Annual report 2014_NP.indd

Transcription

www.julphar.net
Annual Report
2014
Annual report 2014_NP.indd 1
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Annual Report 2014
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H.H. Sheikh
Saud Bin Saqr Al Qassimi
H.H. Sheikh
Khalifa Bin Zayed Al Nahyan
Ruler of Ras Al Khaimah
Member of Supreme Council
United Arab Emirates
Ruler of Abu Dhabi
President of
H.H. Sheikh
Mohammad Bin Saud Bin
Saqr Al Qassimi
Crown Prince
of Ras Al Khaimah
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Annual Report 2014
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Board of Directors
H.H. Sheikh Faisal Bin Saqr Al Qasimi
Chairman of the Board
Mr. Hassan
Hassan Ahmed
Ha
Ahm
hmed
d Al
Al Alkim
Alki
Al
kim
ki
Vice
Vice-Chairman
Chairman of the Board
Members of the Board
Sheikh Abdullah Faisal Bin Saqr Al Qasimi
Sheikh Saqr Bin Humaid Al Qasimi
Mr. Ahmed Essa Al Naem
Mr. Nawaf Ghobash Ahmed Saeed
Dr. Ali Hussain Al Zawawi
Mr Jamal Salem Bin Darwish Al Nuaimi
Mr. Ahmed Salim Abdullah Salim Al Hosni
Dr. Ayman Ahmed Sahli
Chief Executive Officer
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A
www.julphar.net
B
Business
Core
Business
Overview
Our overall strategy is what drives
our growth. Hear in detail from our
Executives about this year’s review,
our business model, how we deliver
value, milestones reached and an
overview of our key functions.
Read about the macroeconomic
environment of each of our major
markets, and explore our current
and future Forecasts and Pipelines.
We also analyze the overall global
healthcare market.
Executive Review
Top Performing Countries & Products
(sales)
2014 in Numbers
Other Highlights
Overall Positioning Statement
Julphar Diabetes
The Global Healthcare Market
Overview of the MENA
Pharmaceutical Market
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C
Financial
Results
Here we state our Financial
Results, providing an independent
Auditor’s report and Consolidated
Statements of Financial Position,
Comprehensive Income, Cash Flows
and Shareholders Equity.
Business & Financial Overview
Independent Auditor’s Report
Consolidated Statement of Financial Position
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Cash Flows
Consolidated Statement of Changes in Shareholders’ Equity
Notes to the Consolidated Financial
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A
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Annual Report 2014
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Julphar Business Core
Executive Review
Top Performing Countries & Products (sales)
2014 in Numbers
Other Highlights
Julphar Diabetes
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www.julphar.net
Executive Review
His Highness
Sheikh Faisal bin
Saqr Al Qasimi
Chairman
Dear Shareholders,
I am pleased to announce that Julphar has closed the year at AED1.442 billion, producing overall steady
results, with a year on year growth of 6% over sales from 2013.
Julphar is a proud Emirati Company with great ambitions to thrive in international markets and this remains
at the heart of our business. A key priority is to identify opportunities which will create long-term value
for our Shareholders and enable us to provide quality, affordable medicines to people now and in future
generations.
I believe our staff is our greatest asset. I would like to congratulate the Julphar Executive team for their
leadership abilities and producing sustainable returns. We are focusing on developing a skilled National work
force through our Emiratisation program and Absher initiative, and encouraging all staff to develop skills in
their chosen vocation.
As the Global Healthcare market continues to increase at a tremendous rate, Julphar is greatly positioned
to truly shape this industry. We extend our thanks to the Government, our Customers, Employees, our wellwishers, Board of Directors and all other stakeholders for their wholehearted and continued support and
contribution in the success of Julphar.
“
The UAE is driving
forward healthcare expansion
at an international level and
Julphar is proud to play a
significant role in shaping the
future of our industry.
Annual Sales (in AED billion)
0.92
1.02
2010
2011
1.18
2012
1.36
2013
1.44
2014
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This year has proven to be another year of great
achievements for Julphar - we are pleased to
close the year at AED 1.442 billion, which shows a
remarkable effort from our global sales force and
highlights true dedication from our staff across
all functions, in all countries. Together, we have
been working hard to deliver quality, affordable
healthcare to our communities; a vision which
remains at the core of our business strategy and
creates overall value to the Board, Shareholders,
Staff and our Customers.
2014 was a challenging year. We, like many others,
felt the effects of uncertain and devastating
Geopolitics in major markets such as Iraq,
Syria and Libya. We continued to look at growth
opportunities in other markets - particularly
around Africa - and sought after areas where
we could expand our manufacturing capabilities
globally. Construction progressed greatly on our
KSA Plant (in conjunction with our local partner
Cigalah) and we commenced preparations to
expand our facility in Ethiopia, focusing on insulin
and other required products.
At a more local level, the GCC will remain a
cornerstone of our growth strategy due to
increased healthcare expenditure from local
Governments combined with the maturity of the
Health Insurance Industry. Our ongoing approach
is to work in alignment with GCC Authorities
to ensure they have a trusted local partner in
advancing Healthcare throughout our neighboring
countries.
Over the recent years, Julphar has made the
transition from a local company to a global player
and have had to adapt our own internal operations
accordingly. This year we performed a Human
Resources Department audit and produced a
gap analysis which led to improvements in our
Recruitment and Selection Process. We added a
Talent Management division to the HR department
and restructured certain areas to increase
operational efficiencies.
Finally, we are confident that 2015 will
present new opportunities and expanding our
manufacturing capabilities will remain a key
priority in our overall growth strategy. I would
like to take this opportunity to thank the Board
of Directors, our Executive team and our network
of global staff whose support and dedication
ensures we are delivering sustainable healthcare
to our markets.
Dr. Ayman Sahli, CEO
“
Expanding
our manufacturing
capabilities remains a
key priority in our overall
growth styrategy
yoy
Growth
6%
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www.julphar.net
“
Our core business of
manufacturing continues to
drive our growth. As we focus
on increasing our current
facility capabilites, we also
seek new opportunities in new
markets.
2014 has been another great year for the company.
We registered sales revenue of AED 1.442 billion
up 6% year-on-year (yoy). Sales during the year
were driven by the private market which saw a yoy
growth of 8%.
We continued to show strong operational
performance with Gross Profit at AED 857 million,
up 4% yoy. Operating Profit for 2014 was AED 238
million, up 1% yoy.
12M
6M
3M
761.7m
9.39%yoy
9M
1,442m
5.9%yoy
1,023m
1.9%yoy
393.5m
19.2%yoy
products. In the tender segment, Saudi Arabia,
UAE, Jordan and Iraq showed strong performance.
We are confident that growth will continue across
our markets and set ourselves up for a sustainable
future.
G.V.G. Krishna, CFO
Our core manufacturing business continues to
drive our growth. As we focus on increasing our
current facility capabilities, we are also seeking
new manufacturing opportunities in markets such
as Algeria and KSA.
The sales mix has seen some shifts during the year.
In the private market segment, our traditional
strongholds like the UAE and Saudi Arabia have
seen solid growth and countries such as Egypt and
Lebanon have also seen a strong demand for our
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Top Performing Countries
and Products (sales)
Egypt
MEBO
RISEK
JULMENTIN
JUSPRIN
ADOL
25 m
20 m
10 m
9.7 m
7.9 m
Kingdom of
Saudi Arabia
Lebanon
Lebanon
PROFINAL 9 m
JULMENTIN 7 m
MEBO 6 m
EPOTIN 5 m
TRIAXONE 4 m
UAE
MEBO
TRIAXONE
JULMENTIN
ADOL
RISEK
41 m
22 m
20 m
16 m
15 m
Iraq
ADOL 7 m
JULMENTIN 5 m
TRIAXONE 4.7 m
MEBO 4.5 m
RISEK 4.4 m
RISEK 12 m
MEBO 12 m
JULMENTIN 7 m
ADOL 6.5 m
CEFUZIME 5.6 m
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www.julphar.net
Julphar is one of the largest pharmaceutical
manufacturers in the Middle East and North
Africa (MENA) and distributes medicines to over
40 countries. Established in 1980 in the UAE,
its first stand-alone facility produced only five
products. The decision to create Julphar came at
a time when the UAE was making the transition
from herbal medicines to conventional medicines,
and the creators of Julphar wanted to invest in a
sector which would generate long-term value for
the Emirates.
Over three decades later, it currently operates
twelve internationally certified manufacturing
facilities globally, produces over a million boxes of
medicines daily and holds 3,646 product registration
certificates. Eleven of our Facilities are based in the
UAE and covers production areas including Tablets,
Syrups and Suspensions. In 2014, Julphar launched
a twelfth manufacturing facility in Ethiopia, as part
of its ongoing international expansion strategy.
Julphar’s core business is manufacturing and over
the recent years decided to focus on innovation
in Biotechnology with the launch of a $150m
Manufacturing Facility entirely dedicated to
producing Raw Material needed for Biosimilar
products. Today, this facility is the only plant in the
MENA region that produces insulin using insulin
crystals derived from r-DNA technology.
Biosimilars are the more molecular-complex
products, whose active substance is derived from
a living organism by means of human recombinant
DNA. Using human recombinant DNA technology
to produce their own raw material means Julphar
is uniquely positioned to provide its major markets
- Middle East, Africa – as well as beyond with the
API (Added Pharmaceutical Ingredient) needed to
make insulin and erythropoietin. Emerging markets
remain a key priority for sustainable growth, as
Julphar’s Middle Eastern roots allow them to reach
difficult markets in a timely manner.
Julphar maintains a diverse product portfolio
which target major therapeutic segments including
endocrinology, anti-infective, cardiovascular and
gastroenterology, over-the-counter, nephrology,
dermatology, respiratory, metabolic and burn and
wound management.
As part of its on-going responsibility, Julphar
partners with local and global companies to make
a positive impact across all healthcare sectors by
dedicating 2.5% of annual profits to CSR. This goes
towards funds and scholarships to Educational
facilities and sponsorship of various health
campaigns across the MENA.
Julphar employs approximately 3000 personnel
around the world and registered sales revenue of
AED 1.442 billion in the year ending 2014, up 6%
year-on-year (yoy). Sales during the year were
driven by the private market sales which saw a yoy
growth of 8%.
The company continued to show robust operational
performance during 2014. Gross Profit during
the period was AED 857.2 million, up 4.4% yoy.
Operating Profit for the year, on the other hand, was
AED 238.3 million, up 1.1% yoy. Operating profit
margin during the period was a robust 16.5%. Profit
for the year was AED 233.8 million, up 2.5% yoy.
With over 800 products produced in various dosage
forms and more in the pipeline, Julphar is a stellar
example of one of the UAE’s local businesses
making an impact on the global stage.
Julphar in essence, is Sustaining Health across
the globe.
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Sustaining Health
For over 30 years we have
been delivering high quality,
affordable medicines to our
communities
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www.julphar.net
2014 in Numbers
Total Sales
(AED)
Uzbekistan
Tunisia
Morocco
Algeria
1.44 bn
Sudan
Iraq
Pakistan
Libya
Azerbaijan
South Sudan
Egypt
Afghanistan
Nigeria
Lebanon
Jordan
Yemen
Senegal
Kenya
Ethiopia
Somalia
Uganda
Tanzania
Mauritius
Ecuador
Madagascar
Malawi
40
213
Global Offices
Branded Products
2900
Employees
40
MenaCool trucks
3646 Product
40 Countries
Registration Certificates
products are sold in
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Annual Manufacturing
Capacities
JI - Solid Dosage Forms Plant
5000 Million Tablets
600 Million Capsules
5 million Powder Pro-Suspension
Tajikistan
JII - Ampoules and Vials Plant
30 Million Ampoules
6 Million Lyophilized Vials
China
JIII - Penicillin Plant
600 million tablets and capsules
5 million antibiotic powders for suspension
Malaysia
Indonesia
Thailand
JIV - Oral Cephalosporin Plant
300 Million Tablets and Capsules,
5 Million of Antibiotic Powder Pro-Suspension
JV – Packaging Plant
as needed
Philippines
GCC
JVI - Liquid Orals Plant
94 Million bottles of Syrup, Suspensions and Drops
UAE
KSA
Bahrain
Oman
Kuwait
JVII - Biotech EPO Plant
150 grams of Erythropoietin
JVIII - Liquid and Lyophilized
50 million units Vials and Ampoules
JIX - Cephalosporin Powder Filling Plant
30 million units
200,000
Pallets loaded
16
Quality Audits
100
JX - Semi Solid Plant
60 million Tubes of Creams and Ointments
200 million Suppositories
JXI - Julphar Insulin Plant
1.4 kilograms of API
JXII - Julphar Ethiopia
500 million tablets
25 million bottles
170 million capsules
Products Registered
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www.julphar.net
Other Highlights
Every year Julphar aims to provide Education Programs, CME’s Initiatives and Medical Updating
Symposiums for Physicians across our markets. In 2014 there was a particular focus on Wound Healing,
Anemia, Cardiovascular Disease, Infectious diseases and Antibiotics. Our initiatives are intrinsically linked
with our CSR Strategy, where we partner with local Authorities to improve the health and wellbeing of
staff and our communities. Below is just some of the events we participated in…
March
April
Julphar collaborates with the Dubai Health
Authority and Zayed University to launch the
Creative Healthy Initiatives Project (CHIP). This
project focused on creating maximum awareness
among school children of unhealthy eating habits
that cause children obesity and aims o spread
health awareness and instill good practices among
students.
March
Julphar is a major partner of Duphat 2014, held
in Dubai. This provides an opportunity to update
Pharmaceutical Stakeholders on new trends
and latest technologies in order to optimize their
practices. Julphar won the award “Best Stand”
Julphar and MSD sign a landmark five-year
licensing agreement. The agreement provides
Julphar with exclusive rights to produce, market,
distribute and sell certain MSD medicines in
UAE, Kuwait, Bahrain, Oman, Qatar and Iraq. The
new partnership contributes to the ambitious
healthcare plans of regional governments to
improve the quality of their healthcare systems
and will potentially enhance patients’ access
to cutting-edge therapies for diabetes, asthma,
allergy, pain and inflammation.
“
This agreement allows
a global leader in healthcare
to tap into the local knowhow
and expertise of a regional
leader. Manufacturing locally
high-quality medications will
enhance accessibility and
create greater value for all
our stakeholders”
Dr. Ayman Sahli, CEO
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Annual Report 2014
June
Julphar ranked number 1 in the Healthcare
Category for the Forbes Middle East Awards. Up
against 12 other companies, this prestigious award
is another example of an Emirati Company making
an impact on the Global Stage.
July
DHCC’s College of Dental Medicine sign a
Scholarship Agreement with Julphar, enabling
Ministry of Health Dentists to complete
postgraduate programs in Dubai. As per the
agreement, both parties will support the Ministry
of Health by providing specialization of six
postgraduate dentistry programs, offered in
partnership with the Royal College of Surgeons of
Edinburgh.
September
19
“
As a leading Emirati
company, Julphar highly
regards the Absher initiative
launched by the President,
His Highness Shaikh Khalifa
bin Zayed Al Nahyan, and
we are committed and fully
mobilized to effectively
contribute to this ambitious
emiratisation program by
providing young Emiratis
with excellent career
paths in a highly dynamic
and innovative working
enviroment.”
Asma Eissa Al Zaabi
Liaison Manager, National Force
As part of its commitment to Absher, Julphar
hosted an Open Day to interact with talented
locals, unveiling plans to recruit 60 Emiratis every
year to reach a total of 300 over the next five
years. The day aimed at advising young male and
female Emiratis looking for a brighter professional
future on the excellent job opportunities available
at Julphar across different divisions.
September
Julphar Sponsors the Ethiopia Healthcare
Infrastructure and Investment Summit. Our
Director of Sub-Saharan Africa spoke about the
pharmaceutical framework in frontier markets.
November
As part of its World Diabetes Day initiative,
Julphar launched a Healthy Staff Program, where
staff had a comprehensive health screen and were
able to attend a Health Education Session at the
Julphar Head Office. Over 300 staff were screened
for Cholesterols, BMI and glucose, to name a few.
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Company Objective
What do we do?
Make medicine more affordable
and more accessible
Delivering Value:
What will this do?

Produce High Quality Medicines

Create Sustainable Growth
for shareholders

Provide medicines to regions
which need it the most

Staff Development and Leadership
Business Strategy
How do we do this?

Global Expansion of Facilities
Strategic Partnership
Leading in Biotechnology
....Sustaining Health
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www.julphar.net
Julphar Diabetes
“
In addition to the existing
markets for insulin, new
markets were added totaling 15
countries where the insulin is
registered
Joe Saldanha
General Manager
Julphar Diabetes showed growth in all three
areas of the business; API, Oral anti-diabetics,
and insulin. The API business had the greatest
increase through new partners and existing product
development agreements. The oral anti-diabetic
business continued growth at a steady pace. In
addition to the existing markets for insulin, new
markets were added totaling 15 countries where the
insulin is registered. This gives us access to local
and regional tenders where we do not have a direct
presence.
A very robust Ramadan Campaign was conducted
in 2014. The campaign was an integrated program
for safe fasting during Ramadan, which included
meal planning, exercising, blood glucose monitoring,
and recognizing and managing complications.
The campaign used Arabic, English and French
to maximize reach to and impact on relevant
stakeholders in UAE, KSA, Iraq, Lebanon and
Tunisia. A Ramadan Kit with a self-monitoring blood
glucose device and strips through our agreement
with Bayer Diabetes was given free to patients.
In order to continue to have a strong presence in the
market, there were a number of initiatives that were
undertaken to build on what was done in prior years.
The Middle-East Kids Camp was held in March,
bringing in Diabetic children from the MENA region
for a week of activities in RAK. Per our commitment
to physicians in our area, Defeat Diabetes 3 was held
in April and Defeat Diabetes 4 was held in October.
Some of the key influencers in the region spoke to
the audience of about 100 physicians each on their
area of expertise and interest. To better serve our
pharmacist customers, we conducted the second
Pharmacist Academy for UAE pharmacists where
the latest pharmacy updates were shared.
We partnered with RAK Hospital as part of our
corporate wellness campaign. During World
Diabetes Day, we tested over 400 employees for
hypertension, hypercholesterolemia, and diabetes.
All the results were given to the respective
employees with a follow up session for those
who had at least one of the disease states. The
sessions were intended to help better manage their
health issues through diet, exercise, and possible
medications they could discuss with their physician.
We also participated in the Arab Society of Pediatric
Endocrinology held in Abu Dhabi. Our sponsorship
included inviting Dr. Carlo Acerini, MD, from the
University of Cambridge who lectured on the
Artificial Pancreas to a regional audience of over
continued support and contribution in the success of
Julphar.
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B
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Business Overview
Overview of the MENA Pharmaceutical Market
Gulf Cooperation Council (GCC)
Sub-Saharan Africa
North Africa
Levant
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www.julphar.net
The demand for healthcare and medicines continues
Balance of sentiment* by industry
to grow globally as emerging market populations
are becoming larger, older and wealthier. Julphar
has been successfully meeting increasing demands
for medicines in challenging emerging markets.
Between 2013 and 2014, the combined sales
of prescription and OTC drugs alone increased
enough to result in a y-on-y growth of 1.6%. Sales
for these categories as well as others are expected
to continue increasing over the coming year. As
prospects for the global healthcare industry are
positive, Julphar expects to improve its position in
2015.
Predictions
published
by
The
Economist
Intelligence Unit (EIU) indicate that improvement
of business conditions in the healthcare and
pharma industry will outweigh other sectors in
2015 (Figure 1). A compound annual growth rate
Figure 1: Industry outlook for market conditions
(CAGR) of more than 3.0% is expected through to
Source: EIU3
2018 in the global pharmaceutical market1. IMS
Health projections also indicate a similar increase
in the CAGR of the market and a significant rise in
its value between USD1.135 trillion and USD1.235
trillion by 20172.
1.
2.
3.
Business Monitor International. Pharmaceuticals & Healthcare Q314 Round-Up. September 2014.
Van Arnum, Patricia. DCAT. [Online] Available from: http://connect.dcat.org/blogs/patricia-van-arnum/2014/03/25/ims-offers-a-subdued-outlook-for-theglobal-pharmaceutical-industry#.VJaZRsBIA
The Economist Intelligence Unit Limited 2014. Industries in 2015.
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Prospects in the Middle East and Africa (MEA) pharmaceutical industry looks bright due to increased health
spending and access to healthcare compared to other geographic regions (Figure 2)1. Out of the seven
markets indicated in Figure 2, the pharmaceutical markets in Africa and Middle East are forecast to expand
the fastest in terms of year-on-year (y-o-y) change from 2013 to 2018.
13.0%
11.0%
9.0%
7.0%
5.0%
3.0%
1.0%
-1.0% 2013
2014e
2015f
2016f
2017f
2018f
-3.0%
-5.0%
-7.0%
Africa
Asia
Western Europe
Emerging Europe
Latin America
Middle East
North America
Total
Figure 2: Regional Pharmaceutical Markets Growth, 2013-2018
Source: BMI
Post-Patent Cliff Era
There is a global expectation that patent-holder
pharmaceutical companies will have to jump higher
regulatory hurdles in 2015 - a year that falls in the
middle of what BMI calls the “post-patent cliff era”
(Figure 3). This could be a beneficial development
for Julphar as the expected increase of patent
expiries in the coming years will expose many
blockbuster medicines. The market for biosimilars
is also expected to improve as technical and
legal problems are overcome3. Governments and
Africa - Sub-saharan Africa pharmaceutical sales - USDbn
Asia - Asia-Pacific pharmaceutical sales, USDbn
Europe - Western Europe pharmaceutical sales, USDbn
Europe - Emerging Europe pharmaceutical sales, USDbn
Latin America - Latin America pharmaceutical sales, USDbn
Middle East - MENA pharmaceutical sales, USDbn
North America - North America pharmaceutical sales, USDbn
insurance companies are becoming increasingly
aware that generic drugs play an important role in
healthcare access and cost containment.
Figure 3: Post-Patent Cliff Era, Global
Pharmaceutical Market (USDbn)
Source: BMI
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www.julphar.net
Overview of the MENA
Pharmaceutical Market
North Africa
Sub-Saharan Africa
Levant
GCC
Figure 4: Julphar’s Reach in the MENA Region
Julphar expects pharmaceutical sales in a number
of GCC and Levant countries to outpace its overall
regional growth rate in 2015. GCC harmonization,
the build-up of healthcare infrastructure and
the increase in health insurance coverage are
positive developments that are expected to aid the
company’s growth.
Africa - East and Central Africa pharmaceutical sales, USDbn
Africa - West Africa pharmaceutical sales, USDbn
Africa - Southern Africa pharmaceutical sales, USDbn
Middle East - Middle East pharmaceutical sales, USDbn
Middle East - North Africa pharmaceutical sales, USDbn
f = BMI forecast
Figure 5: MEA Market Growth Forecast (USDbn)
Source: BMI
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Annual Report 2014
29
On the other hand, Julphar’s markets in sub-Saharan
and North Africa are expected to grow at a slightly
slower rate. Major challenges in these markets are the
weak intra-African trade, lack of distribution channels
and regulatory issues. Despite these challenges,
Julphar views the region as having potential. The
population in Africa is expected to surpass China
Generic drug sales, USDbn (LHS)
Generic drug sales, % of total sales (RHS)
in the long-term, with an economic growth rate
over 5% a year4. Additionally, there is an increase in
lifestyle diseases in many African countries. Experts
Figure 6: UAE Generic Drug Market Forecast,
2009-2023 (USDbn)
Source: BMI
from the National Association of Pharmaceutical
Manufacturers predict that the market for products
required to treat lifestyle diseases could reach USD30
billion in the next ten years.
Generic Drug Market
Forecast
Julphar’s Four Regions:
Overview & Forecast
GCC
GCC
CAGR (2013-2018)
Pharmaceuticals: 9.6%
Generics: 14.9%
The dominance of generic drugs (over innovator drugs)
in the MENA region over the next five years is among the
key forecast outcomes of periodic analysis conducted
Kauwait
K
Kauw
auwait
itt
Bahra
Bahr
ain
a
iin
Bahrain
Qatarr
2
by the IMS . This could be due to the pro-generics
policy adopted by many governments as a part of their
Saudi Arabia
UAE
Oman
efforts to improve the health of their population. In
the UAE alone, generic drug spending is expected to
rise from USD300mn in 2013 to USD470mn in 2018
(Figure 6)5. This equates to a CAGR of 9.0% which is
considerably above the growth rate for the patented
drugs segment that is forecast to increase to 5.9%. As
f = BMI forecast
a leader of generic drug manufacturing in the MENA
Figure 7: Pharmaceutical & Generic Sales
Forecasts: GCC, (CAGR), 2013-2018
region, Julphar expects its sales to grow in the long
Source: BMI
term.
Saudi Arabia has been one of Julphar’s stronger
markets in the previous years. However, a preference
for expensive patented medicines, strict price controls
(including mandatory price reductions) and efforts to
contain the increasing healthcare costs in the country6
may have a negative impact on Julphar’s market
development in the Kingdom in 2015.
4
5
6
International Monetary Fund. Regional Economic Outlook. Sub-Saharan Africa. April 2014
Business Monitor International. United Arab Emirates Pharmaceuticals and Healthcare Report Q4 2014. Report number: ISSN 1748-2275.
Business Monitor International. Saudi Arabia Pharmaceuticals and Healthcare Report Q1 2015. Report number: ISSN 1748-2143. November 2014.
4/22/15 12:16 PM
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www.julphar.net
Meanwhile, health insurance schemes in other Middle
Qatar’s Supreme Council of Health is putting finishing
Eastern countries continue to expand accessibility
touches to its master plan for healthcare facilities in
and develop their infrastructure. In 2014, Dubai
the country for 2013-2033. The intention of this plan
followed the global trend of making health insurance
is to identify key trends and enable better access to
coverage mandatory. This, along with other positive
the health system. Julphar predicts that this collective
changes in the UAE created favourable conditions that
expansion of health provision in the GCC countries will
fueled Julpar’s development in the market where it is
drive growth in the demand for medicines, making the
headquartered.
markets profitable for the company in 2015.
The UAE will remain an attractive region for Julphar
Sub-Saharan Africa
due to its high burden of disease, wealth and
healthcare infrastructure. Significant investment and
Sub-Saharan Africa
CAGR (2013-2018)
Generics: 24.5%
increased government spending are being planned in
the coming years to help with the further development
of the four northern emirates (Ras Al Khaimah, Ajman,
Fujairah and Umm al-Quwain)7. These developments
Nigeria
are likely to help the company expand its market share
in the country.
Kenya
In alignment with BMI’s positive view of the generic
drugs market in Kuwait, Julphar expects to witness an
increase in sales over the coming year. The country is
under pressure to contain healthcare costs and keep
Forecasts: Sub-Saharan Africa, (CAGR), 2013-2018
Source: BMI
the use of fake generics in check. Additionally, Kuwait’s
healthcare needs are increasing with its growing
population. The most affordable way to address these
changes is generic provision.
Meanwhile, Oman more than doubled its planned
healthcare budget from USD1.3bn in 2013 to
USD3.38bn in 2014. This budget increase is part of
the government’s strategy to tackle lifestyle related
diseases. The government also plans to broaden the
range of available medical facilities as a large number
of Omanis are moving towards private medical
Data visibility in Africa has been an ongoing challenge
that has often made it difficult for informed decisions
to be made. It is due to this shortcoming that
comprehensive forecast data on the generics markets
in sub-Saharan Africa cannot offer a more accurate
projection in Figure 8. Despite this challenge, Julphar
views the region as a growth destination and expects
to continue improving on existing product sales and
developing new therapies to suit the markets’ changing
needs.
services. The Ministry of Health in Bahrain has similar
plans to expand healthcare access that include the
development of three health centers between 2015
and 2016.
7
Business Monitor International. United Arab Emirates Pharmaceuticals and Healthcare Report Q4 2014.
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Annual Report 2014
31
Julphar’s intends to expand further into African
Julphar’s private market sales grew significantly
markets to boost its manufacturing base through
in Algeria in 2014. They are expected to continue to
new plant building. The company already has a
perform well, going forward in 2015. The Algerian
manufacturing presence in Ethiopia and expansion
government’s requirement that generic medicines
strategies in Algeria are underway. In an effort to
account for 45% of the imports9 is a positive sign for
meet the Federal Government’s universal health
Julphar as a foreign player. There is an expectation for
coverage target, the Nigerian National Health
an alignment of national legislation to international
Insurance Scheme is planning to enroll more than 80
norms due to Algeria’s aspiration of acquiring
million citizens into its scheme by 2015. This is likely to
membership in the World Trade Organisation. This
increase medicine uptake to treat both infectious and
will also prove beneficial for the preservation of the
non-communicable disease that are on the rise in the
domestic, largely drug-based generic industry.
country, helping set favorable conditions for Julphar to
Julphar is optimistic about its growth opportunities in
expand its sales.
this North African market as the generic sector growth
8
highlights Kenya’s
favours the company’s development. Egypt’s Health
commitment to spending 15% of its national budget
and Population Minister assured that the number
on healthcare as part of the national plan to transform
of products that qualify as essential medicines
itself into a middle income nation by 2030. Kenya’s
was increasing in the country despite the rumored
CAGR is forecast to 17% of an increase through
shortages due to political unrest1.
A report by IMS Health
2016 with public-private partnerships sharing the
healthcare market and a reduction in regulatory
Julphar’s outlook for sales in Morocco and Sudan are
hurdles as a result of EAC trading bloc membership.
also optimistic for 2015 and beyond. Positive changes
Julphar’s sales projections for 2015 are positive in
are expected following the implementation of the final
Kenya due to these positive conditions.
phase of Morocco’s universal health insurance and
the country’s increasing reliance on pharmaceutical
imports10. Additionally, like in Egypt, Morocco’s middle
North Africa
class is growing and the prospects for generic drugs
Morocco
Algeria
Egypt
Saudi Arabia
North Africa
CAGR (2013-2018)
Generics: 9.7%
are supported by government policies.
UAE
Oman
Forecasts: North Africa, (CAGR), 2013-2018
Source: BMI
8 IMS Health 2014. Pharmaceutical Market Measurement, Africa.
9 Business Monitor International. Algeria Pharmaceuticals and Healthcare Report Q3 2014. Report number: ISSN 1759-4227. April 2014.
10 Business Monitor International. Morocco Pharmaceuticals and Healthcare Report Q1 2015. Report number: ISSN 1758-4841. December 2014.
4/22/15 12:16 PM
32
www.julphar.net
changes like this could lead to a more encouraging
Levant
landscape for Julphar to operate in Lebanon, in the
future.
Levant
CAGR (2013-2018)
Generics: 5.5%
Julphar expects to observe positive changes in 2015
in Levant largely owing to its positive forecasts in
Turkey
Iraq and Syria. In addition to its existing markets,
the Turkish pharmaceutical market is an attractive
area for Julphar (Figure 10) due to its sizeable
Lebanon
population, expansion of insurance coverage and
potential for generic sector growth11.
Jordan
Forecasts: Levant, (CAGR), 2013-2018
Source: BMI
Despite the political unrest in Iraq, Julphar expects
to achieve significant growth in this market in the
coming year. Increasing healthcare expenditure,
a growing aging population and the Iraqi
government’s pledge to invest USD276mn into
the country’s healthcare infrastructure will create
favorable conditions for the company.
The Jordan Food and Drug Administration reduced
prices of 199 types of domestic and imported drugs
since the beginning of 2014 ranging from 1% to 90%
of the original price. However, half of these drugs
are manufactured locally. This kind of preferential
treatment by the government for domestic
companies is a disadvantageous development for
Julphar. Additionally, the economic weakness in
the country and regional political unrest do not
favour Julphar’s sales growth in Jordan in 2015.
In August 2014, the Public Health Minister of
Lebanon issued an amended pharmaceutical bill
to implement a price reduction of high cost drugs
between 10-17%. Favourable economic and policy
11
Business Monitor International. Turkey Pharmaceuticals and Healthcare Report Q1 2015. Report number: ISSN 1748-2259. October 2014.
4/22/15 12:16 PM
Annual Report 2014
33
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C
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Annual Report 2014
35
Annual Financial Results
Independent Auditor’s Report
Notes to the Consolidated Financial Statements
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Operational Performance Overview
Revenues from Sales
The company registered sales revenue of AED 1,442.3 million during the year 2014, a year-on-year (yoy)
growth of 5.9% over sales of AED 1,362.1 million in the previous year.
Private Market vs. Tender Market Sales
Private market sales of AED 1,083.0 million saw a yoy growth of 7.7% and contributed 75.1% of the total
sales, as against 73.9% in the previous year. As against this, the tender market sales of AED 359.3 million
were flat at the level of the previous year, contributing 24.9% of the total sales, as against 26.1% during the
previous year.
(AED mn)
FY 2014
FY 2013
YoY Change
Sales
1,442.3
1,362.1
5.9%
Pvt. Mkt. Sales
Share
1,083.0
75.1%
1,005.9
73.9%
7.7%
359.3
24.9%
356.2
26.1%
0.9%
Tender Mkt. Sales
Share
Country-wise Sales
Saudi Arabia, with a contribution of 40.5%, continued to be the leading market for Julphar’s products during
the year. It was followed by UAE (12.7%), Egypt (6.9%), Iraq (6.2%), Lebanon (5.9%), Afghanistan (5.2%) and
Jordan (3.1%). The top-7 markets, thus, accounted for about 80.0% of the total sales for the year.
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Annual Report 2014
37
Julphar - Country-wise Sales for FY 2014
8.6%
1.7%
2%
2.1%
Saudi Arabia
40.5%
2.5%
UAE
Egypt
Iraq
2.6%
Lebanon
3.1%
Afghanistan
Jordan
5.2%
Oman
Libya
Kuwait
5.9%
Yemen
Ethiopia
Others
6.2%
6.9%
12.7%
However, a significant decline in sales was observed in Iraq (private market), Libya (tender market) and
Kuwait (private and tender markets) during the year due to prevailing market uncertainties.
Therapeutic Segment-wise Sales
Antibiotics continued to be Julphar’s leading products during the year. Products sold in this segment accounted
for 26.6% of the company’s sales in 2014. This was followed by OTC (24.0% share), gastroenterology (15.6%),
dermatology (13.0%), respiratory system (5.4%) and cardiology (4.4%), respectively. The top-6 segments
collectively accounted for about 89% of the total sales for the year. The company saw gains in most of its
major therapeutic segments during the year.
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38
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Julphar - Therapeutic Segment-wise Sales for FY 2014
1.3% 3.1%
5.4%
Anti-diabetic
26.6%
Antibiotics
Biotechnology
Cardiology
Dermatology
24%
Gastro-enterology
2.7%
Gynecology
Nephrology
4.4%
0.8%
3%
OTC
Respiratory
13%
Others
15.6%
Order Book
Total Orders
The company continued to have a healthy order book at the end of the year, constituting both the private
market and tender market orders.
Financial Performance Overview
The financial performance of Julphar during the year under review was as under:
Sales
Julphar registered sales revenue of AED 1,442.3 million during the year 2014, a year-on-year (yoy) growth of
5.9% over sales of AED 1,362.1 million in the previous year.
Sales during the period were driven by the private market sales which saw a yoy growth of 7.7%, while the
tender market sales were flat at the level of the previous year.
Cost of Sales
The cost of sales for the year was AED 585.1 million, up 8.1% yoy. As a share of sales revenues, the overall
direct costs increased to 40.6% from 39.7% in the previous year.
Gross Profit
Gross Profit for the year was AED 857.2 million vs. AED 820.7 million in the previous year, up 4.4% yoy. The
GPM was 59.4%, as against 60.3% in the previous year.
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Annual Report 2014
39
(AED mn)
FY 2014
FY 2013
YoY Change
Sales
1,442.3
1,362.1
5.9%
Cost of Sales
Gross Profit
GPM
Operating Profit
OPM
Profit
PM
(585.1)
857.2
59.4%
238.3
16.5%
233.8
16.2%
(541.4)
820.7
60.3%
235.8
17.3%
228.1
16.7%
8.1%
4.4%
1.1%
2.5%
Operating Profit
The marketing and distribution expenses were AED 571.1 million during the year – 39.6% of the revenues,
7.9% higher yoy. General & administrative expenses, on the other hand, were AED 67.5 million – 4.7% of
revenues, flat at the level of the previous year. The Operating Profit for the year was AED 238.3 million vs.
AED 235.8 million in the previous year, up 1.1% yoy. The OPM this year was 16.5% vs. 17.3% last year.
Finance Cost
The finance cost for the year was AED 29.8 million compared with AED 26.3 million during the previous year.
Profit
Profit of Julphar for the year was AED 233.8 million vs. AED 228.1 million in the previous year, up 2.5% yoy.
The PM this year was 16.2% vs. 16.7% the previous year.
Earnings Per Share
Basic earnings per share for the year was 24 fils, at the same level as in the previous year.
Dividend for the Year
The Board has recommended a cash dividend of 15% (15 fils per share) and stock dividend of 5% for 2014, as
against a cash dividend of 10% (10 fils per share) and stock dividend of 10% paid out for 2014.
The proposed dividend will be paid out subject to approval in the Annual General Meeting.
Capital Structure
The paid-up capital of the company at the end of December 2014 was AED 1,000 million, as against AED
863.2 million at the end of the previous year. Shareholders’ equity stood at AED 2.21 billion, up 16.9% from
end of 2013.
Non-current debt stood at AED 263.1 million, while current debt stood at AED 440.2 million at the end of the
year. Total Debt-Equity ratio at the end of the year was 0.32.
The current ratio of the company was 2.4 at the end of December 2014.
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Outlook
Given the prevailing economic conditions, we are expecting company revenues to grow at a healthy rate, with a fairly
steady gross margin likely in 2015. This will likely be driven mainly by the expected organic growth of the company,
complemented by its new ventures.
With a large share of sales being generated in the MENA region, the company is likely to continue to benefit from the
growth in the region’s pharmaceutical market as also face headwinds from the continuing instability in certain countries
of the region. Overall, however, the growth is expected to remain higher than that in the other regions. Our share of the
MENA market is also likely to continue to increase as we consolidate our position in our existing markets, while expanding
into new markets with our growing portfolio of products. With new products and new markets, we see good scope for us
to grow our business in the MENA region and beyond.
Our solid balance sheet, low gearing and continued focus on operating cash flow generation is likely to continue to give us
the financial flexibility to pursue growth opportunities, including strategic acquisitions that could supplement our strong
organic growth. We are confident that the proven strength of Julphar’s business model will likely continue to enable us to
deliver a strong performance in 2015 and beyond.
Basis of Preparation and Forward-looking Statements
This Business and Financial review has been prepared solely to provide additional information to shareholders to assess
the company’s strategies and the potential for those strategies to succeed, and should not be relied on by any other
party or for any other purpose. The World Bank’s classification for MENA region has been relied on for our analysis of and
outlook for the region. Certain statements in the above review are forward-looking statements – using words such as
“intends”, “believes”, “anticipates”, “projects”, “likely” and “expects”. Where included, these have been made by the company
management in good faith based on the information available to them up to the time of their approval of this report.
By their nature, forward-looking statements are based on assumptions and involve inherent risks and uncertainties that
could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements,
and should be treated with caution. These risks, uncertainties or assumptions could adversely affect the outcome and
financial effects of the plans and events described in this review. Statements contained in this review regarding past trends
or activities should not be taken as a representation of perceived trends or activities in the future. Undue reliance should
not be placed on forward-looking statements, which are valid only on the date of the approval of this report.
Except as required by law, the company is under no obligation to update or keep current the forward-looking statements
contained in this review, or to correct any inaccuracies which may become apparent in such forward-looking statements.
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Annual Report 2014
41
INDEPENDENT AUDITOR'S REPORT
The Shareholders
Gulf Pharmaceutical lndustries P.S.C.
Ras AI Khaimah
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Gulf Pharmaceutical Industries P.S.C. (the
“Company”) and its Subsidiaries [together the “Group”], which comprise the consolidated statement of financial position as
at 31 December 2014, and the consolidated statement of income, consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a
summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our
audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of Gulf Pharmaceutical Industries P.S.C. and its subsidiaries as at 31 December 2014, and their consolidated financial
performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting
Standards.
Report on Other Legal and Regulatory Requirements
Also, in our opinion, the Group has maintained proper books of account and the physical inventory was properly conducted.
The information contained in the directors’ report relating to the consolidated financial statements is in agreement with the
books. We obtained all the information which we considered necessary for our audit. According to the information available to
us, there were no contraventions during the year of the U.A.E. Federal Commercial Companies Law No. 8 of 1984, as
amended, or the Articles of Association of the Group companies which might have materially affected the consolidated
financial position of the Group or its consolidated financial performance.
Deloitte & Touche (M.E.)
19 February 2015
4/22/15 12:16 PM
42
www.julphar.net
at 31 December 2014
AED in thousands
2014
2013
ASSETS
Non-current assets
Property, plant and equipment
1,103,813
-
1,099,879
Net investment in an associate
272,554
263,316
Available-for-sale-investments
79,355
42,591
1,455,722
1,414,371
Investment property
Total non-current assets
Current assets
Assets of discontinued operations
8,585
3,859
4,075
419,819
398,712
35,937
33,886
1,212,267
985,644
120,925
214,614
Total current assets
1,792,807
1,636,931
Total Assets
3,248,529
3,051,302
1,000,000
531,954
184,819
863,156
405,737
161,290
(793)
(8,308)
468,573
2,176,245
29,860
2,206,105
534
8,604
431,443
1,870,764
15,898
1,886,662
39,697
263,063
302,760
32,019
412,266
444,285
177
20,593
278,660
440,234
739,664
1,042,424
3,248,529
247
18,519
317,217
384,372
720,355
1,164,640
3,051, 302
Inventories
Investments held for trading
Trade and other receivables
Bank balances and cash
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Statutory reserve
Voluntary reserve
Foreign currency translation reserve
Cumulative changes on revaluation of investments
Retained earnings
Equity attributed to Owners of the Company
Non-controlling interest
Total equity
Non-current liabilities
Provision for employees’ end of service indemnity
Bank borrowings
Total non-current liabilities
Current liabilities
Liabilities of discontinued operations
Unclaimed dividends
Trade payables and accruals
Bank borrowings
Total current liabilities
Total liabilities
Total equity and liabilities
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Annual Report 2014
43
for the year ended 31 December 2014
AED in thousands
2014
2013
Sales
1,442,257
1,362,071
Cost of sales
(585,086)
(541,370)
857,171
820,701
(571,084)
(529,163)
(67,531)
(67,619)
Other income
19,784
11,920
Gain from investments and others
25,217
18,505
Finance costs
(29,767)
(26,259)
Profit for the year
233,790
228,085
235,289
230,361
(1,499)
(2,276)
233,790
228,085
24
24
Gross profit
Selling and distribution expenses
General and administrative expenses
Attributable to:
Equity holders of the Company
Basic earnings per share (UAE Fils)
for the year ended 31 December 2014
AED in thousands
2014
2013
233,790
228,085
350
12,894
(17,262)
2,644
(2,056)
(437)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Change in the fair value of available for sale investments
Reclassification adjustment on disposal of
available for sale investments
Exchange difference on translation of
subsidiaries financial statements
Items that will not be reclassified subsequently to profit or loss
Board of Directors' remuneration
Total other comprehensive income
(2,000)
(2,000)
(20,968)
13,101
Total comprehensive income for the year
212,822
241,186
215,050
243,632
(2,228)
(2,446)
212,822
241,186
Attributable to:
Equity holders of the Company
Sheikh Faisal Bin Saqr Al Qasimi
Chairman
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44
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For the year ended 31 December 2014
Cash flows from operating activities
Adjustments for:
Depreciation of property, plant and equipment
Gain from investment in an associate
Loss from sale of investment property
Allowance for doubtful debts
Reclassification of investment in an associate to a subsidiary
after obtaining control
Allowance for slow moving inventories
Gain on sale of property, plant and equipment
Gain on sale of investments held for trading
Loss/(gain) on revaluation of investments held for trading
(Gain)/ loss on sale of available for sale investments
Expenses recognized for equity settled share based payments
Provision for employees' end of service indemnity
Finance costs
Operating cash flow before changes in operating
assets and liabilities
Increase in trade and other receivables
Increase in inventories
(Decrease)/increase in trade payables and accruals
Employees end of service indemnity paid
Net cash generated from operating activities
Cash flows from investing activities
Additions to property, plant and equipment
Purchase of available-for-sale investment
Sales proceeds of available-for-sale investments
Purchase of investments held for trading
Sales proceeds from sale of investments held for trading
Proceeds from sale of property, plant and equipment
Proceeds from sale of investment property
Dividends received from an associate
Increase in non-controlling interest
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of additional share capital
(Decrease)/increase in bank borrowings
Dividends paid
Board of directors’ remuneration paid
Finance cost paid
Net cash (used in)/ generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of exchange difference on translation of a subsidiary
Cash and cash equivalents, at the beginning of the year
Cash and cash equivalents, at the end of the year
AED in thousands
2014
2013
233,790
228,085
77,244
(16,062)
1,085
2,000
55,361
(9,748)
-
2,000
(6)
(8,588)
18,453
(16,694)
1,217
15,735
29,767
6,486
(525)
(1,043)
(7,168)
2,113
4,995
26,259
339,941
(228,623)
(23,107)
(38,557)
(8,057)
41,597
304,815
(222,595)
(73,338)
101,196
(1,973)
108,105
(81,178)
(73,939)
36,957
(72,049)
60,133
6
7,5006,82416,190
(99,556)
(91,658)
(511)
2,779
(29,258)
9,207
525
15,156
(93,760)
175,529
(93,341)
(84,241)
(2,000)
(29,767)
(33,820)
(91,779)
(1,910)
214,614
120,925
228,878
(82,670)
(2,000)
(26,259)
117,949
132,294
(366)
82,686
214,614
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23,529
136,844 126,217
Balance at 31 December 2014
1,000,000 531,954
(793)
-
-
23,529
-
- 126,217
-
184,819
-
-
-
-
529
(1,327)
(1,327)
-
-
-
86,315
50,000
161,290
Profit for 2014
Other comprehensive income for the year
Issuance of bonus shares
Approved cash dividends for 2013
Issuance of additional share capital
Issuance of additional share capital
under employee share option plan
Share premium on issuance of
additional share capital
Transfer to voluntary reserve
Movement in non-controlling interest
(8,308)
-
(16,912)
(16,912)
-
15,538
15,538
8,604
(267)
(267)
534
23,036
23,036
(6,934)
801
784,687 382,701
78,469
- 23,036
78,469 23,036
863,156 405,737
138,254
Share
capital
Cumulative
Foreign
change on
currency
Statutory Voluntary translation revaluation of
investments
reserve
reserve
reserve
Profit for 2013
Other comprehensive income for the year
Issuance of bonus shares
Approved cash dividends for 2012
Transfer to statutory reserve
Transfer to voluntary reserve
Movement in non-controlling interest
For the year ended 31 December 2014
90,431
(196,159)
468,573 2,176,245
126,217
-
529
235,289
(20,239)
215,050
(86,315)
(78,469)
50,000
(23,529)
-
-
235,289
(2,000)
233,289
(86,315)
(86,315)
-
230,361
230,361
(2,000)
13,271
228,361
243,632
(78,469)
(78,469)
(78,469)
(23,036)
(23,036)
(203,010)
(78,469)
431,443 1,870,764
406,092 1,705,601
29,860
16,190
16,190
-
(729)
2,228
-
(2,276)
(170)
(2,446)
15,156
15,156
15,898
(1,499)
3,188
2,206,105
106,621
126,217
16,190
529
233,790
(20,968)
212,822
(86,315)
50,000
228,085
13,101
241,186
(78,469)
15,156
(63,313)
1,886,662
1,708,789
Total
AED in thousands
Attributable
to equity
Nonholders
Retained
controlling
of the
earnings Company
interest
Annual Report 2014
45
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Notes to the Consolidated Financial
Statements
(For the year ended December 31, 2014)
1.
Establishment and operations
Gulf Pharmaceutical Industries is a public shareholding company “the Company” domiciled in Digdaga - Ras
Al Khaimah. It was incorporated by the Emiri decree No.5/80 issued by H.H. The Ruler of the Emirate of Ras
Al Khaimah and its dependencies on March 30, 1980 and the Emiri decree No.9/80 on May 4, 1980. The Group
comprises Gulf Pharmaceutical Industries (Public Shareholding Company) and its subsidiaries “the Group”
(Note 3).
The Company’s ordinary shares are listed on the Abu Dhabi Securities Exchange.
The Company’s registered office address is P.O. Box. 997 Ras Al Khaimah, United Arab Emirates.
The main activities of the Group are manufacturing and selling of medicines, drugs and various other types of
pharmaceutical and medical compounds in addition to cosmetic compounds. The Company commenced its
commercial activities effective from November 1984.
2.
Significant accounting policies
The significant accounting policies applied in the preparation of these consolidated financial statements are
summarised below. These policies have been consistently applied to each of the years presented
2.1
Statement of compliance
The consolidated financial statements have been prepared in accordance with the International
Financial Reporting Standards (IFRS) and applicable requirements of U.A.E. Federal Law No. 8 of 1984
(as amended).
2.2
Basis of preparation
The consolidated financial statements have been prepared on the historical cost basis except for
investment property and certain financial instruments that have been measured at revalued amounts,
amortised cost or fair value as explained in the accounting policies below. Historical cost is generally
based on the fair value of the consideration given in exchange for assets.
2.3
Basis of consolidation
The consolidated financial statements of Gulf Pharmaceutical Industries P.S.C. and its Subsidiaries
(the “Group”) incorporate the financial statements of the Company and the entities controlled by the
Company (its Subsidiaries).
Control is achieved when the Company:
•
has power over the investee;
•
is exposed, or has rights, to variable returns from its involvement with the investee; and
•
has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control listed above.
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Notes to the consolidated financial statements
for the year ended 31 December 2014 (continued)
When the Company has less than a majority of the voting rights of an investee, it has power over
the investee when the voting rights are sufficient to give it the practical ability to direct the relevant
activities of the investee unilaterally.
The Company considers all relevant facts and circumstances in assessing whether or not the
Company’s voting rights in an investee are sufficient to give it power, including:
•
the size of the Company’s holding of voting rights relative to the size and dispersion of
holdings of the other vote holders;
•
potential voting rights held by the Company, other vote holders or other parties;
•
rights arising from other contractual arrangements; and
•
any additional facts and circumstances that indicate that the Company has, or does not have,
the current ability to direct the relevant activities at the time that decisions need to be made, including
voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases
when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated income statement and
consolidated statement of other comprehensive income from the date the Company gains control
until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of
the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is
attributed to the owners of the Company and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies in line with the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full on consolidation.
Details of the Company’s subsidiaries as of 31 December 2014 were as follows:
Place of
incorporation
and operation
Percentage
of
ownership
Principal activity
Mena Cool F.Z.E
Ras Al KhaimahUAE
100%
Transportation
Julphar Pharmaceuticals P.L.C
Ethiopia
55%
Manufacturing of
medicines, wrapping
and packing materials
Julphar Pharma GMBH
Germany
100%
Manufacturing of
medical supplies –
Discontinued
Gulf Inject L.L.C.
Dubai – UAE
51%**
Manufacturing of
medical supplies
Name of subsidiary
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2.4
Net investment in an associate
An associate is an entity over which the Group has significant influence and that is neither a subsidiary
nor an interest in a joint venture. Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these consolidated financial
statements using the equity method of accounting, except when the investment is classified as held for
sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations. Under the equity method, an investment in associate is initially recognised
in the consolidated statement of financial position at cost and adjusted thereafter to recognise the
Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s
share of losses of an associate exceeds the Group’s interest in that associate (which includes any
long-term interests that, in substance, form part of the Group’s net investment in the associate), the
Group discontinues recognising its share of further losses. Additional losses are recognised only to the
extent that the Group has incurred legal or constructive obligations or made payments on behalf of
the associate.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable
assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is
recognised as goodwill, which is included within the carrying amount of the investment. Any excess of
the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over
the cost of acquisition, after reassessment, is recognised immediately in profit or loss.
When a Group entity transacts with its associate, profits and losses resulting from the transactions
with the associate are recognised in the Group’ consolidated financial statements only to the extent of
interests in the associate that are not related to the Group.
2.5
Revenue recognition
2.5.1
Sale of goods
Sales are measured at the fair value of the consideration received or receivable against these sales.
Sales are reduced for estimated customer returns, rebates and other similar allowances.
Sale of goods are recognised when all the following conditions are satisfied:
•
•
•
•
•
The Group has transferred to the buyer the significant risks and rewards of ownership of the
goods;
The Group retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold;
The amount of revenue can be measured reliably;
It is probable that the economic benefits associated with the transaction will flow to the
Group; and
The costs incurred or to be incurred in respect of the transaction can be measured reliably
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2.5.2
Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through
the expected life of the financial asset to the asset’s net carrying amount.
2.5.3
Dividends
Dividend revenue from investments is recognized when the Company’s right to receive payment has
been established.
2.6
The Group as a lessee
All of the Group’s lease contracts are of an operating lease nature and are accounted for as operating
leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease
term. Contingent rentals arising under operating leases are recognised as an expense in the period in
which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are
recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental
expense on a straight-line basis, except where another systematic basis is more representative of the
time pattern in which economic benefits from the leased asset are consumed.
2.7
Foreign currencies
The individual financial statements of each Group entity are presented in the currency of the primary
economic environment in which the entity operates (its functional currency). For the purpose of
the consolidated financial statements, the results and financial position of each Group entity are
expressed in Arab Emirates Dirhams (“AED”), which is the functional currency of the Group and the
presentation currency for the consolidated financial statements.The amounts in the consolidated
financial statements are rounded to nearest thousand (“AED ’000”) except when otherwise indicated.
In preparing the consolidated financial statements, transactions in currencies other than the
functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates
of the transactions. At each reporting date, monetary items denominated in foreign currencies are
retranslated at the rates prevailing at the reporting date. Non-monetary items carried at fair value that
are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated.
Exchange differences are recognized in profit or loss in the year in which they arise.
2.8
Borrowing costs
Borrowing costs directly attributable to the acquisition and construction of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use, are added
to the cost of those assets, until such time as the assets are substantially ready for their intended use.
Where applicable, investment income earned on the temporary investment of specific borrowings
pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in profit or loss in the year in which they are incurred.
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2.9
Property, plant and equipment
Land is stated at cost less impairment loss (if any).
Capital work in progress is stated at cost, less any recognised impairment loss. Depreciation of these
assets, on the same basis as other property assets, commences when the assets are ready for their
intended use.
Other property, plant and equipment are carried at cost less accumulated depreciation and any
identified impairment loss.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow
to the Group and the cost of the item can be measured reliably. All other repairs and maintenance
expenses are charged to the profit or loss in the period in which they are incurred.
Depreciation is charged so as to write off the cost of assets, other than land and capital work in
progress, over their estimated useful lives, using the straight-line method. The estimated useful lives,
residual values and depreciation method are reviewed at each year end, with the effect of any changes
in estimate accounted for on a prospective basis.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is
determined as the difference between the sales proceeds and the carrying amount of the asset and is
recognised in the profit or loss.
Depreciation is provided on the straight-line method based on the anticipated useful lives, as follows:
%
Buildings
10-50
Plant and machinery
3-17
Installations
4-25
Motor Vehicles
3-10
Furniture and fixture
4-10
Tools and equipment
3-10
Land improvements
10-25
2.10
Investment property
Investment property, which is property held to earn rentals and/ or for capital appreciation, is stated at
its fair value at the reporting date. Gains or losses arising from changes in the fair value of investment
property are included in the profit or loss in the period in which they arise.
Investment property is derecognized upon disposal or when the investment property is permanently
withdrawn from use and no future economic benefits are expected. Any gain or loss arising on
derecognition of the property (calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is included in profit or loss in the period in which the property is
derecognised.
Fair value is determined by open market values based on valuations performed by independent
surveyors
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ffor the year ended 31 December 2014 (continued)
2.11
Inventories
Inventories of finished and semi finished products are valued at the lower of average production costs
or net realisable value. Production costs include materials, labour, direct expenses and production
overheads. Inventories of raw materials, packing materials, spare parts and other consumables are
valued at the lower of weighted average cost or net realisable value. Net realisable value represents
the estimated selling price less all estimated costs of completion and costs necessary to make the
sale.
2.12
Impairment of tangible assets
At each reporting date, the Group reviews the carrying amounts of its tangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an
individual asset, the Group estimates the recoverable amount of the cash-generating unit to which
the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate
assets are also allocated to individual cash-generating units, or otherwise they are allocated to the
smallest group of cash-generating units for which a reasonable and consistent allocation basis can be
identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount.
An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a
revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating
unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had no impairment
loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment
loss is recognised immediately in the profit or loss, unless the relevant asset is carried at a revalued
amount, in which case the reversal of the impairment loss is treated as a revaluation reserve increase.
2.13
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, it is
probable that the Group will be required to settle that obligation, and a reliable estimate can be made
of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the
present obligation at the end of the reporting period, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash flows, (where the effect of
time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered
from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will
be received and the amount of the receivable can be measured reliably.
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2.14
Employee benefits
2.14.1
Defined contribution plan
UAE national employees of the Group are members of the Government-managed retirement pension
and social security benefit scheme pursuant to U.A.E. labour law no. 7 of 1999. The Group is required
to contribute 12.5% of the “contribution calculation salary” of payroll costs to the retirement benefit
scheme to fund the benefits. The employees and the Government contribute 5% and 2.5% of the
“contribution calculation salary” respectively, to the scheme. The only obligation of the Group with
respect to the retirement pension and social security scheme is to make the specified contributions.
The contributions are charged to profit or loss.
2.14.2
Annual leave and leave passage
An accrual is made for the estimated liability for employees’ entitlement to annual leave and leave
passage as a result of services rendered by eligible employees up to the end of the year.
2.14.3
Provision for employees’ end of service benefits
Provision is also made for the full amount of end of service benefit due to non-UAE national employees
in accordance with the UAE Labour Law and is based on current remuneration and their period of
service at the end of the reporting period. Provisions for employees’ end of service benefit due to
employees working with entities domiciled in other countries are made in accordance with local laws
and regulations applicable.
The accrual relating to annual leave and leave passage is disclosed as a current liability, while the
provision relating to end of service benefit is disclosed as a non-current liability.
2.15
Financial instruments
Financial assets and financial liabilities are recognised when a Group entity becomes a party to the
contractual provisions of the instrument.
2.16
Financial assets
All financial assets are recognised and derecognised on trade date where the purchase or sale of
a financial asset is under a contract whose terms require delivery of the financial asset within the
timeframe established by the market concerned, and are initially measured at fair value, plus
transaction costs, except for those financial assets classified as at fair value through profit or loss,
which are initially measured at fair value.
Financial assets of the Group are classified into the following specified categories: bank balances and
cash, financial assets ‘at fair value through profit or loss’ (FVTPL), ‘available-for-sale’ (AFS) financial
assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial
assets and is determined at the time of initial recognition.
2.16.1
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly
liquid investments that are readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
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2.16.2
Financial assets at FVTPL
Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is
designated as at FVTPL.
A financial asset is classified as held for trading if:
•
it has been acquired principally for the purpose of selling it in the near term; or
•
on initial recognition it is part of a portfolio of identified financial instruments that the Group
manages together and has a recent actual pattern of short-term profit-taking; or
•
it is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon
initial recognition if:
•
•
•
such designation eliminates or significantly reduces a measurement or recognition inconsistency
that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is
managed and its performance is evaluated on a fair value basis, in accordance with the Group’s
documented risk management or investment strategy, and information about the grouping is
provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial
Instruments: Recognition and Measurement permits the entire combined contract (asset or
liability) to be designated as at FVTPL.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement
recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend
or interest earned on the financial asset and is included in the profit or loss.
2.16.3
Available for Sale financial assets
Listed shares held by the Group that are traded in an active market are classified as being AFS and are
stated at fair value. The Group also has investments in unlisted shares that are not traded in an active
market but are also classified as AFS financial assets and stated at fair value because management
considers that fair value can be reliably measured. Gains and losses arising from changes in fair value
are recognised in other comprehensive income and accumulated in the cumulative change in fair value
of investments with the exception of impairment losses, which are recognised in profit or loss. Where
the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously
accumulated in the cumulative change in fair value is reclassified to profit or loss.
Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive
the dividends is established.
The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign
currency and translated at the spot rate at the reporting date. The change in fair value attributable to
translation differences that result from a change in amortised cost of the asset is recognised in profit
or loss, and other changes are recognised in other comprehensive income.
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2.16.4
Loans and receivables
Loans and receivables are initially measured at fair value plus transaction costs and subsequently
measured at amortised cost using the effective interest method, less any impairment. Interest income
is recognised by applying the effective interest rate, except for short-term receivables when the
recognition of interest would be immaterial.
2.16.5
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of
each reporting period. Financial assets are impaired where there is objective evidence that, as a result
of one or more events that occurred after the initial recognition of the financial asset, the estimated
future cash flows of the asset have been affected.
For listed and unlisted equity investments classified as AFS equity investments, a significant or
prolonged decline in the fair value of the security below its cost is considered to be objective evidence
of impairment.
For all other financial assets, objective evidence of impairment could include:
•
•
•
•
significant financial difficulty of the issuer or counterparty; or
breach of contract, such as a default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
the disappearance of an active market for that financial asset because of financial difficulties.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be
impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence
of impairment for a portfolio of receivables could include the Group’s past experience of collecting
payments, an increase in the number of delayed payments in the portfolio past the average credit
period, as well as observable changes in national or local economic conditions that correlate with
default on receivables.
For financial assets carried at amortised cost, the amount of the impairment is the difference between
the asset’s carrying amount and the present value of estimated future cash flows, discounted at the
financial asset’s original effective interest rate. For financial assets carried at cost, the amount of the
impairment loss is measured as the difference between the asset’s carrying amount and the present
value of the estimated future cash flows discounted at the current market rate of return for a similar
financial asset. Such impairment loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables, where the carrying amount is reduced through the use
of an allowance account. When a trade receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously written off are credited against
the allowance account. Changes in the carrying amount of the allowance account are recognised in
profit or loss.
When an AFS financial asset is considered to be impaired, cumulative gains or losses previously
recognised in other comprehensive income are reclassified to profit or loss in the period.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment
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was recognised, the previously recognised impairment loss is reversed through profit or loss to the
extent that the carrying amount of the financial asset at the date the impairment is reversed does not
exceed what the amortised cost would have been had the impairment not been recognised.
In respect of AFS equity securities, impairment losses previously recognised in profit or loss are
not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is
recognised in other comprehensive income.
2.16.6
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the
asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership
of the asset to another entity. If the Group neither transfers nor retains substantially all the risks
and rewards of ownership and continues to control the transferred asset, the Group recognises its
retained interest in the asset and an associated liability for amounts it may have to pay. If the Group
retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group
continues to recognise the financial asset.
2.17
Financial liabilities and equity instruments issued by the Company
2.17.1
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with
the substance of the contractual arrangement.
2.17.2
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Group entities are recorded at the
proceeds received, net of direct issue costs.
2.17.3
Financial liabilities
The Group has classified the following financial liabilities as ‘other financial liabilities’: trade payables
and accruals, unclaimed dividends and bank borrowings and are initially measured at fair value, net of
transaction costs and subsequently measured at amortised cost using the effective interest method,
with interest expense recognised on an effective yield basis except for short term payable when the
recognition of interest would be immaterial.
The effective interest method is a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments through the expected life of the financial liability, or,
where appropriate, a shorter period to the net carrying amount on initial recognition.
2.17.4
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged,
cancelled or they expire
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2.18
Share based payment arrangements
Equity-settled share-based payments to employees providing services are measured at the fair value
of the equity instruments at the grant date. Details regarding the determination of the fair value of
equity-settled share-based transactions are set out in Note 28.
The fair value determined at the grant date of the equity-settled share-based payments is expensed
on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments
that will eventually vest, with a corresponding increase in equity. At the end of each reporting period,
the Group revises its estimate of the number of equity instruments expected to vest. The impact of the
revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits
reserve
2.19
Dividend distribution
Dividend distribution to the Shareholders is recognised as a liability in the Group’s consolidated financial
statements in the period in which the dividends are approved by the Shareholders
3.
Critical accounting judgments and key sources of estimation uncertainty
While applying the accounting policies as stated in Note 3, management of the Group has made
certain judgments, estimates and assumptions that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period of the revision 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.
3.1
Critical judgments in applying accounting policies
The following are the critical judgements, apart from those involving estimations (see 4.2 below), that
the management have made in the process of applying the Group’s accounting policies and that have
the most significant effect on the amounts recognized in the consolidated financial statements.
3.1.1
Revenue recognition
Management has considered the detailed criteria for the recognition of revenue from the sale of goods
set out in International Accounting Standard 18: Revenue, and in particular whether the Company had
transferred risks and rewards of ownership of the goods. Based on the acceptance by the customer
of the liability for the goods sold, management is satisfied that the significant risks and rewards have
been transferred and the recognition of the revenue is appropriate.
3.1.2
Allowance for doubtful debts
Allowance for doubtful debts is determined using a combination of factors to ensure that the receivables
are not overstated due to uncollectibility. The allowance for doubtful debts for all customers is based
on a variety of factors, including the overall quality and aging of the receivables, continuing credit
evaluation of the customers’ financial conditions and collateral requirements from customers in
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certain circumstances. Also, specific provisions for individual accounts are recorded when the Group
becomes aware of the customer’s inability to meet its financial obligations.
3.1.3
Allowance for slow moving and obsolete inventories
Inventories are stated at the lower of cost or net realizable value. Adjustments to reduce the cost of
inventory to its net realizable value, if required, are made at the product level for estimated excess,
obsolescence or impaired balances. Factors influencing these adjustments include changes in demand,
technological changes, physical deterioration and quality issues. Based on the factors, management
has identified inventory items as slow and non moving to calculate the allowance for slow moving and
obsolete inventories. Revisions to the allowance for slow moving inventories would be required if the
outcome of these indicative factors differ from the estimates.
3.1.4
Classification of properties
In the process of classifying properties, management has made various judgments. Judgment is
needed to determine whether a property qualifies as an investment property, property, plant and
equipment and/or property held for resale. The Group develops criteria so that it can exercise that
judgment consistently in accordance with the definitions of investment property, property, plant and
equipment and property held for resale. In making its judgment, management considered the detailed
criteria and related guidance for the classification of properties as set out in IAS 2, IAS 16 and IAS 40,
in particular, the intended usage of property as determined by the management.
4.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going
concern while maximising the return to stakeholders through the optimisation of the debt and equity
capital. The Group’s overall strategy remains unchanged from 2013.
Capital gearing ratio
The Group reviews the capital structure on a quarterly basis. As part of this review, the Group considers
the cost of capital and the risks associated with capital.
The gearing ratio at the year end was as follows:
2014
AED’000
2013
AED’000
703,297
(120,925)
796,638
(214,614)
Net debt
582,372
582,024
Equity (ii)
2,176,245
1,870,764
Debt (i)
Bank balances and cash
Net debt to equity ratio (times)
0.27
0.31
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(i)
Debt is defined as bank borrowings.
(ii)
Equity includes share capital, statutory reserve, voluntary reserve, foreign currency
translation reserve, cumulative changes on revaluation of investments and retained
earnings.
5.
Financial instruments
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria
for recognition, the basis of measurement and the basis on which income and expenses are
recognised, in respect of each class of financial asset, financial liability and equity instrument
are disclosed in note 3 to the consolidated financial statements.
Financial risk management objectives
The Group’s management observes domestic and international financial markets, monitors
and manages the financial risks relating to the operations of the Group through analysing
risk exposures by degree and magnitude of risks. These risks include market risk (including
currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow
interest rate risk.
The Group seeks to minimise the effects of risks related to financial instruments. The Group’s
policies in this regards are set and approved by the board of directors who draws the overall
guidelines on foreign exchange risk, interest rate risk, credit risk, and the investment of excess
liquidity. Compliance with policies and exposure limits is reviewed by the board of directors
on regular basis.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency
exchange rates and interest rates.
There has been no change to the Group’s exposure to market risks or the manner in which it
manages and measures the risk.
Interest rate risk management
The Group is exposed to interest rate risk as the Group borrows funds at both fixed and
floating interest rates. The risk is managed by the Group by maintaining an appropriate mix
between fixed and floating rate borrowings.
The Group is also exposed to interest rate price risk with reference to its fixed rate time
deposits with banks. During the current year, interest on fixed deposits ranged from 1% to 2%
per annum (2013: from 1% to 2% per annum). The risk is managed by the Group by keeping
fixed interest rate bearing financial assets.
If interest rates on bank borrowings had been 50 basis points higher/lower throughout the year
and all other variables were held constant, the Group’s profit for the year ended 31 December
2014 and equity as at 31 December 2014 would decrease/ increase by approximately AED 3.5
million (2013: AED 3.98 million).
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59
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations
resulting in financial loss to the Group. The Group has adopted a policy of only dealing with
creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a
means of mitigating the risk of financial loss from defaults. The Group obtains information
about counterparties credit worthiness from publicly available financial information and
its own trading records. The Group’s exposure and the credit ratings of its counterparties
are continuously monitored and the aggregate value of transactions concluded is spread
amongst approved counterparties. Credit exposure is controlled by counterparty limits that
are reviewed and approved periodically by the relevant management in the Group and, where
appropriate, letters of guarantee are obtained from customers.
Credit risk is primarily related to the trade receivable balances which are presented in the
consolidated statement of financial position net of any applicable allowances for losses
that were estimated by the Group’s management based on prior experience and prevailing
economic conditions. Current year’s sales include AED 729,259,000 being sales to two
main customers (2013: AED 619,848,000 being sales to two main customers). Total trade
receivables due from the above two main customers amounted to AED 539,113,000 as at 31
December 2014 (2013: AED 355,032,000).
Credit risk related to liquid funds is limited as the counterparties are banks with sound
reputation.
The carrying amount of financial assets recorded in the financial statements, which is net of
impairment losses, represents the Group’s maximum exposure to credit risk.
Equity price risk
Sensitivity analysis
At the reporting date if the prices of investments in equity instruments are 10% higher/lower
as per the assumptions mentioned below and all the other variables were held constant the
Group’s:
•
•
Profit/equity would have increased/decreased by AED 3.59 million (2013: AED 3.39
million) in the case of investments held for trading.
Equity would have increased/decreased by AED 7.94 million (2013: AED 4.26 million)
in the case of available-for-sale investments.
Method and assumptions for sensitivity analysis
•
The sensitivity analysis has been done based on the exposure to equity price risk as at
the r reporting date.
•
As at the reporting date, if the prices of investments in equity instruments are 10%
higher/ lower on the market value uniformly for all equities while all other variables
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are held constant, the impact on profit or loss and equity has been shown above.
•
A 10% change in the prices of investments in equity instruments has been used to give
a realistic assessment as a plausible event.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, who
has built an appropriate liquidity risk management framework for the management of short,
medium and long-term funding and liquidity management requirements. The Group manages
liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual
cash flows, dealing with financial institutions of good reputation and matching the maturity
profiles of financial assets and liabilities.
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence,
exposures to exchange rate fluctuations arise. There is no currency exchange risk related
to transactions denominated in the US dollars or currencies linked with it as the AED rate is
fixed to the US dollar. The management undertakes suitable procedures to minimise risks
associated with transactions denominated in currencies other than AED and US$.
6.
Approval of consolidated financial statements
The consolidated financial statements were approved by the Board of Directors and authorized
for issue on 19 February 2015.
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