FINANCIAL

STATEMENTS
For the year ended December 31, 2019
 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF NESTLÉ PAKISTAN LIMITED

Report on the Audit of the Financial Statements

Opinion

We have audited the annexed financial statements of Nestlé Pakistan Limited (“the Company”), which comprise the
statement of financial position as at 31 December 2019, and the statement of profit or loss, the statement of comprehensive
income, the statement of changes in equity, the statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other explanatory information, and we state that
we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for
the purposes of the audit.

In our opinion and to the best of our information and according to the explanations given to us, the statement of financial
position, statement of profit or loss, the statement of comprehensive income, the statement of changes in equity and the
statement of cash flows together with the notes forming part thereof conform with the accounting and reporting standards
as applicable in Pakistan and give the information required by the Companies Act, 2017 (XIX of 2017), in the manner so
required and respectively give a true and fair view of the state of the Company’s affairs as at 31 December 2019 and of the
profit, other comprehensive income, the changes in equity and its cash flows for the year then ended.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”) as applicable in Pakistan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of these Financial
Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards
Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants
of Pakistan (“the Code”) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Following are the Key audit matter(s):

S. No. Key audit matters How the matters were addressed in our audit
1 Capitalization of owned Property, Plant and Our audit procedures to assess the capitalization
Equipment of owned property, plant and equipment, amongst
others, included the following:
Refer to note 2.3.10 and 16 to the financial
statements. • Understanding the design and implementation
of management controls over capitalization
The Company has made significant capital
and testing control over authorization of capital
expenditure on expansion of existing manufacturing
expenditure and accuracy of its recording in the
facilities.
system;
We identified capitalization of owned property, plant
• testing, on sample basis, the costs incurred on
and equipment as a key audit matter because there
projects with supporting documentation and
is a risk that amounts being capitalized may not meet
contracts;
the capitalization criteria with related implications on
depreciation charge for the year.

62 Management Report 2019

 S. No. Key audit matters How the matters were addressed in our audit
• assessing the nature of costs incurred for the
capital projects through testing, on sample
basis, of amounts recorded and considering
whether the expenditure meets the criteria for
capitalization as per the applicable accounting
standards; and

• inspecting supporting documents for the date

of capitalization when project was ready for its
intended use to assess whether depreciation
commenced and further capitalization of costs
ceased from that date and assessing the useful
life assigned by management including testing
the calculation of related depreciation.

2 Revenue recognition Our audit procedures to assess the recognition of

revenue, amongst others, included the following:
Refer to notes 2.3.13 and 25 to the financial
statements. • obtaining an understanding of the process
relating to recording of sales and testing
The Company recognized net revenue of Rs. 115,962
the design, implementation and operating
million from sale of goods to domestic as well as
effectiveness of relevant key internal controls;
export customers during the year ended 31 December
2019. • assessing the appropriateness of the Company’s
accounting policy for recording of sales and
We identified recognition of revenue as a key
compliance of those policies with applicable
audit matter because revenue is one of the key
accounting standards;
performance indicators of the Company and gives
rise to a risk that revenue is recognized without • comparing a sample of sale transactions
transferring the control. recorded during the year with sales invoices and
relevant underlying documents;

• comparing on a sample basis, specific sales

transactions recorded just before and just after
the financial year end to determine whether the
revenue had been recognized in the appropriate
financial period; and

• scanning, on a sample basis, for any manual

journal entries relating to sales recorded during
the year which were considered to be material
or met other specific criteria for inspecting
underlying documentation.

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 Information other than these Financial Statements and Auditor’s Report thereon
Management is responsible for the other information. Other information comprises the information included in the annual
report for the year ended 31 December 2019, but does not include the financial statements and our auditor’s report
thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in
this regard.

Responsibilities of Management and Board of Directors for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the
accounting and reporting standards as applicable in Pakistan and the requirements of Companies Act, 2017(XIX of 2017)
and for such internal control as management determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to
do so.

Board of directors are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable
in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.

64 Management Report 2019

 • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as
a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and
whether the financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.

We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the board of directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.

From the matters communicated with the board of directors, we determine those matters that were of most significance in
the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters
in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

Based on our audit, we further report that in our opinion:

a) proper books of account have been kept by the Company as required by the Companies Act, 2017(XIX of 2017);

b) the statement of financial position, the statement of profit or loss, the statement of comprehensive income, the
statement of changes in equity and the statement of cash flows together with the notes thereon have been drawn
up in conformity with the Companies Act, 2017 (XIX of 2017) and are in agreement with the books of account and
returns;

c) investments made, expenditure incurred and guarantees extended during the year were for the purpose of the
Company’s business; and

d) zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Company
and deposited in the Central Zakat Fund established under section 7 of that Ordinance.

The engagement partner on the audit resulting in this independent auditor’s report is Kamran Iqbal Yousafi.

Lahore: KPMG Taseer Hadi & Co.

26 March, 2020 Chartered Accountants

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 STATEMENT OF FINANCIAL POSITION
AS AT DECEMBER 31, 2019

(Restated)

(Rupees in ‘000) Note 2019 2018

EQUITY AND LIABILITIES

Share capital and reserves
Authorized capital
75,000,000 (2018: 75,000,000) ordinary shares of Rs. 10 each 750,000 750,000

Issued, subscribed and paid up capital 3 453,496 453,496

Share premium 4 249,527 249,527
General reserve 280,000 280,000
Accumulated profit 2,272,943 3,037,201
3,255,966 4,020,224
Non-current liabilities
Long term finances - secured 5 3,780,294 9,064,730
Lease liabilities 6 303,729 217,530
Deferred taxation 7 1,960,850 2,443,197
Retirement benefits 8 2,777,502 2,098,020
8,822,375 13,823,477

Current liabilities
Current portion of long term liabilities 9 3,395,084 420,285
Short term borrowings - secured 10 17,217,473 15,242,800
Running finance under mark-up arrangements - secured 11 6,141,325 1,418,301
Customer security deposits - interest free 12 192,724 195,431
Unclaimed dividend 20,608 20,608
Trade and other payables 13 25,782,895 31,745,031
Interest and mark-up accrued 14 444,958 273,854
53,195,067 49,316,310
Contingencies and commitments 15
65,273,408 67,160,011

The annexed notes 1 to 46 form an integral part of these financial statements.

SYED SAIFUL ISLAM SAMER CHEDID SYED YAWAR ALI

Chief Financial Officer Chief Executive Officer Chairman

66 Management Report 2019

 STATEMENT OF FINANCIAL POSITION
AS AT DECEMBER 31, 2019

(Restated)

(Rupees in ‘000) Note 2019 2018

ASSETS
Non-current assets
Property, plant and equipment 16 30,333,121 30,363,333
Capital work-in-progress 17 3,441,066 3,679,302
Intangible assets 18 7,396 15,464
Long term loans 19 239,499 305,333
34,021,082 34,363,432

Current assets
Stores and spares 20 2,376,057 1,951,900
Stock-in-trade 21 18,876,441 19,711,784
Trade debts 22 2,164,888 3,116,948
Current portion of long term loans and advances 19 132,045 132,729
Sales tax refundable - net 4,599,004 4,552,598
Advances, deposits, prepayments and other receivables 23 2,785,138 2,584,926
Cash and bank balances 24 318,753 745,694
31,252,326 32,796,579

65,273,408 67,160,011

SYED SAIFUL ISLAM SAMER CHEDID SYED YAWAR ALI

Chief Financial Officer Chief Executive Officer Chairman

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 STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Restated)

(Rupees in ‘000) Note 2019 2018

Sales - net 25 115,962,473 120,701,038

Cost of goods sold 26 (82,613,501) (81,887,248)
Gross profit 33,348,972 38,813,790

Distribution and selling expenses 27 (14,656,501) (15,625,633)

Administration expenses 28 (3,667,718) (3,108,623)
Operating profit 15,024,753 20,079,534

Finance cost 29 (3,187,695) (1,855,789)

Other expenses 30 (1,390,138) (1,512,112)
(4,577,833) (3,367,901)

Other income 31 268,790 255,308

Profit before taxation 10,715,710 16,966,941

Taxation 32 (3,361,243) (5,355,382)

Profit after taxation 7,354,467 11,611,559

Earnings per share basic and diluted (Rupees) 33 162.17 256.05

The annexed notes 1 to 46 form an integral part of these financial statements.

SYED SAIFUL ISLAM SAMER CHEDID SYED YAWAR ALI

Chief Financial Officer Chief Executive Officer Chairman

68 Management Report 2019

 STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2019

(Restated)

2019
(Rupees in ‘000) 2018

Profit after taxation 7,354,467 11,611,559

Other Comprehensive Income

Items that are or may be classified subsequently to profit or loss:

- Cash flow hedges - effective portion of changes in fair value – (17,139)
- Related tax – 8,782
– (8,357)
Items that will never be re-classified to profit or loss:
- Remeasurement of net retirement benefit liability
recognized directly in the equity (384,854) (338,646)
- Related tax 111,608 97,966
(273,246) (240,680)

Total comprehensive income for the period 7,081,221 11,362,522

The annexed notes 1 to 46 form an integral part of these financial statements.

SYED SAIFUL ISLAM SAMER CHEDID SYED YAWAR ALI

Chief Financial Officer Chief Executive Officer Chairman

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Nutrition, Health and
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 STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2019

Capital reserves Revenue reserves

Share Share Hedging General Accumulated
(Rupees in ‘000) capital premium reserve reserve profit Total

Balance as at December 31, 2017

as originally reported 453,496 249,527 8,357 280,000 3,642,960 4,634,340
First time adoption of IFRS 16 – – – – 41,002 41,002
Balance as at December 31, 2017 - restated 453,496 249,527 8,357 280,000 3,683,962 4,675,342

Total comprehensive income for the

year ended December 31, 2018
Profit after taxation - restated – – – – 11,611,559 11,611,559
Cash flow hedges - effective portion of
changes in fair value (net of tax) – – (8,357) – – (8,357)
Remeasurement of net retirement benefit
liability (net of tax) – – – – (240,680) (240,680)
– – (8,357) – 11,370,879 11,362,522
Transactions with owners
directly recognized in equity
Final dividend for the year
ended December 31, 2017 (Rs. 80 per share) – – – – (3,627,967) (3,627,967)
Interim dividend for the six months period
ended June 30, 2018 (Rs. 110 per share) – – – – (4,988,454) (4,988,454)
Interim dividend for the nine months period
ended September 30, 2018 (Rs. 75 per share) – – – – (3,401,219) (3,401,219)
Balance as at December 31, 2018 - restated 453,496 249,527 – 280,000 3,037,201 4,020,224

Total comprehensive income for the

year ended December 31, 2019
Profit after taxation – – – – 7,354,467 7,354,467
Remeasurement of net retirement benefit
liability (net of tax) – – – – (273,246) (273,246)
– – – – 7,081,221 7,081,221
Transactions with owners
directly recognized in equity
Final dividend for the year
ended December 31, 2018 (Rs. 63 per share) – – – – (2,857,024) (2,857,024)
Interim dividend for the six months period
ended June 30, 2019 (Rs. 90 per share) – – – – (4,081,463) (4,081,463)
Interim dividend for the nine months period
ended September 30, 2019 (Rs. 20 per share) – – – – (906,992) (906,992)
Balance as at December 31, 2019 453,496 249,527 – 280,000 2,272,943 3,255,966

The annexed notes 1 to 46 form an integral part of these financial statements.

SYED SAIFUL ISLAM SAMER CHEDID SYED YAWAR ALI

Chief Financial Officer Chief Executive Officer Chairman

70 Management Report 2019

 STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Restated)

(Rupees in ‘000) Note 2019 2018

Cash flow from operating activities

Cash generated from operations 35 13,672,288 22,751,113
Decrease in long term deposits and prepayments – 36,147
Decrease in long term loans 66,518 64,545
Decrease in customer security deposits - interest free (2,707) (64,938)
Retirement and other benefits paid (485,384) (485,465)
Workers’ profit participation fund paid – (2,012,905)
Income taxes paid (3,172,405) (6,745,942)
Net cash generated from operating activities 10,078,310 13,542,555

Cash flow from investing activities

Fixed capital expenditure (3,803,843) (4,533,175)
Sale proceeds of property, plant and equipment 16.4 215,250 226,806
Net cash used in investing activities (3,588,593) (4,306,369)

Cash flow from financing activities

Finance cost paid (3,016,591) (1,691,652)
Long term finances - net (2,313,142) (116,343)
Lease liabilities - net (439,143) (293,938)
Short term borrowings - net 1,974,673 3,396,814
Dividend paid (7,845,479) (12,023,750)
Net cash used in financing activities (11,639,682) (10,728,869)

Net decrease in cash and cash equivalents (5,149,965) (1,492,683)

Cash and cash equivalents at beginning of the period 36 (672,607) 820,076

Cash and cash equivalents at end of the period 36 (5,822,572) (672,607)

The annexed notes 1 to 46 form an integral part of these condensed interim financial statements.

SYED SAIFUL ISLAM SAMER CHEDID SYED YAWAR ALI

Chief Financial Officer Chief Executive Officer Chairman

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

1 Legal status and nature of business

Nestlé Pakistan Limited (“the Company”) is a public limited Company incorporated in Pakistan and its shares are
quoted on Pakistan Stock Exchange. Principally the Company is engaged in manufacturing, processing and sale of
dairy, nutrition, beverages and food products including imported products. Registered office (which is also the Head
Office) of the Company is situated at Babar Ali Foundation Building, 308-Upper Mall, Lahore. The Company has four
manufacturing facilities located at Sheikhupura, Kabirwala, Port Qasim Karachi and Islamabad.

2 Basis of preparation and summary of significant accounting policies

2.1 Statement of compliance
These financial statements have been prepared in accordance with the accounting and reporting standards as
applicable in Pakistan. The accounting and reporting standards applicable in Pakistan comprise of:

– International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards
Board (“IASB”) and Islamic Financial Accounting Standards (“IFAS”) issued by the Institute of Chartered
Accountants of Pakistan as notified under the Companies Act 2017; and
– Provisions of and directives issued under the Companies Act, 2017.

Where provisions of and directives issued under the Companies Act, 2017 differ from the IFRS, the provisions
of and directives issued under the Companies Act, 2017 have been followed.

2.2 Accounting convention

These financial statements have been prepared under the historical cost convention, except for recognition of
certain employee benefits and lease liabilities at present value and recognition of certain financial instruments
at fair value.

The preparation of financial statements in conformity with approved accounting standards requires management
to make judgments, estimates and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates, associated assumptions and judgments are based
on historical experience and various other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgments about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions in accounting estimates
are recognized in the period in which the estimate is revised if the revision affects only that period, or in the
period of revision and future periods if the revision affects both current and future periods. The areas where
various assumptions and estimates are significant to the Company’s financial statements or where judgments
were exercised in application of accounting policies are as follows:

Note

– Financial instruments 2.3.1

– Impairment losses 2.3.2
– Taxation 2.3.4
– Retirement benefits 2.3.5
– Provisions and contingencies 2.3.9
– Useful life of depreciable assets 2.3.10
– Inventories 2.3.11
– Recoverability of trade debts and other receivables 2.3.12

72 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

2.3 Summary of significant accounting policies

The significant accounting policies adopted in preparation of these financial statements are set out below and
have been applied consistently to all periods presented in these financial statements except for the change in
accounting policies as disclosed in note 2.3.19 below.

2.3.1 Financial instruments

2.3.1.1 Financial assets
Classification, recognition and measurement
On initial recognition, a financial asset is classified as:

– measured at amortized cost

– fair value through other comprehensive income (FVOCI) and
– fair value through profit or loss (FVTPL)

All financial assets or financial liabilities are initially recognized when the Company becomes a party to the
contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability
is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable
to its acquisition or issue. A receivable without a significant financing component is initially measured at the
transaction price.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its
business model for managing financial assets, in which case all affected financial assets are reclassified on the
first day of the first reporting period following the change in the business model.

Amortized cost
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated
as at FVTPL:

– it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
– its contractual terms give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.

These assets are subsequently measured at amortized cost using the effective interest method. The amortized
cost is reduced by impairment losses, interest income, foreign exchange gains and losses and impairment are
recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

Financial assets measured at amortized cost comprise of trade debts, long term loans, advances, deposits,
prepayments and other receivables and cash and bank balances.

Debt Instrument - FVOCI

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as
at FVTPL:

– it is held within a business model whose objective is achieved by both collecting contractual cash flows
and selling financial assets; and
– its contractual terms give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

These assets are subsequently measured at fair value. Interest income calculated using the effective interest
method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains
and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to
profit or loss. However, the Company has no such instrument at the statement of financial position date.

Equity Instrument - FVOCI

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to
present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-
investment basis.

These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss
unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and
losses are recognized in OCI and are never reclassified to profit or loss. However, the Company has no such
instrument at the statement of financial position date.

Fair value through profit or loss (FVTPL)

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at
FVTPL.

On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the
requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly
reduces an accounting mismatch that would otherwise arise.

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend
income, are recognized in profit or loss. However, the Company has no such instrument at the statement of
financial position date.

Business model assessment

For the purpose of the assessment, ‘principal’ is defined as the fair value of the financial asset on initial
recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated
with the principal amount outstanding during a particular period of time and for other basic lending risks and
costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Company
considers the contractual terms of the instrument. This includes assessing whether the financial asset contains
a contractual term that could change the timing or amount of contractual cash flows such that it would not meet
this condition. In making this assessment, the Company considers:

– contingent events that would change the amount or timing of cash flows;
– terms that may adjust the contractual coupon rate, including variable-rate features;
– prepayment and extension features; and
– terms that limit the Company’s claim to cash flows from specified assets (e.g. non-recourse features).

Derecognition
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial
asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially
all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither
transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the
financial asset.

74 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The Company might enter into transactions whereby it transfers assets recognized in its statement of financial
position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these
cases, the transferred assets are not derecognized.

2.3.1.2 Financial liabilities

Classification, recognition and measurement
Financial liabilities are recognized initially and measured subsequently at amortized cost or FVTPL. A financial
liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such
on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including
any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at
amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are
recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.

Financial liabilities comprise long term and short term financing, lease liabilities, customer security deposits,
unpaid dividend, trade and other payables and interest and markup accrued, and all are recognized at amortized
cost.

Financial liabilities are recognized initially at amortized cost or FVTPL.

Derecognition
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or
expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the
modified liability are substantially different, in which case a new financial liability based on the modified terms
is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount
extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is
recognized in profit or loss.

2.3.2 Impairment losses

Financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The new impairment
model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI,
but not to investments in equity instruments. ECLs are based on the difference between the contractual cash
flows due in accordance with the contract and all the cash flows that the Company expects to receive. The
shortfall is then discounted at an approximation to the asset’s original effective interest rate.

The financial assets recognized at amortized cost comprise of trade debts, long term loans, advances, deposits,
prepayments and other receivables and cash and bank balances. For trade debts, the Company applies the
IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance
for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based
on shared credit risk characteristics and the days past due. Majority of debtors are regular customers of the
Company and management uses actual historical credit loss experience, based on payment profile of credit
sales over past year, adjusted for forward-looking factors specific to the debtors and the economic environment
to determine lifetime expected loss allowance. There is no significant impact from the new expected credit loss
(ECL) impairment model under IFRS 9 on allowances and provisions for trade debts and retained earnings of
the Company as at beginning and end of the reporting period.

Trade receivables are written off when there is no reasonable expectation of recovery.

Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets,
are reviewed at each reporting date to determine whether there is any indication of impairment. If any such
indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have
indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date.
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An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows
that largely are independent from other assets and groups.

Impairment losses are recognized in profit and loss. Impairment losses recognized in respect of cash-generating
units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce
the carrying amount of the other assets of the unit on a pro-rata basis. Impairment losses on goodwill shall not
be reversed.

2.3.3 Offsetting of financial assets and financial liabilities

A financial asset and a financial liability is offset and the net amount is reported in the Statement of Financial
Position if the Company has a legally enforceable right to set-off the recognized amounts and intends either to
settle on a net basis or to realize the asset and settle the liability simultaneously.

2.3.4 Taxation
Income tax on the profit or loss for the year comprises current and deferred tax.

2.3.4.1 Current
Provision of current tax is based on the taxable income for the year determined in accordance with the prevailing
law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected
to apply to the profit for the year if enacted after taking into account tax credits, rebates and exemptions, if any.
The charge for current tax also includes adjustments, where considered necessary, to provision for tax made in
previous years arising from assessments framed during the year for such years.

2.3.4.2 Deferred
Deferred tax is provided using the balance sheet method in respect of all temporary differences arising
from differences between the carrying amount of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally
recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is
probable that taxable profits will be available against which the deductible temporary differences, unused tax
losses and tax credits can be utilized.

The carrying amount of deferred tax asset is reviewed at each reporting date and reduced to the extent that it
is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to
be utilized.

Deferred tax assets and liabilities are calculated at the rates that are expected to apply to the period when
the asset is realized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or
substantively enacted by the reporting date. In this regard, the effects on deferred taxation of the proportion of
income that is subject to final tax regime is also considered in accordance with the treatment prescribed by the
Institute of Chartered Accountants of Pakistan. Deferred tax is charged or credited in the statement of profit or
loss, except in the case of items credited or charged to equity in which case it is included in equity.

2.3.5 Retirement benefits

2.3.5.1 Defined benefit plan
The Company’s net obligation in respect of defined benefit plans is calculated separately for each plan by
estimating the amount of future benefits that employees have earned in current and prior periods, discounting
that amount and deducting the fair value of any plan assets.

The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected
unit credit method. When calculation results in potential assets for the Company, the recognized asset is limited
to the present value of economic benefits available in the form of any future refunds from the plan or reduction
in future contributions to the plan.

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Remeasurement of net defined benefit liability, which comprise of actuarial gains and losses, the return on
plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest) are recognized
immediately in other comprehensive income. The Company determines net interest expense / (income) on the
defined benefit obligation for the period by applying the discount rate used to measure the defined benefit
obligation at the beginning of the annual period to the then-net defined benefit, taking into account any change
in the net defined benefit obligation during the period as a result of contributions and benefit payments. Net
interest expense and other expenses related to defined benefit plans are recognized in profit and loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates
to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company
recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

2.3.5.2 Defined contribution plan

The Company operates a recognized provident fund for all its regular employees, excluding expatriates. Equal
monthly contributions are made to the fund both by the Company and the employees at the rate of 12%
of the basic salary plus cost of living allowance. All regular employees are eligible for provident fund upon
their confirmation. Obligation for contributions to defined contribution plan is recognized as an expense in the
statement of profit or loss as and when incurred.

2.3.6 Leases
The Company assesses whether a contract is or contains a lease at inception of the contract. This assessment
involves the exercise of judgement about whether it depends on a specified asset, whether the Company
obtains substantially all the economic benefits from the use of that asset, and whether the Company has the
right to direct the use of the asset.

The Company recognizes a right-of-use (ROU) asset and a lease liability at the lease commencement date,
except for short term leases of 12 months or less and leases of low value items, which are expensed in the
statement of profit or loss on a straight-line basis over the lease term.

The lease liability is initially measured at the present value of the lease payment that are not paid at the
commencement date, discounted using the interest rate implicit in the lease. If this rate cannot be readily
determined, the Company uses the incremental borrowing rate applicable in the market for such leases.

The lease liability is subsequently measured at amortized cost using the effective interest rate method and
remeasured (with a corresponding adjustment to the related ROU asset) when there is a change in future lease
payments in case of renegotiation, changes of an index or rate or in case of reassessment of options.

At inception, the ROU asset comprises the initial lease liability, initial direct costs and the obligations to refurbish
the asset, less any incentives granted by the lessors. The ROU asset is depreciated over the shorter of the lease
term or the useful life of the underlying asset. The ROU asset is subject to testing for impairment if there is an
indicator for impairment, as for owned assets.

2.3.7 Trade and other payables

Trade and other payables are recognized initially at cost, which is the fair value of consideration to be paid in
the future for goods and services, whether or not billed to the Company. Exchange gains and losses arising
on translation in respect of liabilities in foreign currency are adjusted to the carrying amount of the respective
liabilities.

2.3.8 Dividend
Dividend distribution to the Company’s shareholders is recognized as a liability in the Company’s financial
statements in the period in which dividends are approved.

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 NOTES TO THE FINANCIAL STATEMENTS
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2.3.9 Provisions and contingencies

Provisions are recognized in the statement of financial position when the Company has a legal or constructive
obligation as a result of past events and it is probable that outflow of economic benefits will be required to
settle the obligation and a reliable estimate of the amount can be made. However, provisions are reviewed at
each reporting date and adjusted to reflect current best estimate. Where the outflow of resources embodying
economic benefits is not probable, a contingent liability is disclosed, unless the possibility of outflow is remote.

2.3.10 Fixed capital expenditure and depreciation/amortization

2.3.10.1 Property, plant and equipment
Property, plant and equipment, except freehold land, are stated at cost less accumulated depreciation and any
identified accumulated impairment loss. Freehold land is stated at cost less any identified impairment loss.
Cost in relation to self constructed assets includes direct cost of material, labour, applicable manufacturing
overheads and borrowing costs on qualifying assets.

Depreciation is charged to statement of profit or loss, unless it is included in the carrying amount of another
asset, on straight line method whereby cost of an asset is written off over its estimated useful life at the rates
given in note 16.

Residual value and the useful life of an asset are reviewed at least at each financial year-end.

Depreciation on additions is charged from the month in which asset is capitalized / available for use, while no
depreciation is charged for the month in which asset is disposed off. Where an impairment loss is recognized,
the depreciation charge is adjusted in the future periods to allocate the assets revised carrying amount over its
estimated useful life.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Company and
the cost of the item can be measured reliably. All other repair and maintenance costs are charged to statement
of profit or loss during the period in which they are incurred.

The gain or loss on disposal or retirement of an asset represented by the difference between the sale proceeds
and the carrying amount of the asset is recognized as an income or expense.

2.3.10.2 Capital work-in-progress

Capital work-in-progress is stated at cost less identified impairment loss, if any. It consists of all expenditures
and advances connected with specific assets incurred and made during installations and construction period.
These are transferred to relevant property, plant and equipment as and when assets are available for use.

2.3.10.3 Intangible assets

Intangible assets are stated at cost less accumulated amortization and any identified accumulated impairment
loss. These are amortized using the straight line method at the rates given in note 18. Amortization on additions
is charged from the month in which an intangible asset is acquired, while no amortization is charged for the
month in which the intangible asset is disposed off.

Subsequent expenditure on intangible assets is capitalized only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditures are charged to statement of profit or
loss as and when incurred.

2.3.11 Inventories
Inventories are valued as per below mentioned valuation basis:

78 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

2.3.11.1 Stores and spares

Usable stores and spares except for in-transit, are valued principally at moving average method, while items
considered obsolete are carried at nil value. Provision is made against slow moving or obsolete stores and
spares on a systematic basis.

2.3.11.2 Raw and packing material

Value in relation to raw and packing materials except for in transit is arrived at using FIFO basis. Provision for
unusable raw and pack material is made on an estimated basis, wherever required.

2.3.11.3 Finished goods and work in process

Value of finished goods and work in process both manufactured and purchased, is determined on weighted
average basis, except for in-transit goods. In-transit goods and materials are valued at cost comprising invoice
value plus other charges thereon. Cost in relation to work-in-process and finished goods includes an appropriate
portion of production overheads. Finished goods are valued at cost or net realizable value, whichever is lower.
Net realizable value signifies the estimated selling price in the ordinary course of business less estimated costs
of completion and cost necessary to be incurred in order to make a sale.

2.3.12 Trade debts and other receivables

Trade debts and other receivables are carried at original invoice amount less an estimate made for doubtful
debts based on a review of all outstanding amounts at the year end. Bad debts are written off when they
become irrecoverable.

2.3.13 Revenue recognition

Sales represent amounts received and receivable from third parties for goods supplied to the customers and
are recognized when a customer obtains control of the goods under the contract, being when the product is
delivered to the customers.

Revenue is measured based on the consideration specified in a contract with a customer, net of returns,
amounts collected on behalf of third parties (sales taxes etc.), pricing allowances, other trade discounts, volume
rebates and couponing, price promotions to customers / consumers and any other consideration payable to
customers. The level of discounts, allowances and promotional rebates are recognized, on estimated basis
using historical experience and the specific terms of the arrangement, as a deduction from revenue at the time
that the related sales are recognized or when such incentives are offered to the customer / consumer.

2.3.14 Interest income

Interest income is accrued on a time proportion basis by reference to the principal outstanding and the
applicable rate of return.

2.3.15 Foreign currencies

All monetary assets and liabilities in foreign currencies are translated into rupees at exchange rates prevailing at
the reporting date. Exchange gains and losses resulting from the settlement of such transactions and from the
translations at the year end exchange rates of monetary assets and liabilities denominated in foreign currencies
are taken to statement of profit or loss currently. Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated into rupees at exchange rates prevailing at the date of
transactions and those stated at fair value are translated into rupees at exchange rates prevailing at the date
when the fair values are determined.

2.3.16 Borrowing cost

Borrowing costs are interest and other costs that the Company incurs in connection with the borrowing of
funds. The Company capitalizes borrowing costs that are directly attributable to the acquisition, construction or
production of qualifying assets as part of the cost of these assets. The Company recognizes other borrowing
costs as an expense in the period in which it incurs.
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 NOTES TO THE FINANCIAL STATEMENTS
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2.3.17 Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at cost. For the purpose of cash flow
statement, cash and cash equivalents comprise cash in hand, demand deposits, other short term highly liquid
investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk
of change in value and running finances that are repayable on demand.

2.3.18 Segment reporting

An operating segment is a component of the Company that engages in business activities from which it may
earn revenues and incur expenses. Chief Executive Officer has been identified as the “chief decision maker” and
is responsible for performance, allocation of resources and assessment of results.

2.3.19 Changes in accounting policies

The Company has adopted IFRS 9 “Financial Instruments”, IFRS 15 “Revenue from Contracts with Customers”
and IFRS 16 “Leases” from January 01, 2019 which is effective from the annual periods beginning on or
after July 01, 2018, period ending on or after June 30, 2019 and periods beginning on or after January 01,
2019 respectively. The details of new significant accounting policies adopted and the nature and effect of the
changes from previous accounting policies are set out below and also explained in note 2.3.1, 2.3.13 and 2.3.6
respectively.

2.3.19.1 IFRS 9 “Financial Instruments”

IFRS 9 replaced the provisions of IAS 39 “Financial Instruments: Recognition and Measurement” that relates
to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of
financial instruments, impairment of financial assets and hedge accounting. There is however, no effect of the
application of IFRS 9 on these financial statements.

2.3.19.2 IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is
recognized. It replaces IAS 18 “Revenue”, IAS 11 “Construction Contracts” and related interpretations.

The standard introduces a single five-step model for revenue recognition with a comprehensive framework
based on core principle that an entity should recognize revenue when a customer obtains control of the goods
or services under the contract at an amount that reflects the consideration to which the entity expects to be
entitled against those goods or services. However, the adoption of IFRS 15, did not have a material impact on
the amounts of revenue recognized in these financial statements except for reclassification of certain payments/
rebates/allowances to customers that were previously classified under “Distribution and Selling expenses”
and are now set off against sales. The corresponding figures have been represented to reflect this change.
Accordingly, selling and distribution expense of Rs. 3,700.427 million (December 31, 2018: Rs. 3,913.747
million) has been reclassified to sales. This reclassification has no impact on the reported Earning per Share
(EPS) of the corresponding year. Moreover “Advances from Customers” (presented within “Trade and other
payables”) are now renamed as “Contract Liabilities”.

2.3.19.3 IFRS 16 “Leases”

IFRS 16 replaces IAS 17 “Accounting for Leases” and related interpretations and sets out the principles for the
recognition, measurement, presentation and disclosure of leases. The standard introduces a single, on-balance
sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to
use the underlying asset and a lease liability representing its obligation to make lease payments. There are
recognition exemptions for short-term leases and leases of low-value items.

The Company has adopted IFRS 16 under the full retrospective approach, utilizing the practical expedient and
this has resulted in Company recognizing lease liabilities and corresponding right-of-use assets for all leases
qualifying under the criteria laid down by the standard.

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

A brief summary of the impact of IFRS 16 on comparative information and how it has been restated has been
given below:

(Restated)

Unadjusted Adjustments after adoption

(Rupees in ‘000) figures of IFRS 16

Statement of Financial Position

As at January 01, 2018:
Non-current assets
Property, plant and equipment 28,734,507 535,068 29,269,575
Capital work-in-progress 4,059,585 – 4,059,585
Intangible assets 23,532 – 23,532
Long term loans 367,359 – 367,359
Long term deposits and prepayments 36,147 – 36,147
33,221,130 535,068 33,756,198
Current assets
Stores and spares 1,769,987 – 1,769,987
Stock-in-trade 15,358,288 – 15,358,288
Trade debts 781,116 – 781,116
Current portion of long term loans and advances 135,248 – 135,248
Sales tax refundable - net 4,477,768 – 4,477,768
Advances, deposits, prepayments & others receivables 1,268,098 – 1,268,098
Cash and bank balances 1,333,984 – 1,333,984
25,124,489 – 25,124,489
Total assets 58,345,619 535,068 58,880,687

Share capital and reserves

Issued, subscribed and paid up capital 453,496 – 453,496
Share premium 249,527 – 249,527
General reserve 280,000 – 280,000
Hedging reserve 8,357 – 8,357
Accumulated profit 3,642,960 41,002 3,683,962
4,634,340 41,002 4,675,342
Non-current liabilities
Long term finances - secured 9,291,755 – 9,291,755
Lease liabilities – 304,248 304,248
Deferred taxation 2,493,067 – 2,493,067
Retirement benefits 1,660,762 – 1,660,762
13,445,584 304,248 13,749,832
Current liabilities
Current portion of long term liabilities 116,343 189,818 306,161
Short term borrowings - secured 11,845,986 – 11,845,986
Short term running finance under mark-up
arrangements - secured 513,908 – 513,908
Customer security deposits - interest free 260,369 – 260,369
Unclaimed dividend 26,718 – 26,718
Trade and other payables 27,355,515 – 27,355,515
Interest and mark-up accrued 146,856 – 146,856
40,265,695 189,818 40,455,513
Total equity and liabilities 58,345,619 535,068 58,880,687

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 NOTES TO THE FINANCIAL STATEMENTS
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(Restated)

Unadjusted Adjustments after adoption

(Rupees in ‘000) figures of IFRS 16

Statement of Financial Position

As at December 31, 2018:
Property, plant and equipment 29,982,969 380,364 30,363,333
Lease liabilities – (410,790) 410,790
Accumulated profit 2,929,222 (107,979) 3,037,201

Statement of Profit or Loss

For the year ended December 31, 2018:

Cost of goods sold 81,868,959 18,289 81,887,248

Distribution and selling expenses 15,650,646 (25,013) 15,625,633
Administrative expenses 3,206,015 (97,392) 3,108,623
Finance cost 1,818,650 37,139 1,855,789

The above has resultantly increased the profit after taxation for the year ended December 31, 2018 by Rs. 66.98 million
and earnings per share by Rs. 1.48 per share.

(Restated)

Unadjusted Adjustments after adoption

(Rupees in ‘000) figures
of IFRS 16

Statement of Cash Flows

For the year ended December 31, 2018:

Cash flow from operating activities

Profit before taxation 16,899,964 66,977 16,966,941
Depreciation on property, plant and equipment 3,520,697 189,819 3,710,516
Finance cost 1,818,650 37,139 1,855,789
Net cash generated from operating activities 13,248,617 293,938 13,542,555

Cash flow from financing activities
Lease liabilities - net – (293,938) (293,938)

2.3.20 New laws / standards and amendments to published approved International Financial Reporting
Standards not yet effective
The following International Financial Reporting Standards (IFRS Standards) as notified under the Companies
Act, 2017 and the amendments and interpretations thereto will be effective for accounting periods beginning
on or after January 01, 2020:

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

– Amendment to IFRS 3 ‘Business Combinations’ – Definition of a Business (effective for business

combinations for which the acquisition date is on or after the beginning of annual period beginning on
or after 1 January 2020). The IASB has issued amendments aiming to resolve the difficulties that arise
when an entity determines whether it has acquired a business or a group of assets. The amendments
clarify that to be considered a business, an acquired set of activities and assets must include, at a
minimum, an input and a substantive process that together significantly contribute to the ability to create
outputs. The amendments include an election to use a concentration test. The standard is effective for
transactions in the future and therefore would not have an impact on past financial statements.

– Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors (effective for annual periods beginning on or after 1 January 2020). The
amendments are intended to make the definition of material in IAS 1 easier to understand and are not
intended to alter the underlying concept of materiality in IFRS Standards. In addition, the IASB has also
issued guidance on how to make materiality judgments when preparing their general purpose financial
statements in accordance with IFRS Standards.

– On 29 March 2018, the International Accounting Standards Board (the IASB) has issued a revised
Conceptual Framework for Financial Reporting which is applicable immediately and contains changes
that will set a new direction for IFRS in the future. The Conceptual Framework primarily serves as a
tool for the IASB to develop standards and to assist the IFRS Interpretations Committee in interpreting
them. It does not override the requirements of individual IFRSs and any inconsistencies with the revised
Framework will be subject to the usual due process – this means that the overall impact on standard
setting may take some time to crystallize. The companies may use the Framework as a reference
for selecting their accounting policies in the absence of specific IFRS requirements. In these cases,
companies should review those policies and apply the new guidance retrospectively as of 1 January
2020, unless the new guidance contains specific scope outs.

– Interest Rate Benchmark Reform which amended IFRS 9, IAS 39 and IFRS 7 is applicable for annual
financial periods beginning on or after 1 January 2020. The G20 asked the Financial Stability Board
(FSB) to undertake a fundamental review of major interest rate benchmarks. Following the review, the
FSB published a report setting out its recommended reforms of some major interest rate benchmarks
such as IBORs. Public authorities in many jurisdictions have since taken steps to implement those
recommendations. This has in turn led to uncertainty about the long-term viability of some interest rate
benchmarks. In these amendments, the term ‘interest rate benchmark reform’ refers to the market-
wide reform of an interest rate benchmark including its replacement with an alternative benchmark
rate, such as that resulting from the FSB’s recommendations set out in its July 2014 report ‘Reforming
Major Interest Rate Benchmarks’ (the reform). The amendments made provide relief from the potential
effects of the uncertainty caused by the reform. A company shall apply the exceptions to all hedging
relationships directly affected by interest rate benchmark reform. The amendments are not likely to
affect the financial statements of the Company.

– IFRS 14 Regulatory Deferral Accounts - (effective for annual periods beginning on or after 1 July 2019)
provides interim guidance on accounting for regulatory deferral accounts balances while IASB considers
more comprehensive guidance on accounting for the effects of rate regulation. In order to apply the
interim standard, an entity has to be rate regulated – i.e. the establishment of prices that can be charged
to its customers for goods or services is subject to oversight and/or approved by an authorized body. The
term ‘regulatory deferral account balance’ has been chosen as a neutral descriptor for expense (income)
or variance account that is included or is expected to be included by the rate regulator in establishing the
rate(s) that can be charged to customers and would not otherwise be recognized as an asset or liability
under other IFRSs. The standard is not likely to have any effect on Company’s financial statements.

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3 Issued, subscribed and paid up capital

2019 2018 2019 2018

(Rupees in ‘000) (Number of shares) (Rupees in ‘000)

Ordinary shares of Rs. 10 each as

fully paid in cash 29,787,058 29,787,058 297,870 297,870
Ordinary shares of Rs. 10 each as
fully paid bonus shares 15,476,867 15,476,867 154,769 154,769
Ordinary shares of Rs. 10 each issued
for consideration other than cash 85,659 85,659 857 857
45,349,584 45,349,584 453,496 453,496

As at December 31, 2019, Nestlé S.A. Switzerland (“the Holding Company”), holds 26,778,229 (2018: 26,778,229)
ordinary shares representing 59.05% (2018: 59.05%) equity interest in the Company. In addition, 8,854,414 (2018:
8,799,414) ordinary shares are held by the following related parties as at December 31:

2019 2018
Name of related party (Number of shares)

IGI Investments (Pvt) Limited 4,419,666 4,364,666

Percentage of equity held 9.75% (2018: 9.62%)

Packages Limited 3,649,248 3,649,248

Percentage of equity held 8.05% (2018: 8.05%)

Gurmani Foundation 538,235 538,235
Percentage of equity held 1.19% (2018: 1.19%)

National Management Foundation 224,720 224,720

Percentage of equity held 0.50% (2018: 0.50%)

Industrial Technical and Educational Institution 21,666 21,666

Percentage of equity held 0.05% (2018: 0.05%)

Nestlé Pakistan Limited Employees Provident Fund 878 878

Percentage of equity held 0.0019% (2018: 0.0019%)

IGI Finex Securities Limited 1 1

Percentage of equity held 0.0% (2018: 0.0%)
8,854,414 8,799,414

3.1 The holders of voting ordinary shares are entitled to receive dividends as declared (if any), and are entitled to
one vote per share at meetings of the Company.

4 Share premium
This reserve can be utilized by the Company only for the purposes specified in section 81(2) of the Companies Act,
2017.

84 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Rupees in ‘000) Note 2019 2018

5 Long term finances - secured

Long term finances utilized under mark-up arrangements:

Term Loan I 5.1 3,500,000 3,500,000

Term Loan II 5.2 3,000,000 3,000,000
Term Loan III 5.3 – 2,000,000
Term Loan IV 5.3 – 114,824
6,500,000 8,614,824
Long Term Financing Facility 5.4 478,613 676,931

Less: Current maturity 9 (3,198,319) (227,025)

3,780,294 9,064,730

5.1 The term of the loan is 5 years and the principal repayment to take place in a single lump sum instalment on
December 29, 2021. Mark-up is payable quarterly at a flat rate of 8.00% per annum.

5.2 The term of the loan is 3 years and the principal repayment to take place in a single lump sum instalment on
November 13, 2020. Mark-up is payable quarterly at a flat rate of 7.30% per annum.

5.3 These loans have been settled by the Company during the year on December 30, 2019 and July 19, 2019
respectively.

5.4 This facility has an aggregate credit limit of Rs. 1,500 million and the term is 5 years with a grace period of 18
months from the date of each disbursement. Repayments to be made in 8 equal semi annual instalments. This
facility carries mark-up at the rate of 3.65% payable quarterly.

All loans are obtained from a commercial bank and are secured by first joint pari passu hypothecation charge
over fixed and current assets of the Company excluding land and building.

(Restated)

(Rupees in ‘000) Note 2019 2018

6 Lease liabilities
Present value of minimum lease payments 500,494 410,790
Less: Current maturity 9 (196,765) (193,260)
303,729 217,530

7 Deferred taxation
Deferred taxation comprises of temporary differences related to:
Accelerated tax depreciation 3,224,282 3,176,882
Others (1,263,432) (733,685)
1,960,850 2,443,197

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(Rupees in ‘000) Note 2019 2018

7.1 Movement in deferred tax liability is as follows:

Balance as at January 01 2,443,197 2,493,067
Charge to OCI related to cash flow hedges – (8,783)
Charge to statement of profit or loss 32 (482,347) (41,087)
Balance as at December 31 1,960,850 2,443,197

8 Retirement benefits
Gratuity fund 1,370,227 1,300,615
Pension fund 1,407,275 797,405
2,777,502 2,098,020

The Company contributes to following defined benefit plans:

– Gratuity plan entitles an eligible employee to receive a lump sum amount equal to last drawn basic salary
multiplied by number of completed years of service with the Company at the time of cessation of employment.
An eligible employee means the employee who has successfully completed one year of service with the
Company. In case if the employee leaves the employment before successful completion of 10 years of service
then he/she shall be entitled to 50% of gratuity amount.

– Pension plan comprises of two types i.e. Type A and Type B. Type A members are those members who have
joined the plan and who have not opted to become members of Type B. Type B members are those members
who fulfil the criteria and opted to become members of Type B.

– Type A members are required to make a contribution of 5% of pensionable salary whereas, the Company makes
the contribution based on actuarial recommendations. The annual benefit amount of a Type A member shall
be 2.75% of his/her pensionable salary at the time of retirement multiplied by number of years of pensionable
service subject to a maximum of 82.50% of pensionable salary.

– Type B member can make a contribution of 3% or 5% of his/her pensionable salary and the Company will
make a contribution equal to employee contribution +2%. Members who are transferred from Type A to Type
B are required to make a contribution of 5% of pensionable salary and the Company will make a contribution
of 11.4%. Type B member shall be entitled to 30% of employer benefit after successful completion of three
years of pensionable service and thereafter additional 10% for each successful year till 10th year when he/she
is entitled to 100% of the benefit.

Gratuity and pension plans are administered through separate funds that are legally separate from the Company.
The Trust of the funds comprises of six and five employees for pension and gratuity fund respectively, out of
which one employee is the Chairperson. The Trustees of the funds are required by law to act in the best
interests of the plan and are responsible for making all the investments and disbursements out of the funds.

These defined benefit plans expose the Company to actuarial risks, such as longevity risk, interest rate risk
and market (investment) risk. As at reporting date, an actuarial valuation has been performed by M/s Nauman
Associates (actuarial experts) for valuation of defined benefit obligation. The disclosures made in notes 8.1 to
8.14 are based on the information included in the actuarial report.

86 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

These defined benefit plans are fully funded by the Company. The funding requirements are evaluated by
the management using the funds’ actuarial measurement framework set out in the funding policies of the
plans. The funding of each plan is based on a separate actuarial valuation for funding purposes for which
the assumptions may differ from time to time. The investments out of provident fund and pension fund are
governed by and are compliant in all material aspects with the requirements of section 218 of the Companies
Act 2017.

The Company is responsible to manage the deficit in the defined benefit obligation towards fair value of the
plan assets. The Company has devised an effective periodic contribution plan to maintain sufficient level of
plan assets to meet its obligations. Further, the Company also performs regular maturity analysis of the defined
benefit obligation and manage its contributions accordingly.

Gratuity Pension
2019
(Rupees in ‘000) 2018 2019 2018

8.1 Present value of funded obligations

Amounts recognized in statement of
financial position are as follows:
Present value of defined benefit obligation 3,156,983 2,999,495 4,743,169 3,707,704
Fair value of plan assets (1,786,756) (1,698,880) (3,335,894) (2,910,299)
Net retirement benefit obligation 1,370,227 1,300,615 1,407,275 797,405

8.2 Movement in net obligation

Net liability as at January 01 1,300,615 984,867 797,405 675,895
Charge to statement of profit or loss 425,621 309,408 354,390 274,669
Charge to other comprehensive income (115,667) 246,718 500,521 91,928
Contributions made by employees – – 138,734 137,230
Contributions paid to the plan (240,342) (240,378) (383,775) (382,317)
Net liability as at December 31 1,370,227 1,300,615 1,407,275 797,405

8.3 Movement in the liability for funded

defined benefit obligations
Liability for defined benefit obligations as
at January 01 2,999,495 2,692,633 3,707,704 3,404,213
Benefits paid by the plan (362,714) (329,787) (331,561) (338,049)
Current service cost 263,030 227,029 408,571 345,026
Past service cost – – – 19,781
Interest cost 387,494 240,135 487,014 307,343
Remeasurements on obligation:
Actuarial losses / (gains) on present value
Changes in financial assumptions (8,338) 17,523 355,212 (19,330)
Experience adjustments (121,984) 151,962 116,229 (11,280)
(130,322) 169,485 471,441 (30,610)
Liability for defined benefit obligations
as at December 31 3,156,983 2,999,495 4,743,169 3,707,704

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Gratuity Pension
2019
(Rupees in ‘000) 2018 2019 2018

8.4 Movement in fair value of plan assets

Fair value of plan assets as at January 01 1,698,880 1,707,766 2,910,299 2,728,318
Contributions paid into the plan 240,342 240,378 383,775 382,317
Benefits paid by the plan (362,714) (329,787) (331,561) (338,049)
Interest income on plan assets 225,183 157,991 403,756 261,293
Actuarial loss on plan assets (14,655) (77,233) (29,080) (122,538)
Other administrative expenses by fund (280) (235) (1,295) (1,042)
Fair value of plan assets as at December 31 1,786,756 1,698,880 3,335,894 2,910,299

8.5 Plan assets consist of the following:

In terms of amount:
Equity instruments 165,129 148,786 244,827 220,395
Debt instruments 918,284 211,710 1,675,246 361,501
Balance in saving bank accounts 703,343 1,338,384 1,415,821 2,328,403
1,786,756 1,698,880 3,335,894 2,910,299

8.6 Plan assets

Plan assets comprise:

Equity instrument
Fertilizers 10,327 7,791 16,651 12,562
Oil and gas 34,689 30,655 55,893 49,337
Steel 11,166 13,188 19,991 23,610
Power 18,220 16,395 20,282 18,251
Financial institutions 51,349 39,848 81,132 62,961
Mutual funds 18,620 17,801 18,620 17,801
Cement 8,000 8,402 12,639 13,276
Chemicals 12,758 14,590 19,471 22,245
Others – 116 148 352
165,129 148,786 244,827 220,395
Debt instruments
Government bonds 818,290 113,774 1,538,406 227,476
Term Finance Certificates 99,994 97,936 136,840 134,025
918,284 211,710 1,675,246 361,501
Cash at bank
Balance in saving bank accounts 102,350 283,796 163,437 520,537
Term deposit receipts 600,993 1,054,588 1,252,384 1,807,866
703,343 1,338,384 1,415,821 2,328,403
1,786,756 1,698,880 3,335,894 2,910,299

Before making any investment decision, an Asset-Liability matching study is performed by the Board of Trustees
of the funds to evaluate the merits of strategic investments. Risk analysis of each category is done to analyze
the impacts of the interest rate risk, currency risk and longevity risk.

88 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Gratuity Pension
2019
(Rupees in ‘000) 2018 2019 2018

8.7 Statement of profit or loss includes the following

in respect of retirement benefits:
Interest cost for the year 387,494 240,135 487,014 307,343
Current service cost 263,030 227,029 408,571 345,026
Past service cost – – – 19,781
Interest income on plan assets (225,183) (157,991) (403,756) (261,293)
Contribution made by the employees – – (138,734) (137,230)
Other administrative expense by Fund 280 235 1,295 1,042
425,621 309,408 354,390 274,669

8.8 Charge for the year has been allocated as follows:

Cost of goods sold 205,191 152,577 143,448 122,264
Distribution and selling expenses 145,448 111,025 150,938 103,775
Administration expenses 74,982 45,806 60,004 48,630
425,621 309,408 354,390 274,669

8.9 Actuarial (gains) and losses recognized

directly in other comprehensive income
Cumulative amount at January 01 1,101,498 854,780 905,108 813,180
Remeasurements on obligation
Actuarial losses / (gains) on present value:
Changes in financial assumptions (8,338) 17,523 355,212 (19,330)
Experience adjustments (121,984) 151,962 116,229 (11,280)
(130,322) 169,485 471,441 (30,610)
Remeasurements on fair value of plan assets 14,655 77,233 29,080 122,538
(Gains) / losses recognized during the year (115,667) 246,718 500,521 91,928

Cumulative amount as at December 31 985,831 1,101,498 1,405,629 905,108

(Rupees in ‘000) 2019 2018 2017 2016 2015

8.10 Historical Information for Gratuity plan

Present value of defined benefit obligation 3,156,983 2,999,495 2,692,633 2,309,477 2,024,189
Fair value of the plan assets (1,786,756) (1,698,880) (1,707,766) (1,610,613) (1,343,612)
Deficit in the plan 1,370,227 1,300,615 984,867 698,864 680,577

Experience adjustments arising on plan liabilities (121,984) 151,962 80,449 43,693 73,878
Experience adjustments arising on plan assets (14,655) (77,233) (149,744) 78,224 (14,330)

8.11 Historical Information for Pension plan

Present value of defined benefit obligation 4,743,169 3,707,704 3,404,213 3,189,227 2,556,488
Fair value of the plan assets (3,335,894) (2,910,299) (2,728,318) (2,526,536) (2,021,998)
Deficit in the plan 1,407,275 797,405 675,895 662,691 534,490

Experience adjustments arising on plan liabilities 116,229 (11,280) (93,878) 56,223 (23,524)
Experience adjustments arising on plan assets (29,080) (122,538) (213,478) 66,581 (23,627)

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

2019 2018
Gratuity fund Pension fund Gratuity fund Pension fund
per annum per annum per annum per annum

8.12 Significant actuarial assumptions used for

valuation of these plans are as follows:
Discount rate used for profit and loss charge 13.75% 13.75% 9.50% 9.50%
Discount rate used for year-end obligation 11.75% 11.75% 13.75% 13.75%
Expected rates of salary increase 11.75% 11.75% 13.75% 13.75%
Expected rates of return on plan assets 11.75% 11.75% 13.75% 13.75%

Mortality Rate SLIC 2001-2005 SLIC 2001-2005 SLIC 2001-2005 SLIC 2001-2005
Setback 1 year Setback 1 year Setback 1 year Setback 1 year

Mortality rate

The rates assumed were based on the SLIC 2001-2005 Setback 1 Year mortality table.

8.13 Actuarial assumptions sensitivity analysis

If the significant actuarial assumptions used to estimate the defined benefit obligation at the reporting date,
had fluctuated by 50 bps with all other variables held constant, the impact on the present value of the defined
benefit obligation would have been as follows:

Gratuity Pension

Impact on present value of defined benefit

obligation as at December 31, 2019

(Rupees in ‘000) Change Increase Decrease Increase Decrease

Discount rate 50 bps (155,046) 167,932 (228,550) 246,274

Future salary increase 50 bps 169,314 (157,746) 75,903 (72,420)

Expected mortality rates 1 year (937) 1,001 28,543 (29,433)

The sensitivity analysis of the defined benefit obligation to the significant actuarial assumptions has been
performed using the same calculation techniques as applied for calculation of defined benefit obligation
reported in the statement of financial position.

8.14 Weighted average duration of the defined benefit obligation is 10 years for both gratuity and pension plans.

(Restated)

(Rupees in ‘000) Note 2019 2018

9 Current portion of long term liabilities

Current maturity of long term finances 5 3,198,319 227,025
Current maturity of lease liabilities 6 196,765 193,260
3,395,084 420,285

90 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Rupees in ‘000) Note 2019 2018

10 Short term borrowings - secured

Money market deals 10.1 16,300,000 14,200,000
Export refinance facility 10.2 917,473 1,042,800
17,217,473 15,242,800

10.1 These represent money market deals obtained from various commercial banks having aggregate limit of
Rs. 16,300 million (2018: Rs. 14,200 million) and carry mark-up ranging from 11.70% to 13.75% (2018: 5.85%
to 10.42%) per annum. These deals are obtained for a period ranging from 90 to 180 days and are secured by
a hypothecation charge over fixed and current assets of the Company excluding land and building.

10.2 The Company has obtained export refinance facility from a commercial bank having an aggregate limit of
Rs. 918 million (2018: Rs. 1,043 million). The mark up on this facility is 2.20% (2018: 2.20%) per annum.

11 Running finance under mark-up arrangements - secured

The Company has obtained short term running finances from various commercial banks under mark-up arrangements
having an aggregate limit of Rs. 16,095 million (2018: Rs. 12,120 million). The mark up on these facilities ranges from
13.64% to 14.15% (2018: 6.20% to 10.50%) per annum. These facilities are secured by pari passu hypothecation
charge over present and future fixed and current assets of the Company excluding land and building and assignment
of receivables of the Company.

12 Customer security deposits

This represents security deposits obtained from customers and have been kept in a separate bank account.

(Rupees in ‘000) Note 2019 2018

13 Trade and other payables

Trade creditors:
Related parties 5,096,203 4,214,261
Others 11,091,657 15,447,188
16,187,860 19,661,449
Contract liabilities 382,146 253,185
Accrued liabilities 7,431,889 7,812,999
General licensing fees payable 13.1 367,898 3,271,931
Workers’ Profit Participation Fund 13.2 596,268 20,012
Workers’ Welfare Fund 231,354 321,189
Income tax payable 262,436 –
Withholding income tax payable 200,030 80,488
Withholding sales tax payable – 127,239
Others 123,014 196,539
25,782,895 31,745,031

13.1 Licensing fee is payable to Société Des Produits Nestlé S.A. an associated undertaking having its registered
office at Avenue Nestlé 1800 Vevey, Switzerland. During the year, licensing fee amounting to Rs. 6,188.02
million (2018: 845.98 million) has been paid.

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Rupees in ‘000) Note 2019 2018

13.2 Workers’ Profit Participation Fund

Balance as at January 01 20,012 1,127,195
Provision for the year 30 576,256 905,722
596,268 2,032,917
Net payments / adjustments made during the year – (2,012,905)
Balance as at December 31 596,268 20,012

14 Interest and mark-up accrued

Long term finances - secured 10,783 10,554
Short term borrowings - secured 301,138 162,306
Short term running finance under mark-up arrangements - secured 133,037 100,994
444,958 273,854

15 Contingencies and commitments

15.1 By way of the decision of the Honorable Supreme Court of Pakistan in suo moto case no. 26 of 2018, the
Company is subject to a potential water charge of Rs. 1/- per litre on water extraction. The Company is
contesting this decision of the Honorable Supreme Court of Pakistan and has filed a review petition. Keeping in
view subsequent developments and follow up court hearings and orders, and on the representations of various
affected companies, the Supreme Court vide its order dated June 10, 2019, ordered, as an interim measure,
the collection of charge of Rs. 0.25/- per litre on relevant production based on the sales tax data/return of each
company, on the basis whereof bills were to be issued by authorities (nationwide), till the framing of legislation
by all the federal and provincial authorities. During the year, the Company has recognised an expense of
Rs. 199.98 million in line with the Honorable Supreme Court’s interim order. However, remaining potential
charge, the amount of which cannot be quantified since the matter is subjudice, has been recognised as a
contingency.

2019
(Rupees in ‘000) 2018

15.2 Guarantees
Outstanding guarantees 227,404 227,450

15.3 Commitments

15.3.1 Letters of credit

Outstanding letters of credit 3,341,687 7,528,363

Un-utilized portion 8,296,649 8,757,037

15.3.2 Commitments in respect of capital expenditure 289,702 205,306

15.3.3 The amount of future payments under Ijarah and the period in which these payments will become due are as
follows:

2019
(Rupees in ‘000) 2018

Not later than one year 34,855 34,855

Later than one year but not later than 5 years 8,714 43,569
43,569 78,424

92 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

16 Property, plant and equipment

Assets including Right-of-Use assets

Land & Land & Plant and Furniture Vehicles IT Total

Building Building machinery and Equipment
(on freehold (on leasehold fixtures
(Rupees in ‘000) land) land)

Cost
Balance as at January 01, 2019 9,000,214 1,054,238 43,715,398 888,892 761,531 1,456,779 56,877,052
Additions during the year 421,320 387,492 3,203,084 120,975 57,977 408,016 4,598,864
Disposals (4,316) (34,641) (931,166) (7,409) (228,479) (133,835) (1,339,846)
Balance as at December 31, 2019 9,417,218 1,407,089 45,987,316 1,002,458 591,029 1,730,960 60,136,070

Balance as at January 01, 2018 8,533,788 1,031,428 40,130,126 642,410 888,478 1,513,617 52,739,847
Additions during the year 466,426 22,810 4,149,978 170,298 18,485 145,160 4,973,157
Disposals – – (564,706) (3,960) (145,432) (121,854) (835,952)
Reclassification – – – 80,144 – (80,144) –
Balance as at December 31, 2018 (Restated) 9,000,214 1,054,238 43,715,398 888,892 761,531 1,456,779 56,877,052

Depreciation and impairment losses

Balance as at January 01, 2019 2,010,696 605,773 21,653,398 585,205 499,919 1,158,728 26,513,719
Depreciation charge for the year 237,948 233,211 3,056,220 148,582 121,718 207,409 4,005,088
Impairment charged during the year – – 490,662 – – – 490,662
Depreciation & impairment on disposal (3,324) (28,352) (841,461) (7,127) (193,156) (133,100) (1,206,520)
Balance as at December 31, 2019 2,245,320 810,632 24,358,819 726,660 428,481 1,233,037 29,802,949

Balance as at January 01, 2018 1,761,514 458,691 19,247,418 412,694 469,474 1,145,065 23,494,856
Depreciation charge for the year 243,972 147,082 2,861,626 106,020 146,368 205,448 3,710,516
Impairment during the year 5,210 – (3,913) 58 39 – 1,394
Depreciation & impairment on disposal – – (451,733) (3,872) (115,962) (121,480) (693,047)
Reclassification – – – 70,305 – (70,305) –
Balance as at December 31, 2018 (Restated) 2,010,696 605,773 21,653,398 585,205 499,919 1,158,728 26,513,719

Net book value as at December 31, 2019 7,171,898 596,457 21,628,497 275,798 162,548 497,923 30,333,121

Net book value as at December 31, 2018 (Restated) 6,989,518 448,465 22,062,000 303,687 261,612 298,051 30,363,333

Rate of depreciation in % 2.5-4 2.5-4 4-20 20 20 10-33.3

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

16.1 Property, plant and equipment contains the following in respect of Right-of-Use assets:

Building on Plant Furniture Total

lease hold and and
land machinery fixtures

Cost
Balance as at January 01, 2019 898,242 119,696 40,990 1,058,928
Additions during the year 379,577 95,544 53,725 528,846
Disposals (34,641) (119,696) – (154,337)
Balance as at December 31, 2019 1,243,178 95,544 94,715 1,433,437

Balance as at January 01, 2018 879,532 119,696 – 999,228

Additions during the year 18,710 – 40,990 59,700
Balance as at December 31, 2018 898,242 119,696 40,990 1,058,928

Depreciation
Balance as at January 01, 2019 561,670 93,756 23,138 678,564
Depreciation for the year 228,835 50,083 42,436 321,354
Depreciation on disposal (28,351) (99,742) – (128,093)
Balance as at December 31, 2019 762,154 44,097 65,574 871,825

Balance as at January 01, 2018 418,934 69,811 – 488,745

Depreciation for the year 142,736 23,945 23,138 189,819
Balance as at December 31, 2018 561,670 93,756 23,138 678,564

Net book value as at December 31, 2019 481,024 51,447 29,141 561,612

Net book value as at December 31, 2018 336,572 25,940 17,852 380,364

16.2 Depreciation charge for the year has been allocated as follows:

(Rupees in ‘000) Note 2019 2018

Cost of goods sold 26 3,082,424 2,960,706

Distribution and selling expenses 27 481,127 433,401
Administration expenses 28 441,537 316,409
4,005,088 3,710,516

94 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

16.3 Particulars of immovable property i.e. land and buildings

Description of asset Purpose Location / Address within Pakistan Area

Land & building Manufacturing facility Sheikhupura Factory 63.46 Acre

Land & building Manufacturing facility Kabirwala Factory 85.58 Acre
Land & building Manufacturing facility Port Qasim Factory 5 Acre
Land & building Manufacturing facility Islamabad Factory 8.72 Kanal
Land & building Milk collection centre Bhawana, District Chiniot 1 Acre
Land & building Milk collection centre Renala, District Okara 1 Acre
Land & building Milk collection centre Pindi Bhattian, District Hafiz Abad 17.9 Kanal
Land & building Milk collection centre Ludden, District Vehari 7.8 Kanal
Land & building Milk collection centre More Mandi, District Jhang 2 Kanal
Land & building Milk collection centre Kalowal, District Chiniot 1 Kanal
Land & building Sales office Korangi Industrial Area, Karachi 2.85 Kanal
Land General purpose Korangi Industrial Area, Karachi 1.6 Kanal

16.4 Detail of property, plant and equipment sold during the year is as follows:

Book Sale Gain/ Mode of Particulars Relationship

(Rupees in ‘000) Description Cost value proceeds (loss) disposal of purchasers with the company

Plant and Machinery

4,954 992 104 (888) Negotiation Muhammad Iqbal Third Party
2,726 1,283 83 (1,200) Negotiation Muhammad Iqbal Third Party
1,880 1,138 1,133 (5) Negotiation Muhammad Iqbal Third Party
774 539 104 (435) Negotiation Muhammad Iqbal Third Party
774 533 104 (429) Negotiation Muhammad Iqbal Third Party
774 533 104 (429) Negotiation Muhammad Iqbal Third Party
775 550 125 (425) Negotiation Muhammad Iqbal Third Party
775 550 125 (425) Negotiation Muhammad Iqbal Third Party
721 514 125 (389) Negotiation Muhammad Iqbal Third Party
721 514 125 (389) Negotiation Muhammad Iqbal Third Party
Vehicles
2,308 1,116 1,492 376 Co. Policy Shaphan Samuel Employee
2,060 996 1,358 362 Co. Policy Humayun Bin Akram Employee
1,931 901 1,257 356 Co. Policy Azhar Ali Butt Employee
1,903 729 1,143 414 Co. Policy Shahzad Saeed Employee
1,891 567 970 403 Co. Policy Syed Azeem Hyder Employee
1,844 553 1,717 1,164 Co. Policy Rana Zamir Employee
1,817 636 1,681 1,045 Co. Policy Adeel Iqbal Employee
1,292 731 1,029 298 Co. Policy Afraz Iqbal Employee

Assets with book

value less than
Rs. 500,000
1,309,926 119,951 202,471 82,520

2019 1,339,846 133,326 215,250 81,924

2018 835,952 142,905 226,806 83,901

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Rupees in ‘000) Note 2019 2018

17 Capital work-in-progress
Civil works 46,941 237,432
Plant and machinery 3,147,057 3,280,852
Others 870,097 811,985
4,064,095 4,330,269
Less: Provision for impairment loss (623,029) (650,967)
3,441,066 3,679,302

17.1 Provision for impairment loss on capital work-in-progress

Balance as at January 01 650,967 650,967
Provision / (reversal) during the year (27,938) –
Balance as at December 31 623,029 650,967

18 Intangible assets
Cost
Balance as at December 31 272,655 272,655
Amortization
Balance as at January 01 257,191 249,123
Charge for the year 27 8,068 8,068
Accumulated amortization as at December 31 265,259 257,191
Net book value as at December 31 7,396 15,464

Amortization rate 20% 20%

19 Long term loans

To employees - secured, considered good 371,544 438,062
Less: current portion shown under current assets (132,045) (132,729)
239,499 305,333

19.1 These represent long term interest free loans to employees for the purchase of cars and motor cycles as per
the Company policy and are repayable within a period of 5 years. Loans are secured by the crossed cheque
from employees of the full loan amount in the name of the Company without mentioning any date as part of
collateral.

19.2 No loan has been given to the Chief Executive Officer and any other Director of the Company.

19.3 The amount of loans to employees and the period in which these will become due are as follows:

2019
(Rupees in ‘000) 2018

Less than one year 132,045 132,729

More than one year but not more than 3 years 239,499 292,097
More than 3 years – 13,236
371,544 438,062

96 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Rupees in ‘000) Note 2019 2018

20 Stores and spares

Stores 207,106 218,670
Spares, including in transit amounting to
Rs. 200.53 million (2018: Rs. 36.29 million) 2,847,387 2,272,637
3,054,493 2,491,307
Less: Provision for obsolete spares 20.1 (678,436) (539,407)
2,376,057 1,951,900

20.1 Provision for obsolete spares

Balance as at January 01 539,407 415,368
Provision during the year 139,029 124,039
Balance as at December 31 678,436 539,407

21 Stock-in-trade
Raw and packing materials including in transit amounting
to Rs. 4,065.36 million (2018: Rs. 4,607.90 million) 14,414,939 15,342,414
Less: Provision for unusable materials 21.1 (80,473) (59,895)
14,334,466 15,282,519
Work-in-process 1,050,456 1,345,036
Finished goods 2,787,204 2,545,192
Goods purchased for resale including in transit amounting
to Rs. 57.84 million (2018: Rs. 49.82 million) 704,315 539,037
18,876,441 19,711,784

21.1 Provision for unusable raw and packing material

Balance as at January 01 59,895 26,843
Provision during the year 80,473 61,542
Written off / adjusted during the year (59,895) (28,490)
Balance as at December 31 80,473 59,895

22 Trade debts
Considered good - unsecured 2,158,591 3,112,550
Considered doubtful - unsecured 75,471 43,334
Less: Provision for doubtful debts 22.1 (75,471) (43,334)
2,158,591 3,112,550
Related parties - considered good 22.2 6,297 4,398
2,164,888 3,116,948

22.1 Provision for doubtful debts

Balance as at January 01 43,334 21,729
Net provision during the year 27 32,137 43,334
Bad debts written off – (21,729)
Balance as at December 31 75,471 43,334

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

2019
(Rupees in ‘000) 2018

22.2 Trade debts include the following amounts due from related parties:
Lahore University of Management Sciences 2,170 821
Packages Limited 2,159 1,590
Bulleh Shah Packaging (Pvt.) Ltd 816 263
Tetra Pak Pakistan Ltd 613 728
DGS (Pvt.) Limited 539 996
6,297 4,398

22.2.1 The maximum aggregate amount of receivable due from related parties at the end of any month during the year
was Rs. 6.09 million (2018: Rs. 5.35 million).

22.3 Aging of overdue balances for related parties is as follows:

Balance Below 31 days

(Rupees in ‘000) overdue 30 days & above

Lahore University of Management Sciences 55 55 –

Packages Limited 217 217 –
Bulleh Shah Packaging (Pvt.) Ltd 267 267 –
Tetra Pak Pakistan Ltd 227 227 –
DGS (Pvt.) Limited 7 – 7

(Rupees in ‘000) Note 2019 2018

23 Advances, deposits, prepayments and other receivables

Advances to suppliers - unsecured - considered good 23.1 1,309,281 813,454
Due from related parties - unsecured - considered good 23.2 93,520 133,735
Cash margin held against imports 171,079 433,622
Deposits and prepayments 282,912 322,393
Sales tax withholding recievable 36,989 –
Income tax - net – 297,141
Other receivables 891,357 584,581
2,785,138 2,584,926

23.1 These relate to normal business of the Company and are interest free.

23.2 Due from related parties (foreign affiliates on the basis of a common holding company) include the following
amounts:

2019
(Rupees in ‘000) 2018

Nestlé Espana, S.A. 24,317 –

Nestlé Indonesia 15,562 –
Nestlé Nederland B.V. 13,865 –
Nestlé Waters Management & Technology S.A.S. 9,621 2,169
Nestlé Asean (Malaysia) Sdn. Bhd. 9,381 –
Nestrade S.A., Malaysia Branch 4,643 –

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

2019
(Rupees in ‘000) 2018

Nestlé Operational Services Worldwide S.A. 4,114 10,020

Nestlé Waters 4,091 –
Nestlé USA Inc. 2,544 –
Nestlé Middle East FZE 1,699 2,103
Nestlé India Limited 1,458 –
Nestlé Zimbabwe (Private) Limited 603 1,307
Nestlé Singapore (Pte) Ltd 491 –
Nestlé Bangladesh Limited 490 490
Nestlé Equatorial African Region Limited 386 480
Nestlé Egypt S.A.E. 255 230
Nestrade S.A. – 95,769
Nestlé Türkiye Gida Sanayi A.S. – 4,306
Nestlé Iran (Private Joint Stock Company) – 4,111
Nestlé ROH (Thailand) Ltd. – 4,058
Nestlé Central And West Africa Ltd. – 3,348
Nestlé France S.A.S. – 2,845
Nestlé Australia Ltd – 967
Nestlé Afghanistan Limited – 933
Nestlé Taiwan Limited – 401
Nestlé Lanka PLC – 135
Nestec S.A. – 63
93,520 133,735

23.2.1 The maximum aggregate amount of receivable due from associated undertakings at the end of any month
during the year was Rs. 441.18 million (2018: Rs. 704.38 million).

23.2.2 Aging of overdue balances for related parties is as follows:

Balance Less than More than

(Rupees in ‘000) overdue 6 months 6 months

Nestlé Indonesia 7,779 7,779 –

Nestlé Nederland B.V. 11,925 7,343 4,582
Nestlé Waters Management & Technology S.A.S. 14,078 14,078 –
Nestrade S.A., Malaysia Branch 3,152 – 3,152
Nestlé Operational Services Worldwide S.A. 4,003 4,003 –
Nestlé Middle East FZE 1,699 – 1,699
Nestlé India Limited 1,458 – 1,458
Nestlé Bangladesh Limited 490 – 490
Nestlé Equatorial African Region Limited 265 – 265
Nestlé Egypt S.A.E. 182 – 182

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Rupees in ‘000) Note 2019 2018

24 Cash and bank balances

Local currency
- Current accounts 1,552 433,323
- Saving accounts 24.1 285,229 301,819
286,781 735,142
Foreign currency
- Current accounts 26,126 5,252
Cash in hand 5,846 5,300
318,753 745,694

24.1 The balance in saving accounts carry rate of return ranging from 11.25% to 11.35% (2018: 2.60% to 8.00%)
per annum.

(Restated)

(Rupees in ‘000) Note 2019 2018

25 Sales - net
Own manufactured
Local 131,767,322 134,460,917
Export 2,163,127 2,316,362
133,930,449 136,777,279
Goods purchased for resale 3,985,256 2,947,585
Less :
Sales tax (9,035,490) (6,988,761)
Trade discounts (12,917,742) (12,035,065)
115,962,473 120,701,038

26 Cost of goods sold

Raw and packing material consumed 59,371,577 58,787,185
Salaries, wages, amenities and training 26.1 5,843,830 6,333,286
General licencing fees (including related taxes) 3,711,480 4,185,096
Energy and power 3,483,747 3,205,252
Repairs, maintenance and vehicle expenses 3,328,487 3,464,216
Depreciation of property, plant and equipment 16.2 3,082,424 2,960,706
Communication and technology 587,033 513,283
Quality assurance and environmental expenses 343,581 335,084
Rent, rates, taxes and insurance 242,399 243,497
Legal and professional 20,330 17,221
Other expenses 268,710 253,268
80,283,598 80,298,094
Decrease / (increase) in work-in-process 294,580 (345,024)
Cost of goods manufactured 80,578,178 79,953,070
(Increase) / decrease in finished goods (242,012) 249,609
Cost of goods sold - own manufactured 80,336,166 80,202,679
Cost of goods sold - purchased for resale 2,277,335 1,684,569
82,613,501 81,887,248

26.1 Salaries, wages and amenities include Rs. 205.19 million (2018: Rs. 152.58 million) in respect of gratuity,
Rs. 143.45 million (2018: Rs. 122.26 million) in respect of pension and Rs. 170.51 million (2018: Rs. 178.16
million) in respect of provident fund.

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Restated)

(Rupees in ‘000) Note 2019 2018

27 Distribution and selling expenses

Marketing and promotion 5,058,655 6,135,275
Freight outward and handling charges 4,094,834 4,270,678
Salaries, wages, amenities and training 27.1 3,790,337 3,735,184
Depreciation of property, plant and equipment 16.2 481,127 433,401
Communication and technology 469,799 396,486
Repairs, maintenance and vehicle expenses 212,807 202,289
Utilities and other office expenses 120,501 153,363
Legal and professional 39,192 31,433
Rent, rates, taxes and insurance 28,318 30,769
Amortization of intangible assets 18 8,068 8,068
Provision for doubtful debts 22.1 32,137 43,334
Other expenses 320,726 185,353
14,656,501 15,625,633

27.1 Salaries, wages and amenities include Rs. 145.45 million (2018: Rs. 111.02 million) in respect of gratuity,
Rs. 150.94 million (2018: Rs. 103.78 million) in respect of pension and Rs. 119.66 million (2018: Rs. 126.13
million) in respect of provident fund.

(Restated)

(Rupees in ‘000) Note 2019 2018

28 Administration expenses
Salaries, wages, amenities and training 28.1 2,246,366 1,918,828
Depreciation of property, plant and equipment 16.2 441,537 316,409
Legal and professional 28.2 434,776 339,124
Communication and technology 330,408 314,849
Utilities and other office expenses 140,134 158,139
Repairs, maintenance and vehicle expenses 64,512 51,262
Rent, rates, taxes and insurance 7,533 7,103
Other expenses 2,452 2,909
3,667,718 3,108,623

28.1 Salaries, wages and amenities include Rs. 74.98 million (2018: Rs. 45.81 million) in respect of gratuity,
Rs. 60.00 million (2018: Rs. 48.63 million) in respect of pension and Rs. 79.42 million (2018: Rs. 65.70 million)
in respect of provident fund.

2019
(Rupees in ‘000) 2018

28.2 Legal and professional charges include the following in

respect of auditors’ services for:
Statutory audit 1,278 1,278
Half yearly review 158 158
Group audit 315 315
Other certificates 90 60
Out of pocket expenses 209 127
2,050 1,938

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Restated)

(Rupees in ‘000) Note 2019 2018

29 Finance cost
Mark-up on long term financing - secured 665,507 674,771
Mark-up on short term borrowings - secured 1,928,124 805,791
Mark-up on short term running finance - secured 512,903 297,050
Interest on finance leases 49,226 37,139
Bank charges 31,935 41,038
3,187,695 1,855,789

30 Other expenses
Worker’s Profit Participation Fund 13.2 576,256 905,722
Worker’s welfare fund 228,573 308,763
Exchange rate loss 111,312 288,733
Donations and gifts to third parties 30.1 11,273 7,500
Impairment of property, plant and equipment 30.2 462,724 1,394
1,390,138 1,512,112

30.1 Donations

Party wise breakup of donations where donation to a single party exceeds 10% of total donations or Rs. 1
million whichever is higher, is as follows:

2019
(Rupees in ‘000) 2018

a) Akhuwat Islamic Micro-finance 2,000 –

Name of donees in which a director or his spouse has an interest:

b) Dairy & Rural Development Foundation (DRDF), 3,000 2,500
30-E/1, Gulberg III, Lahore - Pakistan
(Syed Yawar Ali, Director is also Governor of DRDF)
c) Lahore University of Management Sciences (LUMS), 4,000 5,000
Defence Housing Authority, Lahore
(Syed Babar Ali, Director is also Pro Chancellor of LUMS)
(Syed Hyder Ali, Director is also a member of
Executive Committee of LUMS)
9,000 7,500

30.2 During the year, the Company has recorded a net impairment charge against operating assets, primarily due to
a shift in packaging format and discontinuation of certain products.

2019
(Rupees in ‘000) 2018

31 Other income
Income from financial assets:
Return on bank accounts 31,841 14,131

Income from non financial assets:

Sale of scrap 155,025 157,276
Profit on sale of property, plant and equipment 81,924 83,901
268,790 255,308

102 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Rupees in ‘000) Note 2019 2018

32 Taxation
Current tax
For the year 3,548,945 4,766,724
Prior year 294,645 629,745
3,843,590 5,396,469
Deferred tax 7.1 (482,347) (41,087)
3,361,243 5,355,382

2019
% 2018

32.1 Tax charge reconciliation

Numerical reconciliation between the average effective
tax rate and the applicable tax rate:

Applicable tax rate 29.00 29.00

Tax effect of amounts that are:
Tax impact related to prior year including super tax 2.75 5.32
Tax impact of rate change 0.91 (0.85)
Tax credits (0.76) (1.46)
Tax impact of presumptive tax regime (0.39) (0.40)
Others (0.14) 0.08
2.37 2.69
Average effective tax rate charged to statement of profit or loss 31.37 31.69

(Restated)

2019
2018

33 Earnings per share

33.1 Basic earnings per share

Profit after taxation available for distribution

to ordinary shareholders Rupees in ‘000’ 7,354,467 11,611,559

Weighted average number of ordinary shares Number in ‘000’ 45,350 45,350

Basic earnings per share Rupees 162.17 256.05

33.2 Diluted earnings per share

There is no dilution effect on the basic earnings per share as the Company has no such commitments.

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

34 Transactions with related parties

The related parties comprise of Holding Company, Associated Companies, other related Companies, key management
personnel and employees retirement benefit funds. The Company in the normal course of business carries out
transactions with various related parties. Amounts due from and to related parties are shown under receivables and
payables and remuneration to key management personnel is disclosed in note 39. Other significant transactions with
related parties are as follows:

2019
(Rupees in ‘000) 2018

34.1 Transactions during the year

Associated undertakings
General licensing fee 3,283,986 3,842,847
Dividends paid 6,164,569 9,428,261
Purchase of assets, goods, services and reimbursable expenses 17,074,684 16,070,679
Sale of goods 1,821,626 2,021,370
Sale of fixed assets – 18,948
Insurance claims 15,868 17,542
Donations 7,000 7,500

Other related parties

Contribution to staff retirement benefit plans 854,970 855,450

34.2 All transactions with related parties have been carried out on mutually agreed terms and conditions except for
donations.

34.3 Following is a list of foreign associated undertakings with whom the Company has entered into transactions
during the year. All foreign affiliates (except for Nestlé S.A. “the Holding Company”) are related to the Company
due to common holding of the Holding Company.

Name Country of Operations

Nestlé SA Switzerland
Nestrade S.A. Switzerland
Nestlé Suisse S.A. Switzerland
Nestec S.A. Switzerland
Société des Produits Nestlé S.A. Switzerland
Nestlé Australia Ltd Australia
Nestlé Brasil Ltda. Brazil
Nestlé Qingdao Limited China
Nestlé Egypt S.A.E. Egypt
Nestlé France S.A.S. France
Nestlé Waters Management & Technology S.A.S. France
Nestlé Central and West Africa Ltd Ghana
Nestlé India Limited India
PT Nestlé Indonesia Indonesia

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 NOTES TO THE FINANCIAL STATEMENTS
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Name Country of Operations

Nestlé Iran (Private Joint Stock Company) Iran
Nestlé Japan Ltd. Japan
Nestlé Asean (Malaysia) Sdn Bhd Malaysia
Nestlé Manufacturing (Malaysia) Sdn. Bhd. Malaysia
Nestlé Regional Service Centre (Malaysia) Sdn. Bhd. Malaysia
Nestlé Nederland B.V. Netherlands
Nestlé Business Services AOA, Inc. Philippines
Nestlé Philippines, Inc. Philippines
Nestlé Portugal, S.A. Portugal
Nestlé Saudi Arabia L.L.C. Saudi Arabia
Nestlé R&D Center (Pte) Ltd Singapore
Nestlé Singapore (Pte) Ltd Singapore
Nestlé Espana, S.A. Spain
Nestlé Operational Services Worldwide S.A. Switzerland
Nestlé Thai Ltd. Thailand
Nestlé Dubai Manufacturing LLC UAE
Nestlé Middle East FZE UAE
Nestlé Middle East Manufacturing LLC UAE
Nestlé USA Inc USA
Nestlé Vietnam Ltd. Vietnam

34.4 Following is a list of local associated undertakings with whom the Company has entered into transactions
during the year:

Name Basis of Association

Associated undertakings
Babar Ali Foundation Common directorship
Bulleh Shah Packaging (Pvt.) Ltd Common directorship
Dairy & Rural Development Foundation (DRDF) Common directorship
IGI Insurance Limited Common directorship
Lahore University of Management Common directorship
Packages Limited Common directorship
Pakistan Dairy Association Common directorship
Syed Maratib Ali Religious and Charitable Trust Society Common directorship
Tetra Pak Pakistan Ltd Common directorship

Other related parties

Nestlé Pakistan Limited Employees’ Provident Fund Post employment benefits
Nestlé Pakistan Limited Employees’ Pension Fund Post employment benefits
Nestlé Pakistan Limited Employees’ Gratuity Fund Post employment benefits

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

(Rupees in ‘000) Note 2019 2018

35 Cash generated from operations

Profit before taxation 10,715,710 16,966,941

Adjustment for non-cash charges and other items:

Depreciation on property, plant and equipment 16.2 4,005,088 3,710,516
Amortization of intangible assets 18 8,068 8,068
Impairment loss on property, plant and equipment 30 462,724 1,394
Gain on disposal of property, plant and equipment 31 (81,924) (83,901)
Provision for Workers’ Profit Participation Fund 30 576,256 905,722
Provision for Workers’ Welfare Fund 30 228,573 308,763
Provision for doubtful debts 27 32,137 43,334
Provision for obsolete spares 20.1 139,029 124,039
Exchange rate loss 30 111,312 288,733
Provision for unusable raw and packing material 20,578 33,052
Provision for staff retirement benefits 780,012 584,077
Finance cost 29 3,187,695 1,855,789
Profit before working capital changes 20,185,258 24,746,527

Effect on cash flow due to working capital changes:

(Increase) / decrease in current assets:
Stores and spares (563,186) (305,952)
Stock-in-trade 814,765 (4,386,548)
Trade debts 919,923 (2,379,166)
Advances, deposits, prepayments and other receivables (543,759) (973,337)
(Decrease) / increase in current liabilities:
Trade and other payables (7,140,713) 6,049,589
(6,512,970) (1,995,414)

13,672,288 22,751,113

36 Cash and cash equivalents

Cash and bank balances 318,753 745,694
Running finance under mark-up arrangements - secured (6,141,325) (1,418,301)
(5,822,572) (672,607)

37 Number of employees
Total number of employees:
Average number of employees during the year 4,217 4,466
Number of employees as at December 31 4,063 4,322

Of which factory employees are:
Average number of employees during the year 2,623 2,788
Number of employees as at December 31 2,518 2,674

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

38 Segment reporting

Segment information is presented in respect of how the Company’s “chief decision maker” allocates resources and
monitors performance based on business segments.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected
to be used for more than one year.

The Company’s operations comprise of the following main business segments and product categories:

i) Dairy and Nutrition Products

Milk based products and cereals

ii) Powdered and Liquid Beverages

Juices, drinking water and powdered drinks

iii) Other Products

38.1 Segment analysis and reconciliation for the year ended December 31

Dairy and Nutrition Products Powdered and Liquid Beverages Other Products Total
(Rupees in ‘000) 2019 2018 2019 2018 2019 2018 2019 2018

Sales - net 89,554,328 93,759,815 26,261,375 26,159,731 146,770 781,492 115,962,473 120,701,038
Depreciation and amortization 2,774,723 2,652,829 1,236,173 1,008,227 2,260 57,528 4,013,156 3,718,584

Operating profit / (loss) before

tax and unallocated expenses 13,936,050 18,635,741 1,138,563 1,802,428 (49,860) (358,635) 15,024,753 20,079,534

Unallocated corporate expenses:

Finance cost (3,187,695) (1,855,789)
Exchange rate loss (111,312) (288,733)
Other expenses (816,102) (1,221,985)
Other income 268,790 255,308
Taxation (3,361,243) (5,355,382)
Other material non-cash items:
Impairment of fixed assets (462,724) (1,394)
Profit after taxation 7,354,467 11,611,559

Segment assets 46,137,044 46,086,325 18,309,649 18,942,366 82,659 633,681 64,529,352 65,662,372
Unallocated assets 744,056 1,497,639
Total assets 65,273,408 67,160,011

Segment liabilities 19,977,693 21,960,534 6,381,893 9,431,129 31,668 298,832 26,391,254 31,690,495
Unallocated liabilities 38,882,154 35,469,516
Total liabilities 65,273,408 67,160,011

Segment capital expenditure 3,094,766 3,183,875 707,158 1,332,238 1,919 17,062 3,803,843 4,533,175

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

2019
(Rupees in ‘000) 2018

38.2 Geographical segments

Sales are made by the Company in the following countries:
Pakistan 113,814,729 118,434,430
Afghanistan 1,757,061 1,948,725
Other foreign countries 390,683 317,883
115,962,473 120,701,038

The Company manages and operates manufacturing facilities and sales offices in Pakistan only.

38.2.1 Export sales to foreign related parties

(Rupees in ‘000) 2019 2018

Country Party Name

Afghanistan Nestlé Afghanistan Limited 1,757,061 1,948,725
Turkey Nestlé Türkiye Gida Sanayi A.S. 23,249 23,099
UAE Nestlé Middle East FZE – 1,699
Bangladesh Nestlé Bangladesh Ltd. – 490

38.2.2 Export sales are made on open contractual terms.

39 Remuneration of Chief Executive Officer, Directors and Executives

The aggregate amounts charged in these financial statements during the year for remuneration, including certain
benefits, to the chief executive officer, executive directors, non-executive directors and executives of the Company are
as follows:

Chairman Chief Executive Officer Executive Directors Executives

(Rupees in ‘000) 2019 2018 2019 2018 2019 2018 2019 2018

Fee / managerial remuneration 6,724 6,036 38,781 29,670 58,339 34,584 1,942,690 1,681,288
Bonus – – 7,896 7,069 8,277 7,727 345,416 333,779
Retirement benefits – – – – – – 350,171 312,254
Housing – – 4,837 4,276 8,366 7,590 3,740 2,108
Reimbursable expenses 1,052 1,052 17,734 18,261 48,319 11,571 477,377 339,959
7,776 7,088 69,248 59,276 123,301 61,472 3,119,394 2,669,388
Number of persons 1 1 1 1 2 2 542 463

39.1 The chairman, chief executive officer, executive directors and certain executives of the Company are provided
with use of Company maintained vehicles and residential telephones.

39.2 The aggregate amount charged in these financial statements in respect of contribution to provident fund of key
management personnel is Rs. 145.27 million (2018: Rs. 128.84 million).

39.3 Meeting fees amounting to Rs. 2,250,000 (2018: Rs. 2,325,000) was paid to non-executive directors during
the year.

108 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

40 Capacity and production of industrial units

Capacity Production
2019
(Rupees in ‘000) 2018 2019 2018

Sheikhupura factory
Liquid products - Litres in thousand 1,238,483 1,238,483 685,986 742,159
Non-liquid products - Kgs in thousand 76,908 76,908 44,890 45,653

Kabirwala factory
Liquid products - Litres in thousand 118,907 195,899 54,985 51,370
Non-liquid products - Kgs in thousand 93,141 100,381 46,324 61,901

Port Qasim factory

Liquid products - Litres in thousand 489,400 489,400 214,005 228,752

Islamabad factory
Liquid products - Litres in thousand 163,296 163,296 78,826 85,701

Total
Liquid products - Litres in thousand 2,010,086 2,087,078 1,033,802 1,107,982
Non-liquid products - Kgs in thousand 170,049 177,289 91,214 107,554

40.1 Utilization of capacity is in line with seasonal impact of products and demand.

41 Financial risk management

Financial risk factors

The Company’s activities expose it to a variety of financial risks, market risks (including currency risks, other price risks
and interest rate risks), credit risks and liquidity risks. The Company’s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance.

The Company finances its operations through equity, borrowings and management of working capital with a view to
maintain an appropriate mix between various sources of finance to minimize risk. The Company follows an effective
cash management and planning policy and maintains flexibility in funding by keeping committed credit lines available.
Market risks are managed by the Company through the adoption of appropriate policies to cover currency risks and
interest rate risks. The Company applies credit limits to its customers and obtains advances from them.

41.1 Market risk

41.1.1 Currency Risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates. Currency risk arises mainly from future commercial transactions or
receivables and payables that exist due to transactions in foreign currencies.

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The Company is exposed to currency risk arising from various currency exposures, primarily with respect to
various currencies. Currently, the Company’s foreign exchange risk exposure is restricted to the amounts
receivable from / payable to the foreign entities. The Company’s major exposure to currency risk is as follows:

Particulars Currency 2019 2018

Assets
Foreign currency bank accounts USD 38,996 135,973

Cash in hand USD 29,915 29,915

EUR 6,985 6,985

Receivables USD 70,238 208,193

CHF 108,149 113,663

Liabilities
Payables USD 12,099,473 8,606,074
EUR 1,797,310 1,978,743
CHF 4,391,183 2,673,677
GBP 45,648 55,948
CNY 3,779,581 4,550,546
SGD 2,597,625 1,786,164

On balance sheet exposure PKR (‘000) 3,240,021 2,115,160

Outstanding letters of credit PKR (‘000) 3,341,687 7,528,363

Off balance sheet exposure 8,296,649 8,757,037

41.1.1.1 The following significant exchange rates were applied during the year :

2019 2018

Average Reporting Average Reporting

(Rupees per currency unit) Rate date rate Rate date rate

US Dollar 149.78 154.89 121.00 139.80

Swiss Franc 150.83 159.84 123.55 141.21
Euro 167.78 173.56 142.62 160.69
Great Britain Pound 191.42 203.39 160.90 176.96
Chinese Renminbi 21.67 22.23 18.26 20.32
Singapore Dollar 109.89 115.06 89.62 102.79

110 Management Report 2019

 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Currency rate sensitivity analysis

If the functional currency, at reporting date, had increased by 10% against the foreign currencies with all other
variables held constant, the impact on profit before taxation would have been as follows:

2019
(Rupees in ‘000) 2018

Effect on Profit and loss:

US Dollar 185,247 115,083
Euro 31,074 31,684
Swiss Franc 68,460 36,151
Great Britain Pound 928 990
Chinese Renminbi 8,404 9,247
Singapore Dollar 29,889 18,361
324,002 211,516

The effect may be respectively lower / higher, mainly as a result of exchange gains / losses on translation of
foreign exchange denominated financial instruments.

Currency risk sensitivity to foreign exchange movements has been calculated on a symmetric basis.

41.1.2 Other price risk

Other price risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market prices (other than those arising from interest rate risk or currency risk), whether
those changes are caused by factors specific to the individual financial instrument or its issuer, or factors
affecting all similar financial instruments traded in the market.

41.1.3 Interest rate risk

Interest rate risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. Significant interest rate risk exposures are primarily managed by
a mix of borrowings at fixed and variable interest rates.

At the reporting date, the interest rate profile of the Company’s interest bearing financial instruments is:

2019
(Rupees in ‘000) 2018

Variable rate instruments

Running finance from local banks - PKR (6,141,325) (1,418,301)
Effective interest rate in %age 12.33 7.15

Fair value sensitivity analysis for fixed rate instruments

The Company does not account for any fixed rate financial assets and liabilities at fair value through profit or
loss. Therefore, a change in interest rate at the reporting date would not affect profit or loss of the Company.

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Cash flow sensitivity analysis for variable rate instruments

If interest rates on loans from borrowings from banks, at the year end date, fluctuate by 100 bps higher / lower
with all other variables, in particular foreign exchange rates held constant, profit before taxation for the year and
2018 would have been affected as follows:

2019
(Rupees in ‘000) 2018

Effect on profit and loss of an increase (61,413) (14,183)

Effect on profit and loss of a decrease 61,413 14,183

The effect may be higher / lower, mainly as a result of higher / lower mark-up income on floating rate loans /
investments.

The sensitivity analysis prepared is not necessarily indicative of the effects on the profit for the year and assets
/ liabilities of the Company.

41.1.4 Fair value measurement of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.

Underlying the definition of fair value is the presumption that the Company is a going concern and there is no
intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse
terms.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly
available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those
prices represent actual and regularly occurring market transactions on an arm’s length basis.

IFRS 13 ‘Fair Value Measurement’ requires the Company to classify fair value measurements and fair value
hierarchy that reflects the significance of the inputs used in making the measurements of fair value hierarchy
has the following levels:

– Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)

– Inputs other than quoted prices included within level 1 that are observable for the asset either directly
(that is, derived from prices) (Level 2)

– Inputs for the asset or liability that are not based on observable market data (that is, unadjusted) inputs
(Level 3)

Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during
which the changes have occurred.

The following table shows the carrying amounts of financial assets and financial liabilities. None of them are
currently measured at fair value since their carrying amount is a reasonable approximation of their fair value.

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 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Carrying Amount
Amortised Financial Total
(Rupees in ‘000) Cost liabilities
December 31, 2019
Financial assets - measured at fair value – – –
Financial assets - not measured at fair value
Trade debts 2,164,888 – 2,164,888
Long term loans 371,544 – 371,544
Advances, deposits, prepayments, and other receivables 1,062,436 – 1,062,436
Cash and bank balances 318,753 – 318,753
3,917,621 – 3,917,621

Financial liabilities - measured at fair value – – –

Financial liabilities - not measured at fair value
Long term finances - secured – 6,978,613 6,978,613
Short term borrowings - secured – 17,217,473 17,217,473
Running finance under mark-up arrangements - secured – 6,141,325 6,141,325
Customer security deposits – 192,724 192,724
Trade and other payables – 23,987,647 23,987,647
Unclaimed dividend – 20,608 20,608
Interest and mark-up accrued – 444,958 444,958
– 54,983,348 54,983,348

Carrying Amount
Amortised Financial Total
(Rupees in ‘000) Cost liabilities
December 31, 2018
Financial assets - measured at fair value – – -
Financial assets - not measured at fair value
Trade debts 3,116,948 – 3,116,948
Long term loans 438,062 – 438,062
Advances, deposits, prepayments and other receivables 1,018,203 – 1,018,203
Cash and bank balances 745,694 – 745,694
5,318,907 – 5,318,907

Financial liabilities - measured at fair value – – –

Financial liabilities - not measured at fair value
Long term finances - secured – 9,291,755 9,291,755
Short term borrowings - secured – 15,242,800 15,242,800
Running finance under mark-up arrangements - secured – 1,418,301 1,418,301
Customer security deposits – 195,431 195,431
Trade and other payables – 30,746,379 30,746,379
Unclaimed dividend – 20,608 20,608
Interest and mark-up accrued – 273,854 273,854
– 57,189,128 57,189,128

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41.2 Credit risk

Credit risk represents the risk that one party to a financial instrument will cause a financial loss for the other
party by failing to discharge an obligation. Company’s credit risk is primarily attributable to its long term loans,
trade debts, advances, deposits and other receivables and balances at banks. The Company manages its credit
risk by the following methods:

– Monitoring of debts on a continuous basis

– Application of credit limits to its customers
– Obtaining adequate deposits / collateral where needed

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to
credit risk at the reporting date is as follows:

2019
(Rupees in ‘000) 2018

Particulars
Trade debts 2,164,888 3,116,948
Advances, deposits and other receivables 1,062,436 1,018,203
Long term loans 371,544 438,062
Bank balances 312,907 740,394
3,911,775 5,313,607

The aging of trade debts at the reporting date is:

Not yet due 2,069,203 2,886,727
Past due 0 - 30 days 84,139 216,935
Past due 30 days 11,546 13,286
2,164,888 3,116,948

The Company uses an allowance matrix to measure “Expected Credit Losses” (ECL) of trade debtors. Overdue
balances at the reporting date are immaterial and hence there is no need to apply ECL methodology to the
balances.

41.2.1 Loans to employees

Loans to employees are secured against provident fund and salaries of employees. The Company has assessed,
based on historical experience and available securities, that the expected credit loss associated with loans to
employees is trivial and therefore no impairment charge has been accounted for.

41.2.2 Deposits and other receivables

Advances and deposits mainly comprise of advances to employees against salaries and deposits with various
government and corporate entities. The Company has assessed, based on historical experience and available
securities, that the expected credit loss associated with these financial assets is trivial and therefore no
impairment charge has been accounted for.

The credit risk on liquid funds is limited because the counter parties are banks with reasonably high credit
ratings. The Company believes that it is not exposed to major concentration of credit risk as its exposure is
spread over a large number of counter parties and subscribers in the case of trade debts.

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 NOTES TO THE FINANCIAL STATEMENTS
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The credit quality of cash and bank balances that are neither past due nor impaired can be assessed by
reference to external credit ratings or to historical information about counterparty default rate:

Rating 2019 Rating 2018

Short Term Long Term Agency Short Term Long Term Agency

Habib Bank Limited A-1+ AAA JCR-VIS A-1+ AAA JCR-VIS

Standard Chartered Bank Limited A1+ AAA PACRA A1+ AAA PACRA
United Bank Limited A-1+ AAA JCR-VIS A-1+ AAA JCR-VIS
Citi Bank N.A P-1 Aa3 Moody’s P-1 A1 Moody’s
Deutsche Bank AG F2 BBB+ Fitch F2 BBB+ Fitch
Meezan Bank Limited A-1+ AA+ JCR-VIS A-1+ AA JCR-VIS
Tameer Microfinance Bank Limited A1 A+ PACRA A1 A+ PACRA

Due to the Company’s long standing business relationships with these counterparties and after giving due
consideration to their strong financial standing, management does not expect non performance by these
counter parties on their obligations to the Company. Accordingly, the credit risk is minimal.

41.3 Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities.

The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and stressed conditions. For this purpose the
Company has sufficient running finance facilities available from various commercial banks to meet its liquidity
requirements. Further, liquidity position of the Company is closely monitored through budgets, cash flow
projections and comparison with actual results by the Board.

41.3.1 The following is the contractual maturity analysis of financial liabilities as at December 31, 2019:

Carrying Contractual Less than 6 to 12 1 year to Total

(Rupees in ‘000) value cash flows 6 months months 5 years

Financial liability
Long term finances 6,978,613 7,524,168 356,267 3,387,607 3,780,294 7,524,168
Lease liabilities 500,494 469,795 469,795 – – 469,795
Short term borrowings - secured 17,217,473 17,564,275 17,564,275 – – 17,564,275
Running finance under mark-up
arrangements - secured 6,141,325 7,110,639 6,625,982 484,657 – 7,110,639
Customer security deposits - interest free 192,724 192,724 192,724 – – 192,724
Unclaimed dividend 20,608 20,608 20,608 – – 20,608
Trade and other payables 25,782,895 24,110,661 24,110,661 – – 24,110,661
Interest and mark-up accrued 444,958 444,958 444,958 – – 444,958
57,279,090 57,437,828 49,785,270 3,872,264 3,780,294 57,437,828

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41.3.2 The following is the contractual maturity analysis of financial liabilities as at December 31, 2018:

Carrying Contractual Less than 6 to 12 1 year to Total

(Rupees in ‘000) value cash flows 6 months months 5 years

Financial liability
Long term finances 9,291,755 9,961,387 449,415 447,242 9,064,730 9,961,387
Lease liabilities 410,790 432,194 432,194 - - 432,194
Short term borrowings - secured 15,242,800 15,532,738 15,532,738 - - 15,532,738
Running finance under mark-up
arrangements - secured 1,418,301 1,492,442 1,492,442 - - 1,492,442
Customer security deposits - interest free 195,431 195,431 195,431 - - 195,431
Unclaimed dividend 20,608 20,608 20,608 - - 20,608
Trade and other payables 30,942,918 30,942,918 30,942,918 - - 30,942,918
Interest and mark-up accrued 273,854 273,854 273,854 - - 273,854
57,796,457 58,851,572 49,339,600 447,242 9,064,730 58,851,572

41.3.2.1 Fair values of financial assets and liabilities

The carrying values of all financial assets and liabilities reflected in the financial statements approximate their
fair values. Fair value is determined on the basis of objective evidence at each reporting date. It is the amount
for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s
length transaction.

41.3.2.2 Derivative assets and liabilities designated as cash flow hedges

The cash flows associated with cash flow hedges are expected to occur within a period of six months from
reporting date and are likely to have same impact on the profit and loss.

42 Reconciliation of movement of liabilities to cash flows arising from financing activities

2019
Liabilities Equity
Long term Short term Short term Interest Unclaimed Share Share General Total
finances borrowings running mark-up dividend capital premium Reserve
(Rupees in ‘000) finances accrued

Balance as at January 01, 2019 9,291,755 15,242,800 1,418,301 273,854 20,608 453,496 249,527 280,000 27,230,341
Cash flows
Short term borrowings obtained - 1,974,673 4,723,024 - - - - - 6,697,697
Repayment of long term finances (2,313,142) - - - - - - - (2,313,142)
Finance cost paid - - - (3,016,591) - - - - (3,016,591)
Dividends paid - - - - (7,845,479) - - - (7,845,479)
Total changes from financing cash flows (2,313,142) 1,974,673 4,723,024 (3,016,591) (7,845,479) - - - (6,477,515)
Non-cash changes
Dividend approved - - - - 7,845,479 - - - 7,845,479
Finance cost - - - 3,187,695 - - - - 3,187,695
Total non-cash changes - - - 3,187,695 7,845,479 - - - 11,033,174
Balance as at December 31, 2019 6,978,613 17,217,473 6,141,325 444,958 20,608 453,496 249,527 280,000 31,786,000

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43 Capital risk management

The Board’s policy is to maintain an efficient capital base so as to maintain investor, creditor and market confidence
and to sustain the future development of its business. The Board of Directors monitors the return on capital employed,
which the Company defines as operating income divided by total capital employed. The Board of Directors also
monitors the level of dividends to ordinary shareholders.

The Company’s objectives when managing capital are:

i) To safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders, and

ii) To provide an adequate return to shareholders

The Company manages the capital structure in the context of economic conditions and the risk characteristics of
the underlying assets. In order to maintain or adjust the capital structure, the Company may, for example, adjust the
amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debt.

The Company monitors capital on the basis of debt to equity ratio, calculated on the basis of total debt to equity.

2019
(Rupees in ‘000) 2018

The debt to equity ratio as at December 31:

Total borrowings 30,337,411 25,952,856
Total equity 3,255,966 4,020,224
Total debt and equity 33,593,377 29,973,080
Debt to equity ratio 90:10 87:13

There were no major changes in the Company’s approach to capital management during the year and the Company
is not subject to externally imposed capital requirements.

44 Date of authorization for issue

These financial statements were authorized for issue on February 26, 2020 by the Board of Directors of the
Company.

45 Subsequent events

45.1 The Board of Directors in their meeting held on February 26, 2020 have proposed a final cash dividend for the
year ended December 31, 2019 of Rs. 42 (2018: Rs. 63 per share), amounting to Rs. 1,904.68 million (2018:
Rs. 2,875.05 million) for approval of the members at the Annual General Meeting to be held on May 07, 2020.
These financial statements do not reflect this dividend.

45.2 On March 11, 2020, the World Health Organization declared the Coronavirus (COVID-19) outbreak to be a
pandemic in recognition of its rapid spread across the globe, with over 150 countries now affected. Many
governments are taking increasingly stringent steps to help contain or delay the spread of the virus. Currently,
there is a significant increase in economic uncertainty which is, for example, evidenced by more volatile
asset prices and currency exchange rates.

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For the Company’s December 31, 2019 financial statements, the Coronavirus outbreak and the related impacts
are considered non-adjusting events. Consequently, there is no impact on the recognition and measurement
of assets and liabilities. Due to the uncertainty of the outcome of the current events, the Company cannot
reasonably estimate the impact these events will have on the Company’s financial position, results of operations
or cash flows in the future.

46 General

46.1 Corresponding figures

Previous year’s figures have been re-arranged, wherever necessary for the purpose of comparison. Other than
the changes discussed in note 2.3.19, finished goods warehousing and product handling costs have been
reclassified from “Raw and packing material consumed” under Cost of goods sold to “Freight outward and
handling charges” under Distribution and Selling Expenses.

46.2 These financial statements are presented in Pak Rupees, which is the Company’s functional and presentation
currency. Figures have been rounded off to the nearest of thousand of rupee.

SYED SAIFUL ISLAM SAMER CHEDID SYED YAWAR ALI

Chief Financial Officer Chief Executive Officer Chairman

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120 Management Report 2019