption Tax (SCT), Customs Undoubtedly, the $3 per stick or 21.4% excise increase Administrative Fee (CAF) and product costs amounted in March 2017, represented the “tipping point” for to $6.47 billion, a 3.5% increase compared to the $6.25 consumers as this increase further impacted their billion recorded in prior year. The increase in the Cost ability to pay for legitimate brands. There is a direct of Operating Revenue is in direct correlation to the correlation between the imposition of excessive excise increase in Operating Revenue being impacted mainly increases and unintended consequences such as the by increases in SCT and CAF. Together, these account growth in the illicit trade in cigarettes. for $188.8 million or 85.5% of the total increase in the Cost of Operating Revenue. Product costs were also For the 2018/19 financial year, the have noted a slight negatively impacted by the movement of the Jamaican recovery in sales volumes and this augurs well for the Dollar versus the United States Dollar, which on average future. Our strategy and focus for 2019 included the showed a 2% devaluation for the year. stabilization and recovery of volumes and providing value to consumers, and we have begun to reap the Operating Expenses benefits, though only at an initial stage. As a part of our 2019 strategy, we focused on our People, Brands and our Route to Market, thus ensuring a consumer centric approach. During the year, we continued to partner with the Government to encourage their implementation of a sustainable excise strategy as well as underscoring the need for the authorities to remain relentless and vigilant in the stamping out of the illicit trade.
We congratulate the authorities on their unprecedented illicit cigarette find that took place in June 2018. Operating Expenses (in Millions of JMD)
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Administrative, Distribution and Marketing Expenses FINANCIAL POSITION REVIEW totaling $2.01 billion increased by $165.7m or 9% over The Group’s financial position remains strong and the prior year’s $1.85 billion. Over the 5-year period, the working capital position remains healthy. Compound Annual Growth Rate approximates to 0.30%, indicating that on average the annual growth in Total assets as at March 31, 2019 amounted to $3.49 overheads have been negligible. billion (2017/18: $3.99 billion). Compared to the prior year, increases were noted in property, plant and The lion’s share of this year’s increase in overheads equipment and inventories whilst on the other hand, was attributable to Distribution expenses. Distribution there was a marked reduction in accounts receivable. expenses amounting to $773.4 million increased by $139.8 million or 22% as the Company sought to The working capital which indicates the Company’s respond to the changes in the environment and the need short-term liquidity position, amounted to $1.0 billion to strengthen and support the field force in the delivery at March 31, 2019 (2018: $1.77 billion); decreasing by of volumes. Notable increases were security and staff $771.8 million or 43.6% compared to the prior year. costs. The current ratio at March 2019 remains relatively strong at 1.52:1 compared to 2.05:1 for March 2018. The Within the context of a 3.4% inflation rate, change over last year is indicative of reductions in both Administrative expenses totaling $1.10 billion (2018: accounts receivable and in cash and cash equivalents $1.09 billion), grew by 1.3%. of 14% and 22%, respectively, combined with the 35% increase in accounts payable. The Company continued its investment in innovation of our core brands, Craven “A” and Matterhorn. Marketing Cash and cash equivalents which accounted for 51.2% of expenses, including sponsorship, promotions and the total assets, amounted to $1.79 billion as at March product development totaling $139.8 million, increased 31, 2019 (2018: $2.31 billion). For the year in review, the by 9.0% over 2018. net cash provided by operating activities amounted to $3.69 billion and net cash utilized by investing activities, As in previous years, management continues to employ comprised of mainly fleet renewals, totaled $65.3 various cost containment and cost cutting initiatives as million. appropriate. Accounts Receivable which decreased by $131.9 million Other Operating Income or 14.5% compared to the prior year was driven Other Operating Income which is normally comprised primarily by decreases in trade receivables partially of interest Income, foreign exchange variances and offset by increases in prepayments. Trade Receivables the write back of unclaimed dividends amounted totaling $576.8 million decreased by $286.2 million or to $149.9 million in current financial year. Overall, 33.2%. The overall reduction in accounts receivables is Other Operating Income declined by $73.8 million or positive and reflects the improvement in the collection 33.0% compared to the prior year, due mainly to the period from approximately 25 days to 17 days as well inclusion of SCT revaluation gains of $82.7 million in the as a slight shift in the sales volumes by channel. This Miscellaneous Income for the previous year. This was improvement is even more noteworthy considering not applicable for the current financial year. the slight uptick in sales volumes which was previously mentioned. Apart from this, interest income which amounted to $67.5 million decreased by $21.9 million or 24%, The allowance for impairment losses totaled $5.8 million reflecting the decline in market interest rates as well as or 1% of trade receivables for the year. Having adopted the reduction in investment balances over the year. On IFRS 9, Financial Instruments, from April 1, 2018, this the other hand, the write back of unclaimed dividends year’s figure measures expected credit losses using a totaling $60.9 million and increasing by $43.2 million provision matrix based on observed default rates over or 244% compared to the prior year, contributed the expected life of the trade receivables, adjusted for positively to this year’s out-turn. forward looking estimates.
The Group continues to strategically manage its Cash & Cash Equivalents Accounts Receivable cash holdings to maximize returns from investment placements and to ensure that working capital needs are adequately covered. 1,345
448 612 911 779 Income tax 3,725 The effective tax rate for the 2018/19 financial year 2,622 2,583 2,307 amounted to 24.6% slightly lower than the 24.9% 1,790 recorded for 2017/18. Income tax for the period totaling $1.10 billion (2017/18: $1.15 billion) decreased by 2014/15 2015/16 2016/17 2017/18 2018/19 3.8% compared to the prior year. Credit Risk (in Millions of JMD)
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Credit risk is the risk of loss arising from a counterparty to a financial contract failing to discharge its obligations and arises principally from the Group’s receivables from customers, cash and investment securities. At March 31, 2019, the Group’s credit risk resulting from receivables and cash and investments totaled $2.4 billion, a 25% reduction compared to the $3.2 billion reported for the prior year. Compared to the prior year, both cash and cash equivalents, as well as accounts receivable showed significant reductions.
With effect from October 1, 2018, the Company has been party to a Credit Risk Insurance Policy, under a Financial Interest Clause, through its ultimate parent, British American Tobacco PLC. The Company now has in place insurance coverage for a substantial part of Total Liabilities (in Millons of JMD) its credit portfolio, thus further mitigating the risk of default by customers.
Management ensures that the credit and investment SHAREHOLDERS’ EQUITY policies that are in place adequately addresses the Total equity which amounted to $1.34 billion, decreased counterparty risks and as in previous years, these by $707.2 million over the prior year. Profit for the are continually and rigorously monitored by both year of $3.41 billion and distributions to shareholders Management and the Board of Directors. totaling $4.13 billion were the main components which accounted for the change. Total liabilities as at March 31, 2019 which amounted to $2.16 billion increased by 10.9% compared to the prior The Company distributed $4.13 billion (2018: $3.59 year. This was mainly attributable to the increase in billion) to shareholders for the 2018/19 financial year, accounts payable offset by the decrease in income tax representing a dividend of 85¢ per stock unit (2018: 74¢ payable. per stock unit), an increase of 15% over the prior year.
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MARKETING TRADE MARKETING AND DISTRIBUTION
Carreras has always held a positive outlook, believing develop new and even more innovative products to that our optimism and drive are key to our success. 2018 add to this range of potential choices. We are proud of was no different as we executed a strategy designed to all our brands and believe that all our products have a satisfy consumer moments in tobacco. role to play in our business success and our ambition to transform tobacco. Principles of excellence in execution, operating in a responsible manner and guaranteeing an efficient Route to Market Improvements delivery of service to our customers form the basis on Our most recent Route to Market improvements have which we manage our business. Focus on these key brought a level of market control that allows Carreras areas has allowed Carreras to maintain its position as the the opportunity to properly defend against the illicit leader within a category that is faced with increasing trade and improve our overall level of service. Our competition on several fronts. project team made a careful evaluation of our previous model and sought to build on the strengths of our The Company is aware of the dynamic environment distribution model, and propose some changes in areas in which we operate and the continuing fight against not at optimum capacity. The most notable of these the flow of illicit tobacco brands into the market. changes was the return to motor vehicles as our main This leakage represents a threat to the consumer, the point of distribution. These vehicles are now able to government and our business. In 2018, the Company deliver effective direct sales reach, that addresses both continued to work with the authorities to educate our out of stock and illicit trade concerns. Our sales teams customers about the dangers of consuming unregulated, have also been retooled with selling skills focused on illegal or smuggled products. We are hopeful that this productivity, efficiency and drive for results. While will help all companies and consumers in Jamaica to these adjustments offer an opportunity to cover a support the legitimate trade in all consumer products. wider geographical base, our sales teams are also able to do this in a safer and sustainable manner. We believe Volume Stability the benefits to be derived from the Route to Market Following excise adjustments in the previous period, improvements will provide the opportunity for Carreras 2018/2019 saw a gradual stabilization of volumes. as to establish a distribution footprint that delivers on our our brands Craven A, Matterhorn, and Dunhill delivered objectives. a level of choice to consumers. Pall Mall was able to perform quite admirably as a viable alternative to the illicit products that continue to be a growing challenge. We make it happen! The passion of our people is key to our continued While smokers have historically had very few success. Our focus in 2018 continued to be on building alternatives to combustible cigarettes, innovation is and inspiring our sales teams and creating a safe now providing adult consumers with a greater choice working environment where passionate and driven of tobacco and nicotine products that are potentially people can thrive. We look forward to the upcoming less risky than cigarettes. We are monitoring the year with optimism and a make it happen attitude. We development of these categories and continue to are confident we have the right team in place to deliver on our goals for 2019 and beyond.
New fleet of distribution vehicles
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BRAND MARKETING Cra ven A b ra nd e d V a n
Marketing in today’s world requires agile brands; able to fully identify, decode and provide solutions to consumers’ needs, whilst creating deep emotional connections. Despite existing in an industry typified by multiple perverse variables, Carreras remains steadfast in its commitment to creating increased shareholder value by leveraging the strengths of our brands. In 2018 we advanced considerably in our agenda toward bolstering our legendary brands. Our brands continue to be a key source of competitive advantage for us; the fruits of which are manifested in our solid financials. We remain deeply committed to advancing our understanding of our “raison d’etre”, our consumers. Our efforts for 2019 and beyond will see to us providing superior quality products, further exploring consumer moments and leading them on a path toward greater satisfaction with our brands.
Remaining Relevant in Key Consumer Updating our Portfolio Moments Our local beauties (Craven “A” and Matterhorn) remain We celebrate our consumers on every available foremost on our key priorities. Craven “A” reigns occasion. We have developed an intimate understanding supreme as the real robust full-flavoured variant and of the Jamaican consumer and know that to remain Matterhorn stands as the undisputed leader in freshness relevant we need to be present in the most fitting and stimulation. These iconic brands have become the moments of consumption and situations of use for hallmark of quality and represent in the minds of our our brands. This is why in 2018, we drew even closer consumers, a promise of a truly remarkable quality to our consumer base with our activations during the smoking experience. With the solid equity they have adult events and entertainment spaces, creating new built over the years we believe our brands not only experiences and rewarding consumers for their loyalty have the ability, but the responsibility to continue to to our stalwart brands. We developed programs and evolve and give consumers added value. We spent much partnered with key events to ensure that we created of the past few years leading into 2018 doing deeper truly magical moments. We maintained prominent insights, gathering to uncover the major desires of our presence with our fresh vibrant activations within the aspirational consumer target and feel we are now ready local carnival scene through our partnership with the to chart a new course for our portfolio. The future for “Bacchanal Jamaica” series and also created waves with our brands could not look brighter. Our consumers are our bold powerful activations for the 20th staging of in for an exciting treat. They have told us that whilst “Reggae Sumfest”, dubbed “the greatest reggae show they love our core products, they are open to greater on earth”. We will continue to activate and maintain a experiences from the brands. We will be ensuring that presence in key spaces and moments of consumption to our brands not only continue to meet our consumers’ ensure resonance and that we are the referent brand for core needs but also personify the future expressions of our consumers. consumers’ expectations. Something is happening…we look to the new, whilst we leverage, celebrate and pay homage to what our consumers have traditionally come to know, love and trust about our brands.
47 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
Craven A Bar Display Exploring Additional Opportunities Over the years we have developed a distinct competence in satisfying the needs of adult consumers of factory manufactured cigarettes. We believe that to better meet the evolving needs of our consumer base, we should explore complementary product categories and offerings. We have tried in the past with our “Fyah Grabba”, make your own variant. Whilst this product proved not to be the exact fit for our consumers, we believe opportunities exist for further expansion of our product. In keeping with our ethos of progress over perfection, we have taken away many key learnings from our previous experience and are even better equipped to uncover and capitalize on consumer understandings for the future. We will explore categories with a good fit for both our destination portfolio and our route to market competences and capacity.
Creative Activations As responsible tobacco marketers, we ensure that we only engage with adults who choose to consume our products as per our International Marketing Principles. As such we make every effort upon qualifying our consumers, to activate in creative ways that resonate with and appeal to our consumer base. In 2018, we raised the bar with not only the coverage Craven A Activation at Reggae of our activations, to include island-wide and deeper penetration; but Sumfest 2018 higher quality, more meaningful consumer interactions. For 2019, we will move to another mile marker and will have more one-on-one interactions with consumers and customers; opening the door for a much more intimate brand experiences.
Creating a legacy of solid brands is a continuously evolving and iterative process. We strive for excellence in our understanding of key consumer insights, move to quickly advance our delivery of new levels of satisfying customer experiences and progress in fortifying our established competences. Our consumers remain at the heart of what we do. We hope to not only change to suit their needs but to also lead the path of change for them to meet us along their journey. We build brands which reflect who they are, who they are becoming and that will write the story for who they can be.
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LEGAL AND EXTERNAL AFFAIRS
THE REGULATORY ENVIRONMENT Through the programme, the Company helps to educate Tobacco Regulations and Excise customers and consumers about It is well known that tobacco is one of the most highly regulated products the law prohibiting tobacco throughout the world and globally, we continue to see the introduction of sales to minors and by minors tobacco control measures predominantly focused on tobacco packaging and supports its retailers in and labelling, public place smoking, and restrictions on tobacco advertising preventing underage access to and promotions. tobacco products by providing Point of Sale (POS) signage with In our sphere, the impending introduction of new tobacco control measures the message “We/ I don’t sell by the Government remained a key area of focus for the Company. The cigarettes to persons under 18, it’s Minister of Health continued to state the imminent introduction of the Law”. This is a British American regulations that will prohibit all forms of tobacco advertising, promotions Tobacco (BAT) wide campaign and sponsorships; sales of all forms of tobacco products to minors, and and is implemented in more than increased taxes on tobacco products. We believe the regulation of our 70 countries in which BAT markets products is necessary and have expressed our support and readiness to and distributes its products. With comply, however, we continue to implore the Government on the need for BAT’s shift to a multicategory balanced and practical regulations that meet the Government’s national business- with its offer of Vapour health objectives, whilst recognizing the legitimate commercial right of and Tobacco Heating Products, the the legal tobacco industry to market and distribute its brands, as well as Youth Smoking Prevention (YSP) the decision taken by adult consumers to consume a legal product. The programme has been replaced with responsible marketing and distribution of our products is entrenched in the Youth Access prevention (YAP) our operations, and so whilst we await and prepare for the introduction of Programme. the new regulations, we continued to observe our own internal marketing standards as well as ensured full compliance with the tobacco control The YAP launch in Jamaica is regulations in force. simply a continuation of Carreras’ partnership with retailers in The Company also continued to raise awareness and caution the upholding the minimum age law for Government on the unintended consequences of the proposal to implement tobacco access and its own internal further increases in excise on tobacco products, chief of which is creating standards of no sales to persons a greater demand for cheap illegal cigarettes due to affordability issues as under 18 years of age. the pricing gap between legal and illegal cigarettes widens. The resulting transfer of volumes from the legal to the illegal cigarette trade, and the Importantly, this relaunched YAP ensuing implications of a thriving illicit trade, would only run contrary to programme for Jamaica features the Government’s tobacco control efforts. The Company has therefore POS materials with the message been relentless in calling on the Government to not only consider the World “We don’t sell illegal cigarettes, Health Organization’s FCTC dictates as it relates to implementing high it is an offence- you can be fined levels of tobacco excise, but to implement a sustainable excise policy that and arrested” which is aimed at fully considers the Jamaican market reality, vis a vis affordability issues that discouraging illegal cigarette sales fuel an active illicit trade. and emphasizing that such activity is a criminal offence in outlets that sell cigarettes. The Company believes Youth Access Prevention Programme that this Anti-illicit campaign In 2019, the Company re-launched its Youth Access Prevention (YAP) message is timely given the campaign which was first implemented by the Company in 2008, then significant inflow and prevalence called the Youth Smoking Prevention (YSP) programme. Since that time, the of illegal cigarettes within the Company has maintained the programme in all the outlets it distributes its domestic market. products across the island (approximately 3500). The Illicit Trade in Cigarettes During 2019, the Company recognized the enforcement efforts of the authorities, namely the Jamaica Customs Agency and the Counter Terrorism and Organized Crime Investigation Branch (C-TOC), with the major finds of a variety of illicit cigarettes; most notable of which was the seizure of over 850 master cases.
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These historic seizures no doubt sent a signal of the illegal trade, we continue to reiterate that at the heart authorities’ resolve to stamp out illegal cigarettes of any strategy or solution, is the need for a sustainable in the domestic market. Whilst we were encouraged tobacco excise policy that recognizes the direct link by the strong enforcement efforts of the police and between increasing tobacco excise and the proliferation Customs, we continued to impress upon the need for of illegal cigarettes within the market. stronger port and border monitoring and protection to prevent these illegal goods from entering the island The Company continued to play its role in the fight in the first place, as the reality is such that once these against illicit cigarettes through its implementation illegal cigarettes enter the domestic market, it is much of sustained mass media and trade communication more difficult to locate and contain. We also continued campaigns that raise awareness in identifying illegal to highlight the significant challenges these illegal cigarettes among the authorities, retailers, consumers cigarettes pose to the Government, not only in terms and the general public. For the first time as well, the of its revenues, but as well to its health and tobacco Company staged a very successful Anti-Illicit Trade control agenda. Conference which had as its main objective, to bring together a wide cross-section of the stakeholders in We further pointed out the nexus between the illicit Government and crime fighting, to bring awareness to cigarette trade and the criminal underworld and have the illicit trade and underscore the urgency in tackling maintained our call on the Government, to vigorously the issue. A key takeaway of this conference was the pursue and bring to justice those persons involved, collaborative power of partnerships and the greater and in tandem with that, to review and reform the collective impact these enforcement agencies can have fines, penalties and sanctions for dealing in and being by working together and creating stronger and more caught with illicit cigarettes. In addition to these useful synergies in the fight against the Illicit Trade. recommendations to the Government in fighting this
• Marcus Steele, MD Carreras, Michael Ellis, renowned expert on Global illicit trade and keynote speaker at the Conference, Mr, John Padgett, BAT Government Affairs and Anti-Illicit Trade Manager, Caribbean, and Hon. Horace Chang, MP, Minister of National Security in discussion at the Conference • Speakers on the panel of experts at the Conference • Michael Ellis in discussion with attendees at the conference
Main Drivers of the Illicit Trade
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CORPORATE SOCIAL RESPONSIBILITY
Over the years, Carreras has consistently sought opportunities to address critical challenges in Jamaica. Consistent with our perceived and demonstrated role as part of the group of companies in Jamaica, who play a significant role in nation-building, we remained steadfast in encouraging creativity, productivity & innovation through increased educational and community-building activity in the year 2018/2019. We believe that through these priorities we can make a seminal contribution to Jamaica, touching live in ways that change and influence them positively.
Employees pose after the 2018 Labour Day project. 2018 Scholarship Awardees pose with, seated in the front row, Managing This year, we would like to highlight Director, Marcus Steele 5th left, The Honourable Shahine Robinson, MP Minister our Labour Day project. In keeping of Labour and Social Security 6th left and the Minister of State in the Ministry of with the National theme for Labour Foreign Affairs and Foreign Trade, Senator, The Honourable Pearnel Charles Jr., Day to “Restore, Preserve and 7th left. Beautify”, we worked on painting EDUCATION the Half-Way Tree Police Station. The activity saw staff at all levels This year, from over 300 applicants, we made 42 awards to students across working together to give the the island, spanning a wide cross-section of fields in Jamaica: station’s reception area a much- Ј 12 Bursaries to those in need, effectively bridging gaps in these students’ needed facelift. educational budgets. Ј 7 to Teacher’s Colleges, aiming to increase the number of future educators in the country. Ј 4 in the Arts, encouraging students to remain committed to contribute to our worldwide known culture. Ј 6 to Community Colleges, supporting shorter term, and often practical educational pursuits. Ј 10 HOPE scholarships, supporting children of officers of the security forces who have passed on. Ј 3 SEEK scholarships, rewarding those Striving for Excellence and Empowering Knowledge (SEEK) valued at $1 million each. Janene Shaw, Finance Director & Company Secretary, Carreras, We are confident that these interventions will “empower lives through presents a scholarship to Julie-Sue education” and ultimately build Jamaica. The financial benefits from Salmon, tenable at Edna Manley scholarships and bursaries are well known and acknowledged. Students College of the Visual and Performing Arts. can actually reduce their chance of dropping out as well as have more time for studying and learning, resulting in better grades, greater retention of We also continued our support for knowledge and an increased chance of continuing on to graduate school and various civic organizations, enabling eventually achieving career goals. them to assist and empower the communities in which we operate, Many Carreras scholarship recipients are also able to maximize their tertiary while engaging vulnerable members education experience through service-learning and volunteer opportunities, of society. We also provided which in many cases help to equip them for the world of work. The sponsorship and charitable donations attainment of a very competitive Carreras Scholarship is therefore a for art and culture initiatives. coveted achievement which brings recognition and prestige, creating confident and well-rounded citizens. Corporate social responsibility is integrated in our core values and COMMUNITY BUILDING beliefs and year after year, we seek Carreras continues its community building engagements and in encouraging opportunities to demonstrate our our employees to give back to their communities. commitment in order to contribute to a better Jamaica.
51 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance Strategic Report
HUMAN RESOURCES
Our people agenda is a key component in the achievement of the strategic objectives of Carreras Limited. As such, our Human Resource team continued their commitment to providing the leadership and expertise needed to create an environment where people can thrive and deliver sustainable Organisational results.
Improving the employee Organisational structure. This new organisational design allows a clearer experience through path for upward mobility of our key talent, allowing for better career digitalisation management and succession planning. In 2018, we launched an integrated, self-service HR system that offers We also took the opportunity, during this transition, to retrain and re- numerous first-class tools and tool all Trade Marketing and Distribution employees on the new ways of services. It provides all employees work and improved customer service management. This restructuring has with fast, convenient access to free allowed us to retain key talent and further develop their capabilities to meet online training tools, employment challenging objectives. information and career management databases. Our employees are Winning Organisation now empowered to own their The strength of our Company lies not only in the quality of our products, information by updating their but in the excellence of our people and the strength of our teams and bank accounts, home addresses leaders. Carreras Limited maintains itself as a winning Organisation through and other personal information, our continued commitment to attracting, developing and retaining the best online. Performance management talent for our Organisation. has also migrated to this new tool, facilitating communication, Fostering high performing, diverse teams across the SANCAR (South coaching and feedback between America North and the Caribbean) cluster continued to be a fundamental managers and employees, regardless part of the people agenda for the past year. To ensure that employees of their geographical location. integrated and performed well in their teams, diversity training was conducted throughout the region. This aimed to increase cultural The Management team now awareness and create a positive work environment between functional and has direct control over their geographically dispersed teams. recruitment requests, promotions, salary increases and other staff Our people investment is also reflected in our leadership development, transactions, digitally. The system which includes a refocused effort that helps to nurture future leaders. To also provides HR metrics and reports help managers grow into their roles we executed programs such as Leading on employee related data needed to Self and Leading Managers. Such investments in leadership contributed guide and inform decision- making to one of our key talent at Carreras Limited receiving an International on employee development. Assignment to the position of Finance Manager within our Region.
Fit for Purpose To identify and develop our next generation of leaders we recruited our first trainee for the British American Tobacco (BAT) Global Graduate Organisational Design Programme. This is an intense one-year program where the graduate will Beyond digitalisation, the HR be trained and coached to spearhead challenging local and international function continues to support projects. All graduates are encouraged to be courageous and innovative restructuring measures to ensure idea generators to keep us competitive and on a path of sustainable growth. that the correct organisational We expect to recruit more global graduates over the coming years. design and skill sets exist to properly support our strategic objectives. From 2018 to 2019 we designed and executed a revised route to market (RTM) structure to further drive our RTM capabilities with respect to speed, coverage, efficiency, and effectiveness. This exercise enabled us to leverage the skills and experience already available within the Company and we were able to reclassify and, in most instances, upgrade our Sales and Distribution Representatives. There were approximately seven (7) employee promotions and the introduction of one new management role in the The winning team at the 2018 Strategic Leadership Agenda held at Melia Braco Trade Marketing and Distribution Village
Carreras Limited Annual Report 2019 52 Strategic Report Governance Management's Discussion & Analysis Financial Statements
Linking Compensation with Performance Compensation and alignment to our Key Performance Indicators is the foundation upon which we can deliver our strategic objectives. To ensure that we remain competitive and relevant, we constantly review our reward structures and communicate these changes in our regular staff meetings, dubbed the “What’s Up” meetings, to allow for greater transparency and alignment.
This year, a revised compensation framework was implemented to simplify our incentive scheme while supporting a wider effort to accelerate and deliver our Organisation´s agenda. As we continue to build on our pay for performance platform, we monitor and align the weights assigned to each of the key metrics that we use as benchmarks to measure our performance. Key metrics such as Volume Share Growth, Strategic Portfolio Revenue, Adjusted Profit from Operations and Cash Flow weigh heavily as a Managing Director, Marcus Steele consideration for overall performance. presenting the Managing Director´s Award to Khafre Gentles
Fifteen (15) additional employees Increasing Engagement and Commitment were recognised by our Managing Our Strategic Leadership Agenda (SLA) continues to be the foundation Director for going beyond the on which we grow and achieve success each year. Annually, this SLA has call of duty and consistently become our road map for the successful roll-out of the British American demonstrating excellence in their Tobacco (BAT) Line of Sight throughout our global organization, by Region, jobs. Area and End Market. SLA 2018 was no different with the entire Carreras team participating in a weekend long activity of strategy development, fun Notwithstanding the many wins and celebration at the Melia Braco Village Resort. we had in 2018, we have set the following key focus areas for 2019 to ensure that Carreras remains a winning organisation.
Ј Building our Talent Brand, which recognises the acquisition and retention of talent as a competitive advantage and key to our continued success. Ј The implementation of innovative programs aimed at improving employee engagement and fortifying Carreras Limited as a great place to work. Ј Revamping our reward and recognition program to Employees of Carreras Limited at the 2018 Strategic Leadership Agenda ensure that we continue to acknowledge and motivate our We continued to show appreciation to past employees at our Annual employees Pensioners’ Luncheon, while also recognising current employees at various functions including our Staff Party, Sales Awards, annual Christmas Breakfast Ј Continued focus on training and Long Service Awards. This year we recognised five (5) of our employees and development to build with Long Service Awards, celebrating 5, 15 and 20 years of service to capabilities and competencies. Carreras Limited.
The Managing Directors Award is given to the employee who exemplifies the Company´s guiding principles. This year we awarded Mr. Khafre Gentles as the 2018 recipient for his passion, team work and dedication to the Company.
53 Carreras Limited Annual Report 2019 AUDITED FINANCIAL STATEMENTS
Financial Statements
March 31, 2019 Independent Auditors’ Report 56
Group Statement of Profit or Loss and Other Comprehensive Income 63
Group Statement of Financial Position 64
Group Statement of Changes in Equity 65
Group Statement of Cash Flows 67
Company Statement of Profit or Loss and Other Comprehensive Income 68
Company Statement of Financial Position 69
Company Statement of Changes in Equity 70
Company Statement of Cash Flows 71
Notes to the Financial Statements 72 KPMG Chartered Accountants P.O. Box 76 6 Duke Street Kingston Jamaica, W.I. +1 (876) 922-6640 [email protected]
INDEPENDENT AUDITORS’ REPORT
To the Members of CARRERAS LIMITED
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Carreras Limited (“the company”) comprising the separate financial statements of the company and the consolidated financial statements of the company and its subsidiaries (“the group”), set out on pages 63 to 108, which comprise the group’s and company’s statement of financial position as at March 31, 2019, the group’s and company’s statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the group and the company as at March 31, 2019, and of the group’s and company’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the Jamaican Companies Act.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
R. Tarun Handa Nyssa A. Johnson Cynthia L. Lawrence W. Gihan C. De Mel Rajan Trehan Wilbert A. Spence KPMG, a Jamaican partnership and a member firm of the KPMG network of independent member firms affiliated Norman O. Rainford Rochelle N. Stephenson with KPMG International Cooperative (“KPMG International”), a Swiss entity. Nigel R. Chambers Sandra A. Edwards INDEPENDENT AUDITORS’ REPORT (CONTINUED) INDEPENDENT AUDITORS’ REPORT (CONTINUED)
To the Members of To the Members of CARRERAS LIMITED CARRERAS LIMITED
Report on the Audit of the Financial Statements (continued) Report on the Audit of the Financial Statements (continued) Key Audit Matter Carrying amount of trade receivables (continued) Key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the financial statements of the current period. This Key audit matter How the matter was addressed matter was addressed in the context of our audit of the financial statements as a in our audit whole, and in forming our opinion thereon, and we do not provide a separate Our audit procedures in response opinion on this matter. to this matter, included (continued): Carrying amount of trade receivables Testing the accuracy of the Key audit matter How the matter was addressed ECL calculation. in our audit Evaluating the adequacy of The group has a significant concentration of Our audit procedures in response the allowance for impairment credit risk with large credit customers with to this matter, included: recognised in respect of the material balances both individually and in Testing manual and automated company’s trade receivables aggregate. controls over the recording of by assessing management’s trade receivables, collections assumptions used including There is judgment involved in determining and the ageing of invoices. determining compliance with the levels of allowance for impairment on Our testing of automated the new requirements of IFRS these balances, because of the inherent controls involved using our 9, Financial Instruments. uncertainty involved in estimating the timing own Information Technology Considering the adequacy of and amount of future collections. Audit specialist to test the the disclosures about the design, implementation and degree of estimation involved operating effectiveness of in arriving at the allowance for automated controls. impairment. Testing the company’s Other Information recording and ageing of trade receivables. Management is responsible for the other information. The other information Using the appropriate KPMG comprises the information included in the annual report but does not include the specialist, we reviewed the financial statements and our auditors’ report thereon. The annual report is expected credit loss (ECL) expected to be made available to us after the date of this auditors’ report. model calculations and agreed the data inputs. Our opinion on the financial statements does not cover the other information and Comparing the definition of we will not express any form of assurance conclusion thereon. default for the ECL In connection with our audit of the financial statements, our responsibility is to measurement, as outlined in read the other information identified above when it becomes available and, in the accounting policy, against doing so, consider whether the other information is materially inconsistent with the definition that the financial statements or our knowledge obtained in the audit, or otherwise management uses for credit appears to be materially misstated. risk arrangements. Evaluating the appropriateness When we read the annual report, if we conclude that there is a material of economic parameters misstatement therein, we are required to communicate the matter to those including the use of forward charged with governance. looking information. INDEPENDENT AUDITORS’ REPORT (CONTINUED) INDEPENDENT AUDITORS’ REPORT (CONTINUED)
To the Members of To the Members of CARRERAS LIMITED CARRERAS LIMITED
Report on the Audit of the Financial Statements (continued) Report on the Audit of the Financial Statements (continued) Key Audit Matter Carrying amount of trade receivables (continued) Key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the financial statements of the current period. This Key audit matter How the matter was addressed matter was addressed in the context of our audit of the financial statements as a in our audit whole, and in forming our opinion thereon, and we do not provide a separate Our audit procedures in response opinion on this matter. to this matter, included (continued): Carrying amount of trade receivables Testing the accuracy of the Key audit matter How the matter was addressed ECL calculation. in our audit Evaluating the adequacy of The group has a significant concentration of Our audit procedures in response the allowance for impairment credit risk with large credit customers with to this matter, included: recognised in respect of the material balances both individually and in Testing manual and automated company’s trade receivables aggregate. controls over the recording of by assessing management’s trade receivables, collections assumptions used including There is judgment involved in determining and the ageing of invoices. determining compliance with the levels of allowance for impairment on Our testing of automated the new requirements of IFRS these balances, because of the inherent controls involved using our 9, Financial Instruments. uncertainty involved in estimating the timing own Information Technology Considering the adequacy of and amount of future collections. Audit specialist to test the the disclosures about the design, implementation and degree of estimation involved operating effectiveness of in arriving at the allowance for automated controls. impairment. Testing the company’s Other Information recording and ageing of trade receivables. Management is responsible for the other information. The other information Using the appropriate KPMG comprises the information included in the annual report but does not include the specialist, we reviewed the financial statements and our auditors’ report thereon. The annual report is expected credit loss (ECL) expected to be made available to us after the date of this auditors’ report. model calculations and agreed the data inputs. Our opinion on the financial statements does not cover the other information and Comparing the definition of we will not express any form of assurance conclusion thereon. default for the ECL In connection with our audit of the financial statements, our responsibility is to measurement, as outlined in read the other information identified above when it becomes available and, in the accounting policy, against doing so, consider whether the other information is materially inconsistent with the definition that the financial statements or our knowledge obtained in the audit, or otherwise management uses for credit appears to be materially misstated. risk arrangements. Evaluating the appropriateness When we read the annual report, if we conclude that there is a material of economic parameters misstatement therein, we are required to communicate the matter to those including the use of forward charged with governance. looking information. INDEPENDENT AUDITORS’ REPORT (CONTINUED) INDEPENDENT AUDITORS’ REPORT (CONTINUED)
To the Members of To the Members of CARRERAS LIMITED CARRERAS LIMITED
Report on the Audit of the Financial Statements (continued) Report on additional matters as required by the Jamaican Companies Act Responsibilities of Management and Those Charged with Governance for the Financial Statements We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. Management is responsible for the preparation of financial statements that give a true and fair view in accordance with IFRS and the Jamaican Companies Act, and In our opinion, proper accounting records have been maintained, so far as appears for such internal control as management determines is necessary to enable the from our examination of those records, and the financial statements, which are in preparation of financial statements that are free from material misstatement, agreement therewith, give the information required by the Jamaican Companies whether due to fraud or error. Act in the manner required.
In preparing the financial statements, management is responsible for assessing the The engagement partner on the audit resulting in this independent auditors’ report company’s ability to continue as a going concern, disclosing, as applicable, matters is Nyssa Johnson. related to going concern and using the going concern basis of accounting unless management either intends to liquidate the group and the company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the company’s CHARTERED ACCOUNTANTS financial reporting process. Kingston, Jamaica
Auditors’ Responsibilities for the Audit of the Financial Statements May 22, 2019
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is included in the Appendix to this auditors’ report. This description, which is located at pages 61 to 6 , forms part of our auditors’ report. INDEPENDENT AUDITORS’ REPORT (CONTINUED) INDEPENDENT AUDITORS’ REPORT (CONTINUED)
To the Members of To the Members of CARRERAS LIMITED CARRERAS LIMITED
Report on the Audit of the Financial Statements (continued) Report on additional matters as required by the Jamaican Companies Act Responsibilities of Management and Those Charged with Governance for the Financial Statements We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. Management is responsible for the preparation of financial statements that give a true and fair view in accordance with IFRS and the Jamaican Companies Act, and In our opinion, proper accounting records have been maintained, so far as appears for such internal control as management determines is necessary to enable the from our examination of those records, and the financial statements, which are in preparation of financial statements that are free from material misstatement, agreement therewith, give the information required by the Jamaican Companies whether due to fraud or error. Act in the manner required.
In preparing the financial statements, management is responsible for assessing the The engagement partner on the audit resulting in this independent auditors’ report company’s ability to continue as a going concern, disclosing, as applicable, matters is Nyssa Johnson. related to going concern and using the going concern basis of accounting unless management either intends to liquidate the group and the company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the company’s CHARTERED ACCOUNTANTS financial reporting process. Kingston, Jamaica
Auditors’ Responsibilities for the Audit of the Financial Statements May 22, 2019
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is included in the Appendix to this auditors’ report. This description, which is located at pages 61 to 6 , forms part of our auditors’ report. INDEPENDENT AUDITORS’ REPORT (CONTINUED) INDEPENDENT AUDITORS’ REPORT (CONTINUED)
To the Members of To the Members of CARRERAS LIMITED CARRERAS LIMITED
Appendix to the Independent Auditors’ report Appendix to the Independent Auditors’ report (continued) As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, Identify and assess the risks of material misstatement of the financial including any significant deficiencies in internal control that we identify during our statements, whether due to fraud or error, design and perform audit audit. procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not We also provide those charged with governance with a statement that we have detecting a material misstatement resulting from fraud is higher than for one complied with relevant ethical requirements regarding independence, and resulting from error, as fraud may involve collusion, forgery, intentional communicate with them all relationships and other matters that may reasonably be omissions, misrepresentations, or the override of internal control. thought to bear on our independence, and where applicable, related safeguards. Obtain an understanding of internal control relevant to the audit in order to From the matters communicated with those charged with governance, we design audit procedures that are appropriate in the circumstances, but not for determine those matters that were of most significance in the audit of the financial the purpose of expressing an opinion on the effectiveness of the group’s statements of the current period and are therefore the key audit matters. We internal control. describe these matters in our auditors’ report unless law or regulation precludes Evaluate the appropriateness of accounting policies used and the public disclosure about the matter or when, in extremely rare circumstances, we reasonableness of accounting estimates and related disclosures made by determine that a matter should not be communicated in our report because the management. adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
INDEPENDENT AUDITORS’ REPORT (CONTINUED) INDEPENDENT AUDITORS’ REPORT (CONTINUED)
To the Members of To the Members of CARRERAS LIMITED CARRERAS LIMITED
Appendix to the Independent Auditors’ report Appendix to the Independent Auditors’ report (continued) As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, Identify and assess the risks of material misstatement of the financial including any significant deficiencies in internal control that we identify during our statements, whether due to fraud or error, design and perform audit audit. procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not We also provide those charged with governance with a statement that we have detecting a material misstatement resulting from fraud is higher than for one complied with relevant ethical requirements regarding independence, and resulting from error, as fraud may involve collusion, forgery, intentional communicate with them all relationships and other matters that may reasonably be omissions, misrepresentations, or the override of internal control. thought to bear on our independence, and where applicable, related safeguards. Obtain an understanding of internal control relevant to the audit in order to From the matters communicated with those charged with governance, we design audit procedures that are appropriate in the circumstances, but not for determine those matters that were of most significance in the audit of the financial the purpose of expressing an opinion on the effectiveness of the group’s statements of the current period and are therefore the key audit matters. We internal control. describe these matters in our auditors’ report unless law or regulation precludes Evaluate the appropriateness of accounting policies used and the public disclosure about the matter or when, in extremely rare circumstances, we reasonableness of accounting estimates and related disclosures made by determine that a matter should not be communicated in our report because the management. adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Governance Management's Discussion & Analysis Financial Statements
8
Group StatementCARRERAS of P rofitLIMITED or L oss and Other Comprehensive Income CARRERAS LIMITED Year ended March 31, 2019
Group Statement of Profit or Loss and Other Comprehensive Income Year ended March 31, 2019 Group Statement of inancial Position March 31, 2019
Notes 2019 2018 Notes 2019 2018 $'000 $'000 $'000 $'000 Assets Operating revenue 4 12,906,497 12,550,132 eferred tax asset 15 38,544 6,916 mployee benefits asset 10(i)(a) 138,300 181,900 Cost of operating revenue 5 ( 6,470,125) ( 6,249,282) roperty, plant and e uipment 11 383,017 337,251 Gross operating profit 6,436,372 6,300,850 on current assets 559,861 526,067 Other operating income 6 149,904 223,721 Cash and cash e uivalents 12 1,789,730 2,306,972 6,586,276 6,524,571 ccounts receivable 13 779,071 910,995 Income tax recoverable 2,529 10,957 Inventories 22(f) 361,462 233,179 Administrative, distribution and marketing Current assets 2,932,792 3,462,103 expenses 7 ( 2,013,673) ( 1,847,945) Total assets 3,492,653 3,988,170 Impairment loss on trade receivables 18 ( 5,774) - E uity Employee benefits expense 10(i)(e),10(ii)(c) ( 50,900) ( 39,300) Share capital 14 121,360 121,360 ( 2,070,347) ( 1,887,245) nappropriated profits 1,214,144 1,920,034 Profit before income tax 4,515,929 4,637,326 Total attributable to stockholders of the parent 1,335,504 2,041,394 on controlling interests 22(b) - 1,275 Income tax 8(a) ( 1,109,027) ( 1,152,696) Total e uity 1,335,504 2,042,669 Profit for the year 3,406,902 3,484,630 Liabilities Other comprehensive income/(loss) mployee benefits obligation 10(ii)(a) 223,000 253,800 Items that will never be reclassified to profit or loss: on current liability 223,000 253,800 Change in effect of asset ceiling 10(i)(f) ( 749,300) ( 186,700) ccounts payable 16 1,136,491 840,442 Remeasurement gain on plan assets 10(i)(f) 232,500 317,000 Income tax payable 797,658 851,259 Remeasurement gain/ (loss) on obligation 10(i)(f),10(ii)(d) 543,300 ( 101,600) Income tax on other comprehensive income/(loss) 15(b) 15,385 ( 7,761) Current liabilities 1,934,149 1,691,701 Other comprehensive income/(losses), net of tax 41,885 20,939 Total liabilities 2,157,149 1,945,501 Total comprehensive income for the year 3,448,787 3,505,569 Total e uity and liabilities 3,492,653 3,988,170
Profit attributable to: Non-controlling interests 53 34 The financial statements on pages 63 to 108, were approved for issue by the oard of irectors on Stockholders’ interests in parent 9 3,406,849 3,484,596 ay 22, 2019, and signed on its behalf by: 3,406,902 3,484,630 Total comprehensive income attributable to: Non-controlling interests 53 34 Stockholders’ interests in parent 3,448,734 3,505,535 3,448,787 3,505,569 Earnings per ordinary stock unit 9 70.2¢ 71.8¢
The accompanying notes form an integral part of the financial statements. The accompanying notes form an integral part of the financial statements.
63 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
8
CARRERAS LIMITED Group Statement of Financial Position CARRERAS LIMITED March 31, 2019
Group Statement of Profit or Loss and Other Comprehensive Income Year ended March 31, 2019 Group Statement of inancial Position March 31, 2019
Notes 2019 2018 Notes 2019 2018 $'000 $'000 $'000 $'000 Assets Operating revenue 4 12,906,497 12,550,132 eferred tax asset 15 38,544 6,916 mployee benefits asset 10(i)(a) 138,300 181,900 Cost of operating revenue 5 ( 6,470,125) ( 6,249,282) roperty, plant and e uipment 11 383,017 337,251 Gross operating profit 6,436,372 6,300,850 on current assets 559,861 526,067 Other operating income 6 149,904 223,721 Cash and cash e uivalents 12 1,789,730 2,306,972 6,586,276 6,524,571 ccounts receivable 13 779,071 910,995 Income tax recoverable 2,529 10,957 Inventories 22(f) 361,462 233,179 Administrative, distribution and marketing Current assets 2,932,792 3,462,103 expenses 7 ( 2,013,673) ( 1,847,945) Total assets 3,492,653 3,988,170 Impairment loss on trade receivables 18 ( 5,774) - E uity Employee benefits expense 10(i)(e),10(ii)(c) ( 50,900) ( 39,300) Share capital 14 121,360 121,360 ( 2,070,347) ( 1,887,245) nappropriated profits 1,214,144 1,920,034 Profit before income tax 4,515,929 4,637,326 Total attributable to stockholders of the parent 1,335,504 2,041,394 on controlling interests 22(b) - 1,275 Income tax 8(a) ( 1,109,027) ( 1,152,696) Total e uity 1,335,504 2,042,669 Profit for the year 3,406,902 3,484,630 Liabilities Other comprehensive income/(loss) mployee benefits obligation 10(ii)(a) 223,000 253,800 Items that will never be reclassified to profit or loss: on current liability 223,000 253,800 Change in effect of asset ceiling 10(i)(f) ( 749,300) ( 186,700) ccounts payable 16 1,136,491 840,442 Remeasurement gain on plan assets 10(i)(f) 232,500 317,000 Income tax payable 797,658 851,259 Remeasurement gain/ (loss) on obligation 10(i)(f),10(ii)(d) 543,300 ( 101,600) Income tax on other comprehensive income/(loss) 15(b) 15,385 ( 7,761) Current liabilities 1,934,149 1,691,701 Other comprehensive income/(losses), net of tax 41,885 20,939 Total liabilities 2,157,149 1,945,501 Total comprehensive income for the year 3,448,787 3,505,569 Total e uity and liabilities 3,492,653 3,988,170
Profit attributable to: Non-controlling interests 53 34 The financial statements on pages 63 to 108, were approved for issue by the oard of irectors on Stockholders’ interests in parent 9 3,406,849 3,484,596 ay 22, 2019, and signed on its behalf by: 3,406,902 3,484,630 Total comprehensive income attributable to: Non-controlling interests 53 34 Stockholders’ interests in parent 3,448,734 3,505,535 3,448,787 3,505,569 Earnings per ordinary stock unit 9 70.2¢ 71.8¢
The accompanying notes form an integral part of the financial statements. The accompanying notes form an integral part of the financial statements.
Carreras Limited Annual Report 2019 64 Governance Management's Discussion & Analysis Financial Statements
Group Statement of Changes in Equity Year ended March 31, 2019
65 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
Carreras Limited Annual Report 2019 66 Governance Management's Discussion & Analysis Financial Statements
11 12
Group StatementCARRERAS of Cash LIMITED Flows CARRERAS LIMITED Year ended March 31, 2019
Group Statement of Cash lo s Company Statement of Profit or Loss and Other Comprehensive Income Year ended March 31, 2019 Year ended March 31, 2019
2019 2018 Notes 2019 2018 Notes $'000 $'000 $'000 $'000
Cash flo s from operating activities Operating revenue 4 12,906,497 12,550,132 rofit for the year 3,406,902 3,484,630 Cost of operating revenue 5 ( 6,470,125) ( 6,249,282) d ustments for: epreciation 11 88,156 77,084 Gross operating profit 6,436,372 6,300,850 mployee benefits 39,300 27,600 Income tax expense 8(a) 1,109,027 1,152,696 Other operating income 6 132,411 201,017 oreign exchange loss 6 16,705 7,632 6,568,783 6,501,867 ain on disposal of property, plant and e uipment 6 ( 2,650) ( 7,186) Investment income earned 6 ( 67,467) ( 89,326) Administrative, distribution and marketing expenses 7 ( 2,013,264) ( 1,842,089) 4,589,973 4,653,130 Changes in: Impairment loss on trade receivables 18 ( 5,774) - ccounts receivable 133,418 ( 298,362) Employee benefits expense 10(i)(e),10(ii)(c) ( 50,900) ( 39,300) Inventories ( 128,283) 239,539 ccounts payable 296,049 44,261 Gain on li uidation of subsidiary 20 376,928 - Cash generated from operations 4,891,157 4,638,568 Profit before income tax 4,875,773 4,620,478 Income tax paid (1,198,827) (1,295,936) Income tax 8(d) ( 1,137,411) ( 1,148,729) Net cash provided by operating activities 3,692,330 3,342,632 Profit for the year 3,738,362 3,471,749 Cash flo s from investing activities Other comprehensive income Investment income received 65,973 88,685 dditions to property, plant and e uipment 11 ( 133,922) ( 114,275) Items that will never be reclassified to profit or loss: roceeds of disposal of property, plant and e uipment 2,650 7,276 Change in effect of asset ceiling 10(i)(f) ( 749,300) ( 186,700) Remeasurement gain on plan assets 10(i)(f) 232,500 317,000 Net cash used by investing activities ( 65,299) ( 18,314) Remeasurement gain/(loss) on obligation 10(i)(f),10(ii)(d) 543,300 ( 101,600) Cash flo s from financing activity Income tax on other comprehensive income 15(b) ( 6,625) ( 7,175) ividends and distributions, Other comprehensive income, net of tax 19,875 21,525 being net cash used by financing activity 19 (4,127,568) (3,592,256) Total comprehensive income for the year 3,758,237 3,493,274 et decrease in cash and cash e uivalents before effect of foreign exchange rate changes ( 500,537) ( 267,938)
Effect of exchange rate changes on cash and cash e uivalents ( 16,705) ( 7,632)
Cash and cash e uivalents at beginning of year 2,306,972 2,582,542 Cash and cash e uivalents at end of year 12 1,789,730 2,306,972
The accompanying notes form an integral part of the financial statements.
The accompanying notes form an integral part of the financial statements.
67 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
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CARRERAS LIMITED CARRERAS LIMITEDCompany Statement of Profit or Loss and Other Comprehensive Income Year ended March 31, 2019
Group Statement of Cash lo s Company Statement of Profit or Loss and Other Comprehensive Income Year ended March 31, 2019 Year ended March 31, 2019
2019 2018 Notes 2019 2018 Notes $'000 $'000 $'000 $'000
Cash flo s from operating activities Operating revenue 4 12,906,497 12,550,132 rofit for the year 3,406,902 3,484,630 Cost of operating revenue 5 ( 6,470,125) ( 6,249,282) d ustments for: epreciation 11 88,156 77,084 Gross operating profit 6,436,372 6,300,850 mployee benefits 39,300 27,600 Income tax expense 8(a) 1,109,027 1,152,696 Other operating income 6 132,411 201,017 oreign exchange loss 6 16,705 7,632 6,568,783 6,501,867 ain on disposal of property, plant and e uipment 6 ( 2,650) ( 7,186) Investment income earned 6 ( 67,467) ( 89,326) Administrative, distribution and marketing expenses 7 ( 2,013,264) ( 1,842,089) 4,589,973 4,653,130 Changes in: Impairment loss on trade receivables 18 ( 5,774) - ccounts receivable 133,418 ( 298,362) Employee benefits expense 10(i)(e),10(ii)(c) ( 50,900) ( 39,300) Inventories ( 128,283) 239,539 ccounts payable 296,049 44,261 Gain on li uidation of subsidiary 20 376,928 - Cash generated from operations 4,891,157 4,638,568 Profit before income tax 4,875,773 4,620,478 Income tax paid (1,198,827) (1,295,936) Income tax 8(d) ( 1,137,411) ( 1,148,729) Net cash provided by operating activities 3,692,330 3,342,632 Profit for the year 3,738,362 3,471,749 Cash flo s from investing activities Other comprehensive income Investment income received 65,973 88,685 dditions to property, plant and e uipment 11 ( 133,922) ( 114,275) Items that will never be reclassified to profit or loss: roceeds of disposal of property, plant and e uipment 2,650 7,276 Change in effect of asset ceiling 10(i)(f) ( 749,300) ( 186,700) Remeasurement gain on plan assets 10(i)(f) 232,500 317,000 Net cash used by investing activities ( 65,299) ( 18,314) Remeasurement gain/(loss) on obligation 10(i)(f),10(ii)(d) 543,300 ( 101,600) Cash flo s from financing activity Income tax on other comprehensive income 15(b) ( 6,625) ( 7,175) ividends and distributions, Other comprehensive income, net of tax 19,875 21,525 being net cash used by financing activity 19 (4,127,568) (3,592,256) Total comprehensive income for the year 3,758,237 3,493,274 et decrease in cash and cash e uivalents before effect of foreign exchange rate changes ( 500,537) ( 267,938)
Effect of exchange rate changes on cash and cash e uivalents ( 16,705) ( 7,632)
Cash and cash e uivalents at beginning of year 2,306,972 2,582,542 Cash and cash e uivalents at end of year 12 1,789,730 2,306,972
The accompanying notes form an integral part of the financial statements.
The accompanying notes form an integral part of the financial statements.
Carreras Limited Annual Report 2019 68 Governance Management's Discussion & Analysis Financial Statements
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Company Statement of Financial Position CARRERAS LIMITED CARRERAS LIMITED March 31, 2019
Company Statement of Changes in E uity Company Statement of inancial Position Year ended March 31, 2019 March 31, 2019
Notes 2019 2018 Share $'000 $'000 capital nappropriated Assets (note 14) profits Total eferred tax asset 15 38,544 32,774 $'000 $'000 $'000 mployee benefits asset 10(i)(a) 138,300 181,900 roperty, plant and e uipment 11 383,017 337,251 Investment in subsidiaries 20 15,549 206,294 alances at March 31, 201 121,360 1,611,795 1,733,155 on current assets 575,410 758,219 rofit for the year - 3,471,749 3,471,749
Cash and cash e uivalents 12 1,706,487 1,645,920 Other comprehensive income: ccounts receivable 13 779,934 910,050 Remeasurement of employee benefit Inventories 22(f) 361,462 233,179 asset and obligation, net of taxes - 21,525 21,525 Current assets 2,847,883 2,789,149 Total comprehensive income for the year - 3,493,274 3,493,274 Total assets 3,423,293 3,547,368 Transactions ith o ners E uity ividends paid (note 19) - (3,592,256) (3,592,256) Share capital 14 121,360 121,360 nappropriated profits 1,144,810 1,512,813 alances at March 31, 201 121,360 1,512,813 1,634,173 Total e uity 1,266,170 1,634,173 rofit for the year - 3,738,362 3,738,362
Liabilities Other comprehensive income: mployee benefits obligation 10(ii)(a) 223,000 253,800 Remeasurement of employee benefit on current liability 223,000 253,800 asset and obligation, net of taxes - 19,875 19,875 ccounts payable 16 1,136,491 828,662 Total comprehensive income for the year - 3,758,237 3,758,237 Income tax payable 797,632 830,733 Transactions ith o ners Current liabilities 1,934,123 1,659,395 ividends paid (note 19) - (4,126,240) (4,126,240)
Total liabilities 2,157,123 1,913,195 alances at March 31, 2019 121,360 1,144,810 1,266,170 Total e uity and liabilities 3,423,293 3,547,368
The financial statements on pages 63 to 108, were approved for issue by the oard of irectors on ay 22, 2019, and signed on its behalf by:
irector ichael . ernard
irector arcus . Steele
The accompanying notes form an integral part of the financial statements.
The accompanying notes form an integral part of the financial statements.
69 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
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CARRERAS LIMITED Company Statement of Changes in Equity CARRERAS LIMITED Year ended March 31, 2019
Company Statement of Changes in E uity Company Statement of inancial Position Year ended March 31, 2019 March 31, 2019
Notes 2019 2018 Share $'000 $'000 capital nappropriated Assets (note 14) profits Total eferred tax asset 15 38,544 32,774 $'000 $'000 $'000 mployee benefits asset 10(i)(a) 138,300 181,900 roperty, plant and e uipment 11 383,017 337,251 Investment in subsidiaries 20 15,549 206,294 alances at March 31, 201 121,360 1,611,795 1,733,155 on current assets 575,410 758,219 rofit for the year - 3,471,749 3,471,749
Cash and cash e uivalents 12 1,706,487 1,645,920 Other comprehensive income: ccounts receivable 13 779,934 910,050 Remeasurement of employee benefit Inventories 22(f) 361,462 233,179 asset and obligation, net of taxes - 21,525 21,525 Current assets 2,847,883 2,789,149 Total comprehensive income for the year - 3,493,274 3,493,274 Total assets 3,423,293 3,547,368 Transactions ith o ners E uity ividends paid (note 19) - (3,592,256) (3,592,256) Share capital 14 121,360 121,360 nappropriated profits 1,144,810 1,512,813 alances at March 31, 201 121,360 1,512,813 1,634,173 Total e uity 1,266,170 1,634,173 rofit for the year - 3,738,362 3,738,362
Liabilities Other comprehensive income: mployee benefits obligation 10(ii)(a) 223,000 253,800 Remeasurement of employee benefit on current liability 223,000 253,800 asset and obligation, net of taxes - 19,875 19,875 ccounts payable 16 1,136,491 828,662 Total comprehensive income for the year - 3,758,237 3,758,237 Income tax payable 797,632 830,733 Transactions ith o ners Current liabilities 1,934,123 1,659,395 ividends paid (note 19) - (4,126,240) (4,126,240)
Total liabilities 2,157,123 1,913,195 alances at March 31, 2019 121,360 1,144,810 1,266,170 Total e uity and liabilities 3,423,293 3,547,368
The financial statements on pages 63 to 108, were approved for issue by the oard of irectors on ay 22, 2019, and signed on its behalf by:
irector ichael . ernard
irector arcus . Steele
The accompanying notes form an integral part of the financial statements.
The accompanying notes form an integral part of the financial statements.
Carreras Limited Annual Report 2019 70 Governance Management's Discussion & Analysis Financial Statements
15 16
CompanyCARRERAS Statement LIMITED of Cash Flows CARRERAS LIMITED Year ended March 31, 2019
Company Statement of Cash lo s otes to the inancial Statements Year ended March 31, 2019 March 31, 2019
2019 2018 1. Identification and principal activity Notes $'000 $'000 Carreras imited ( the company ) is incorporated and domiciled in amaica and is listed on the amaica Cash flo s from operating activities Stock xchange. It is a 50.4 subsidiary of Rothmans oldings (Caricom) imited, which is rofit for the year 3,738,362 3,471,749 incorporated in St. ucia. The ultimate parent company is ritish merican Tobacco plc, incorporated in d ustments for: the nited ingdom and listed on the ondon Stock xchange. The principal activities of the company epreciation 11 88,156 77,084 are the marketing and distribution of cigarettes. mployee benefits 39,300 27,600 ain on disposal of property, plant and e uipment 6 ( 2,650) ( 7,186) The address of the principal place of business and the registered office of the company is 13 Ripon Road, ingston 5, amaica. ain on li uidation of subsidiary 20 ( 376,928) - oreign exchange loss 13,259 17,686 Income tax expense 8(d) 1,137,411 1,148,729 2. Statement of compliance and basis of preparation Investment income earned 6 ( 65,274) ( 76,676) (a) Statement of compliance: 4,571,636 4,658,986 Changes in: The financial statements have been prepared in accordance with International inancial Reporting ccounts receivable 132,999 ( 298,506) Standards (I RS) and their interpretations issued by the International ccounting Standards Inventories ( 128,283) 239,539 oard, and comply with the provisions of the amaican Companies ct. ccounts payable 307,829 39,615 This is the first set of the group’s annual financial statements in which I RS 9, inancial Cash generated from operations 4,884,181 4,639,634 Instruments, and I RS 15, Revenue from Contracts with Customers, have been applied. Changes Income tax paid (1,182,907) (1,293,443) to significant accounting polocies are described in note 3.
Net cash provided by operating activities 3,701,274 3,346,191 summary of significant accounting policies is included in note 22.
Cash flo s from investing activities (b) asis of measurement and functional currency: Capital distribution from li uidated subsidiary 20 567,673 - Investment income received 62,391 77,424 The financial statements are presented on the historical cost basis. nless otherwise stated, the dditions to property, plant and e uipment 11 ( 133,922) ( 114,275) financial statements are presented in thousands of amaica dollars ($’000), which is the functional roceeds from disposal of property, plant and e uipment 2,650 7,276 currency of the company.
Net cash used by investing activities 498,792 ( 29,575) (c) ccounting estimates and udgements:
Cash flo s from financing activity The preparation of the financial statements in accordance with I RS re uires management to ividends and distribution paid, make udgements, estimates and assumptions that affect the application of policies and the being net cash used by financing activity 19 (4,126,240) (3,592,256) reported amounts of, and disclosures related to, assets, liabilities, contingent assets and contingent et increase/(decrease) in cash and cash e uivalents liabilities at the reporting date and the income and expenses for the year then ended. The before effect of foreign exchange rate changes 73,826 ( 275,640) estimates and associated assumptions are based on historical experience and/or various other factors that are believed to be reasonable under the circumstances. ctual amounts could differ Effect of exchange rate changes on cash and cash e uivalents ( 13,259) ( 17,686) from these estimates. Cash and cash e uivalents at beginning of year 1,645,920 1,939,246 The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to Cash and cash e uivalents at end of year 12 1,706,487 1,645,920 accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
ey sources of estimation uncertainty:
mployee benefits see notes 10 and 22(o) :
The amounts recognised in the statement of financial position and statement of profit or loss and other comprehensive income for pension and other post-employment benefits are determined actuarially using several assumptions. The primary assumptions used in determining the amounts recognised include the discount rate used to determine the present value of estimated future cash flows re uired to settle the pension and other post- employment obligations and the expected rate of increase in medical costs for post- employment medical benefits. The accompanying notes form an integral part of the financial statements. ny changes in these assumptions would impact the amounts recorded in the financial statements for these obligations.
71 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
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CARRERAS LIMITED CARRERAS LIMITED Notes to the Financial Statements March 31, 2019
Company Statement of Cash lo s otes to the inancial Statements Year ended March 31, 2019 March 31, 2019
2019 2018 1. Identification and principal activity Notes $'000 $'000 Carreras imited ( the company ) is incorporated and domiciled in amaica and is listed on the amaica Cash flo s from operating activities Stock xchange. It is a 50.4 subsidiary of Rothmans oldings (Caricom) imited, which is rofit for the year 3,738,362 3,471,749 incorporated in St. ucia. The ultimate parent company is ritish merican Tobacco plc, incorporated in d ustments for: the nited ingdom and listed on the ondon Stock xchange. The principal activities of the company epreciation 11 88,156 77,084 are the marketing and distribution of cigarettes. mployee benefits 39,300 27,600 ain on disposal of property, plant and e uipment 6 ( 2,650) ( 7,186) The address of the principal place of business and the registered office of the company is 13 Ripon Road, ingston 5, amaica. ain on li uidation of subsidiary 20 ( 376,928) - oreign exchange loss 13,259 17,686 Income tax expense 8(d) 1,137,411 1,148,729 2. Statement of compliance and basis of preparation Investment income earned 6 ( 65,274) ( 76,676) (a) Statement of compliance: 4,571,636 4,658,986 Changes in: The financial statements have been prepared in accordance with International inancial Reporting ccounts receivable 132,999 ( 298,506) Standards (I RS) and their interpretations issued by the International ccounting Standards Inventories ( 128,283) 239,539 oard, and comply with the provisions of the amaican Companies ct. ccounts payable 307,829 39,615 This is the first set of the group’s annual financial statements in which I RS 9, inancial Cash generated from operations 4,884,181 4,639,634 Instruments, and I RS 15, Revenue from Contracts with Customers, have been applied. Changes Income tax paid (1,182,907) (1,293,443) to significant accounting polocies are described in note 3.
Net cash provided by operating activities 3,701,274 3,346,191 summary of significant accounting policies is included in note 22.
Cash flo s from investing activities (b) asis of measurement and functional currency: Capital distribution from li uidated subsidiary 20 567,673 - Investment income received 62,391 77,424 The financial statements are presented on the historical cost basis. nless otherwise stated, the dditions to property, plant and e uipment 11 ( 133,922) ( 114,275) financial statements are presented in thousands of amaica dollars ($’000), which is the functional roceeds from disposal of property, plant and e uipment 2,650 7,276 currency of the company.
Net cash used by investing activities 498,792 ( 29,575) (c) ccounting estimates and udgements:
Cash flo s from financing activity The preparation of the financial statements in accordance with I RS re uires management to ividends and distribution paid, make udgements, estimates and assumptions that affect the application of policies and the being net cash used by financing activity 19 (4,126,240) (3,592,256) reported amounts of, and disclosures related to, assets, liabilities, contingent assets and contingent et increase/(decrease) in cash and cash e uivalents liabilities at the reporting date and the income and expenses for the year then ended. The before effect of foreign exchange rate changes 73,826 ( 275,640) estimates and associated assumptions are based on historical experience and/or various other factors that are believed to be reasonable under the circumstances. ctual amounts could differ Effect of exchange rate changes on cash and cash e uivalents ( 13,259) ( 17,686) from these estimates. Cash and cash e uivalents at beginning of year 1,645,920 1,939,246 The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to Cash and cash e uivalents at end of year 12 1,706,487 1,645,920 accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
ey sources of estimation uncertainty:
mployee benefits see notes 10 and 22(o) :
The amounts recognised in the statement of financial position and statement of profit or loss and other comprehensive income for pension and other post-employment benefits are determined actuarially using several assumptions. The primary assumptions used in determining the amounts recognised include the discount rate used to determine the present value of estimated future cash flows re uired to settle the pension and other post- employment obligations and the expected rate of increase in medical costs for post- employment medical benefits. The accompanying notes form an integral part of the financial statements. ny changes in these assumptions would impact the amounts recorded in the financial statements for these obligations.
Carreras Limited Annual Report 2019 72 Governance Management's Discussion & Analysis Financial Statements
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Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
2. Statement of compliance and basis of preparation (cont d) 3. Changes in significant accounting policies (cont d)
(c) ccounting estimates and udgements (cont’d): I RS 15, Revenue from Contract with Customers (cont’d)
llowance for impairment losses see notes 13 and 22(p) : I RS 15 also includes disclosure re uirements to provide comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with llowances for doubtful accounts were established until arch 31, 2018, based on incurred customers. I RS 15 was effective on pril 1, 2018, and supersedes all existing guidance on revenue loss analyses over delin uent accounts considering aging of balances, the credit history and recognition. risk profile of each customer and legal processes to recover accounts receivable. ffective pril 1, 2018, such allowances are determined upon origination of the trade accounts The adoption of I RS 15 did not impact the timing or amount of sales from contracts with customers and receivable based on a model that calculates the expected credit loss ( C ) on trade the related assets and liabilities recognised by the company. ccordingly, the impact on the comparative accounts receivable. information is limited to new disclosure re uirements.
nder the C model, the group analyses its accounts receivable in a matrix by days past I RS 9, Financial Instruments due and determined for each age bracket an average rate of C , considering actual credit loss experience over the last 3 months and analysis of future delin uency, that is applied to I RS 9 sets out re uirements for recognising and measuring financial assets, financial liabilities and the balance of the accounts receivable. some contracts to buy or sell non-financial items. This standard replaces I S 39 Financial Instruments:
The average C rate increases in each segment of days past due until the rate is 100 for Recognition and Measurement. The re uirements of I RS 9 represent a significant change from I S 39. the applicable ageing bracket. The new standard brings fundamental changes to the accounting for financial assets and to certain aspects of the accounting for financial liabilities.
3. Changes in significant accounting policies s a result of the adoption of I RS 9, the company has adopted conse uential amendments to I S 1 Presentation of Financial Statements, which re uire impairment of financial assets to be presented The group has initially adopted I RS 15, Revenue from Contracts with Customers and I RS 9 Financial separate in the statement of profit or loss and CI. Instruments from pril 1, 2018. dditionally, the group has adopted conse uential amendments to I RS 7 Financial Instruments: number of other new standards were also effective from pril 1, 2018 but they do not have a material Disclosures that are applied to disclosures about 2019, but have not been applied to the comparative effect on the group’s and company’s financial statements. information.
ue to the transition method chosen by the group and company in applying I RS 9 and I RS 15, Classification and measurement of financial assets and financial liabilities comparative information throughout these financial statements has not generally been restated to reflect the re uirements of these new standards. I RS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income ( CI) and fair value through profit or loss ( T ). The effect of initially applying these standards is mainly attributed to the following: The classification of financial assets under I RS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. I RS 9 eliminates the previous additional disclosures related to I RS 9 see notes 18(i) and 22 (p) I S 39 categories of held-to-maturity, loans and receivables and available-for-sale. additional disclosures related to I RS 15 see note 22 (l) . or an explanation of how the company classifies and measures financial instruments under I RS 9, see xcept for the changes below, the company has consistently applied the accounting policies as set out in note 22 (s). note 22 to all periods presented in these financial statements. The following table and the accompanying note below explain the original measurement categories I RS 15, Revenue from Contract with Customers under I S 39 and the new measurement categories under I RS 9 for each class of the group’s and company’s financial assets as at pril 1, 2018. nder I RS 15, an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, following a five step model: Step 1: Identify the contract(s) with a customer (agreement that creates enforceable rights and obligations) Step 2: Identify the different performance obligations (promises) in the contract and account for those separately Step 3: etermine the transaction price (amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services) Step 4: llocate the transaction price to each performance obligation based on the relative stand-alone selling prices of each distinct good or service and Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation by transferring control of a promised good or service to the customer. performance obligation may be satisfied at a point in time or over time.
73 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
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CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
2. Statement of compliance and basis of preparation (cont d) 3. Changes in significant accounting policies (cont d)
(c) ccounting estimates and udgements (cont’d): I RS 15, Revenue from Contract with Customers (cont’d)
llowance for impairment losses see notes 13 and 22(p) : I RS 15 also includes disclosure re uirements to provide comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with llowances for doubtful accounts were established until arch 31, 2018, based on incurred customers. I RS 15 was effective on pril 1, 2018, and supersedes all existing guidance on revenue loss analyses over delin uent accounts considering aging of balances, the credit history and recognition. risk profile of each customer and legal processes to recover accounts receivable. ffective pril 1, 2018, such allowances are determined upon origination of the trade accounts The adoption of I RS 15 did not impact the timing or amount of sales from contracts with customers and receivable based on a model that calculates the expected credit loss ( C ) on trade the related assets and liabilities recognised by the company. ccordingly, the impact on the comparative accounts receivable. information is limited to new disclosure re uirements.
nder the C model, the group analyses its accounts receivable in a matrix by days past I RS 9, Financial Instruments due and determined for each age bracket an average rate of C , considering actual credit loss experience over the last 3 months and analysis of future delin uency, that is applied to I RS 9 sets out re uirements for recognising and measuring financial assets, financial liabilities and the balance of the accounts receivable. some contracts to buy or sell non-financial items. This standard replaces I S 39 Financial Instruments:
The average C rate increases in each segment of days past due until the rate is 100 for Recognition and Measurement. The re uirements of I RS 9 represent a significant change from I S 39. the applicable ageing bracket. The new standard brings fundamental changes to the accounting for financial assets and to certain aspects of the accounting for financial liabilities.
3. Changes in significant accounting policies s a result of the adoption of I RS 9, the company has adopted conse uential amendments to I S 1 Presentation of Financial Statements, which re uire impairment of financial assets to be presented The group has initially adopted I RS 15, Revenue from Contracts with Customers and I RS 9 Financial separate in the statement of profit or loss and CI. Instruments from pril 1, 2018. dditionally, the group has adopted conse uential amendments to I RS 7 Financial Instruments: number of other new standards were also effective from pril 1, 2018 but they do not have a material Disclosures that are applied to disclosures about 2019, but have not been applied to the comparative effect on the group’s and company’s financial statements. information.
ue to the transition method chosen by the group and company in applying I RS 9 and I RS 15, Classification and measurement of financial assets and financial liabilities comparative information throughout these financial statements has not generally been restated to reflect the re uirements of these new standards. I RS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income ( CI) and fair value through profit or loss ( T ). The effect of initially applying these standards is mainly attributed to the following: The classification of financial assets under I RS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. I RS 9 eliminates the previous additional disclosures related to I RS 9 see notes 18(i) and 22 (p) I S 39 categories of held-to-maturity, loans and receivables and available-for-sale. additional disclosures related to I RS 15 see note 22 (l) . or an explanation of how the company classifies and measures financial instruments under I RS 9, see xcept for the changes below, the company has consistently applied the accounting policies as set out in note 22 (s). note 22 to all periods presented in these financial statements. The following table and the accompanying note below explain the original measurement categories I RS 15, Revenue from Contract with Customers under I S 39 and the new measurement categories under I RS 9 for each class of the group’s and company’s financial assets as at pril 1, 2018. nder I RS 15, an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, following a five step model: Step 1: Identify the contract(s) with a customer (agreement that creates enforceable rights and obligations) Step 2: Identify the different performance obligations (promises) in the contract and account for those separately Step 3: etermine the transaction price (amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services) Step 4: llocate the transaction price to each performance obligation based on the relative stand-alone selling prices of each distinct good or service and Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation by transferring control of a promised good or service to the customer. performance obligation may be satisfied at a point in time or over time.
Carreras Limited Annual Report 2019 74 Governance Management's Discussion & Analysis Financial Statements
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Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
3. Changes in significant accounting policies (cont d) 3. Changes in significant accounting policies (cont d)
I RS 9, Financial Instruments (cont’d) I RS 9, Financial Instruments (cont’d)
Classification and measurement of financial assets and financial liabilities (cont’d) Impairment of financial assets (cont’d)
The Group Original e IAS 39 I RS 9 Changes in accounting policies resulting from the adoption of I RS 9 have been applied retrospectively, classification classification carrying carrying except that comparative periods generally have not been restated. ifferences in the carrying amounts of ote under IAS 39 under I RS 9 amount at amount financial assets resulting from the adoption of I RS 9 are recognised in retained earnings as at pril 1, March 31, at April 2018. ccordingly, the information presented for 2018, does not reflect the re uirements of I RS 9 and 201 Remeasurement 1, 201 therefore is not comparable to the information presented for 2019 under I RS 9. inancial assets 000 000 000 Cash and cash oans and mortised e uivalents receivables cost 2,306,972 - 2,306,972 4. Operating revenue
perating revenue for the group and the company represents the invoiced value of products and services ccounts (a) oans and mortised sold and includes special consumption tax aggregating $5,593,796,000 (2018: $5,417,449,000). receivable receivables cost 910,995 - 910,995 3,217,967 - 3,217,967 5. Cost of operating revenue The Company Original e IAS 39 I RS 9 The roup and the Company classification classification carrying carrying 2019 2018 ote under IAS 39 under I RS 9 amount at amount $'000 $'000 March 31, at April 201 Remeasurement 1, 201 Special consumption tax 5,593,796 5,417,449 inancial assets 000 000 000 Customs administration fee 333,678 321,200 aterial and related costs 542,651 510,633 Cash and cash oans and mortised e uivalents receivables cost 1,645,920 - 1,645,920 6,470,125 6,249,282
ccounts (a) oans and mortised 6. Other operating income receivable receivables cost 910,050 - 910,050 The roup The Company 2,555,970 - 2,555,970 2019 2018 2019 2018 $'000 $'000 $'000 $'000
(a) Trade and other receivables that were classified as loans and receivables under I S 39 are now Interest income 67,467 89,326 65,274 76,676 classified at amortised cost. No allowance for impairment over these receivables was recognised for xchange loss (16,705) ( 7,632) (13,259) ( 17,686) transition ad ustment on initial application of I RS 9 as at pril 1, 2018 as the amounts were ain on disposal of property, plant and considered immaterial. e uipment 2,650 7,186 2,650 7,186 nclaimed dividends written back (note 16) 60,941 17,710 60,941 17,710 Impairment of financial assets iscellaneous income 35,551 117,131 16,805 117,131
I RS 9 replace the incurred loss model in I S 39 with an expected credit loss ( C ) model. The 149,904 223,721 132,411 201,017 new impairment model applies to financial assets measured at amortised cost. nder I RS 9, credit losses are recognised earlier than under I S 39 (see note 18).
Transition
or assets in the scope of the I RS 9 impairment model, impairment loses are generally expected to increase and become more volatile. The group and company has determined that application of I RS 9’s impairment re uirements at pril 1, 2018 has not given rise to any material change in the group’s and company’s impairment allowance.
dditional information about how the company measures allowance for impairment is described in note 22 (p) .
75 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
19 20
CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
3. Changes in significant accounting policies (cont d) 3. Changes in significant accounting policies (cont d)
I RS 9, Financial Instruments (cont’d) I RS 9, Financial Instruments (cont’d)
Classification and measurement of financial assets and financial liabilities (cont’d) Impairment of financial assets (cont’d)
The Group Original e IAS 39 I RS 9 Changes in accounting policies resulting from the adoption of I RS 9 have been applied retrospectively, classification classification carrying carrying except that comparative periods generally have not been restated. ifferences in the carrying amounts of ote under IAS 39 under I RS 9 amount at amount financial assets resulting from the adoption of I RS 9 are recognised in retained earnings as at pril 1, March 31, at April 2018. ccordingly, the information presented for 2018, does not reflect the re uirements of I RS 9 and 201 Remeasurement 1, 201 therefore is not comparable to the information presented for 2019 under I RS 9. inancial assets 000 000 000 Cash and cash oans and mortised e uivalents receivables cost 2,306,972 - 2,306,972 4. Operating revenue
perating revenue for the group and the company represents the invoiced value of products and services ccounts (a) oans and mortised sold and includes special consumption tax aggregating $5,593,796,000 (2018: $5,417,449,000). receivable receivables cost 910,995 - 910,995 3,217,967 - 3,217,967 5. Cost of operating revenue The Company Original e IAS 39 I RS 9 The roup and the Company classification classification carrying carrying 2019 2018 ote under IAS 39 under I RS 9 amount at amount $'000 $'000 March 31, at April 201 Remeasurement 1, 201 Special consumption tax 5,593,796 5,417,449 inancial assets 000 000 000 Customs administration fee 333,678 321,200 aterial and related costs 542,651 510,633 Cash and cash oans and mortised e uivalents receivables cost 1,645,920 - 1,645,920 6,470,125 6,249,282
ccounts (a) oans and mortised 6. Other operating income receivable receivables cost 910,050 - 910,050 The roup The Company 2,555,970 - 2,555,970 2019 2018 2019 2018 $'000 $'000 $'000 $'000
(a) Trade and other receivables that were classified as loans and receivables under I S 39 are now Interest income 67,467 89,326 65,274 76,676 classified at amortised cost. No allowance for impairment over these receivables was recognised for xchange loss (16,705) ( 7,632) (13,259) ( 17,686) transition ad ustment on initial application of I RS 9 as at pril 1, 2018 as the amounts were ain on disposal of property, plant and considered immaterial. e uipment 2,650 7,186 2,650 7,186 nclaimed dividends written back (note 16) 60,941 17,710 60,941 17,710 Impairment of financial assets iscellaneous income 35,551 117,131 16,805 117,131
I RS 9 replace the incurred loss model in I S 39 with an expected credit loss ( C ) model. The 149,904 223,721 132,411 201,017 new impairment model applies to financial assets measured at amortised cost. nder I RS 9, credit losses are recognised earlier than under I S 39 (see note 18).
Transition
or assets in the scope of the I RS 9 impairment model, impairment loses are generally expected to increase and become more volatile. The group and company has determined that application of I RS 9’s impairment re uirements at pril 1, 2018 has not given rise to any material change in the group’s and company’s impairment allowance.
dditional information about how the company measures allowance for impairment is described in note 22 (p) .
Carreras Limited Annual Report 2019 76 Governance Management's Discussion & Analysis Financial Statements
22 21 Notes to Financial Statements (Continued) CARRERAS LIMITED CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
7. Expense by ature: 8. Income tax
(a) dministrative xpenses: The Group: The roup The Company 2019 2018 2019 2018 (a) Income tax is computed at 25 of the profit for the year, as ad usted for taxation purposes, and is $'000 $'000 $'000 $'000 made up as follows: Staff costs 177,136 151,945 177,136 151,945 2019 2018 irectors’ fees 8,372 8,435 8,372 8,435 $'000 $'000 epreciation 28,523 24,376 28,523 24,376 Current: uditors’ remuneration 8,630 7,670 8,630 7,670 rovision for charge on current year’s profit 1,125,270 1,168,422 ccupancy costs 39,929 46,776 39,929 46,776 Transportation, travel and entertainment 61,570 52,324 61,570 52,324 eferred: Security 26,597 17,480 26,597 17,480 rigination and reversal of temporary differences Insurance 23,867 21,792 23,867 21,792 note 15(b) ( 16,243) ( 15,726) egal, professional and consultancy fees 43,105 61,154 43,105 55,646 Income tax expense for the year 1,109,027 1,152,696 Technical and advisory fees 158,414 123,406 158,414 123,406 usiness support services 258,215 324,034 258,215 324,034 Shared service centre 69,987 35,010 69,987 35,010 (b) Reconciliation of actual tax charge and effective tax rate: Information technology 128,893 108,260 128,893 108,260 ank charges 10,837 13,914 10,797 13,847 2019 2018 ublic relations 44,768 54,526 44,768 54,526 $'000 $'000 ther expenses 11,663 35,436 11,294 35,155 rofit before income tax 4,515,929 4,637,326 1,100,506 1,086,538 1,100,097 1,080,682 Computed expected tax charge at 25 1,128,982 1,159,332 (b) istribution expenses: Taxation difference between profit for financial The roup The Company statements and tax reporting purposes on 2019 2018 2019 2018 epreciation and capital allowances 503 7,353 $'000 $'000 $'000 $'000 oreign exchange gains ( 4,289) ( 5,808) ffect of income taxed at other than standard rate ( 15,235) ( 6,571) Staff costs 378,020 312,758 378,020 312,758 ther ad ustments ( 934) ( 1,610) epreciation 59,633 52,708 59,633 52,708 ccupancy costs 51,122 45,294 51,122 45,294 ctual tax charge 1,109,027 1,152,696 Transportation and travel 116,170 108,192 116,170 108,192 ffective tax rate 24.56 24.86 Repairs and maintenance 7,226 7,063 7,226 7,063 Security 96,733 57,455 96,733 57,455 (c) t arch 31, 2019, taxation losses in subsidiaries, sub ect to agreement by Tax dministration Insurance 3,994 2,953 3,994 2,953 amaica, amounted to approximately $777,748,000 (2018: $777,478,000). These losses may be egal, professional and consultancy fees 36,988 24,782 36,988 24,782 carried forward indefinitely. The amount that can be utilised in any one assessment year is Information technology 18,076 15,597 18,076 15,597 restricted to 50 of chargeable income (before utilising any prior year losses) of that assessment ther expenses 5,451 6,853 5,451 6,853 year. 773,413 633,655 773,413 633,655
(c) arketing expenses: The roup The Company 2019 2018 2019 2018 $'000 $'000 $'000 $'000
Sponsorship 87,785 76,204 87,785 76,204 romotions 46,002 38,837 46,002 38,837 roduct development 5,967 12,711 5,967 12,711 139,754 127,752 139,754 127,752 Total administrative, distribution and marketing expenses 2,013,673 1,847,945 2,013,264 1,842,089
77 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
22 21 Notes to Financial Statements (Continued) CARRERAS LIMITED CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
7. Expense by ature: 8. Income tax
(a) dministrative xpenses: The Group: The roup The Company 2019 2018 2019 2018 (a) Income tax is computed at 25 of the profit for the year, as ad usted for taxation purposes, and is $'000 $'000 $'000 $'000 made up as follows: Staff costs 177,136 151,945 177,136 151,945 2019 2018 irectors’ fees 8,372 8,435 8,372 8,435 $'000 $'000 epreciation 28,523 24,376 28,523 24,376 Current: uditors’ remuneration 8,630 7,670 8,630 7,670 rovision for charge on current year’s profit 1,125,270 1,168,422 ccupancy costs 39,929 46,776 39,929 46,776 Transportation, travel and entertainment 61,570 52,324 61,570 52,324 eferred: Security 26,597 17,480 26,597 17,480 rigination and reversal of temporary differences Insurance 23,867 21,792 23,867 21,792 note 15(b) ( 16,243) ( 15,726) egal, professional and consultancy fees 43,105 61,154 43,105 55,646 Income tax expense for the year 1,109,027 1,152,696 Technical and advisory fees 158,414 123,406 158,414 123,406 usiness support services 258,215 324,034 258,215 324,034 Shared service centre 69,987 35,010 69,987 35,010 (b) Reconciliation of actual tax charge and effective tax rate: Information technology 128,893 108,260 128,893 108,260 ank charges 10,837 13,914 10,797 13,847 2019 2018 ublic relations 44,768 54,526 44,768 54,526 $'000 $'000 ther expenses 11,663 35,436 11,294 35,155 rofit before income tax 4,515,929 4,637,326 1,100,506 1,086,538 1,100,097 1,080,682 Computed expected tax charge at 25 1,128,982 1,159,332 (b) istribution expenses: Taxation difference between profit for financial The roup The Company statements and tax reporting purposes on 2019 2018 2019 2018 epreciation and capital allowances 503 7,353 $'000 $'000 $'000 $'000 oreign exchange gains ( 4,289) ( 5,808) ffect of income taxed at other than standard rate ( 15,235) ( 6,571) Staff costs 378,020 312,758 378,020 312,758 ther ad ustments ( 934) ( 1,610) epreciation 59,633 52,708 59,633 52,708 ccupancy costs 51,122 45,294 51,122 45,294 ctual tax charge 1,109,027 1,152,696 Transportation and travel 116,170 108,192 116,170 108,192 ffective tax rate 24.56 24.86 Repairs and maintenance 7,226 7,063 7,226 7,063 Security 96,733 57,455 96,733 57,455 (c) t arch 31, 2019, taxation losses in subsidiaries, sub ect to agreement by Tax dministration Insurance 3,994 2,953 3,994 2,953 amaica, amounted to approximately $777,748,000 (2018: $777,478,000). These losses may be egal, professional and consultancy fees 36,988 24,782 36,988 24,782 carried forward indefinitely. The amount that can be utilised in any one assessment year is Information technology 18,076 15,597 18,076 15,597 restricted to 50 of chargeable income (before utilising any prior year losses) of that assessment ther expenses 5,451 6,853 5,451 6,853 year. 773,413 633,655 773,413 633,655
(c) arketing expenses: The roup The Company 2019 2018 2019 2018 $'000 $'000 $'000 $'000
Sponsorship 87,785 76,204 87,785 76,204 romotions 46,002 38,837 46,002 38,837 roduct development 5,967 12,711 5,967 12,711 139,754 127,752 139,754 127,752 Total administrative, distribution and marketing expenses 2,013,673 1,847,945 2,013,264 1,842,089
Carreras Limited Annual Report 2019 78 Governance Management's Discussion & Analysis Financial Statements
24 23 Notes to Financial Statements (Continued) CARRERAS LIMITED CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
8. Income tax (cont d) 10. Employee benefits (cont d)
The Company: replacement fund, the Carreras imited Superannuation und ( the new fund ) was established with effect from anuary 1, 2007. The new fund is divided into two sections a defined benefit ( ) section (d) Income tax is computed at 25 of the profit for the year, as ad usted for taxation purposes, and is and a defined contribution ( C) section. The employees who were members of the old scheme are now made up as follows: participating in the section of the new fund whilst the individuals employed after ecember 31, 2019 2018 2006, are participating in the C section of the new fund. $'000 $'000 The liabilities in respect of current pensioners and deferred pensioners, who opted to transfer the value Current: of their pension entitlement in the old scheme to the section of the new fund to provide for all future rovision for charge on current year’s profit 1,121,422 1,161,293 pension payments, have been transferred to the section. The liabilities in respect of the active Tax arising on capital distribution at 5 28,384 - members who became members of the new fund and opted to transfer the total or a part of their past 1,149,806 1,161,293 service to the new fund have also been transferred. eferred: rigination and reversal of temporary differences The amounts recognised are computed as follows: note 15(b) ( 12,395) ( 12,564) The roup and the Company Income tax expense for the year 1,137,411 1,148,729 2019 2018 $'000 $'000
(e) Reconciliation of actual tax charge and effective tax rate: ension benefits (138,300) (181,900) 2019 2018 ost employment health and group life insurance benefit 223,000 253,800 $'000 $'000 The amounts recognised are computed as follows: rofit before income tax 4,875,773 4,620,478 (i) ension benefits: Computed expected tax charge at 25 1,218,943 1,155,120 Taxation difference between profit for financial (a) sset recognised in the statement of financial position: statements and tax reporting purposes on The roup and the Company epreciation and capital allowances 503 7,353 2019 2018 oreign exchange gains ( 843) ( 2,693) $'000 $'000 ffect of income taxed at other than standard rate ( 128,769) ( 6,224) ther ad ustments 47,577 ( 4,827) resent value of funded obligations 3,072,900 3,486,600 ctual tax charge 1,137,411 1,148,729 air value of plan assets (5,949,100) (5,518,400) ffective tax rate 23.33 24.86 resent value of net obligations (2,876,200) (2,031,800) nrecognised amount due to limitation 2,737,900 1,849,900 sset recognised in statement of financial position ( 138,300) ( 181,900) 9. Earnings per ordinary stock unit (b) ovements in the net asset recognised in the statement of financial position: arnings per ordinary stock unit is calculated as follows: The roup and the Company 2019 2018 2019 2018 $'000 $'000 rofit for the year attributable to stockholders 3,406,849,000 3,484,596,000 rdinary stock units in issue 4,854,400,000 4,854,400,000 Net asset at beginning of the year (181,900) (200,800) arnings per stock unit 70.2 71.8¢ Contributions paid ( 2,900) ( 3,100) xpense recognised in the statement of profit or loss and other comprehensive income 46,500 22,000 10. Employee benefits Net asset at end of the year (138,300) (181,900)
The Carreras roup imited Superannuation Scheme ( the old scheme ) was discontinued with effect from ecember 31, 2006 and is being wound up in accordance with the rules, applicable legislation and sub ect to the oversight of the inancial Services Commission ( SC ). enefit improvements have been agreed for the pensioners, deferred pensioners and active members of the old scheme.
79 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
24 23 CARRERAS LIMITED Notes to Financial Statements (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
8. Income tax (cont d) 10. Employee benefits (cont d)
The Company: replacement fund, the Carreras imited Superannuation und ( the new fund ) was established with effect from anuary 1, 2007. The new fund is divided into two sections a defined benefit ( ) section (d) Income tax is computed at 25 of the profit for the year, as ad usted for taxation purposes, and is and a defined contribution ( C) section. The employees who were members of the old scheme are now made up as follows: participating in the section of the new fund whilst the individuals employed after ecember 31, 2019 2018 2006, are participating in the C section of the new fund. $'000 $'000 The liabilities in respect of current pensioners and deferred pensioners, who opted to transfer the value Current: of their pension entitlement in the old scheme to the section of the new fund to provide for all future rovision for charge on current year’s profit 1,121,422 1,161,293 pension payments, have been transferred to the section. The liabilities in respect of the active Tax arising on capital distribution at 5 28,384 - members who became members of the new fund and opted to transfer the total or a part of their past 1,149,806 1,161,293 service to the new fund have also been transferred. eferred: rigination and reversal of temporary differences The amounts recognised are computed as follows: note 15(b) ( 12,395) ( 12,564) The roup and the Company Income tax expense for the year 1,137,411 1,148,729 2019 2018 $'000 $'000
(e) Reconciliation of actual tax charge and effective tax rate: ension benefits (138,300) (181,900) 2019 2018 ost employment health and group life insurance benefit 223,000 253,800 $'000 $'000 The amounts recognised are computed as follows: rofit before income tax 4,875,773 4,620,478 (i) ension benefits: Computed expected tax charge at 25 1,218,943 1,155,120 Taxation difference between profit for financial (a) sset recognised in the statement of financial position: statements and tax reporting purposes on The roup and the Company epreciation and capital allowances 503 7,353 2019 2018 oreign exchange gains ( 843) ( 2,693) $'000 $'000 ffect of income taxed at other than standard rate ( 128,769) ( 6,224) ther ad ustments 47,577 ( 4,827) resent value of funded obligations 3,072,900 3,486,600 ctual tax charge 1,137,411 1,148,729 air value of plan assets (5,949,100) (5,518,400) ffective tax rate 23.33 24.86 resent value of net obligations (2,876,200) (2,031,800) nrecognised amount due to limitation 2,737,900 1,849,900 sset recognised in statement of financial position ( 138,300) ( 181,900) 9. Earnings per ordinary stock unit (b) ovements in the net asset recognised in the statement of financial position: arnings per ordinary stock unit is calculated as follows: The roup and the Company 2019 2018 2019 2018 $'000 $'000 rofit for the year attributable to stockholders 3,406,849,000 3,484,596,000 rdinary stock units in issue 4,854,400,000 4,854,400,000 Net asset at beginning of the year (181,900) (200,800) arnings per stock unit 70.2 71.8¢ Contributions paid ( 2,900) ( 3,100) xpense recognised in the statement of profit or loss and other comprehensive income 46,500 22,000 10. Employee benefits Net asset at end of the year (138,300) (181,900)
The Carreras roup imited Superannuation Scheme ( the old scheme ) was discontinued with effect from ecember 31, 2006 and is being wound up in accordance with the rules, applicable legislation and sub ect to the oversight of the inancial Services Commission ( SC ). enefit improvements have been agreed for the pensioners, deferred pensioners and active members of the old scheme.
Carreras Limited Annual Report 2019 80 Governance Management's Discussion & Analysis Financial Statements
25 26
Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
10. Employee benefits (cont d) 10. Employee benefits (cont d)
(i) ension benefits (cont’d): The amounts recognised are computed as follows (cont’d):
(c) ovements in present value of funded obligation: (i) ension benefits (cont’d): The roup and the Company 2019 2018 (f) Remeasurements recognised in other comprehensive income: $’000 $’000 2019 2018 $'000 $'000 alance at start of year 3,486,600 3,205,600 Current service cost 18,200 18,000 Change in effect of asset ceiling 749,300 186,700 Interest cost 255,500 297,800 Remeasurement gain on plan assets (232,500) ( 317,000) Re-measurements - Remeasurement (gain)/loss on obligation (491,100) 145,700 ( ain)/loss from change in financial assumptions ( 491,100) 145,700 embers’ contributions 2,100 1,500 25,700 15,400 enefits paid ( 198,400) ( 176,400) ain on curtailment - ( 5,600) (g) rincipal actuarial assumptions at the reporting date (expressed as weighted averages):
alance at end of year 3,072,900 3,486,600 2019 2018 (d) ovements in plan assets: iscount rate 7.00 7.50 The roup and the Company uture salary increases 4.00 5.50 2019 2018 uture pension increases 5.00 4.50 $'000 $'000
air value of plan assets at beginning of the year 5,518,400 4,925,300 ssumptions regarding future mortality are based on 94 Tables with ages reduced by Interest income on plan assets 406,100 459,200 five years (2018: five years). Contributions paid 7,900 7,700 enefits paid ( 215,800) ( 190,800) t arch 31, 2019, the weighted average duration of the defined benefit obligation was 13 Remeasurement gain on assets 232,500 317,000 years (2018: 15 years).
air value of plan assets at end of the year 5,949,100 5,518,400 (h) Sensitivity analysis of principal actuarial assumptions:
lan assets consist of the following: uities 2,125,800 1,839,800 The roup and the Company ooled pension investments 984,600 938,900 ne-half percentage ne-half percentage Real property 643,900 589,100 point increase point decrease Resale agreements 352,300 471,100 2019 2018 2019 2018 overnment and corporate bonds 1,724,900 1,584,900 $'000 $'000 $'000 $'000 Net current assets 117,600 94,600 5,949,100 5,518,400 iscount rate (176,200) (227,700) 196,000 131,000 Salary increases 9,800 13,200 ( 9,400) ( 12,200) (e) xpense recognised in profit for the year: ension increases 185,700 117,800 (167,200) (216,600) The roup and the Company 2019 2018 (i) lan assets include ordinary stock units issued by the company with a fair value of $'000 $'000 $325,884,000 (2018: $373,372,000).
Current service costs 15,300 14,900 Interest cost on obligation 255,500 297,800 Interest income on assets (406,100) ( 459,200) Interest on effect of asset ceiling 138,700 144,300 ain on curtailments and settlements - ( 5,600) dministrative expenses 17,400 14,400 20,800 6,600
81 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
25 26
CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
10. Employee benefits (cont d) 10. Employee benefits (cont d)
(i) ension benefits (cont’d): The amounts recognised are computed as follows (cont’d):
(c) ovements in present value of funded obligation: (i) ension benefits (cont’d): The roup and the Company 2019 2018 (f) Remeasurements recognised in other comprehensive income: $’000 $’000 2019 2018 $'000 $'000 alance at start of year 3,486,600 3,205,600 Current service cost 18,200 18,000 Change in effect of asset ceiling 749,300 186,700 Interest cost 255,500 297,800 Remeasurement gain on plan assets (232,500) ( 317,000) Re-measurements - Remeasurement (gain)/loss on obligation (491,100) 145,700 ( ain)/loss from change in financial assumptions ( 491,100) 145,700 embers’ contributions 2,100 1,500 25,700 15,400 enefits paid ( 198,400) ( 176,400) ain on curtailment - ( 5,600) (g) rincipal actuarial assumptions at the reporting date (expressed as weighted averages):
alance at end of year 3,072,900 3,486,600 2019 2018 (d) ovements in plan assets: iscount rate 7.00 7.50 The roup and the Company uture salary increases 4.00 5.50 2019 2018 uture pension increases 5.00 4.50 $'000 $'000
air value of plan assets at beginning of the year 5,518,400 4,925,300 ssumptions regarding future mortality are based on 94 Tables with ages reduced by Interest income on plan assets 406,100 459,200 five years (2018: five years). Contributions paid 7,900 7,700 enefits paid ( 215,800) ( 190,800) t arch 31, 2019, the weighted average duration of the defined benefit obligation was 13 Remeasurement gain on assets 232,500 317,000 years (2018: 15 years).
air value of plan assets at end of the year 5,949,100 5,518,400 (h) Sensitivity analysis of principal actuarial assumptions:
lan assets consist of the following: uities 2,125,800 1,839,800 The roup and the Company ooled pension investments 984,600 938,900 ne-half percentage ne-half percentage Real property 643,900 589,100 point increase point decrease Resale agreements 352,300 471,100 2019 2018 2019 2018 overnment and corporate bonds 1,724,900 1,584,900 $'000 $'000 $'000 $'000 Net current assets 117,600 94,600 5,949,100 5,518,400 iscount rate (176,200) (227,700) 196,000 131,000 Salary increases 9,800 13,200 ( 9,400) ( 12,200) (e) xpense recognised in profit for the year: ension increases 185,700 117,800 (167,200) (216,600) The roup and the Company 2019 2018 (i) lan assets include ordinary stock units issued by the company with a fair value of $'000 $'000 $325,884,000 (2018: $373,372,000).
Current service costs 15,300 14,900 Interest cost on obligation 255,500 297,800 Interest income on assets (406,100) ( 459,200) Interest on effect of asset ceiling 138,700 144,300 ain on curtailments and settlements - ( 5,600) dministrative expenses 17,400 14,400 20,800 6,600
Carreras Limited Annual Report 2019 82 Governance Management's Discussion & Analysis Financial Statements
27 28
Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
10. Employee benefits (cont d) 10. Employee benefits (cont d)
The amounts recognised are computed as follows (cont’d): The amounts recognised are computed as follows (cont’d):
(f) Sensitivity analysis of principal actuarial assumptions: (ii) ost employment health and group life insurance benefits: The roup and the Company (a) iability recognised in the statement of financial position: ne-half percentage ne-half percentage The roup and the Company point increase point decrease 2019 2018 2019 2018 2019 2018 $'000 $'000 $'000 $'000 $'000 $'000
resent value of future obligations, being liability iscount rate (15,600) (17,800) 17,500 20,800 recognised in statement of financial position 223,000 253,800 ealth-care cost increases 17,300 20,600 (15,400) (17,600) Salary increases 100 100 100 ( 100) (b) ovements in the net liability recognised in the statement of financial position: Impact on post-employment obligation of a one year increase/decrease in life expectancy: The roup and the Company 2019 2018 The post-employment obligation would increase by about $74,000,000 (2018: $8,400,000) or $'000 $'000 decrease by about $74,800,000 (2018: $8,300,000).
Net liability at the beginning of the year 253,800 273,800 11. Property, plant and e uipment Contributions paid ( 8,700) ( 8,600) Income recognised in the statement of profit or loss The Group and The Company: and other comprehensive income ( 22,100) ( 11,400) reehold land, achinery, buildings and ork- furniture, e uipment Net liability at the end of the year 223,000 253,800 leaseholds in-progress and vehicles Total $'000 $'000 $'000 $'000 (c) xpense recognised in profit for the year: Cost: The roup and the Company arch 31, 2017 173,599 7,015 389,282 569,896 2019 2018 dditions - 106,643 7,632 114,275 $'000 $'000 Transfers 1,345 (104,309) 102,964 - isposals - - ( 27,441) ( 27,441) Current service costs 10,600 11,200 Interest on obligation 19,500 26,600 arch 31, 2018 174,944 9,349 472,437 656,730 ain on curtailment and settlements - ( 5,100) dditions - 133,622 300 133,922 Transfers - (133,294) 133,294 - 30,100 32,700 isposals - - ( 9,069) ( 9,069)
(d) Remeasurements recognised in other comprehensive income: arch 31, 2019 174,944 9,677 596,962 781,583
The roup and the Company epreciation: 2019 2018 arch 31, 2017 42,798 - 226,948 269,746 $'000 $'000 Charge for the year 17,099 - 59,985 77,084 liminated on disposals - - ( 27,351) ( 27,351) Remeasurement gain on obligation (52,200) (44,100) arch 31, 2018 59,897 - 259,582 319,479 Charge for the year 16,756 - 71,400 88,156 (e) rincipal actuarial assumptions at the reporting date (expressed as weighted averages): liminated on disposals - - ( 9,069) ( 9,069)
2019 2018 arch 31, 2019 76,653 - 321,913 398,566
Net book values:
iscount rate 7.00 7.50 arch 31, 2019 98,291 9,677 275,049 383,017 nnual increase in health-care costs 5.00 6.50 arch 31, 2018 115,047 9,349 212,855 337,251
ctuarial assumptions regarding mortality, inflation, etc., follows the same basis on those outlined in note 10(i)(g). reehold land, buildings and leaseholds for the group and the company include freehold land in the amount of $700 (2018: $700).
83 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
27 28
CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
10. Employee benefits (cont d) 10. Employee benefits (cont d)
The amounts recognised are computed as follows (cont’d): The amounts recognised are computed as follows (cont’d):
(f) Sensitivity analysis of principal actuarial assumptions: (ii) ost employment health and group life insurance benefits: The roup and the Company (a) iability recognised in the statement of financial position: ne-half percentage ne-half percentage The roup and the Company point increase point decrease 2019 2018 2019 2018 2019 2018 $'000 $'000 $'000 $'000 $'000 $'000
resent value of future obligations, being liability iscount rate (15,600) (17,800) 17,500 20,800 recognised in statement of financial position 223,000 253,800 ealth-care cost increases 17,300 20,600 (15,400) (17,600) Salary increases 100 100 100 ( 100) (b) ovements in the net liability recognised in the statement of financial position: Impact on post-employment obligation of a one year increase/decrease in life expectancy: The roup and the Company 2019 2018 The post-employment obligation would increase by about $74,000,000 (2018: $8,400,000) or $'000 $'000 decrease by about $74,800,000 (2018: $8,300,000).
Net liability at the beginning of the year 253,800 273,800 11. Property, plant and e uipment Contributions paid ( 8,700) ( 8,600) Income recognised in the statement of profit or loss The Group and The Company: and other comprehensive income ( 22,100) ( 11,400) reehold land, achinery, buildings and ork- furniture, e uipment Net liability at the end of the year 223,000 253,800 leaseholds in-progress and vehicles Total $'000 $'000 $'000 $'000 (c) xpense recognised in profit for the year: Cost: The roup and the Company arch 31, 2017 173,599 7,015 389,282 569,896 2019 2018 dditions - 106,643 7,632 114,275 $'000 $'000 Transfers 1,345 (104,309) 102,964 - isposals - - ( 27,441) ( 27,441) Current service costs 10,600 11,200 Interest on obligation 19,500 26,600 arch 31, 2018 174,944 9,349 472,437 656,730 ain on curtailment and settlements - ( 5,100) dditions - 133,622 300 133,922 Transfers - (133,294) 133,294 - 30,100 32,700 isposals - - ( 9,069) ( 9,069)
(d) Remeasurements recognised in other comprehensive income: arch 31, 2019 174,944 9,677 596,962 781,583
The roup and the Company epreciation: 2019 2018 arch 31, 2017 42,798 - 226,948 269,746 $'000 $'000 Charge for the year 17,099 - 59,985 77,084 liminated on disposals - - ( 27,351) ( 27,351) Remeasurement gain on obligation (52,200) (44,100) arch 31, 2018 59,897 - 259,582 319,479 Charge for the year 16,756 - 71,400 88,156 (e) rincipal actuarial assumptions at the reporting date (expressed as weighted averages): liminated on disposals - - ( 9,069) ( 9,069)
2019 2018 arch 31, 2019 76,653 - 321,913 398,566
Net book values:
iscount rate 7.00 7.50 arch 31, 2019 98,291 9,677 275,049 383,017 nnual increase in health-care costs 5.00 6.50 arch 31, 2018 115,047 9,349 212,855 337,251
ctuarial assumptions regarding mortality, inflation, etc., follows the same basis on those outlined in note 10(i)(g). reehold land, buildings and leaseholds for the group and the company include freehold land in the amount of $700 (2018: $700).
Carreras Limited Annual Report 2019 84 Governance Management's Discussion & Analysis Financial Statements
29 30 Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
12. Cash and cash e uivalents 15. Deferred tax asset/(liability)
The roup The Company (a) eferred tax assets and liabilities are attributable to the following: 2019 2018 2019 2018 $'000 $'000 $'000 $'000 The Group: ssets iabilities Net emand and call deposits 1,789,730 2,306,972 1,706,487 1,645,920 2019 2018 2019 2018 2019 2018 $'000 $'000 $'000 $'000 $'000 $'000
eferred tax on reserves of 13. Accounts receivable subsidiary in li uidation - - - (22,010) - (22,010) The roup The Company ccounts payable 3,198 2,975 - - 3,198 2,975 2019 2018 2019 2018 roperty, plant and e uipment 15,785 12,613 - - 15,785 12,613 $'000 $'000 $'000 $'000 mployee benefits 55,750 63,450 (34,575) (45,475) 21,175 17,975 ccounts receivable - - ( 1,492) ( 5,716) ( 1,492) ( 5,716) Trade accounts receivable 582,687 865,738 582,687 865,738 nrealised foreign exchange Interest and other investment income receivable 5,968 4,474 5,968 3,085 gain - 1,079 ( 122) - ( 122) 1,079 repayments 179,396 27,626 179,396 27,626 ther receivables and advances: eferred tax asset/(liability) 74,733 80,117 (36,189) (73,201) 38,544 6,916 ther 16,868 15,807 17,731 16,251 The Company: 784,919 913,645 785,782 912,700 ess: llowance for impairment losses ( 5,848) ( 2,650) ( 5,848) ( 2,650) ssets iabilities Net 779,071 910,995 779,934 910,050 2019 2018 2019 2018 2019 2018 $'000 $'000 $'000 $'000 $'000 $'000
uring the year, net bad debts recognised in profit or loss aggregated $5,774,000 (2018: $2,095,000) for ccounts payable 3,198 2,975 - - 3,198 2,975 the group and the company. roperty, plant and e uipment 15,785 12,613 - - 15,785 12,613 mployee benefits 55,750 63,450 (34,575) (45,475) 21,175 17,975 llowances for doubtful accounts were established until arch 31, 2018 based on incurred loss analyses ccounts receivable - - ( 1,492) ( 771) ( 1,492) ( 771) over delin uent accounts considering aging of balances, the credit history and risk profile of each nrealised foreign exchange customer and legal processes to recover accounts receivable. ffective pril 1, 2018 such allowances are gain - - ( 122) ( 18) ( 122) ( 18) determined upon origination of the trade accounts receivable based on a model that calculates the eferred tax asset/(liability) 74,733 79,038 (36,189) (46,264) 38,544 32,774 expected credit loss ( C ) of the trade accounts receivable and are recognised over their term.
nder this C model, the group uses accounts receivable based on days past due and determines an (b) ovements in temporary differences during the year are as follows: average rate of C , considering actual credit loss experience over the last 12 months and analysis of future delin uency, that is applied to the balance of the accounts receivable. weighted average C The Group: rate is used as at arch 31, 2019 to apply against the accounts receivable balance (see note 18). 2019 Recognised in 14. Share capital pening Recognised profit or loss Closing 2019 2018 balance in e uity note 8(a) balance $'000 $'000 $'000 $'000 $'000 $'000 uthorised: eferred tax on reserves of 4,854,400,000 ordinary shares of no par value subsidiary in li uidation (22,010) 22,010 - - ccounts payable 2,975 - 223 3,198 Stated: roperty, plant and e uipment 12,613 - 3,172 15,785 Issued and fully paid: mployee benefits 17,975 ( 6,625) 9,825 21,175 4,854,400,000 stock units of no par value 121,360 121,360 Interest receivable ( 5,716) - 4,224 ( 1,492) nrealised foreign exchange gain 1,079 - ( 1,201) ( 122) 6,916 15,385 16,243 38,544
85 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
29 30 CARRERAS LIMITED Notes to Financial Statements (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
12. Cash and cash e uivalents 15. Deferred tax asset/(liability)
The roup The Company (a) eferred tax assets and liabilities are attributable to the following: 2019 2018 2019 2018 $'000 $'000 $'000 $'000 The Group: ssets iabilities Net emand and call deposits 1,789,730 2,306,972 1,706,487 1,645,920 2019 2018 2019 2018 2019 2018 $'000 $'000 $'000 $'000 $'000 $'000
eferred tax on reserves of 13. Accounts receivable subsidiary in li uidation - - - (22,010) - (22,010) The roup The Company ccounts payable 3,198 2,975 - - 3,198 2,975 2019 2018 2019 2018 roperty, plant and e uipment 15,785 12,613 - - 15,785 12,613 $'000 $'000 $'000 $'000 mployee benefits 55,750 63,450 (34,575) (45,475) 21,175 17,975 ccounts receivable - - ( 1,492) ( 5,716) ( 1,492) ( 5,716) Trade accounts receivable 582,687 865,738 582,687 865,738 nrealised foreign exchange Interest and other investment income receivable 5,968 4,474 5,968 3,085 gain - 1,079 ( 122) - ( 122) 1,079 repayments 179,396 27,626 179,396 27,626 ther receivables and advances: eferred tax asset/(liability) 74,733 80,117 (36,189) (73,201) 38,544 6,916 ther 16,868 15,807 17,731 16,251 The Company: 784,919 913,645 785,782 912,700 ess: llowance for impairment losses ( 5,848) ( 2,650) ( 5,848) ( 2,650) ssets iabilities Net 779,071 910,995 779,934 910,050 2019 2018 2019 2018 2019 2018 $'000 $'000 $'000 $'000 $'000 $'000
uring the year, net bad debts recognised in profit or loss aggregated $5,774,000 (2018: $2,095,000) for ccounts payable 3,198 2,975 - - 3,198 2,975 the group and the company. roperty, plant and e uipment 15,785 12,613 - - 15,785 12,613 mployee benefits 55,750 63,450 (34,575) (45,475) 21,175 17,975 llowances for doubtful accounts were established until arch 31, 2018 based on incurred loss analyses ccounts receivable - - ( 1,492) ( 771) ( 1,492) ( 771) over delin uent accounts considering aging of balances, the credit history and risk profile of each nrealised foreign exchange customer and legal processes to recover accounts receivable. ffective pril 1, 2018 such allowances are gain - - ( 122) ( 18) ( 122) ( 18) determined upon origination of the trade accounts receivable based on a model that calculates the eferred tax asset/(liability) 74,733 79,038 (36,189) (46,264) 38,544 32,774 expected credit loss ( C ) of the trade accounts receivable and are recognised over their term.
nder this C model, the group uses accounts receivable based on days past due and determines an (b) ovements in temporary differences during the year are as follows: average rate of C , considering actual credit loss experience over the last 12 months and analysis of future delin uency, that is applied to the balance of the accounts receivable. weighted average C The Group: rate is used as at arch 31, 2019 to apply against the accounts receivable balance (see note 18). 2019 Recognised in 14. Share capital pening Recognised profit or loss Closing 2019 2018 balance in e uity note 8(a) balance $'000 $'000 $'000 $'000 $'000 $'000 uthorised: eferred tax on reserves of 4,854,400,000 ordinary shares of no par value subsidiary in li uidation (22,010) 22,010 - - ccounts payable 2,975 - 223 3,198 Stated: roperty, plant and e uipment 12,613 - 3,172 15,785 Issued and fully paid: mployee benefits 17,975 ( 6,625) 9,825 21,175 4,854,400,000 stock units of no par value 121,360 121,360 Interest receivable ( 5,716) - 4,224 ( 1,492) nrealised foreign exchange gain 1,079 - ( 1,201) ( 122) 6,916 15,385 16,243 38,544
Carreras Limited Annual Report 2019 86 Governance Management's Discussion & Analysis Financial Statements
32 31
Notes to Financial Statements (Continued) CARRERAS LIMITED CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
15. Deferred tax asset/(liability) (cont d) 16. Accounts payable The roup The Company 2019 2018 2019 2018 (b) ovements in temporary differences during the year are as follows (cont’d): $'000 $'000 $'000 $'000
The Group (cont’d): Trade accounts payable 39,070 45,764 39,070 45,764 eneral consumption tax payable 40,877 64,132 40,877 64,132 2018 Related parties (see also note 17) 253,360 66,969 253,360 66,969 Recognised in mployee related 41,590 26,579 41,590 26,579 pening Recognised profit or loss Closing nclaimed dividends 560,513 485,694 560,513 485,694 balance in e uity note 8(a) balance ther 201,081 151,304 201,081 139,524 $'000 $'000 $'000 $'000 1,136,491 840,442 1,136,491 828,662
eferred tax on reserves of rticle 117 of the rticles of ssociation provides that dividends declared after the date of adoption of subsidiary in li uidation (21,424) ( 586) - (22,010) this rticle, which remain unclaimed after a period of twelve years from the date of declaration, shall be ccounts payable 2,374 - 601 2,975 forfeited and revert to the company (see also note 6). roperty, plant and e uipment 9,873 - 2,740 12,613
mployee benefits 18,250 (7,175) 6,900 17,975 17. Related party transactions and statutory disclosures Interest receivable ( 5,629) - ( 87) ( 5,716) nrealised foreign exchange gain ( 4,493) - 5,572 1,079 The financial statements include the following transactions with related parties in the ordinary course of ( 1,049) (7,761) 15,726 6,916 business: The roup and the Company The Company: 2019 2018 $'000 $'000 2019 Recognised in Royalties 25,282 28,732 pening Recognised profit or loss Closing urchases from related companies - cigarettes 500,937 456,077 balance in e uity note 8(d) balance Technical fees paid to ultimate parent company 158,414 123,406 $'000 $'000 $'000 $'000 Technical fees and business support services paid to other related company 328,202 359,044 IT support fees paid to other related company 128,600 106,586 ccounts payable 2,975 - 223 3,198 ension schemes: roperty, plant and e uipment 12,613 - 3,172 15,785 ividends paid 29,250 25,222 mployee benefits 17,975 (6,625) 9,825 21,175 irectors’ remuneration: ccounts receivable ( 771) - ( 721) ( 1,492) ees 8,372 8,435 nrealised foreign exchange gain ( 18) - ( 104) ( 122) anagement remuneration 66,562 58,887 32,774 (6,625) 12,395 38,544 ey management personnel: Short-term employee benefits 124,237 111,154 ost-employment benefits 1,900 1,600 2018 Recognised in ll related party transactions were undertaken in the normal course of business. pening Recognised profit or loss Closing Related party balances are shown in note 16 and are unsecured, interest free and repayable within 12 balance in e uity note 8(d) balance months of the reporting date. $'000 $'000 $'000 $'000 ccounts payable 2,374 - 601 2,975 18. inancial instruments and risk management roperty, plant and e uipment 9,873 - 2,740 12,613 The group has exposure to the following risks from its use of financial instruments: mployee benefits 18,250 (7,175) 6,900 17,975 ccounts receivable ( 958) - 187 ( 771) Credit risk nrealised foreign exchange gain ( 2,154) - 2,136 ( 18) i uidity risk 27,385 (7,175) 12,564 32,774 arket risk
(c) The group has not recognised a deferred tax asset arising in subsidiaries amounting to $194,370,000 This note presents information about the group’s exposure to each of the above risks, the group’s (2018: $194,370,000) in respect of unutilised tax losses of subsidiaries because it is not probable ob ectives, policies and processes for measuring and managing risk, and the group’s and the company’s that the subsidiaries will have sufficient taxable profits in the foreseeable future to realise this management of capital.
benefit see note 8(c) .
87 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
32 31
CARRERAS LIMITED Notes to Financial Statements (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
15. Deferred tax asset/(liability) (cont d) 16. Accounts payable The roup The Company 2019 2018 2019 2018 (b) ovements in temporary differences during the year are as follows (cont’d): $'000 $'000 $'000 $'000
The Group (cont’d): Trade accounts payable 39,070 45,764 39,070 45,764 eneral consumption tax payable 40,877 64,132 40,877 64,132 2018 Related parties (see also note 17) 253,360 66,969 253,360 66,969 Recognised in mployee related 41,590 26,579 41,590 26,579 pening Recognised profit or loss Closing nclaimed dividends 560,513 485,694 560,513 485,694 balance in e uity note 8(a) balance ther 201,081 151,304 201,081 139,524 $'000 $'000 $'000 $'000 1,136,491 840,442 1,136,491 828,662
eferred tax on reserves of rticle 117 of the rticles of ssociation provides that dividends declared after the date of adoption of subsidiary in li uidation (21,424) ( 586) - (22,010) this rticle, which remain unclaimed after a period of twelve years from the date of declaration, shall be ccounts payable 2,374 - 601 2,975 forfeited and revert to the company (see also note 6). roperty, plant and e uipment 9,873 - 2,740 12,613
mployee benefits 18,250 (7,175) 6,900 17,975 17. Related party transactions and statutory disclosures Interest receivable ( 5,629) - ( 87) ( 5,716) nrealised foreign exchange gain ( 4,493) - 5,572 1,079 The financial statements include the following transactions with related parties in the ordinary course of ( 1,049) (7,761) 15,726 6,916 business: The roup and the Company The Company: 2019 2018 $'000 $'000 2019 Recognised in Royalties 25,282 28,732 pening Recognised profit or loss Closing urchases from related companies - cigarettes 500,937 456,077 balance in e uity note 8(d) balance Technical fees paid to ultimate parent company 158,414 123,406 $'000 $'000 $'000 $'000 Technical fees and business support services paid to other related company 328,202 359,044 IT support fees paid to other related company 128,600 106,586 ccounts payable 2,975 - 223 3,198 ension schemes: roperty, plant and e uipment 12,613 - 3,172 15,785 ividends paid 29,250 25,222 mployee benefits 17,975 (6,625) 9,825 21,175 irectors’ remuneration: ccounts receivable ( 771) - ( 721) ( 1,492) ees 8,372 8,435 nrealised foreign exchange gain ( 18) - ( 104) ( 122) anagement remuneration 66,562 58,887 32,774 (6,625) 12,395 38,544 ey management personnel: Short-term employee benefits 124,237 111,154 ost-employment benefits 1,900 1,600 2018 Recognised in ll related party transactions were undertaken in the normal course of business. pening Recognised profit or loss Closing Related party balances are shown in note 16 and are unsecured, interest free and repayable within 12 balance in e uity note 8(d) balance months of the reporting date. $'000 $'000 $'000 $'000 ccounts payable 2,374 - 601 2,975 18. inancial instruments and risk management roperty, plant and e uipment 9,873 - 2,740 12,613 The group has exposure to the following risks from its use of financial instruments: mployee benefits 18,250 (7,175) 6,900 17,975 ccounts receivable ( 958) - 187 ( 771) Credit risk nrealised foreign exchange gain ( 2,154) - 2,136 ( 18) i uidity risk 27,385 (7,175) 12,564 32,774 arket risk
(c) The group has not recognised a deferred tax asset arising in subsidiaries amounting to $194,370,000 This note presents information about the group’s exposure to each of the above risks, the group’s (2018: $194,370,000) in respect of unutilised tax losses of subsidiaries because it is not probable ob ectives, policies and processes for measuring and managing risk, and the group’s and the company’s that the subsidiaries will have sufficient taxable profits in the foreseeable future to realise this management of capital. benefit see note 8(c) .
Carreras Limited Annual Report 2019 88 Governance Management's Discussion & Analysis Financial Statements
34 33
Notes to Financial Statements (Continued) CARRERAS LIMITED CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
18. inancial instruments and risk management (cont d) 18. inancial instruments and risk management (cont d)
The oard of irectors has overall responsibility for the establishment and oversight of the group’s and (i) Credit risk (cont’d): the company’s risk management framework. Senior management has responsibility for monitoring the group’s risk management policies and report to delegates of the oard of irectors on its activities, on a Expected credit loss assessment as at April 1, 2018 (cont’d)
monthly basis. The following table provides information about the exposure to credit risk and C for trade receivables as at arch 31, 2019. The risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management eighted ross Impairment policies are reviewed on a regular basis and reflect changes in market conditions and the group’s average carrying loss Credit activities. ge categories loss rate amount allowance impaired $’000 $’000 (i) Credit risk: Current (not past due) 0.05 470,481 214 No Credit risk is the risk of loss arising from a counterparty to a financial contract failing to discharge 1 - 30 days 0.04 101,512 45 No its obligations, and arises principally from the group’s receivables from customers, cash and 31-60 days 0.12 4,852 6 No investment securities. 61-90 days 12.20 295 36 No ver 90 days 100.00 5,547 5,547 es The maximum exposure to credit risk at the reporting date is represented by the carrying value of 582,687 5,848 its financial assets. The movement in the allowance for impairment in respect of trade receivables during the year was
as follows: Trade receivables The roup and the Company The group’s exposure to credit risk is influenced mainly by the individual characteristics of each 2019 2018 customer. anagement has established a credit policy under which each customer is analysed for $'000 $'000 creditworthiness prior to being offered a credit facility. ach customer is given a credit period alance at 1 pril 2,650 555 which represents the maximum time allowed for having balances outstanding these are reviewed Impairment loss recognised 5,774 2,609 monthly. anagement has procedures in place to restrict customer orders if the customers have ad debts recovered (2,576) ( 514) not cleared outstanding debts within the credit period. Customers that fail to meet the group’s benchmark creditworthiness may transact business with the group on a cash basis. alance at 31 arch 5,848 2,650
Cash and cash equivalents The group’s average credit period on the sale of goods is 28 days for certain established large (wholesale) customers and 7 days for other (retail) customers. Credit risk is monitored according anagement has an investment policy in place and the group’s and the company’s exposure to to each customer’s characteristics, such as whether it is an individual or company, its geographic credit risk is monitored on an ongoing basis. Cash and cash e uivalents are held with reputable location, industry, aging profile and financial history. financial institutions. Credit risk is considered to be low. The allowance for impairment is immaterial. The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was: (ii) arket risk: The roup and the Company 2019 2018 arket risk is the risk that changes in market prices, such as foreign exchange rates and interest $'000 $'000 rates, will affect the company’s income or the value of its holdings of financial instruments. The ob ective of market risk management is to manage and control market risk exposures within holesale customers 404,824 678,740 acceptable parameters, while optimi ing the return on risk.
Retail customers 177,863 186,998 (a) Interest rate risk: 582,687 865,738 Interest rate risk is the risk that the value of a financial instrument will fluctuate due to Expected credit loss assessment as at April 1, 2018 changes in market interest rates.
t the reporting date the interest profile of the company’s and the group’s interest-bearing The group uses an allowance matrix to measure expected credit losses ( C s) in respect of trade financial instruments was: receivables. The provision matrix is based on its historical observed default rates over the expected life of the trade receivables and is ad usted for forward looking estimates. The roup The Company 2019 2018 2019 2018 $'000 $'000 $'000 $'000
ixed rate instruments: Cash and cash e uivalents 666,775 2,079,184 583,776 1,431,301
89 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
34 33
CARRERAS LIMITED Notes to Financial Statements (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
18. inancial instruments and risk management (cont d) 18. inancial instruments and risk management (cont d)
The oard of irectors has overall responsibility for the establishment and oversight of the group’s and (i) Credit risk (cont’d): the company’s risk management framework. Senior management has responsibility for monitoring the group’s risk management policies and report to delegates of the oard of irectors on its activities, on a Expected credit loss assessment as at April 1, 2018 (cont’d) monthly basis. The following table provides information about the exposure to credit risk and C for trade receivables as at arch 31, 2019. The risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management eighted ross Impairment policies are reviewed on a regular basis and reflect changes in market conditions and the group’s average carrying loss Credit activities. ge categories loss rate amount allowance impaired $’000 $’000 (i) Credit risk: Current (not past due) 0.05 470,481 214 No Credit risk is the risk of loss arising from a counterparty to a financial contract failing to discharge 1 - 30 days 0.04 101,512 45 No its obligations, and arises principally from the group’s receivables from customers, cash and 31-60 days 0.12 4,852 6 No investment securities. 61-90 days 12.20 295 36 No ver 90 days 100.00 5,547 5,547 es The maximum exposure to credit risk at the reporting date is represented by the carrying value of 582,687 5,848 its financial assets. The movement in the allowance for impairment in respect of trade receivables during the year was
as follows: Trade receivables The roup and the Company The group’s exposure to credit risk is influenced mainly by the individual characteristics of each 2019 2018 customer. anagement has established a credit policy under which each customer is analysed for $'000 $'000 creditworthiness prior to being offered a credit facility. ach customer is given a credit period alance at 1 pril 2,650 555 which represents the maximum time allowed for having balances outstanding these are reviewed Impairment loss recognised 5,774 2,609 monthly. anagement has procedures in place to restrict customer orders if the customers have ad debts recovered (2,576) ( 514) not cleared outstanding debts within the credit period. Customers that fail to meet the group’s benchmark creditworthiness may transact business with the group on a cash basis. alance at 31 arch 5,848 2,650
Cash and cash equivalents The group’s average credit period on the sale of goods is 28 days for certain established large (wholesale) customers and 7 days for other (retail) customers. Credit risk is monitored according anagement has an investment policy in place and the group’s and the company’s exposure to to each customer’s characteristics, such as whether it is an individual or company, its geographic credit risk is monitored on an ongoing basis. Cash and cash e uivalents are held with reputable location, industry, aging profile and financial history. financial institutions. Credit risk is considered to be low. The allowance for impairment is immaterial. The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was: (ii) arket risk: The roup and the Company 2019 2018 arket risk is the risk that changes in market prices, such as foreign exchange rates and interest $'000 $'000 rates, will affect the company’s income or the value of its holdings of financial instruments. The ob ective of market risk management is to manage and control market risk exposures within holesale customers 404,824 678,740 acceptable parameters, while optimi ing the return on risk.
Retail customers 177,863 186,998 (a) Interest rate risk: 582,687 865,738 Interest rate risk is the risk that the value of a financial instrument will fluctuate due to Expected credit loss assessment as at April 1, 2018 changes in market interest rates.
t the reporting date the interest profile of the company’s and the group’s interest-bearing The group uses an allowance matrix to measure expected credit losses ( C s) in respect of trade financial instruments was: receivables. The provision matrix is based on its historical observed default rates over the expected life of the trade receivables and is ad usted for forward looking estimates. The roup The Company 2019 2018 2019 2018 $'000 $'000 $'000 $'000
ixed rate instruments: Cash and cash e uivalents 666,775 2,079,184 583,776 1,431,301
Carreras Limited Annual Report 2019 90 Governance Management's Discussion & Analysis Financial Statements
35 36
Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
18. inancial instruments and risk management (cont d) 18. inancial instruments and risk management (cont d)
(ii) arket risk (cont’d): (ii) arket risk (cont’d):
(b) oreign currency risk: (b) oreign currency risk (cont’d):
The group incurs foreign currency risk primarily on purchases that are denominated in a The Company: currency other than the amaica dollar. The principal foreign currency risks of the group, 2019 2018 represented by balances in the respective currencies, are as follows: Increase/(decrease) in profit Increase/(decrease) in profit
4 2 10 1 The Group: Strengthening eakening Strengthening eakening 2019 2018 $'000 $'000 $'000 $'000 S$ ( ) S$ ( ) '000 '000 '000 '000 S ($) 10,668 (21,337) 21,226 (10,613)
( ) ( 2,351) 4,704 112 ( 56) Cash and cash e uivalents 5,428 22 5,505 179 Related party receivables 32 - - - xchange rates, in terms of amaica dollars, were as follows: Related party payables ( 477) (692) ( 302) - ther payables ( 10) - ( 225) ( 11) S$ xposure, net 4,973 (670) 4,978 168 t arch 31, 2017: 127.7664 157.8634 The Company: t arch 31, 2018: 124.6545 175.4801 2019 2018 t arch 31, 2019: 123.5735 163.5821 S$ ( ) S$ ( ) '000 '000 '000 '000 (iii) i uidity risk:
Cash and cash e uivalents 4,757 22 4,784 27 i uidity risk, also referred to as funding risk, is the risk that the group will encounter difficulty Related party receivables 32 - - - in raising funds to meet commitments associated with financial instruments. i uidity problems Related party payables ( 477) (692) ( 302) - may result from an inability to sell a financial asset uickly at, or close to, its fair value. rudent ther payables ( 10) - ( 225) ( 11) li uidity risk management implies maintaining sufficient cash and marketable securities, and ensuring the availability of funding through an ade uate amount of committed facilities. The xposure, net 4,302 (670) 4,257 16 group manages its li uidity risk by maintaining a substantial portion of its financial assets in highly li uid assets. Sensitivity analysis The contractual outflows as at arch 31, 2019 and 2018 for trade accounts payable, eneral Strengthening or weakening of the currencies against the amaica dollar would have Consumption Tax payable, due to related parties, employee related payables, unclaimed increased profit or loss by the amounts shown below. This analysis assumes that all dividends and other payables are represented by their carrying amounts and may re uire other variables, in particular interest rates, remain constant. settlement within 12 months of the reporting date.
The Group: (iv) Capital management: 2019 2018 Increase/(decrease) in profit Increase/(decrease) in profit The group’s ob ectives when managing capital are to safeguard its ability to continue as a going 4 2 10 1 concern in order to provide returns for shareholders. The oard of irectors monitors the return Strengthening eakening Strengthening eakening on capital, which the group defines as net operating income divided by total shareholders’ e uity. $'000 $'000 $'000 $'000 The oard’s policy is to maintain a strong capital base so as to maintain investor, creditor and S ($) 12,343 (24,686) 24,821 (12,411) market confidence and to sustain future development of the business. ( ) ( 2,351) 4,704 1,179 ( 590) There were no changes in the group’s approach to capital management during the year. lso, the group is not exposed to any externally imposed capital re uirements.
91 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
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CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
18. inancial instruments and risk management (cont d) 18. inancial instruments and risk management (cont d)
(ii) arket risk (cont’d): (ii) arket risk (cont’d):
(b) oreign currency risk: (b) oreign currency risk (cont’d):
The group incurs foreign currency risk primarily on purchases that are denominated in a The Company: currency other than the amaica dollar. The principal foreign currency risks of the group, 2019 2018 represented by balances in the respective currencies, are as follows: Increase/(decrease) in profit Increase/(decrease) in profit
4 2 10 1 The Group: Strengthening eakening Strengthening eakening 2019 2018 $'000 $'000 $'000 $'000 S$ ( ) S$ ( ) '000 '000 '000 '000 S ($) 10,668 (21,337) 21,226 (10,613)
( ) ( 2,351) 4,704 112 ( 56) Cash and cash e uivalents 5,428 22 5,505 179 Related party receivables 32 - - - xchange rates, in terms of amaica dollars, were as follows: Related party payables ( 477) (692) ( 302) - ther payables ( 10) - ( 225) ( 11) S$ xposure, net 4,973 (670) 4,978 168 t arch 31, 2017: 127.7664 157.8634 The Company: t arch 31, 2018: 124.6545 175.4801 2019 2018 t arch 31, 2019: 123.5735 163.5821 S$ ( ) S$ ( ) '000 '000 '000 '000 (iii) i uidity risk:
Cash and cash e uivalents 4,757 22 4,784 27 i uidity risk, also referred to as funding risk, is the risk that the group will encounter difficulty Related party receivables 32 - - - in raising funds to meet commitments associated with financial instruments. i uidity problems Related party payables ( 477) (692) ( 302) - may result from an inability to sell a financial asset uickly at, or close to, its fair value. rudent ther payables ( 10) - ( 225) ( 11) li uidity risk management implies maintaining sufficient cash and marketable securities, and ensuring the availability of funding through an ade uate amount of committed facilities. The xposure, net 4,302 (670) 4,257 16 group manages its li uidity risk by maintaining a substantial portion of its financial assets in highly li uid assets. Sensitivity analysis The contractual outflows as at arch 31, 2019 and 2018 for trade accounts payable, eneral Strengthening or weakening of the currencies against the amaica dollar would have Consumption Tax payable, due to related parties, employee related payables, unclaimed increased profit or loss by the amounts shown below. This analysis assumes that all dividends and other payables are represented by their carrying amounts and may re uire other variables, in particular interest rates, remain constant. settlement within 12 months of the reporting date.
The Group: (iv) Capital management: 2019 2018 Increase/(decrease) in profit Increase/(decrease) in profit The group’s ob ectives when managing capital are to safeguard its ability to continue as a going 4 2 10 1 concern in order to provide returns for shareholders. The oard of irectors monitors the return Strengthening eakening Strengthening eakening on capital, which the group defines as net operating income divided by total shareholders’ e uity. $'000 $'000 $'000 $'000 The oard’s policy is to maintain a strong capital base so as to maintain investor, creditor and S ($) 12,343 (24,686) 24,821 (12,411) market confidence and to sustain future development of the business. ( ) ( 2,351) 4,704 1,179 ( 590) There were no changes in the group’s approach to capital management during the year. lso, the group is not exposed to any externally imposed capital re uirements.
Carreras Limited Annual Report 2019 92 Governance Management's Discussion & Analysis Financial Statements
37 38
Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
18. inancial instruments and risk management (cont d) 21. Contractual commitments
(v) air value disclosure: ease commitments under operating leases at arch 31, are payable as follows:
ue to their short term nature, the amounts reflected in the financial statements for cash and cash The roup and the Company e uivalents, accounts receivable, related party balances, and accounts payable are considered to 2019 2018 approximate to their fair values. dditionally, the cost of all monetary assets and liabilities has $'000 $'000 been appropriately ad usted to reflect estimated losses on realisation or discounts on settlement. ithin one year 30,808 40,844 etween one year and five years 13,197 43,485 19. Dividends and distributions 2019 2018 44,005 84,329 $'000 $'000 eclared and paid: ayments made during the year ended arch 31, 2019 aggregated: irst uarter ended une 30, 2018 2019 2018 rdinary 21¢ (2017: 21¢) 1,019,424 1,019,424 $'000 $'000 Second uarter ended September 30, 2018: rdinary 16¢ (2017: 15¢) 776,704 728,160 The roup and Company 42,602 37.138 Special interim distribution- 11c (2017-Nil) 533,984 - Third uarter ended ecember 31, 2018: rdinary 19¢ (2017: 18¢) 922,336 873,792 22. Significant accounting policies ourth uarter ended arch 31, 2019: rdinary 18¢ (2018: 20¢) 873,792 970,880 Certain new and amended standards and interpretations which were in issue, came into effect for the 4,126,240 3,592,256 current financial year. That which management considered relevant to the company are outlined below:
istribution to non-controlling interests, net 1,328 - e or amended Summary of the re uirements Total dividends to stockholders 4,127,568 3,592,256 standards
I RIC 22, Foreign This interpretation is effective for annual reporting periods beginning on or
Currency Transactions after anuary 1, 2018, addresses how to determine the transaction date when 20. Subsidiary companies and Advance an entity recognises a non-monetary asset or liability (e.g. non-refundable
Consideration advance consideration in a foreign currency) before recognising the related The subsidiary companies, all of which are incorporated in amaica, are as follows: asset, expense or income. It is not applicable when an entity measures the related asset, expense or income or initial recognition at fair value or at the ercentage of ordinary shares held by fair value of the consideration paid or received at the date of initial Name of company rincipal activity Company Subsidiary recognition of the non-monetary asset or liability. 2019 2018 2019 2018 n entity is not re uired to apply this interpretation to income taxes or insurance contracts that it issues or reinsurance contracts held. Cigarette Company of amaica Inactive (voluntary imited (In oluntary i uidation) li uidation) - 99.97 - - The interpretation clarifies that the transaction date is the date on which the Sans Souci evelopment ormant 100.00 100.00 - - group initially recognises the prepayment or deferred income arising from the imited and its subsidiary, advance consideration. or transactions involving multiple payments or Sans Souci imited ormant - - 100.00 100.00 receipts, each payment or receipt gives rise to a separate transaction date.
The li uidation proceedings for Cigarette Company of amaica imited (CC ) were completed on November 9, 2018. The adoption of this interpretation did not result in any significant change to the presentation and The effects of the li uidation are as follows: disclosures in the financial statements. The roup The Company $'000 $'000 The group has consistently applied the following accounting policies to all periods presented in these Net assets/Investment in subsidiary, disposed (567,673) (190,745) consolidated financial statements. istribution from CC 567,673 567,673
ain on li uidation of subsidiary - 376,928
93 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
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CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
18. inancial instruments and risk management (cont d) 21. Contractual commitments
(v) air value disclosure: ease commitments under operating leases at arch 31, are payable as follows:
ue to their short term nature, the amounts reflected in the financial statements for cash and cash The roup and the Company e uivalents, accounts receivable, related party balances, and accounts payable are considered to 2019 2018 approximate to their fair values. dditionally, the cost of all monetary assets and liabilities has $'000 $'000 been appropriately ad usted to reflect estimated losses on realisation or discounts on settlement. ithin one year 30,808 40,844 etween one year and five years 13,197 43,485 19. Dividends and distributions 2019 2018 44,005 84,329 $'000 $'000 eclared and paid: ayments made during the year ended arch 31, 2019 aggregated: irst uarter ended une 30, 2018 2019 2018 rdinary 21¢ (2017: 21¢) 1,019,424 1,019,424 $'000 $'000 Second uarter ended September 30, 2018: rdinary 16¢ (2017: 15¢) 776,704 728,160 The roup and Company 42,602 37.138 Special interim distribution- 11c (2017-Nil) 533,984 - Third uarter ended ecember 31, 2018: rdinary 19¢ (2017: 18¢) 922,336 873,792 22. Significant accounting policies ourth uarter ended arch 31, 2019: rdinary 18¢ (2018: 20¢) 873,792 970,880 Certain new and amended standards and interpretations which were in issue, came into effect for the 4,126,240 3,592,256 current financial year. That which management considered relevant to the company are outlined below:
istribution to non-controlling interests, net 1,328 - e or amended Summary of the re uirements Total dividends to stockholders 4,127,568 3,592,256 standards
I RIC 22, Foreign This interpretation is effective for annual reporting periods beginning on or
Currency Transactions after anuary 1, 2018, addresses how to determine the transaction date when 20. Subsidiary companies and Advance an entity recognises a non-monetary asset or liability (e.g. non-refundable
Consideration advance consideration in a foreign currency) before recognising the related The subsidiary companies, all of which are incorporated in amaica, are as follows: asset, expense or income. It is not applicable when an entity measures the related asset, expense or income or initial recognition at fair value or at the ercentage of ordinary shares held by fair value of the consideration paid or received at the date of initial Name of company rincipal activity Company Subsidiary recognition of the non-monetary asset or liability. 2019 2018 2019 2018 n entity is not re uired to apply this interpretation to income taxes or insurance contracts that it issues or reinsurance contracts held. Cigarette Company of amaica Inactive (voluntary imited (In oluntary i uidation) li uidation) - 99.97 - - The interpretation clarifies that the transaction date is the date on which the Sans Souci evelopment ormant 100.00 100.00 - - group initially recognises the prepayment or deferred income arising from the imited and its subsidiary, advance consideration. or transactions involving multiple payments or Sans Souci imited ormant - - 100.00 100.00 receipts, each payment or receipt gives rise to a separate transaction date.
The li uidation proceedings for Cigarette Company of amaica imited (CC ) were completed on November 9, 2018. The adoption of this interpretation did not result in any significant change to the presentation and The effects of the li uidation are as follows: disclosures in the financial statements. The roup The Company $'000 $'000 The group has consistently applied the following accounting policies to all periods presented in these Net assets/Investment in subsidiary, disposed (567,673) (190,745) consolidated financial statements. istribution from CC 567,673 567,673
ain on li uidation of subsidiary - 376,928
Carreras Limited Annual Report 2019 94 Governance Management's Discussion & Analysis Financial Statements
40
Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
Set out below is an index of the significant accounting polices, the details of which are available on the (c) Cash and cash e uivalents: pages that follows: Cash comprises cash in hand and demand and call deposits with banks. Cash e uivalents are (a) asis of consolidation 95 short-term, highly li uid investments that are readily convertible to known amounts of cash, are (b) Non-controlling interests (NCI) 95 sub ect to an insignificant risk of changes in value, and are held for the purpose of meeting short- (c) Cash and cash e uivalents 96 term cash commitments, rather than for investment or other purposes. The amounts included are (d) ccounts receivable 96 short-term fixed deposits. (e) ccounts payable 96 (f) Inventories 96 (d) ccounts receivable: (g) Investment in subsidiaries 96 (h) Related parties 96-97 Trade and other receivables are measured at amortised cost, less impairment losses see note (i) roperty, plant and e uipment 97 22(p) . ( ) Income tax 98 (k) oreign currencies 98 (e) ccounts payable: (l) Revenue recognition 98-99 (m) ther operating income 99 ccounts payable are measured at amortised cost. (n) eases 99 (o) mployee benefits 99-100 provision is recognised in the statement of financial position when the group has a legal or (p) Impairment 100-103 constructive obligation as a result of a past event, and it is probable that an outflow of economic ( ) etermination of profit or loss 103 benefits will be re uired to settle the obligation and the amount can be estimated reliably. If the (r) Segment reporting 103 effect is material, provisions are determined by discounting the expected future cash flows at a (s) inancial instruments 103-106 pre-tax rate that reflects current market assessments of the time value of money and, where (t) air value 106 appropriate, the risks specific to the liability. (u) ividends and distributions 106 (f) Inventories: (a) asis of consolidation: Inventories comprising finished products are measured at the lower of cost, determined principally Subsidiaries are entities controlled by the company. Control exists when the company has the on the weighted average cost basis, and net realisable value. Net realisable value is the estimated power to govern the financial and operating policies of an entity so as to obtain economic benefits selling price in the ordinary course of business, less estimated selling expenses. from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (g) Investment in subsidiaries:
The consolidated financial statements combine the financial position of the company and its The company’s investment in subsidiaries is measured at cost. subsidiaries as at arch 31, 2019 and their results of operations and cash flows for the year then ended, after eliminating significant intra-group amounts. The company and its subsidiaries are (h) Related parties: collectively referred to in the financial statements as the roup . related party is a person or company that is related to the entity which is preparing its financial (b) Non-controlling interests (NCI): statements (referred to in I S 24 Related Party Disclosures as the reporting entity ).
NCI are measured at their proportionate share of the ac uiree’s identifiable net assets at the date (i) person or a close member of that person’s family is related to a reporting entity if that of ac uisition. Changes in the roup’s interest in a subsidiary that do not result in a loss of person: control are accounted for as e uity transactions. (a) has control or oint control over the reporting entity NCI relates to a 0.03 interest in Cigarette Company of amaica imited, which was li uidated, and non-controlling interests are insignificant to the consolidated financial statements. (b) has significant influence over the reporting entity or (c) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
95 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
40
CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
Set out below is an index of the significant accounting polices, the details of which are available on the (c) Cash and cash e uivalents: pages that follows: Cash comprises cash in hand and demand and call deposits with banks. Cash e uivalents are (a) asis of consolidation 95 short-term, highly li uid investments that are readily convertible to known amounts of cash, are (b) Non-controlling interests (NCI) 95 sub ect to an insignificant risk of changes in value, and are held for the purpose of meeting short- (c) Cash and cash e uivalents 96 term cash commitments, rather than for investment or other purposes. The amounts included are (d) ccounts receivable 96 short-term fixed deposits. (e) ccounts payable 96 (f) Inventories 96 (d) ccounts receivable: (g) Investment in subsidiaries 96 (h) Related parties 96-97 Trade and other receivables are measured at amortised cost, less impairment losses see note (i) roperty, plant and e uipment 97 22(p) . ( ) Income tax 98 (k) oreign currencies 98 (e) ccounts payable: (l) Revenue recognition 98-99 (m) ther operating income 99 ccounts payable are measured at amortised cost. (n) eases 99 (o) mployee benefits 99-100 provision is recognised in the statement of financial position when the group has a legal or (p) Impairment 100-103 constructive obligation as a result of a past event, and it is probable that an outflow of economic ( ) etermination of profit or loss 103 benefits will be re uired to settle the obligation and the amount can be estimated reliably. If the (r) Segment reporting 103 effect is material, provisions are determined by discounting the expected future cash flows at a (s) inancial instruments 103-106 pre-tax rate that reflects current market assessments of the time value of money and, where (t) air value 106 appropriate, the risks specific to the liability. (u) ividends and distributions 106 (f) Inventories: (a) asis of consolidation: Inventories comprising finished products are measured at the lower of cost, determined principally Subsidiaries are entities controlled by the company. Control exists when the company has the on the weighted average cost basis, and net realisable value. Net realisable value is the estimated power to govern the financial and operating policies of an entity so as to obtain economic benefits selling price in the ordinary course of business, less estimated selling expenses. from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (g) Investment in subsidiaries:
The consolidated financial statements combine the financial position of the company and its The company’s investment in subsidiaries is measured at cost. subsidiaries as at arch 31, 2019 and their results of operations and cash flows for the year then ended, after eliminating significant intra-group amounts. The company and its subsidiaries are (h) Related parties: collectively referred to in the financial statements as the roup . related party is a person or company that is related to the entity which is preparing its financial (b) Non-controlling interests (NCI): statements (referred to in I S 24 Related Party Disclosures as the reporting entity ).
NCI are measured at their proportionate share of the ac uiree’s identifiable net assets at the date (i) person or a close member of that person’s family is related to a reporting entity if that of ac uisition. Changes in the roup’s interest in a subsidiary that do not result in a loss of person: control are accounted for as e uity transactions. (a) has control or oint control over the reporting entity NCI relates to a 0.03 interest in Cigarette Company of amaica imited, which was li uidated, and non-controlling interests are insignificant to the consolidated financial statements. (b) has significant influence over the reporting entity or (c) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
Carreras Limited Annual Report 2019 96 Governance Management's Discussion & Analysis Financial Statements
41 42 Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) March 31, 2019 otes to the inancial Statements (Continued) March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(h) Related parties (cont’d): ( ) Income tax:
(ii) n entity is related to a reporting entity if any of the following conditions applies: Income tax on profit or loss for the year comprises current and deferred tax. Income tax is (a) The entity and the reporting entity are members of the same group (which means recognised in profit or loss except to the extent that it relates to items recognised directly in that each parent, subsidiary and fellow subsidiary is related to the others). e uity, in which case it is recognised in other comprehensive income.
(b) ne entity is an associate or oint venture of the other entity (or an associate or oint (i) Current income tax: venture of a member of a group of which the other entity is a member). Current income tax is the expected tax payable on the taxable income for the year, using tax (c) oth entities are oint ventures of the same third party. rates enacted at the reporting date, and any ad ustment to income tax payable in respect of (d) ne entity is a oint venture of a third entity and the other entity is an associate of previous years. the third entity. (ii) eferred income tax: (e) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity eferred income tax is provided for temporary differences between the carrying amounts of is itself such a plan, the sponsoring employers are also related to the reporting entity. assets and liabilities for financial reporting purposes and the amounts used for taxation (f) The entity is controlled, or ointly controlled, by a person identified in (i). purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates (g) person identified in (i)(a) has significant influence over the entity or is a member enacted at the reporting date. of the key management personnel of the entity (or of a parent of the entity). (h) The entity or any member of a group of which it is a part, provides key management deferred tax asset is recognised only to the extent that it is probable that future taxable services to the entity. profits will be available against which the asset can be utilised. eferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be related party transaction is a transfer of resources, services or obligations between a reporting realised. entity and a related party, regardless of whether a price is charged. deferred tax liability is recognised for all taxable temporary differences, except to the The company has related party relationships with its ultimate parent company, ritish merican extent that the company is able to control the timing of the reversal of the temporary Tobacco plc ( T) and other subsidiaries and affiliates of the T roup, its subsidiaries, difference and it is probable that the temporary difference will not reverse in the directors and key management personnel and companies with common directors, and its pension foreseeable future.
schemes. ey management personnel comprises the group’s leadership team which includes (k) oreign currencies: executive directors and specified senior officers. Transactions in foreign currencies are converted at the rates of exchange ruling on the dates of (i) roperty, plant and e uipment: those transactions. The group’s monetary assets and liabilities denominated in foreign currencies
Items of property, plant and e uipment are measured at cost less accumulated depreciation and at the reporting date are translated to amaica dollars at the rates of exchange ruling at that date. ains and losses arising from fluctuations in exchange rates are included in profit or loss. impairment losses. (l) Revenue recognition: Cost includes expenditures that are directly attributable to the ac uisition of the asset. The cost of
replacing part of an item of property, plant and e uipment is recognised in the carrying amount of The effect of initially applying I RS 15 on the company’s revenue from contracts is described in the item if it is probable that the future economic benefits embodied in the part will flow to the note 3. group and its cost can be reliably measured. Revenue recognition under IFRS 15 (applicable from April 1, 2018) The cost of day-to-day servicing of property, plant and e uipment is recognised in profit or loss as incurred. erformance obligations and revenue recognition policies:
ith the exception of freehold land and work-in-progress, on which no depreciation is provided, property, plant and e uipment are depreciated on the straight-line basis over the estimated useful Revenue is measured based on the consideration specified in a contract with a customer. The lives of such assets, at the following annual rates: company recognises revenue when it transfers control over a good or service to a customer.
uildings 1.4 to 2.5 Nature and timing of satisfaction of performance obligations, including significant payment terms easehold improvements 8 to 11 achinery, furniture and e uipment 3.3 to 33.3 Revenue is recognised at a point in time in the amount of the price before tax on sales expected to otor vehicles 20 to 33.3 be received by the company for the supply of goods, as contractual performance obligations are fulfilled,when the goods are delivered and have been accepted by the customers. The depreciation methods, useful lives and residual values are reassessed annually at each reporting date. Invoices are usually payable within 7 to 45 days.
97 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
41 42 CARRERAS LIMITED Notes to Financial Statements (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) March 31, 2019 otes to the inancial Statements (Continued) March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(h) Related parties (cont’d): ( ) Income tax:
(ii) n entity is related to a reporting entity if any of the following conditions applies: Income tax on profit or loss for the year comprises current and deferred tax. Income tax is (a) The entity and the reporting entity are members of the same group (which means recognised in profit or loss except to the extent that it relates to items recognised directly in that each parent, subsidiary and fellow subsidiary is related to the others). e uity, in which case it is recognised in other comprehensive income.
(b) ne entity is an associate or oint venture of the other entity (or an associate or oint (i) Current income tax: venture of a member of a group of which the other entity is a member). Current income tax is the expected tax payable on the taxable income for the year, using tax (c) oth entities are oint ventures of the same third party. rates enacted at the reporting date, and any ad ustment to income tax payable in respect of (d) ne entity is a oint venture of a third entity and the other entity is an associate of previous years. the third entity. (ii) eferred income tax: (e) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity eferred income tax is provided for temporary differences between the carrying amounts of is itself such a plan, the sponsoring employers are also related to the reporting entity. assets and liabilities for financial reporting purposes and the amounts used for taxation (f) The entity is controlled, or ointly controlled, by a person identified in (i). purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates (g) person identified in (i)(a) has significant influence over the entity or is a member enacted at the reporting date. of the key management personnel of the entity (or of a parent of the entity). (h) The entity or any member of a group of which it is a part, provides key management deferred tax asset is recognised only to the extent that it is probable that future taxable services to the entity. profits will be available against which the asset can be utilised. eferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be related party transaction is a transfer of resources, services or obligations between a reporting realised. entity and a related party, regardless of whether a price is charged. deferred tax liability is recognised for all taxable temporary differences, except to the The company has related party relationships with its ultimate parent company, ritish merican extent that the company is able to control the timing of the reversal of the temporary Tobacco plc ( T) and other subsidiaries and affiliates of the T roup, its subsidiaries, difference and it is probable that the temporary difference will not reverse in the directors and key management personnel and companies with common directors, and its pension foreseeable future. schemes. ey management personnel comprises the group’s leadership team which includes (k) oreign currencies: executive directors and specified senior officers. Transactions in foreign currencies are converted at the rates of exchange ruling on the dates of (i) roperty, plant and e uipment: those transactions. The group’s monetary assets and liabilities denominated in foreign currencies
Items of property, plant and e uipment are measured at cost less accumulated depreciation and at the reporting date are translated to amaica dollars at the rates of exchange ruling at that date. ains and losses arising from fluctuations in exchange rates are included in profit or loss. impairment losses. (l) Revenue recognition: Cost includes expenditures that are directly attributable to the ac uisition of the asset. The cost of replacing part of an item of property, plant and e uipment is recognised in the carrying amount of The effect of initially applying I RS 15 on the company’s revenue from contracts is described in the item if it is probable that the future economic benefits embodied in the part will flow to the note 3. group and its cost can be reliably measured. Revenue recognition under IFRS 15 (applicable from April 1, 2018) The cost of day-to-day servicing of property, plant and e uipment is recognised in profit or loss as incurred. erformance obligations and revenue recognition policies:
ith the exception of freehold land and work-in-progress, on which no depreciation is provided, property, plant and e uipment are depreciated on the straight-line basis over the estimated useful Revenue is measured based on the consideration specified in a contract with a customer. The lives of such assets, at the following annual rates: company recognises revenue when it transfers control over a good or service to a customer.
uildings 1.4 to 2.5 Nature and timing of satisfaction of performance obligations, including significant payment terms easehold improvements 8 to 11 achinery, furniture and e uipment 3.3 to 33.3 Revenue is recognised at a point in time in the amount of the price before tax on sales expected to otor vehicles 20 to 33.3 be received by the company for the supply of goods, as contractual performance obligations are fulfilled,when the goods are delivered and have been accepted by the customers. The depreciation methods, useful lives and residual values are reassessed annually at each reporting date. Invoices are usually payable within 7 to 45 days.
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Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(l) Revenue recognition (cont’d): (o) mployee benefits (cont’d):
Revenue recognition under IAS 18 (applicable before April 1, 2018 (i) ension assets (cont’d):
Revenue from the sale of goods is measured at the fair value of the consideration received or Remeasurements of the net defined benefit liability, which comprise actuarial gains and receivable, net of returns and allowances, trade discounts, volume rebates and sales taxes. losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The Revenue is recognised in profit or loss when the significant risks and rewards of ownership have company determines the net interest expense/(income) on the net defined benefit been transferred to the buyer, receipt of the consideration is probable, the associated costs and liability/(asset) for the period by applying the discount rate used to measure the defined possible return of goods can be estimated reliably, and there is no continuing involvement with benefit obligation at the beginning of the annual period to the net defined benefit the goods. liability/(asset), taking into account any changes during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to (m) ther operating income: defined benefit plans are recognised in profit or loss.
ther operating income is mainly comprised of interest income, gains on disposal of property, hen the benefits of a plan are changed or when a plan is curtailed, the resulting change plant and e uipment and refund of pension surplus. Interest income is recognised as it accrues, in benefit that relates to past service or the gain or loss on curtailment is recognised using the effective interest method. immediately in profit or loss. The company recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. (n) eases: bligations for contributions to defined contribution pension schemes are recognised as ayments made under operating leases are recognised in profit or loss on the straight-line basis an expense in profit or loss as incurred. over the term of the lease. (ii) ther post-retirement health and group life insurance benefits: (o) mployee benefits: The group provides post-retirement health care and group life insurance benefits, which mployee benefits comprising pensions and other post-employment assets and obligations are not entitlements, to certain of its retirees. These benefits are usually conditional upon included in these financial statements have been actuarially determined by a ualified independent the employee remaining in service up to retirement age and the completion of a minimum actuary, appointed by management. The appointed actuary’s report outlines the scope of the service period. The expected costs of these benefits are accrued over the period of valuation and the actuary’s opinion. The actuarial valuations are conducted in accordance with employment, using a methodology similar to that for defined benefit pension plans and the I S 19, and the financial statements reflect the group’s and the company’s post-employment present value of future benefits at the reporting date is shown as an obligation on the benefits assets and obligations as computed by the actuary. In carrying out their audit, the auditors statement of financial position. make use of the work of the actuary and the actuary’s report.
(i) ension assets: ctuarial gains and losses are recognised in a manner similar to the defined benefit pension plan. The company and its subsidiaries are participating employers in a pension scheme, the assets of which are held separately from those of the group, and remain under the full (iii) ther employee benefits: control of the appointed trustees. mployee leave entitlements are recognised as they accrue to employees. provision is The group’s net obligation in respect of its defined benefit pension scheme is calculated made for the estimated liability for vacation and sick leave, as a result of services rendered by estimating the amount of future benefit that employees have earned in return for their by employees up to the reporting date. service in the current and prior periods that value is discounted to determine the present value, and the fair value of any scheme assets is deducted. To the extent that the obligation (p) Impairment: is less than the fair value of scheme assets, the asset recognised is restricted to the discounted value of unconditional future benefits available to the group in the form of any Financial assets future refunds from the scheme or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable Policy applicable from April 1, 2018 minimum funding re uirements. The discount rate applied is the yield at the reporting date on long-term government instruments that have maturity dates approximating the terms of The group recognises loss allowances for expected credit losses ( C s) on financial assets the group’s obligation. The calculation is performed by a ualified actuary using the measured at amortised cost. The company measures loss allowances at an amount e ual to lifetime pro ected unit credit method. C s.
oss allowances for trade receivables are always measured at an amount e ual to lifetime C s.
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CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(l) Revenue recognition (cont’d): (o) mployee benefits (cont’d):
Revenue recognition under IAS 18 (applicable before April 1, 2018 (i) ension assets (cont’d):
Revenue from the sale of goods is measured at the fair value of the consideration received or Remeasurements of the net defined benefit liability, which comprise actuarial gains and receivable, net of returns and allowances, trade discounts, volume rebates and sales taxes. losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The Revenue is recognised in profit or loss when the significant risks and rewards of ownership have company determines the net interest expense/(income) on the net defined benefit been transferred to the buyer, receipt of the consideration is probable, the associated costs and liability/(asset) for the period by applying the discount rate used to measure the defined possible return of goods can be estimated reliably, and there is no continuing involvement with benefit obligation at the beginning of the annual period to the net defined benefit the goods. liability/(asset), taking into account any changes during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to (m) ther operating income: defined benefit plans are recognised in profit or loss.
ther operating income is mainly comprised of interest income, gains on disposal of property, hen the benefits of a plan are changed or when a plan is curtailed, the resulting change plant and e uipment and refund of pension surplus. Interest income is recognised as it accrues, in benefit that relates to past service or the gain or loss on curtailment is recognised using the effective interest method. immediately in profit or loss. The company recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. (n) eases: bligations for contributions to defined contribution pension schemes are recognised as ayments made under operating leases are recognised in profit or loss on the straight-line basis an expense in profit or loss as incurred. over the term of the lease. (ii) ther post-retirement health and group life insurance benefits: (o) mployee benefits: The group provides post-retirement health care and group life insurance benefits, which mployee benefits comprising pensions and other post-employment assets and obligations are not entitlements, to certain of its retirees. These benefits are usually conditional upon included in these financial statements have been actuarially determined by a ualified independent the employee remaining in service up to retirement age and the completion of a minimum actuary, appointed by management. The appointed actuary’s report outlines the scope of the service period. The expected costs of these benefits are accrued over the period of valuation and the actuary’s opinion. The actuarial valuations are conducted in accordance with employment, using a methodology similar to that for defined benefit pension plans and the I S 19, and the financial statements reflect the group’s and the company’s post-employment present value of future benefits at the reporting date is shown as an obligation on the benefits assets and obligations as computed by the actuary. In carrying out their audit, the auditors statement of financial position. make use of the work of the actuary and the actuary’s report.
(i) ension assets: ctuarial gains and losses are recognised in a manner similar to the defined benefit pension plan. The company and its subsidiaries are participating employers in a pension scheme, the assets of which are held separately from those of the group, and remain under the full (iii) ther employee benefits: control of the appointed trustees. mployee leave entitlements are recognised as they accrue to employees. provision is The group’s net obligation in respect of its defined benefit pension scheme is calculated made for the estimated liability for vacation and sick leave, as a result of services rendered by estimating the amount of future benefit that employees have earned in return for their by employees up to the reporting date. service in the current and prior periods that value is discounted to determine the present value, and the fair value of any scheme assets is deducted. To the extent that the obligation (p) Impairment: is less than the fair value of scheme assets, the asset recognised is restricted to the discounted value of unconditional future benefits available to the group in the form of any Financial assets future refunds from the scheme or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable Policy applicable from April 1, 2018 minimum funding re uirements. The discount rate applied is the yield at the reporting date on long-term government instruments that have maturity dates approximating the terms of The group recognises loss allowances for expected credit losses ( C s) on financial assets the group’s obligation. The calculation is performed by a ualified actuary using the measured at amortised cost. The company measures loss allowances at an amount e ual to lifetime pro ected unit credit method. C s.
oss allowances for trade receivables are always measured at an amount e ual to lifetime C s.
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Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(p) Impairment (cont’d): (p) Impairment (cont’d):
Financial assets (cont’d) Policy applicable from April 1, 2018 (cont’d)
Policy applicable from April 1, 2018 (cont’d) Presentation of allowance for ECL in the statement of financial position
hen determining whether the credit risk of a financial asset has increased significantly since oss allowances for financial assets measured at amortised cost are deducted from the gross initial recognition and when estimating C s, the company considers reasonable and supportable carrying amount of the assets. information relevant and available without undue cost or effort. This includes both uantitative
and ualitative information and analysis, based on the company’s historical experience and Write-off informed credit assessment and including forward looking information.
The gross carrying amount of a financial asset is written off (either partially or in full) when there The company assumes that the credit risk on financial assets has increased significantly if it is is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This more than 90 days past due. is the case when the company determines that the debtor does not have assets or sources of
income that could generate sufficient cash flows to repay the amounts sub ect to the write-off. The company recognises loss allowances for C s and considers a financial asset to be in default This assessment is carried out at the individual asset level. when:
Recoveries of amounts previously written off are included in impairment losses on financial - the borrower is unlikely to pay its credit obligations to the company in full, without recourse instruments’ in the statement of profit or loss. by the company to action such as realising security if any is held or
inancial assets that are written off could still be sub ect to enforcement activities in order to - the financial asset is more than 90 days past due. comply with the company’s procedures for recovery of amounts due.
ife-time C s are the C s that result from all possible default events over the expected life of Policy applicable before April 1, 2018 the financial instrument.
n impairment loss is recognised whenever the carrying amount of an asset or its cash-generating The maximum period considered when estimating C s is the maximum contractual period over unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. which the company is exposed to credit risk.
(i) Calculation of recoverable amount: Measurement of ECLs
The recoverable amount of investments in loans and receivables is calculated as the C s are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of expected future cash flows, discounted at the original effective interest present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in rate inherent in the asset. n impairment loss in respect of an available-for-sale accordance with the contract and the cash flows that the company expects to receive). investment is calculated by reference to its current fair value. Receivables with a short
duration are not discounted. C s are discounted at the effective interest rate of the financial asset.
The recoverable amount of other assets is the greater of their net selling price and value in Credit-impaired financial assets use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the t each reporting date, the company assesses whether financial assets carried at amortised costs time value of money and the risks specific to the asset. or an asset that does not generate are credit-impaired. financial asset is credit-impaired’ when one or more events that have a largely independent cash inflows, the recoverable amount is determined for the cash- detrimental impact on the estimated future cash flows of the financial asset have occurred. generating unit to which the asset belongs.
vidence that a financial asset is credit-impaired includes the following observable data: (ii) Reversals of impairment:
- significant financial difficulty of the borrower or issuer n impairment loss in respect of receivables is reversed if the subse uent increase in - a breach of contract such as a default or past due event recoverable amount can be related ob ectively to an event occurring after the impairment - it is becoming probable that the borrower will enter bankruptcy or other financial loss was recognised. reorganisation or
- the disappearance of an active market for a security because of financial difficulties. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
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CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(p) Impairment (cont’d): (p) Impairment (cont’d):
Financial assets (cont’d) Policy applicable from April 1, 2018 (cont’d)
Policy applicable from April 1, 2018 (cont’d) Presentation of allowance for ECL in the statement of financial position
hen determining whether the credit risk of a financial asset has increased significantly since oss allowances for financial assets measured at amortised cost are deducted from the gross initial recognition and when estimating C s, the company considers reasonable and supportable carrying amount of the assets. information relevant and available without undue cost or effort. This includes both uantitative and ualitative information and analysis, based on the company’s historical experience and Write-off informed credit assessment and including forward looking information.
The gross carrying amount of a financial asset is written off (either partially or in full) when there The company assumes that the credit risk on financial assets has increased significantly if it is is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This more than 90 days past due. is the case when the company determines that the debtor does not have assets or sources of
income that could generate sufficient cash flows to repay the amounts sub ect to the write-off. The company recognises loss allowances for C s and considers a financial asset to be in default This assessment is carried out at the individual asset level. when:
Recoveries of amounts previously written off are included in impairment losses on financial - the borrower is unlikely to pay its credit obligations to the company in full, without recourse instruments’ in the statement of profit or loss. by the company to action such as realising security if any is held or
inancial assets that are written off could still be sub ect to enforcement activities in order to - the financial asset is more than 90 days past due. comply with the company’s procedures for recovery of amounts due.
ife-time C s are the C s that result from all possible default events over the expected life of Policy applicable before April 1, 2018 the financial instrument.
n impairment loss is recognised whenever the carrying amount of an asset or its cash-generating The maximum period considered when estimating C s is the maximum contractual period over unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. which the company is exposed to credit risk.
(i) Calculation of recoverable amount: Measurement of ECLs
The recoverable amount of investments in loans and receivables is calculated as the C s are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of expected future cash flows, discounted at the original effective interest present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in rate inherent in the asset. n impairment loss in respect of an available-for-sale accordance with the contract and the cash flows that the company expects to receive). investment is calculated by reference to its current fair value. Receivables with a short
duration are not discounted. C s are discounted at the effective interest rate of the financial asset.
The recoverable amount of other assets is the greater of their net selling price and value in Credit-impaired financial assets use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the t each reporting date, the company assesses whether financial assets carried at amortised costs time value of money and the risks specific to the asset. or an asset that does not generate are credit-impaired. financial asset is credit-impaired’ when one or more events that have a largely independent cash inflows, the recoverable amount is determined for the cash- detrimental impact on the estimated future cash flows of the financial asset have occurred. generating unit to which the asset belongs.
vidence that a financial asset is credit-impaired includes the following observable data: (ii) Reversals of impairment:
- significant financial difficulty of the borrower or issuer n impairment loss in respect of receivables is reversed if the subse uent increase in - a breach of contract such as a default or past due event recoverable amount can be related ob ectively to an event occurring after the impairment - it is becoming probable that the borrower will enter bankruptcy or other financial loss was recognised. reorganisation or
- the disappearance of an active market for a security because of financial difficulties. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
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Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(p) Impairment (cont’d): (s) inancial instruments (cont’d):
Policy applicable before April 1, 2018 (cont’d) (ii) Classification and subse uent measurement
(ii) Reversals of impairment (cont’d): Financial assets – Policy applicable from April 1, 2018
n impairment loss is reversed only to the extent that the asset’s carrying amount does not n initial recognition, a financial asset is classified as measured at: amortised cost fair exceed the carrying amount that would have been determined, net of depreciation or value through other comprehensive income ( CI) debt investment CI e uity amortisation, if no impairment loss had been recognised. investment or fair value through profit or loss ( T ).
Reversal of impairment losses is recognised in profit or loss, except for available-for-sale inancial assets are not reclassified subse uent to their initial recognition unless the e uity securities, which is recognised in other comprehensive income. company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period ( ) etermination of profit or loss: following the change in the business model.
rofit is determined as the difference between the revenues from the goods and services rendered financial asset is measured at amortised cost if it meets both of the following conditions and the costs and other charges incurred during the year. rofits on transactions are taken in the and is not designated as at T : year in which they are realised. transaction is realised at the moment of delivery. osses are taken in the year in which they are realised or determinable. - it is held within a business model whose ob ective is to hold assets to collect contractual cash flows and (r) Segment reporting: - its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (S I). segment is a distinguishable component of the group that is engaged either in providing products (business segment), or in providing products within a particular economic environment mortised cost represents the net present value ( N ) of the consideration receivable or (geographical segment), which is sub ect to risks and rewards that are different from those of payable as of the transaction date. This classification of financial assets comprises the other segments. following captions:
The group’s activities are limited to the distribution of cigarettes to amaican consumers, Cash and cash e uivalents operating in a single segment s such no additional segment information is provided. Trade and other receivables
(s) inancial instruments: ue to their short-term nature, the company initially recognises these assets at the original invoiced or transaction amount less expected credit losses. financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or e uity instrument of another enterprise. or the purpose of these financial ll financial assets not classified as measured at amortised cost or CI as described statements, financial assets have been determined to include cash and cash e uivalents and above are measured at T . n initial recognition, the company may irrevocably accounts receivable. Similarly, financial liabilities mainly comprise accounts payable. designate a financial asset that otherwise meets the re uirements to be measured at amortised cost or at CI as at T if doing so eliminates or significantly reduces an (i) Recognition and initial measurement accounting mismatch that would otherwise arise.
Trade receivables are initially recognised when they are originated. ll other financial Financial assets – Business model assessment: Policy applicable from April 1, 2018 assets and financial liabilities are initially recognised when the company becomes a party to the contractual provisions of the instrument. The company makes an assessment of the ob ective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is financial asset (unless it is a trade receivable without a significant financing component) managed and information is provided to management. or financial liability is initially measured at fair value plus, for an item not at T , transaction costs that are directly attributable to its ac uisition or issue. trade receivable Financial assets – Assessment whether contractual cash flows are solely payments of without a significant financing component is initially measured at the transaction price. principal and interest: Policy applicable from April 1, 2018
or the purposes of this assessment, principal’ is defined as the fair value of the financial asset on initial recognition. Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. li uidity risk and administrative costs), as well as a profit margin.
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CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(p) Impairment (cont’d): (s) inancial instruments (cont’d):
Policy applicable before April 1, 2018 (cont’d) (ii) Classification and subse uent measurement
(ii) Reversals of impairment (cont’d): Financial assets – Policy applicable from April 1, 2018
n impairment loss is reversed only to the extent that the asset’s carrying amount does not n initial recognition, a financial asset is classified as measured at: amortised cost fair exceed the carrying amount that would have been determined, net of depreciation or value through other comprehensive income ( CI) debt investment CI e uity amortisation, if no impairment loss had been recognised. investment or fair value through profit or loss ( T ).
Reversal of impairment losses is recognised in profit or loss, except for available-for-sale inancial assets are not reclassified subse uent to their initial recognition unless the e uity securities, which is recognised in other comprehensive income. company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period ( ) etermination of profit or loss: following the change in the business model.
rofit is determined as the difference between the revenues from the goods and services rendered financial asset is measured at amortised cost if it meets both of the following conditions and the costs and other charges incurred during the year. rofits on transactions are taken in the and is not designated as at T : year in which they are realised. transaction is realised at the moment of delivery. osses are taken in the year in which they are realised or determinable. - it is held within a business model whose ob ective is to hold assets to collect contractual cash flows and (r) Segment reporting: - its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (S I). segment is a distinguishable component of the group that is engaged either in providing products (business segment), or in providing products within a particular economic environment mortised cost represents the net present value ( N ) of the consideration receivable or (geographical segment), which is sub ect to risks and rewards that are different from those of payable as of the transaction date. This classification of financial assets comprises the other segments. following captions:
The group’s activities are limited to the distribution of cigarettes to amaican consumers, Cash and cash e uivalents operating in a single segment s such no additional segment information is provided. Trade and other receivables
(s) inancial instruments: ue to their short-term nature, the company initially recognises these assets at the original invoiced or transaction amount less expected credit losses. financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or e uity instrument of another enterprise. or the purpose of these financial ll financial assets not classified as measured at amortised cost or CI as described statements, financial assets have been determined to include cash and cash e uivalents and above are measured at T . n initial recognition, the company may irrevocably accounts receivable. Similarly, financial liabilities mainly comprise accounts payable. designate a financial asset that otherwise meets the re uirements to be measured at amortised cost or at CI as at T if doing so eliminates or significantly reduces an (i) Recognition and initial measurement accounting mismatch that would otherwise arise.
Trade receivables are initially recognised when they are originated. ll other financial Financial assets – Business model assessment: Policy applicable from April 1, 2018 assets and financial liabilities are initially recognised when the company becomes a party to the contractual provisions of the instrument. The company makes an assessment of the ob ective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is financial asset (unless it is a trade receivable without a significant financing component) managed and information is provided to management. or financial liability is initially measured at fair value plus, for an item not at T , transaction costs that are directly attributable to its ac uisition or issue. trade receivable Financial assets – Assessment whether contractual cash flows are solely payments of without a significant financing component is initially measured at the transaction price. principal and interest: Policy applicable from April 1, 2018
or the purposes of this assessment, principal’ is defined as the fair value of the financial asset on initial recognition. Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. li uidity risk and administrative costs), as well as a profit margin.
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49 50
Notes to FinancialCARRERAS Statements LIMITED (Continued) CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(s) inancial instruments (cont’d): (s) inancial instruments (cont’d):
(ii) Classification and subse uent measurement (cont’d) (iii) erecognition (cont’d)
Financial assets – Assessment whether contractual cash flows are solely payments of Financial assets (cont’d) principal and interest: Policy applicable from April 1, 2018 (cont’d) The company enters into transactions whereby it transfers assets recognised on its The company’s ob ective is to hold financial assets to collect contractual cash flows. In statement of financial position, but retains either all or substantially all of the risks and assessing whether the contractual cash flows are solely payments of principal and interest, rewards of the transferred assets or a portion of them. In such cases, the transferred assets the company considers the contractual terms of the instrument. This includes assessing are not derecognised. whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. Financial liabilities
Financial liabilities The company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expired. ll financial liabilities are recognised initially at fair value and in the case of borrowings, plus directly attributable transaction costs. The company’s financial liabilities, which (iv) ffsetting mainly comprise accounts payables is recognised initially at fair value. inancial assets and financial liabilities are offset and the net amount presented in the Financial assets and liabilities – Subsequent measurement and gains and losses: Policy statement of financial position when, and only when, the company currently has a legally applicable from April 1, 2018 enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. inancial assets at amortised cost are subse uently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest (t) air value: income, foreign exchange gains and losses and impairment are recognised in profit or loss. ny gain or loss on derecognition is recognised in profit or loss. Definition of fair value:
The subse uent measurement of financial liabilities depends on their classification as air value is the price that would be received to sell an asset or paid to transfer a liability in an described in the particular recognition methods disclosed in the individual policy orderly transaction between market participants at the measurement date. arket price is used to statements associated with each item. determine fair value where an active market exists as it is the best evidence of the fair value of a financial instrument. Financial assets and liabilities– Policy applicable before April 1, 2018 Determination of fair value: The company classified non-derivative financial assets as Loans and receivables: measured at amortised cost using the effective interest method. The company’s financial instruments lack an available trading market. The fair value of all financial instruments included in current assets and current liabilities are considered to The company classified non-derivative financial liabilities into the other financial liabilities approximate their carrying values, due to their short-term nature. The fair values of amounts due category. These are subse uently measured at amortised cost using the effective interest from and due to subsidiary companies are assumed to approximate carrying values. method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. ny gain or loss on derecognition is also recognised in profit or loss. (u) ividends and distributions:
(iii) erecognition ividends and distributions are recognised in the period in which they are declared.
Financial assets
The company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
105 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
49 50
CARRERAS LIMITED CARRERAS LIMITED Notes to Financial Statements (Continued) March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
22. Significant accounting policies (cont d) 22. Significant accounting policies (cont d)
(s) inancial instruments (cont’d): (s) inancial instruments (cont’d):
(ii) Classification and subse uent measurement (cont’d) (iii) erecognition (cont’d)
Financial assets – Assessment whether contractual cash flows are solely payments of Financial assets (cont’d) principal and interest: Policy applicable from April 1, 2018 (cont’d) The company enters into transactions whereby it transfers assets recognised on its The company’s ob ective is to hold financial assets to collect contractual cash flows. In statement of financial position, but retains either all or substantially all of the risks and assessing whether the contractual cash flows are solely payments of principal and interest, rewards of the transferred assets or a portion of them. In such cases, the transferred assets the company considers the contractual terms of the instrument. This includes assessing are not derecognised. whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. Financial liabilities
Financial liabilities The company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expired. ll financial liabilities are recognised initially at fair value and in the case of borrowings, plus directly attributable transaction costs. The company’s financial liabilities, which (iv) ffsetting mainly comprise accounts payables is recognised initially at fair value. inancial assets and financial liabilities are offset and the net amount presented in the Financial assets and liabilities – Subsequent measurement and gains and losses: Policy statement of financial position when, and only when, the company currently has a legally applicable from April 1, 2018 enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. inancial assets at amortised cost are subse uently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest (t) air value: income, foreign exchange gains and losses and impairment are recognised in profit or loss. ny gain or loss on derecognition is recognised in profit or loss. Definition of fair value:
The subse uent measurement of financial liabilities depends on their classification as air value is the price that would be received to sell an asset or paid to transfer a liability in an described in the particular recognition methods disclosed in the individual policy orderly transaction between market participants at the measurement date. arket price is used to statements associated with each item. determine fair value where an active market exists as it is the best evidence of the fair value of a financial instrument. Financial assets and liabilities– Policy applicable before April 1, 2018 Determination of fair value: The company classified non-derivative financial assets as Loans and receivables: measured at amortised cost using the effective interest method. The company’s financial instruments lack an available trading market. The fair value of all financial instruments included in current assets and current liabilities are considered to The company classified non-derivative financial liabilities into the other financial liabilities approximate their carrying values, due to their short-term nature. The fair values of amounts due category. These are subse uently measured at amortised cost using the effective interest from and due to subsidiary companies are assumed to approximate carrying values. method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. ny gain or loss on derecognition is also recognised in profit or loss. (u) ividends and distributions:
(iii) erecognition ividends and distributions are recognised in the period in which they are declared.
Financial assets
The company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
Carreras Limited Annual Report 2019 106 Governance Management's Discussion & Analysis Financial Statements
51 52 Notes to Financial Statements (Continued) March 31, 2019CARRERAS LIMITED CARRERAS LIMITED
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
23. e and amended standards issued but not yet effective 23. e and amended standards issued but not yet effective (cont d)
t the date of approval of the financial statements, a number of new standards and amendments to e or amended Summary of the re uirements standards, were in issue but were not yet effective and which the group has not early adopted. Those standards which management considered may be relevant to the group are as follows: I RIC 23, Uncertainty The decision shouled be based on which method provides better prediction e or amended Summary of the re uirements Over Income Tax of the resolution of the uncertainty. standards Treatments (cont’d) I RS 16, Leases ffective for annual reporting periods beginning on or after anuary 1, 2019, If facts and circumstances change, the entity is re uired to reassess the this standard eliminates the current dual accounting model for lessees, which udgements and estimates applied. distinguishes between on-balance sheet finance leases and off-balance sheet I RIC 23 reinforces the need to comply with existing disclosure operating leases. Instead, there is a single, on-balance sheet accounting re uirements regarding: model that is similar to current finance lease accounting. ntities will be - udgements made in the process of applying accounting policy to re uired to bring all ma or leases on-balance sheet, recognising new assets determine taxable profit (tax loss), tax bases, unused tax losses, unused and liabilities. The on-balance sheet liability will attract interest the total tax credits and tax rates lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. ptional lessee exemption will apply to short- - assumptions and other estimates used and term leases and for low-value items with value of S$5,000 or less. - potential impact of uncertainties that are not reflected in the financial
essor accounting remains similar to current practice as the lessor will statements. continue to classify leases as finance and operating leases.. The roup mendments to I RS 9, ffective retrospectively for annual periods beginning on or after 1 anuary plans to apply I RS 16 initially on anuary 1, 2019, using the modified Financial Instruments 2019 clarifies the treatment of: retrospective approach. Therefore, the cumulative effect of adopting (i) repayment features with negative compensation: I RS 16 will be recognised as an ad ustment to the opening balance of retained earnings at anuary 1, 2019, with no restatement of comparative inancial assets containing prepayment features with negative information. compensation can now be measured at amortised cost or at fair value through other comprehensive income ( CI) if they meet the other mendment to I S 1, This amendment is effective for annual periods beginning on or after relevant re uirements of I RS 9. Presentation of anuary 1, 2020, and provides a definition of material’ to guide preparers of (ii) odifications to financial liabilities: Financial Statements and financial statements in making udgements about information to be included If the initial application of I RS 9 results in a change in accounting I S 8, Accounting in financial statements. Policies, Changes in policy for these modifications or exchanges, then retrospective application is re uired, sub ect to particular transitional reliefs. There Accounting Estimates “Information is material if omitting, misstating or obscuring it could is no change to the accounting for costs and fees when a liability has and Errors reasonably be expected to influence decisions that the primary users of been modified (but not substantially) - these are recognised as an general purpose financial statements make on the basis of those financial ad ustment to the carrying amount of the liability and are amortised statements, which provide financial information about a specific reporting over the remaining term of the modified liability. entity.”
mendments to These amendments are effective retrospectively for annual reporting periods I RIC 23, Uncertainty ffective for annual reporting periods beginning on or after anuary 1, 2019. References to Conceptual beginning on or after anuary 1, 2020. The revised framework covers all Over Income Tax arlier application is permitted. I RIC 23 clarifies the accounting for Framework in IFRS aspects of standard setting including the ob ective of financial reporting. Treatments income tax treatments that have yet to be accepted by tax authorities is to be Standards applied to the determination of taxable profit (tax loss), tax bases, unused The main change relates to how and when assets and liabilities are tax losses, unused tax credits and tax rates, when there is uncertainty over recognised and de-recognised in the financial statements. income tax treatments under I S 12. n entity has to consider whether it is probable that the relevant tax New bundle of rights’ approach to assets will mean that an entity may authority would accept the tax treatment, or group of tax treatments, that is recognise a right to use an asset rather than the asset itself adopted in its income tax filing. liability will be recognised if a company has no practical ability to If the entity concludes that it is probable that the tax authority will accept a avoid it. This may bring liabilities on balance sheet earlier than at particular tax treatment in the tax return, the entity will determine taxable present. profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates new control-based approach to de-recognition will allow an entity to consistently with the tax treatment included in its income tax filings and derecognise an asset when it loses control over all or part of it the focus record the same amount in the financial statements. The entity will disclose will no longer be on the transfer of risks and rewards. uncertainty.
If the entity concludes that it is not probable that a particular tax treatment The group is assessing the impact that these new standards, amendments and interpretations will have on will be accepted, the entity has to use the most likely amount or the expected its 2020 and 2021 financial statements. value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.
107 Carreras Limited Annual Report 2019 Financial Statements Management's Discussion & Analysis Governance
51 52 Notes to Financial Statements (Continued) CARRERAS LIMITED CARRERAS LIMITED March 31, 2019
otes to the inancial Statements (Continued) otes to the inancial Statements (Continued) March 31, 2019 March 31, 2019
23. e and amended standards issued but not yet effective 23. e and amended standards issued but not yet effective (cont d)
t the date of approval of the financial statements, a number of new standards and amendments to e or amended Summary of the re uirements standards, were in issue but were not yet effective and which the group has not early adopted. Those standards which management considered may be relevant to the group are as follows: I RIC 23, Uncertainty The decision shouled be based on which method provides better prediction e or amended Summary of the re uirements Over Income Tax of the resolution of the uncertainty. standards Treatments (cont’d) I RS 16, Leases ffective for annual reporting periods beginning on or after anuary 1, 2019, If facts and circumstances change, the entity is re uired to reassess the this standard eliminates the current dual accounting model for lessees, which udgements and estimates applied. distinguishes between on-balance sheet finance leases and off-balance sheet I RIC 23 reinforces the need to comply with existing disclosure operating leases. Instead, there is a single, on-balance sheet accounting re uirements regarding: model that is similar to current finance lease accounting. ntities will be - udgements made in the process of applying accounting policy to re uired to bring all ma or leases on-balance sheet, recognising new assets determine taxable profit (tax loss), tax bases, unused tax losses, unused and liabilities. The on-balance sheet liability will attract interest the total tax credits and tax rates lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. ptional lessee exemption will apply to short- - assumptions and other estimates used and term leases and for low-value items with value of S$5,000 or less. - potential impact of uncertainties that are not reflected in the financial
essor accounting remains similar to current practice as the lessor will statements. continue to classify leases as finance and operating leases.. The roup mendments to I RS 9, ffective retrospectively for annual periods beginning on or after 1 anuary plans to apply I RS 16 initially on anuary 1, 2019, using the modified Financial Instruments 2019 clarifies the treatment of: retrospective approach. Therefore, the cumulative effect of adopting (i) repayment features with negative compensation: I RS 16 will be recognised as an ad ustment to the opening balance of retained earnings at anuary 1, 2019, with no restatement of comparative inancial assets containing prepayment features with negative information. compensation can now be measured at amortised cost or at fair value through other comprehensive income ( CI) if they meet the other mendment to I S 1, This amendment is effective for annual periods beginning on or after relevant re uirements of I RS 9. Presentation of anuary 1, 2020, and provides a definition of material’ to guide preparers of (ii) odifications to financial liabilities: Financial Statements and financial statements in making udgements about information to be included If the initial application of I RS 9 results in a change in accounting I S 8, Accounting in financial statements. Policies, Changes in policy for these modifications or exchanges, then retrospective application is re uired, sub ect to particular transitional reliefs. There Accounting Estimates “Information is material if omitting, misstating or obscuring it could is no change to the accounting for costs and fees when a liability has and Errors reasonably be expected to influence decisions that the primary users of been modified (but not substantially) - these are recognised as an general purpose financial statements make on the basis of those financial ad ustment to the carrying amount of the liability and are amortised statements, which provide financial information about a specific reporting over the remaining term of the modified liability. entity.”
mendments to These amendments are effective retrospectively for annual reporting periods I RIC 23, Uncertainty ffective for annual reporting periods beginning on or after anuary 1, 2019. References to Conceptual beginning on or after anuary 1, 2020. The revised framework covers all Over Income Tax arlier application is permitted. I RIC 23 clarifies the accounting for Framework in IFRS aspects of standard setting including the ob ective of financial reporting. Treatments income tax treatments that have yet to be accepted by tax authorities is to be Standards applied to the determination of taxable profit (tax loss), tax bases, unused The main change relates to how and when assets and liabilities are tax losses, unused tax credits and tax rates, when there is uncertainty over recognised and de-recognised in the financial statements. income tax treatments under I S 12. n entity has to consider whether it is probable that the relevant tax New bundle of rights’ approach to assets will mean that an entity may authority would accept the tax treatment, or group of tax treatments, that is recognise a right to use an asset rather than the asset itself adopted in its income tax filing. liability will be recognised if a company has no practical ability to If the entity concludes that it is probable that the tax authority will accept a avoid it. This may bring liabilities on balance sheet earlier than at particular tax treatment in the tax return, the entity will determine taxable present. profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates new control-based approach to de-recognition will allow an entity to consistently with the tax treatment included in its income tax filings and derecognise an asset when it loses control over all or part of it the focus record the same amount in the financial statements. The entity will disclose will no longer be on the transfer of risks and rewards. uncertainty.
If the entity concludes that it is not probable that a particular tax treatment The group is assessing the impact that these new standards, amendments and interpretations will have on will be accepted, the entity has to use the most likely amount or the expected its 2020 and 2021 financial statements. value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.
Carreras Limited Annual Report 2019 108
ANNUAL GENERAL MEETING
Form of Proxy
This Form of Proxy is to be used to vote in connection with Resolutions 3.c) and 3.d) referred to in the Addendum to the Notice dated May 27, 2015 convening the Annual General Meeting.
ANNUAL GENERAL MEETING Form of Proxy I/We…………………………………………………………………………………………
of…………………………………………………………………………………………… I/We
of being a Member /Members of Carreras Limited hereby appoint being a Member/Members of Carreras Limited hereby appoint ……………………………………………………………………………………
of of ………………………………………………………………………………… ... or failing him/her or failing him/her…………………………………………………………………………. of of…………………………………………………………………………………………… as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on September 4, 2019 at 2 p.m. and at any adjournment thereof. as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be heldSIGNED on S ethispt emberday 2, of20 1 5 at 2 p .m. and2019. at any adjournment thereof.
SIGNATURE OF SHAREHOLDER SIGNED this…………….day of………………… ……………………. 2015.
RESOLUTIONS FOR AGAINST SIGNATUR1 E OF SHAREHOLDER …………………………………… 2 3 a (i) 3 a (ii) 3 b (i) RESOLUTIONS FOR AGAINST 3 b (ii)
3 b (iii) 3 c 4 3 d 5
NOTES: Place stamp NOTE: 1. To be v a l i d , th i s pro x y m u s t b e d e p o s i te d w i th th e Re g i s t r ar an d T r a nsfer here Office, Sagic or BankTo Corpo be valid,rat thise Tproxyrus tmust Ser bevi cdepositede Unit, with28 – the 4 8Registrar Barbad ando sTransfer $100 Avenue , Ki ng ston 5,Office: not le Sagicorss than Bank 4 Jamaica8 hou rLimited,s befo Groupre the Legal tim Truste ap &p oCorporateinted for Services, 28 – 48 Barbados Avenue, Kingston 5, not less than 48 hours holdin g t h e m eeting.before the time appointed for holding the meeting.
2. If the appointer is a Corporation, this form should be executed under Seal in accordance with the Company’s Articles of Incorporation.
A proud Jamaican Company since 1962
13A Ripon Road Kingston 5
Telephone: +1 (876) 749 9800 Fax: +1 (876) 906 9284
E-Mail: [email protected]
Website: www.carrerasltd.com