cpl group annual report 2016 singh will be the ... mahesh patel, obe chairman l ong stat bilong yia...

PAPUANEW

GUINEA’SLEADINGRETAILER

CPL GROUP ANNUAL REPORT 2016

CPL Group is Papua New Guinea’s largest

retailing network. It has now established seven

retail brands:

CITY PHARMACY

STOP N SHOP

HARDWARE HAUS

BONCAFÉ

PARADISE CINEMA

JACK’S OF PNG

PROUDS DUTY FREE.

At the end of 2016, the CPL Group had a combined retail

operation of 55 stores nationwide and employed over 2600

staff, of which 98 percent are Papua New Guinean citizens.

Its network spans health and beauty chains, supermarkets,

hardware stores, coffee shops, multiplex cinemas, a clothing

company, duty free shops and an online retailer/wholesale

business.

C O N T E N T S

6 Chairman’s statement

9 Tok Tok Blo Siaman

11 The CPL Group Board

13 CPL Group’s Leadership Team

14 CPL Group: an overview

15 What CPL stands for

16 Map of CPL’s retail outlets

18 Our Chain of Stores

19 Anniversary Feature: 30 Years of CPL

27 Our Retail Brands

30 2016: the Year in Review

33 The CPL Foundation: Giving Back to Our Community

37 Directors’ Report

40 Stock Exchange Information

43 Independent Auditor’s Report

46 Financial report, 31 December 2016

76 Company Directory

C H A I R M A N ’ S S TAT E M E N T

In the early part of 2014, I advised our Board that I wished to relinquish my executive role and transition to Non-Executive Chairman as

we approach our 30th anniversary in 2017. The Board has been working towards that target with the addition of new Directors with extensive retail knowledge and the restructure of responsibilities within the senior management group.

Subject to obtaining various regulatory approvals, the Board has agreed to appoint Mr Joe Barberis, currently a Non-Executive Director, as Managing Director of the CPL Group. Mr Barberis brings to the position considerable experience in all facets of retail in Australia, Asia and the Pacific, including Papua New Guinea, and has served on the CPL Board since May 2015. Ravi Singh will be the CEO for the subsidiaries and General Manager Merchandise for the Group. Once the Regulatory Approvals regarding the Appointment of Mr Barberis have been received, I will relinquish the Execution responsibilities to him and continue in the role of Non Executive Chairman.

Underlying Net Profit Before Tax (before one-off adjustments) for the Company in 2016 was K7.03 million. The Group recorded a Net Profit Before Tax of K2.03 million for the year ended 31st December 2016. This result included a number of one-off adjustments totaling K5 million relating to:• Under-provisioning of staff entitlements• An increase in the provision for doubtful debts• An increase in the provision for obsolete stock

The increase in the provisions for doubtful debts and inventory reflects the current economic downturn in PNG. In addition, the year-end audit process identified similar under-provisioning and other adjustments in 2015 and as a result the 2015 financial statements have been restated which has resulted in a reduction of K9.35 million in pre-tax profit previously reported.

For the year ended December 2016 group sales were K539.63 million, an increase of 17% when compared to last year, mainly attributable to the opening of two new supermarkets at Harbour City and Koki during the year. While the additional sales were welcome, the fixed costs of opening these two supermarkets were not able to be fully recovered during the year, which impacted on the result.

The retail market in Port Moresby, where all of the supermarkets are located, has been flat during the year and, while the new supermarkets have recorded satisfactory sales, this has been to a degree at the expense of existing stores.

6 CPL GROUP ANNUAL REPORT 2016

8 CPL GROUP ANNUAL REPORT 2016 CPL GROUP ANNUAL REPORT 2016 9

T O K T O K B I L O N G S I A M A N B I L O N G C P LC H A I R M A N ’ S S TAT E M E N T

Pleasingly improved contributions have been recorded by Retail Pharmacy operations and both the wholesale and tender businesses. All joint venture companies have reported improved results with the overall loss to the group of K2.01 million in 2015 improving to a profit of K0.06 million in 2016.

With the funding of the two new supermarkets in Port Moresby, coupled with delays in receipt of insurance proceeds relating to the Waigani Central fire in 2015 and Government debts, the Group’s cash position remains strained.

Discussions continue with major financers to renew and strengthen facilities, but it is acknowledged that further growth in the Group’s operations may proceed only after disposal of non-core assets and/or the introduction of additional capital. The Directors expect that an announcement on this will be made prior to the Annual General Meeting scheduled for June 2017.

In view of the challenging liquidity situation, the Directors will recommend to the Annual General Meeting that no dividend will be paid.

Looking forward, we expect the soft trading conditions to continue through the year and the key focus will be on driving efficiencies and cost reductions. As a consequence CPL will defer further expansion plans as the two new supermarkets gain sales momentum over a full twelve-month period. For the first two months of 2017, both the supermarket and pharmacy businesses are trading to budget. However, Hardware Haus sales continue to be impacted by the general economic environment.

Finally, I would like to thank our team members across the nation, our shareholders and business partners for the continued support.

Mahesh Patel, OBECHAIRMAN

L ong stat bilong yia 2014, mi bin tok klia long ol Bod bilong mipela olsem mi laik lusim sia bilong mi long ekseketiv i go long kamap Non-

Ekseketiv Siaman taim yumi kamap klostu long pinis bilong 30 yia eniveseri long 2017. Ol bod i bin mekim wok long kamap long dispela mak wantaim sampela nupela Dairekta husat i gat planti save long ritel bisnis na long wok bilong ristraksa insait long ol senia menesmen grup. Em bai kisim sampela moa tok orait long ol lo, tasol ol Bod i wanbel pinis long makim Mista Joe Barberis, nau em i Non-Ekseketiv Dairekta long kamap olsem Menesing Dairekta bilong CPL Grup. Mista Barberis i kam insait long kisim dispela sia wantiam bikpela ekspiriens bilong olgeta kain ritel bisnis long Australia, Esia na Pasifik na Papua Niugini. Em i bin stap long CPL Bod stat long mun Me 2015. Ravi Singh bai kamap CEO bilong ol han kampani na em bai stap olsem Jeneral Menesa bilong Grup. Taim tok orait long makim Mr Barberis ikam long kampani, bai mi givim displa wok ekseketive blong mi igo long em na mi bai wok igo yet olsem non eksektive siaman tasol.

Aninit long Net Propit pastaim long ol i rausim takis (pastaim long wanpela ajusmen tasol) bilong Kampani long 2016 i bin kisim K7.03 milien. Kampani i lukim wanpela Net Propit o Win mani pastaim long rausim Takis em K2.03 milien long pinis bilong yia long Desemba 31 2016. Dispela kamap bilong win mani em i karamapim wanpela ajasmen tasol em K5 milien bilong:• Stretim pei bilong ol wokman na wokmeri • Apim mani mak bilong redi long ol dinau we i no klia tumas • Apim mani mak bilong ol stok we i no moa stap long maket

Mipela apim mani mak bilong ol dinau we i no klia tumas wantiam ol stok i no moa stap long maket i kamap long na inventori i soim piksa bilong ikonomi i pundaun long PNG. Antap long dispela, pinis bilong yia odit i lukim olsem wankain samting olsem mipela i no putim inap mani long ol wok na tu wantiam ol narapela ajasmen long 2015 olsem na long wanem samting i bin kamap long 2015 mipela i statim gen ol fainensel stetmen na

CPL GROUP ANNUAL REPORT 2016 1110 CPL GROUP ANNUAL REPORT 2016

T H E C P L G R O U P B O A R DT O K T O K R I P O T B I L O N G S I A M A N

Mr Mahesh Patel, OBEChairman

Mahesh Patel is the co-founder of The CPL Group. He came to PNG in 1984 to work as a pharmacist. He set up the first City Pharmacy store in Port Moresby in 1987 with his wife, Usha Patel and, over time, transformed it into PNG’s largest retailing group. Mr Patel has shown exceptional entrepreneurial skills and leadership qualities over the last 30 years, utilising his considerable business skills and vision.

Mahesh has affiliations with the PNG and Australian Institutes of Directors. He is currently the Chairman of the Board for Telikom PNG (recently re-named Kumul Telikom). He volunteered as a Director of the Games Organising Committee for the 2015 Pacific Games.

He was made an Officer in the Order of the British Empire in 2012. He is also a Queen’s Diamond Jubilee Awardee for his contribution to community service, healthcare and sports.

Mahesh strongly believes that the essence of CPL’s success lies in the community it serves. His personal goal is to make an impact and improve the lives of every person in Papua New Guinea, through business enterprise and sincere community service.

Mr Peter AitsiIndependent Director

Peter Aitsi currently holds the position of Country Manager PNG for Newcrest Mining Ltd, having joined the company in 2011.

He has extensive private sector experience at senior levels and these skills are further strengthened by his long-term involvement with important community organisations such as Transparency International PNG, the Media Council of PNG, City Mission PNG, the Badili Club, and Leadership PNG.

He serves as the resident director of various Newcrest PNG entities, is a Director of Steamships Trading Ltd, PNGFM Ltd, Kumul Consolidated Holdings and is the Senior Vice President of the PNG Chamber of Mines & Petroleum.

Mr Robert (Bob) BailyIndependent Director

Bob Baily joined the Board of CPL in May 2015. He is also a Non-executive Director of 7 Eleven Australia Pty Ltd, Best Friends Pet Holdings Pty Ltd and is a member of PFD Foodservices Advisory Board. He is a member of The Australian Institute of Company Directors.

Bob has extensive experience in retail and FMCG, with previous board roles including Non-executive Director of The Muir Electrical Company Pty Ltd (The Good Guys), the advisory board of Starbucks Coffee Australia Pty Ltd, the board of Self Service Wholesalers and Chairman of The Australian Association of Convenience Stores.

Bob’s executive leadership experience includes co-founder and Managing Director of Best Friends Pets Pty Ltd, Managing Director of The Swan Brewery Company Pty Ltd, Managing Director of The South Australian Brewing Company Limited, Director of Sales and Marketing for SPC foods, CEO of Ampol Road Pantry and multi-site owner of SSW and IGA Supermarkets.

Mr Joseph BarberisIndependent Director

Joe has extensive experience in retail, having been Managing Director of Coles Express (petrol and convenience foods), Officeworks (business and IT products) and Harris Scarfe (apparel and general merchandise) in Australia. He was also part of Shell Australia’s governance team, overseeing Shell’s interests in the Pacific Islands, including PNG.

Joe has been a non-executive director at John Danks (Home Hardware), Commercial Director at South African retailer Pepkor SEA (acquisitions and new market entry) and, more recently, Business Development Director at Zoos Victoria, pursuing an interest in conservation and sustainability.

Joe has degrees in Economics and Law, has been admitted to practice as a Barrister and Solicitor in Victoria, and has recently completed a graduate program in LEAN (business efficiency) and the AICD Directors residential course.

dispela i daunim propit pastaim long takis i go daun long K9.35 milien olsem pastaim ripot i tok.

Long pinis bilong yia long Desemba 2016 olgeta mani i kam long ol samting grup i salim em i stap long mak bilong K539.63 milien, dispela em i 17 pesen (17%) moa long las yia, bikos long mipela i bin opim tupela bikpela nupela supamaket long Harbour City na Koki insait long dispela yia. Mipela i laik wokim moa mani long salim ol samting, tasol mani we mipela i bin tromoi long opim dispela tupela bikpela stua em mipela i no bin inap long kisim bek gen insait long yia, na em i putim moa hevi long kampani.

Maket bilong salim ol samting long Pot Mosbi, we olgeta supamaket i stap long en, i bin stap wankain tasol insait long yia tasol ol nupela supamaket i soim olsem ol i bin mekim sampela gutpela bisnis liklik long salim ol samting, na i luk olsem ol i mekim ol narapela stua i stap pastaim i lusim sampela kastoma bilong ol gen.

Mipela amamas long lukim olsem ol gutpela kontribusen i kamap long Ritel Famesi o salim ol marasin long holsel na ol liklik bisnis wantaim. Olgeta join vensa kampani i ripot olsem i gat gutpela samting i kamap long bisnis olsem na mani lus i kamap long grup em i stap tasol long K2.01 milien 2015 long kamapim gutpela winmani olsem K0.06 milien 2016.

Wantaim mani mipela tromoi long tupela nupela supamaket long Pot Mosbi, na ol risit bilong insurens mani bilong Waigani Central Supamaket i paia long 2015 i no kam hariap na tu ol dinau bilong Gavman, Grup i kisim taim liklik long mak bilong ol kes mani.

Toktok i wok long kamap yet wantaim ol bikpela mani bisnis long kamapim strong gen long ol bisnis, tasol mipela i save olsem moa gro insait long wok bilong Grup bai i no inap kamap yet inap mipela i rausim sampela ol samting we i no stap long as tru bilong bisnis na tu sapos mipela i kisim sampela moa mani. Ol Dairekta i laikim toksave bilong dispela long kamap pastaim long Enuel Jeneral Miting bai kamap long Jun 2017.

Lukluk long dispela kain taim bilong mani i no strong tumas, ol Dairekta bai toksave long Enuel Jeneral Miting olsem bai i no gat win man i go long ol seaholda.

Mipela i lukluk i go het, na mipela i ting bai isi isi treding taim bai i go yet insait long yia na lukluk bilong mipela bai stap moa long kamapim gut wok i stap na long daunim planti kost. Long dispela as, CPL bai i no inap long go het wantaim ol plen bilong em long wokim bisnis i go bikpela moa bikos tupela nupela supamaket i kisim gut mak bilong salim ol samting winim 12 mun olgeta. Insait long namba wan na namba tu mun bilong 2017, tupela supamaket na famesi bisnis i wokim mani long mak bilong baset stret, tasol Hadwe Haus i kisim taim liklik bihainim ol hatpela taim bilong ikonomi long kantri.

Las tru, mi laik tok tenkyu long ol tim memba bilong mipela long olgeta hap bilong kantri, ol stekholda na ol bisnis patna bilong mipela long sapotim mipela yet.

Mahesh Patel, OBESIAMAN.


C P L G R O U P ’ S L E A D E R S H I P T E A MT H E C P L G R O U P B O A R D

Mr Graham John DunlopIndependent Director and Chairman of the Audit and Risk Committee

John first came to Papua New Guinea when he joined Steamships Trading Company Limited in 1983 after a successful accounting career in New Zealand, Solomon Islands and Fiji. He worked for Steamships until 2013 in a variety of roles including Finance Director and Managing Director and continues his relationship as a non-executive Director.

Currently, John also serves as a director on the boards of Credit Corporation (PNG) and Mainland Holdings Limited.

Mr Peter RobinsonIndependent Director

Peter joined Washington H Soul Pattinson and Company Limited (WHSP) in 1978, and was appointed to the main board in 1984. WHSP is one of Australia’s oldest public companies, with interests in pharmaceuticals, building supplies, telecommunications, coal and copper mining, agriculture, property and corporate advisory. He was appointed Managing Director in 1993 and retired from the company in April 2015.

He is currently Chairman of three companies: Australian Pharmaceutical Industries Limited (one of Australia’s largest pharmaceutical wholesalers and owner of the Priceline retail chain), Clover Corporation Limited (a global leader in the delivery of stable Omega-3 and Omega-6 products into the infant nutrition and medical foods market) and TPI Enterprises Ltd (one of only eight global licensed manufacturers of licit drugs, which extracts and purifies narcotics for use in painkillers such a morphine and codeine).

Mr Anthony SmareIndependent Director

Anthony Smaré is the Chairman of Nambawan Super Limited, Papua New Guinea’s largest superannuation fund, with 155,000 members and approximately K5 billion in assets. He is also Chairman of Paradise Foods Limited. He is a former director of Nationwide Microbank Limited, the PNG Mineral Resources Authority, Telikom PNG Limited and a former Chairman of Bemobile Limited.

He is the founder of the Kumul Foundation Inc, building a start-up entrepreneurship ecosystem in the Pacific Islands region through its flagship programme, Kumul GameChangers.

Anthony is a former partner of Australian law firm, Allens Arthur Robinson, and has degrees in Law and Geology from Queensland University of Technology (QUT). QUT named Anthony Smaré its most outstanding Young Alumnus in 2010.

Anthony was also named a Young Global Leader of the World Economic Forum in 2014, the first person from the Pacific islands region to be so honoured.

SENIOR MANAGEMENT TEAM

Ravi SinghChief Executive Officer

Omprakash SeshadriGeneral Manager—Commercial

Raman KumarGeneral Manager—Finance

Steve BeattieGeneral Manager—Hardware

Shane ByrneGeneral Manager—Human Resources

Owen O’SheaGeneral Manager—Information Technology

Mandy CopelandGeneral Manager—Marketing

Mike ShieldsGeneral Manager—Pharmacy

Lee GreenGeneral Manager—Retail Operations

Ratnesh MishraGeneral Manager—Pharmacy Wholesalers Limited

CPL GROUP ANNUAL REPORT 2015 13


C P L G R O U P : A N O V E R V I E W W H AT C P L S TA N D S F O R

C ity Pharmacy Limited Group, commonly known as CPL, is Papua New Guinea’s leading retailer.

Over the past decade especially, Papua New Guinea has been one of the fastest-growing economies in the Asia-Pacific region.

CPL has not only mirrored that growth, but has moved ahead of the competition to energetically address the needs and desires of a new generation of PNG consumer.

PNG’s consumers want, expect and deserve more than ever before from their retailers. Our commitment to strong customer service, professionalism and value for money has been the key to acquiring customer loyalty.

While the City Pharmacy chain remains a keystone of the business, in recent years we have unleashed several strong retail brands on the PNG market across several categories: Stop N Shop (supermarkets), Hardware Haus (hardware), BonCafé (coffee outlets), Paradise Cinema, Prouds (duty free) and Jack’s of PNG (fashion).

Overall, the CPL Group operates retail operations in 55 stores nationwide, and employs over 2600 staff, 98 per cent of whom are Papua New Guineans.

Through an ongoing program of opening new stores, revitalizing existing outlets and introducing new merchandising concepts, the CPL Group will continue to make shopping an exciting experience for our customers.

OUR MISSION• To be the Number One Retailer in PNG

OUR VISION• To be PNG’s biggest and best retailer and the Customers’ most trusted

brand in Health, Food, Hardware and Clothing

• To deliver value for money Products and Services in areas that are essential to the people of PNG

• To contribute to PNG’s prosperity and security by providing opportunities and education for CPL people

• To make our Company ‘a great place to work’

• To deliver value to the shareholders who invest in CPL

OUR VALUES• We are Passionate about the success of this business

• We value Honesty

• We act with Integrity

• We treat everyone with Respect

• We encourage Creativity

• We Care—for our Community, Customers and People


Vanimo

Wewak

Manus

Madang

Kimbe

Kokopo

Kavieng

Lihir

Buka

Alotau

Lae

Maprik

Mt Hagen

Goroka

Port Moresby

NATIONWIDE LOCATIONS

(Sydney)

Popondetta

Boroko

KokiBadili

Waigani Central

Gerehu

Port Moresby General Hospital

Vision City

North Waigani

Airways

Airport

Deloitte Tower

Harbour City

Downtown Plaza

Port Moresby

PAPUA NEW GU INEA

AUSTRA L IA

NEW BR I TA INBOUGA INV I L L E

NEW I RE LAND

Paradise Cinemas (PNG) Limited



O U R C H A I N O F S T O R E S

CITY PHARMACYAlotauBorokoBuka GorokaKaviengKimbeKokopoLaeLihirMadang MST SupermarketMadang Beckslea PlazaManusMaprikMt Hagen Best BuyMt Hagen Mt Hagen DobelPopondettaPort Moresby General HospitalPort Moresby TownStop N Shop BadiliStop N Shop Harbour CityStop N Shop KokiStop N Shop North WaiganiStop N Shop RainbowStop N Shop Town Stop N Shop Waigani CentralStop N Shop Express—AirwaysVision CityWaigani Drive (Showroom)Wewak

STOP N SHOP SUPERMARKETBadiliBorokoHarbour CityKokiNorth WaiganiRainbowTownWaigani Central

STOP N SHOP EXPRESSAirwaysDeloitte Tower

HARDWARE HAUSGorokaKavieng KimbeKokopoLaeMadangMt HagenMt Hagen Mitre HardwarePopondettaPort MoresbyWewak

BONCAFÉCity Pharmacy Waigani DriveDeloitte TowerHarbour CityParadise Cinema—Vision CityStop N Shop TownStop N Shop Express—AirwaysStop N Shop Waigani CentralVision City

PARADISE CINEMAVision CityWaigani Central

PHARMACY WHOLESALERSSydney, Australia

JACK’S OF PNGWaigani CentralVision City

PROUDS DUTY FREE Jackson’s Airport

IGA EXPRESSJackson’s Airport

A special supplement to City Pharmacy Limited’s 2016 Annual Report


THE HUNCHIn 1986, CPL Chairman Mahesh Patel was a young pharmacist working in Taurama Pharmacy in Boroko, near Port Moresby General Hospital. He’d only arrived from Fiji a couple of years earlier.

Then, a business opportunity presented itself.

‘The Steamships Company was looking to set up pharmacies in their Stop N Shop supermarkets,’ he recalls. ‘My boss wasn’t interested, so I asked Steamships if I could give them a proposal.

‘It was quite an interesting set up, because Steamships were going to provide all the infrastructure. Our part was to bring in stock and staff and that’s it. So, it was quite a soft entry into a business.’

“We’ve got enough pharmacies in Port Moresby, we don’t need any more”.

‘So, I pulled out statistics that showed that in Australia there was a pharmacy for every 5,000 people. But, in Port Moresby, there were only three pharmacies for a population of about 250,000 to 300,000.’

Patel notes that David Tam was a friend and advocate for the business in that initial struggle to get approval.

RETAIL FORMULAEventually, work began on what was initially known as The Pharmacy in 1987.

‘I think we started with K40,000 equity to bring in stock. I married my wife, Usha Patel, who was also a pharmacist. Basically, the first two years was just seven days a week—both of us. We ran the first two pharmacies, competing with each other each week on our sales figures.’

A third pharmacy opened quickly, as the public started to understand that City Pharmacy was about more than just selling medical goods. By 1989, a retail formula had been established.

‘The change I brought to the marketplace was front-end retail—offering a range of other goods in addition to pharmaceuticals,’ explains Patel. ‘To date, our front-end business is almost 60% of any store, while 40% is pharmaceuticals and medicines.’

It was ‘rush, rush, rush,’ in those early years, according to pharmacist Bert Barreiro, who joined City Pharmacy in 1989 and worked there for 15 years.

‘Mahesh would think of something, then put it in action straight away. We had a strong customer service focus. Mahesh was really an inventory man, looking at the details of stock—and the bottom line. Even when we were small, there was already talk and plans to make it big, to spread it all over PNG.’

Having concentrated on Port Moresby, in 1992, City Pharmacy moved outside of PNG’s capital city for the first time, opening five pharmacy concessions over an intense five-month period.

‘We used to build a store, stock up the store overnight and be locked inside the main store. I remember particularly in Madang , sleeping on the floor at night

Gil and Cathy Madrid

20YEARS

Gil started work with City Pharmacy in March 1997, and wife Cathy joined a few months later.Qualified pharmacists in their native Philippines, they both started work at CPL as retail pharmacists

but have gone on to higher responsibilities. Gil has since risen to the position of Retail Operations

Manager for CPL, with direct responsibility for 32 stores. Cathy is now Key Accounts Manager for the City Pharmacy’s wholesale division, looking after mostly institutional and corporate clients.

‘When I first came here, it was a culture shock, I didn’t know anything about PNG,’ Gil admits. ‘CPL provides opportunities to its employees, especially if they see you are keen.’

It was Cathy’s first time working overseas too. From day one, she says, she felt she was given opportunities to grow.

‘You’re not just a worker, you’re part of the business. That’s why it’s so special: the importance of commitment, respect, responsibility and accountability—and, of course, the mentors.

Cathy says she has gained confidence from the support of management during her career: ‘They guide us and give us continuous support.’

Gil and Cathy have raised three children during their time at CPL, the eldest of which is now studying to be an architect.

‘We feel part of a family here,’ says Gil. •

Damien Kalawis

25YEARS

Damien started in City Pharmacy’s second store, at Steamships Plaza in downtown Port Moresby, as a 20-year-old shop assistant, back in 1992. It was his first job.‘It was a very small store then,’ he recalls. ‘There

were no pharmacists other than [CPL Chairman] Mahesh Patel and his wife, Usha, taking care of the staff. My starting rate was 90 toea an hour.’

In 2006, Damien made the switch from shop floor to the retail department in CPL’s head office, where he worked on CPL’s fledgling loyalty program, Real Rewards.

Today, he is Coordinator of that program.‘Customers get a point for every kina they spend with

us. Then, they can use points to buy things from the Real Rewards catalogue—everything from a bar of Johnson & Johnson baby soap to a two piece luggage set.

‘We had very few members when we started Real Rewards. Currently, we have more than 200,000 members.

‘I have benefitted a lot from CPL,’ Damien says. ‘As the company has grown, so I have grown also.’

He has also raised a family of four sons since starting at CPL. The eldest is in Grade 11 and is already working at CPL during his school holidays.

‘It’s a big family here at CPL,’ he smiles. •

‘We went in with little or no market research,’ he admits. Just a hunch.

And the handshake? Patel freely admits he didn’t have a clue about running a business at the time. He sensibly turned to a friend, Alan Jarvis of Bodiam PNG, who became his business partner, mentor and CPL’s first Chairman.

‘The business was started on a gentleman’s handshake,’ says Patel. ‘There was no shareholders’ agreement. It was an amazing relationship, based on mutual trust.’

RED TAPEEven so, the business almost never got off the ground due to red tape.

‘The then-Foreign Investment Board knocked it back three times,’ remembers Patel. ‘At one point, they wrote to say:

Mahesh Patel (left) with the late Alan Jarvis, former chairman of the CPL Group.

Today, CPL is not only Papua New Guinea’s largest retailer, with 55 locations around the country, but it is one of its largest employers. But, thirty years ago, the CPL story started with little more than a hunch, and a handshake …


because they locked us in, and we could only get out when the shop manager came in the morning.’

BACKS TO THE WALLWhile the City Pharmacy business grew, at the end of the millennium it found itself facing a major challenge.

‘Back in 1999/2000, when the kina slipped to 16 cents or 19 cents to the US dollar, those were the real dark economic times,’ recalls Patel. ‘Interest rates had gone up to about 14%–16% and we had our backs to the wall. We literally almost went bust. In 2001 and 2002, I did not draw a single toea as salary from the company.

‘At one stage, I remember myself and Alan Jarvis sitting in our boardroom with the bankers and Alan said: “Mahesh, give me the shop keys.” So I

did, and he picked them up, threw them to the bank manager and said: “Here—you run the business!”’

PUBLIC LISTINGListing on Port Moresby’s Stock Exchange (POMSoX) in 2002 was a major turning point for CPL. The motivation to list was twofold:

‘Until then, both Alan and myself had to give personal guarantees to the banks, and as we grew and grew and grew, it became more uncomfortable for us. We had also wanted to start an employee share scheme.’

Patel is positive about the benefits of listing: ‘Listing has been a great advantage and I would strongly recommend a lot of family businesses do it, because it gives you transparency, accountability and discipline in the

With other chains such as Boroko Food World and SVS starting to put pharmacies inside their supermarkets, Patel realised his business could be over if Stop N Shop was bought out by a competitor.

So, it was decided City Pharmacy would buy the Stop N Shop chain.

‘I approached [superannuation fund] Nasfund and asked them to put in some money. We also went to Westpac and other banks. There was a lot of support from the business community. So, 2005 was when we ventured into supermarkets.’

The acquisition had an immediate impact on CPL, with group turnover rising from K57 million in 2005, to K153 million in 2006.

With the opening of Stop N Shop supermarkets in Koki and Harbour

City in 2016, CPL now has eight Stop N Shop supermarkets, each one acting also as the location of other CPL retail brands such as Boncafé and City Pharmacy.

‘Diversification allows us to offer a one-stop shop to our customers,’ notes Patel.

EXPANSIONSince the Stop N Shop acquisition, City Pharmacy Limited has steadily expanded into a diversified retail group.

Initially, this was hard work, as Mahesh Patel explains:

‘We’ve approached a lot of brands in Australia, but it’s been tough. We wrote to almost 300 companies in Australia offering to help them set up in PNG with our help, and nobody even

Bennett Kumanai

30YEARS

A native of Simbu Province in PNG’s Highlands, Bennett was one of CPL’s first employees, starting with the company in 1987 and working in City Pharmacy’s Downtown and Garden City (Boroko)

stores. ‘I was there from day one, coming over from Johnston’s

Pharmacy,’ he says. ‘I joined as a shop assistant and also did security work.’

Back then, Bennett recalls, there were only four staff—a far cry from the thousands who work for CPL today.

Working for CPL has taken Bennett places. He was promoted to supervisory roles, then managed City Pharmacy’s branch on Manus Island for two years. Since 2014, Bennett has been Purchasing Officer in CPL’s Buying Department, ordering grocery lines from local suppliers based on sales figures recorded across the group’s stores.

‘CPL started with humble beginnings. Over half my life has been with the organisation,’ he reflects. ‘I’m proud to see all the successes happen in front of me.’ •

Tuana Kamo

24YEARS

Leaving school after Grade 10, Tuana joined City Pharmacy in Waigani as a shop

assistant. ‘In those days, we were just a

pharmaceutical company,’ she recalls. ‘We enjoyed the team work we had, always happy.’

For the past ten years, Tuana has been a Senior Sales Executive, providing customer service to CPL’s corporate customers, which include resources companies and hospitals.

She says CPL’s customers—making them happy and getting them what they need— is what makes her want to come into work every day.

Tuana has been grateful for not just for the opportunities CPL has provided to her, but also for the company’s support for her as a person.

‘They’ve been there for me. CPL has moulded and shaped me. Without them, I wouldn’t be the person I am now. I used to be shy, now I can stand up for myself. It’s given me confidence.’

•

organisation.’CPL remains the only retail group

listed on POMSoX.Another innovative step was made

in 2003, when City Pharmacy launched PNG’s first customer loyalty program, Real Rewards. Now named Real Rewards Plus, the program is PNG’s biggest, with over 200,000 members, who accrue points towards additional purchases by spending their money across CPL’s retail businesses.

MAJOR ACQUISITIONBy 2005, City Pharmacy had navigated through the tough times (as had PNG’s economy more generally), and was ready to take the next big step in its development.

Steamships was considering selling its Stop N Shop supermarket chain.

Left: Bennett Kumanai in a CPL advertisement on the 11th anninversary of the company.

Above and below: CPL public listing celebrations in 2002.

24 CPL GROUP ANNUAL REPORT 2016 CPL GROUP ANNUAL REPORT 2016 2524 CPL GROUP ANNUAL REPORT 2014

bothered replying.’While Australian partners have been

hard to find, partnerships have been easier to find in other parts of the Pacific.

When Steamships put its Hardware Haus chain on the market in 2008, CPL was there again, this time partnering with Vinod Patel, Fiji’s largest hardware chain.

‘Cinemas were similar,’ recalls Patel.’ I approached people in Fiji saying “We need a cinema, we need a cinema”. They said: “Oh, we’ll do it if you partner with us.”’

Thus, the first of two Paradise Cinemas—PNG’s first multiplex cinema—opened in Port Moresby in 2012, a year after CPL launched its successful Bon Café chain of coffee shops, in partnership with Bon Café, the Thai-Swiss gourmet coffee manufacturer.

In 2015, CPL launched its first venture into fashion, with two Jacks of PNG retail stores opening in Port Moresby, in partnership with Fiji fashion retailer, Jacks of Fiji. In 2016, the stores started selling their first Papua New Guinea-designed clothing.

Also in 2015, CPL brought international-standard retailing to Port Moresby’s Jacksons International Airport, with the opening of two Prouds Duty Free outlets—a joint venture with Fiji’s Motibhai Group of Companies.

BUYING LOCALCPL has a history of buying local produce, and encouraging local suppliers.

‘If we can buy local we will,’ says Patel. ‘We’ve gone as far as giving guarantees of purchases to farmers to guarantee supply.’

A Farmers Financial Assistance Scheme started in 2015, and the establishment of a supply chain to air-freight fresh fruit and vegetables daily to Port Moresby from farms in PNG’s Highlands, are just examples of the lengths the group goes to to source local produce.

‘Local content in our stores has doubled and is still increasing,’ Patel says with pride.

He also notes that support from local companies has been crucial to CPL’s

success:‘Suppliers like S P Brewery, Trukai

Rice and Atlas Steel have always had faith in us.’

CPL IN ITS COMMUNITYSupporting local producers is just one way CPL supports its community. The CPL Foundation, created in 2014 as the vehicle for the company’s charitable, community and social programs, is another.

‘When we were small, everyone felt they belonged. We’ve wanted to keep that family-owned feel as we’ve grown, and remain involved in our community,’ Patel explains.

The Foundation supports a wide variety of activities, from long-standing programs with children’s literacy charity Buk bilong pikini and the Ginigoada Foundation, which provides business skills training, to initiatives driven by CPL itself, such as the annual Pride of Papua New Guinea Awards, which recognise the outstanding contributions women make to PNG’s growth, and projects like the successful Kunai Grass

social enterprise.Even the ownership of CPL is

indicative of the way the group is embedded into the lives of ordinary Papua New Guineans.

‘It’s important to us that we count PNG’s two major superannuation funds, Nasfund and Nambawan Super, among our shareholders. Between them, they own 48% of the company and that means 670,000 fund members have an indirect stake in CPL,’ says Patel, who says he would like to broaden the company’s shareholder base even further.

THE NEXT TEN YEARS AND BEYONDAs CPL celebrates its 30th birthday, Mahesh Patel looks at the future of PNG’s consumer market—a market CPL has done so much to establish and nurture—with optimism.

‘We’ve held our ground during the downturn and are looking at smarter ways of doing things,’ he says.

‘Years ago, when digital cameras were the big thing, our biggest uptake was in the out-stations, not in Port Moresby. This clearly showed us that people out there were hungry for

good, innovative products.’‘I see people working in my

warehouse and they’ve got gadgets in their ears, with iPods. People in PNG want stuff that’s available in developed markets. They will pay the price if quality’s assured.’

He is also still encouraged that CPL is still seen an employer of choice: during the 2016 recruitment drive for the new Koki and Harbour City Stop N Shop stores, the company was recruiting for 600 positions, and found themselves besieged by 4700 applicants.

Leo Janginen

21YEARS

‘I can remember my first pay packet was just K30 for a fortnight’s work. My wife wasn’t happy about it,’ laughs East Sepik-born Leo. ‘But I said, hold on, this is just the beginning.’And so it proved. Leo started his career with

CPL as a 21-year-old warehouse picker back in March 1995. From picker, he was promoted to supervisor, then to Systems Manager and finally Inventory Manager.

‘We’re a support team. We conduct a stock take each weekend and then produce a stock report,’ he explains.

‘I’ve learned a lot from the company training and working with different nationalities. Also, I’ve been getting good support from the management team.’

As with many CPL staff, the company provided interest-free loans to Leo to help him pay for school fees.

‘With CPL’s help, I have managed to get my children to finish their education.’ The eldest two are now working. ‘One is an accountant with the National Development Bank, another works in telecommunications with Digicel,’ he says.

‘I love my job here. It’s just like a home to me.’ •

Fifi Saregu

22YEARS

Fifi started with Stop N Shop as a shelf-filler straight after leaving school after Grade 10.

He came over to work with CPL after it purchased the Stop N Shop chain of supermarkets

from Steamships in 2005. He’s therefore worked for the supermarket chain for a total of 22 years.

He still remembers the first pay packet following CPL’s acquisition of Stop N Shop took over.

‘There was a pay increase—a big, big difference!’ he recalls with pleasure.

After working on the shop floor and the back receiving area, Fifi has gone on to manage several Stop N Shop stores.

He recalls one highlight when he was manager of Stop N Shop North Waigani:

‘Sales were not that good when I started there, so I had to try my best to pull sales back up. I recall in November 2010 we made K100,000 in one day—a record at the time. I sent an email to the CEO. My boss carried me through the store, he was so proud!’

Fifi is now Store Manager of Stop N Shop in Port Moresby Town, with direct responsibility for 70 staff.

‘I love what I do,’ he says. ‘I don’t think I work for CPL; I think that I own this store!’ •

We’ve held our ground during the downturn and are looking at smarter ways of doing things.Mahesh Patel


OUR RETAIL BRANDS

CPL THE RISE OF PNG’S LEADING RETAILER

1987 1992 1998

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2008 2010 20112012

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20152016

1987 City Pharmacy founded by Mahesh Patel at Garden City, Port Moresby with just four staff.

1992 City Pharmacy moves outside Port Moresby, opening five stores in regional PNG.

1998 City Pharmacy is the first business house to operate in Buka after the Bougainville Crisis.

2002 CPL Group lists on the Port Moresby Stock Exchange.

2003 City Pharmacy launches PNG’s first customer loyalty program, Real Rewards.

2005 CPL Group acquires Stop N Shop supermarket chain from Steamships Trading Company.

2007 CPL Group partners with Post PNG to co-locate some City Pharmacy retail outlets.CPL Group launches the first women empowerment program in PNG, the Pride of PNG Awards for Women, honouring ordinary Papua New Guinean women doing extraordinary things.

2008 CPL Group acquires Hardware Haus stores from Steamships Trading Company.

2010 Mahesh Patel named Director of the Year by the PNG Institute of Directors.

2011 CPL Group launches Bon Café coffee shops in Papua New Guinea.

2012 CPL Group named Private Sector Employer of the Year by the PNG Human Resources Institute.CPL Group opens Paradise Cinema in Port Moresby, PNG’s first multiplex cinema.

2013 CPL named Innovative Company of the Year by the PNG Institute of Directors.CPL Group acquires Sydney, Australia-based pharmaceutical wholesaler Cost Save Pty Ltd.2014 CPL opens new concept shopping

complex, Waigani Central, in Port Moresby, featuring a do-it-yourself hardware concept store, our largest ever Stop N Shop supermarket and our second Paradise Cinema complex.

2015 CPL opens two Prouds Duty Free stores and an IGA Airport Express outlet at Jacksons International Airport.CPL moves into fashion retailing, with the opening of two Jack’s of PNG stores in Port Moresby.CPL opens its third City Pharmacy store in Mt Hagen—the 32nd City Pharmacy store overall.

2016 In its 29th year, CPL opens two new flagship Stop N Shop supermarkets in Port Moresby, at Koki and Harbour City.

City PharmacyCity Pharmacy was founded in 1987 at Garden City, Port Moresby, with just four staff. The success of the first pharmacy store led to its expansion to Anderson Foodland in Koki and the Burns Philp Shopping Centre in downtown Port Moresby.

From this humble beginning, the pharmacy business has grown from strength to strength and now includes over 30 outlets across the country.

The key to City Pharmacy’s success as a retail business has been a store layout and merchandising concept never before tried in Papua New Guinea.

City Pharmacy combined a central focus on healthcare, with additional health, beauty and convenience products in an exciting merchandise mix.

With its attractive interior layout, one-stop convenience and customer-focused culture, City Pharmacy is now firmly entrenched in the daily lives of Papua New Guineans.

Over 30 years, City Pharmacy has been responsible for many innovations and achievements. In the 1990s, it was the first business to go to the island of Bougainville after the civil war and the ensuing crisis, opening a branch in Buka to cater for the much-needed basic healthcare needs of the people of Bougainville.

It was also the first business house to declare its premises as MERI SEIF PLES (Safe Place for Women) to protect women against domestic violence.

It has also initiated a local PNG paper production using kunai grass—an eco-friendly local grass. This is now used by Paradise Foods as packaging for their niche chocolates.

Another recent innovation is the introduction of trained nurses in some of our larger outlets, who are able to provide advice and run health checks.

Stop N ShopCPL acquired the Stop N Shop supermarket business from Steamships Trading Company in 2005. The acquisition strengthened the retail network of CPL Group in Papua New Guinea immensely.

CPL acquired Stop N Shop with a clear plan. It sought to add to its retail offering and achieving synergies across both businesses by introducing City Pharmacy outlets to the supermarket environment.

Stop N Shop is positioned as an affordable retail outlet for ordinary Papua New Guineans. CPL reviewed its merchandise mix and adopted a catch-phrase ‘Cheap Prices Everyday’ to target shoppers.

Fresh fruit and vegetables—airlifted daily from the Highlands—groceries, bakery goods, butchery products, kitchen and household appliances, health and beauty products became a part of this merchandise mix.

Apart from creating a new look and feel to its stores, Stop N Shop also introduced new private label items as well as innovative and new product ranges. With the opening during 2016 of two major new stores, at Koki and Harbour City, Stop N Shop now operates eight outlets in Port Moresby. The Stop N Shop superstore in Waigani, damaged by fire in 2015, is set to re-open in 2017.

Also recently, the chain has launched two smaller Stop N Shop Express convenience outlets in Port Moresby.

2016 saw the opening of two new flagship stores in Port Moresby, at Koki and Harbour City.

O U R R E TA I L B R A N D S


O U R R E TA I L B R A N D S

Hardware HausHousing needs in Papua New Guinea, especially for people working in urban centres, are truly critical.

In 2008, CPL saw a window of opportunity and entered into a joint venture with Fiji’s largest hardware chain, Vinod Patel Group, to acquire Steamships Hardware from Steamships Trading Company.

In 2015, CP Group acquired Vinod Patel Ltd’s 50% share in the Hardware Haus business, and the venture is now 100% owned by CPL Group.

With this venture, CPL Group strengthened its position as PNG’s biggest retailing network.

Hardware Haus currently has 11 outlets nationwide serving customers with much needed building and home improvement materials.

Bon CaféUntil recently, there was almost nowhere where Papua New Guinean consumers could savour barista-made coffee.

CPL Group sought to address this unsatisfied demand by providing outlets where Port Moresby residents in particular could savour coffee prepared barista-style.

In 2010, CPL acquired the Bon Café coffee chain franchise from Australia and launched the Bon Café brand at its Stop N Shop outlet in downtown Port Moresby.

CPL Group has so far employed over 40 young women, who have been especially trained by an Australian Bon Café trainer in the art of coffee making.

Papua New Guineans can now taste fine quality coffee in seven popular Bon Café outlets located around Port Moresby.

Paradise CinemaParadise Cinema is another fine example of the way CPL Group brings international best practice to its consumer offerings, in the process pioneering new markets and uncovering unmet demand.

By 2012, there had been no commercial cinemas in Port Moresby for many years, following the closure of Wards Cinema and Skyline Drive-in. Even if they wanted to go to the movies, Papua New Guineans had nowhere to go.

Then, CPL Group launched Paradise Cinema, PNG’s first multiplex cinema, in collaboration with PNG FM and Fiji’s Damodar Group (cinema operators for over 50 years).

The first Paradise Cinema is a world class entertainment facility in Waigani’s Vision City shopping complex.

The three-screen cinema complex features stunning interiors and state-of-the-art audio and visual technology.

Port Moresby residents can now finally enjoy international film releases, including 3D films, at the same time they are released in neighbouring markets and in an environment that breaks new ground for comfort.

As well as a standard cinema experience, Paradise has also introduced a popular premium level cinema, with reclining seats and a licensed lounge.

Papua New Guineans have flocked to Paradise since its opening, encouraging CPL and its partners to open a second Paradise multiplex at Waigani Central in late 2014.


Pharmacy Wholesalers LimitedThe creation of PWL is part of an expansion strategy that encompasses not only Papua New Guinea but the Pacific region as a whole.

In 2013, CPL Group acquired Sydney-based pharmaceutical and wholesale distribution company Cost Save Pty Limited. Cost Save services Australian pharmacists, doctors and industrial institutions.

At the same time, CPL established Pharmacy Wholesalers Limited (PWL) to cater to similar customers across the Pacific region.

This move not only gives CPL valuable exposure in a developed market; it also allows it to further strengthen its portfolio of private label products for its City Pharmacy outlets.

PWL’s online ecommerce platform, healthybargains.com.au, also sells directly to the public in Australia and New Zealand.

Jack’s of PNGJack’s of PNG is a CPL’s newest retail business, marking its entry into fashion retailing.

Fashion retailing in PNG is still at an early stage of its development, and Papua New Guinean consumers, until now, have had limited options, both in terms of quality and value for money .

Jack’s of PNG, a partnership with Jack’s of Fiji, has raised the bar in this retail category, offering quality, well-designed clothing and accessories at affordable prices in an attractive, modern retail setting. Private label brands are presented in-store alongside leading consumer brands such as Rip Curl using a variety of the latest merchandising and display techniques.

The first Jack’s of PNG store, covering 800-square-metres of floor space, was opened in April 2015 at the Waigani Central shopping complex in Port Moresby. A second, smaller outlet was opened in December 2015 at Vision City shopping mall, Port Moresby’s largest retail destination.

In 2016, Jacks of PNG started to stock Papua New Guinea-designed clothing for the first time.

Prouds Duty FreeIn July 2015, CPL Group launched another retail business in a category new to PNG: Prouds Duty Free.

Prouds is a further example of CPL’s drive to bring the best retail experiences to Papua New Guineans.

In partnership with Fiji’s Motibhai Group of Companies, which has been running duty free shops in Fiji for more than 40 years, CPL Group won the bidding to operate duty-free shops within the departure and arrival areas of the upgraded international terminal at Port Moresby’s Jacksons International Airport.

There are currently two Prouds Duty Free stores—a 332-square metre store in the Departure lounge and a smaller, 90-square metre outlet in the Arrivals area.

Prouds Duty Free brings an international-standard duty-free shopping experience to PNG, providing a wide range of high fashion and liquor brands in a spacious, interactive shopping environment. The goal is to make the shopping experience as pleasurable as possible.

Prouds Duty Free featured a long list of impressive international brands including Chanel, Christian Dior, Rolex, Omega, Swarovski, Pandora, Tag Heuer, Gucci, Lancome, Estee Lauder, YSL, Ferrero Rocher, Toblerone, Lindt and an extensive range of international liquor brands. Also front and centre was PNG-made produce such as coffee, liquor, jewelry and luxury crocodile skin accessories.

There are plans to extend the Prouds shopping experience by establishing a non-duty free Prouds outlet in Port Moresby.

The Eat Street café at the new Stop N Shop supermarket at Harbour City, Port Moresby.

T H E Y E A R I N R E V I E W

THE YEAR IN REVIEW 2016NEW STOP N SHOP STORE IN KOKIOn 21 April, CPL Group opening its seventh Stop N Shop supermarket, in the Port Moresby suburb of Koki.

The store, which cost K8 million to fit-out, is the first to be opened under a new partnership with landlord East New Britain Supermarkets, a subsidiary of East New Britain Development Corporation (the development arm of the East New Britain provincial government).

As well as being a fully-stocked supermarket, the Koki store is also the site of co-located City Pharmacy and Bon Café outlets.

“The store also has kitchen appliances to satisfy the needs of customers, including health and wellness through City Pharmacy. The store will also have Easy Pay counters for added convenience,’ noted CPL’s Chief executive Officer, Ravi Singh, at the time. “In addition to this, services like a nursing clinic and Fresh Express Kaibar highlight Stop N Shop’s positioning as a one-stop-shop destination.’

The opening of PNG’s seventh Stop N Shop supermarket, at Koki in Port Moresby.

CPL GROUP ANNUAL REPORT 2016 31

Independence Day on 16 September is always celebrated with fervour in PNG. In 2016, CPL staff again joined in the national celebrations, taking the opportunity to dress in traditional costume.



T H E Y E A R I N R E V I E W

THE CPL FOUNDATION GIVING BACK TO OUR COMMUNITY

GINIGOADA FOUNDATIONThe Financial Literacy Skills Program continued in Port Moresby and Lae. Between the two cities, 5570 people enrolled and attended at least some of the training, of which 78% graduated.

The main topics the training covers include: Basic Business Awareness, Cash Books, Income and Budgeting, Costing and Pricing, Business Plan Development, Health and Hygiene, First Aid, Conflict Resolution and Planning, Set Up and Operating a Community Enterprise Group (CEG).

There are some powerful testimonials from graduates that have gone on to start or grow their small businesses.

2016 saw 24 completed training sessions held in Port Moresby—four more than the previous year. The statistics for Port Moresby show that of the 2663 participants that enrolled,

66.88% of them graduated. This figure is slightly higher than for 2015 and shows that efforts undertaken to increase that figure are working. Gender balance has remained intact with 52.2% of Females enrolling and 54.2% graduating.

Of all the topics covered during the training, feedback from the sessions reveals that Budgeting and Managing Cash Flows were the most popular.

The Lae Program held 17 Sessions, 4 more than in 2015. Its completion rate also improved from 2015 with a 90.4% graduation rate, compared with 83% in 2015. Females made up only 39.8% of those enrolled but, of these, 91.8% of them graduated.

The interest in the program is still growing and we expect that to continue through 2017.

One of the CPL Group’s core values is that ‘we care—for our community, customers and people’.By giving back to the community we serve, we demonstrate our commitment to this value.

Since 2014, the CPL Foundation has acted as the vehicle for our many corporate social responsibility activities.

The Foundation has three major areas of interest:• The empowerment of women• Education• Community and grassroots sports2016 saw the continued strengthening of a number of partnerships for the Foundation. Apart from responding to direct requests from various community groups and schools, focus was placed with supporting our approved partners in delivering and increasing services in their respective areas.

Ginigoada Foundation Port Moresby.

NEW MODEL STOP N SHOP STORE IN HARBOUR CITYFourteen months in the planning, Stop N Shop Harbour City—a second project in partnership with East New Britain Supermarkets—officially opened on 27 June.

The Harbour City store, on the site of the old Andersons/SVS store, represents a K18.5 million investment (K8.5 million of it from CPL), and is very much a model store for CPL.

As well as a Stop N Shop supermarket and liquor store, complete with bakery and the broadest stock range of any Stop N Shop outlet, the

complex hosts a City Pharmacy outlet (complete with its own nurse station), an all-new Eat Street food court and a City Digital phone and technology outlet.

‘This shop is of international standards. It’s modernised, offers 14,000 different items, has 260 new employees offering their services and has the longest trading hours of any shop in PNG- from 7 am to 9 pm,’ noted CPL group Chief Executive Officer Ravi Singh.

He described the location as

strategic, as the store can be accessed by workers in downtown Port Moresby, residents of neighbouring Motuan villages and also workers in the Konedobu area.

William Lamur, the Managing Director and CEO of the ENB Group of Companies, complemented CPL on both its new Stop N Shop stores:

‘The modernised properties offer customers a new shopping experience with a promised consistent excellent customer service, accompanied by a wide range of product offerings.’

A CPL-supported local rugby club at the opening of Stop N Shop Harbour City

The opening of CPL’s two new Stop N Shop outlets in Harbour City and Koki was preceded by a widely-publicised recruitment drive to find a wide range of new talent, including managers, supervisors, administrators, kitchen assistants, bakers, baristas, butchers, shop assistants and checkout operators.

Over 4700 applicants presented themselves for our walk-in interviews over three busy days at Waigani, Harbour City and Koki for a total of 627 positions.

T H E C P L F O U N D AT I O N G I V I N G B A C K T O O U R C O M M U N I T Y

The 10th Pride of Papua New Guinea Awards for Women were held at the Papua New Guinea Parliamentary Complex on 22 September.

The judges for this year’s search were: Mrs Emma Waiwai of All Shelters Limited; Mrs Avia Koisen of Koisen Lawyers; Dr Cecilia Nembou, President of Divine Word University; Mrs Eva Arni of Air Niugini; Alexander Rheeney of South Pacific Post and Dr Pilly Mapira of School of Medicine UPNG (the 2007 Education Award winner).

The winners below were awarded medals and a pledge from CPL to assist them to continue their work.

Bravery & CourageEnid Barlong Kantha

Enid has spent a lifetime working with and assisting women who have fallen victim to abuse. From her beginnings as a counsellor with Haus Ruth to her current role as the Deputy Program

Coordinator for the National Family and Sexual Violence Action Committee, she has demonstrated tireless acts of compassion, strength and duty.

Throughout her years, Enid has gone beyond her ‘job’ in giving of herself whenever the need arose. She is a powerful advocate and role model for the women and girls of PNG.

Care and CompassionMary Pakore Tore

Mary Tore has spent most of her life helping and working with persons with disabilities in Cheshire Homes, as well as in community-based rehabilitation programs. A mother of three, she

first started her role at 16, when Missionaries of the St John of God Brothers brought her to work with them as a carer to the residents. Thirty-seven years later, she is the longest serving member of the Cheshire team.

Her dedication to the job goes beyond all expectations. As she says, ‘if you work with your heart, you will make a difference in their lives, to make them feel that they are somebody. ‘

Mary continues her work at Cheshire Homes, in hospitals and wherever people with disabilities need her care and training.

Community spiritAnn Hilda

A Community Health Worker, Ann Hilda has dedicated her life to the areas she has served in Oro Province. While performing most health functions at aid posts, she primarily assists

mothers in childbirth. Ann also conducts workshops and awareness gatherings on HIV and Aids, violence against women and children, and caring for children and youth.

Apart from her duties as a Community Health Worker, Ann, along with her husband, started the Eagle Eye Disabled, Orphans and Vulnerable Foundation, which was established in 1994 to provide assistive devices to people with disabilities.

She also committed her time and efforts in assisting the Division for Community Development, a voluntary position, for 15 years.

Education/role modelSister Pauline Marie Kagl (SND)

Sister Pauline is a TVET Educator who has found a healthy formula between formal and informal education. A trained primary school teacher, she moved into the field of vocational training run by

the Sisters of Notre Dame, eventually managing the school.Her drive and determination to impart practical skills to the

unemployed in her communities have seen her turn around drug addicts and victims of other social ills, to being motivated citizens with the means to earn a living and to support their families.

Young PNGStephanie Paraide

Stephanie is an 18-year-old going places. This year she enrolled in her first year as an Honour Student of the Bachelor of Medical Biotechnology at the University of Wollongong in Sydney. She

chose this field as, in her own words, ‘Papua New Guinea needs skilled workers in these areas’.

A former Dux of St Joseph’s College, Stephanie also captained the school netball team. An outstanding student, she moved to Downlands College in Toowoomba at the tender age of 16. Last year, she became the first ever winner of the Liz Phelan Award for Outstanding Contribution to Girls Boarding, among other academic awards.

She continues to play netball and donates her extra time to support the Harlaxton Breakfast Club, serving breakfast for less fortunate primary school students and also Rosi’s Outreach, feeding the homeless.

EnvironmentNo award

The Judges decided not to make an award in this category in 2016.

BUK BILONG PIKINIFinancial sponsorship for the Tatana Buk Bilong Pikinini (BBK) Library and Early Childhood Education Program continued in 2016.

During the year, the program has enabled 47 children from disadvantaged backgrounds to get a head start in education, attaining a 17% average increase in literacy levels. The Library has also lent out books to both children from the library and other children in the community.

Other than the children enrolled in the Literacy Program, the Library received over 5000 visitors in the 6 months from July to December. These children mostly used the Library to read, borrow books and attend special programs.

Selected children from the Tatana Community partook in the Literacy Week Infomercial with the SP Hunters Players, Ase Boas and Justin Olam. Children from Tatana library also played a key role in the making of the TV Ad for the Dads Read Event. The TV Ad was on air with NBC National TV for over two months leading up to the Dads Read Event.

The CPL Foundation is also supporting the building of the new Segani Community Library. Of the K5000 worth of hardware supplies donated earlier this year, the majority of the materials were used to complete the main building and shelving for the library, with the remainder to be used to construct the toilet facilities. Once opened, the services that the library will offer include health, nutrition, early education, and water and sanitation in homes and communities.

THE PRIDE OF PAPUA NEW GUINEA AWARDS FOR WOMEN


PRIDE OF PNG ALUMNAEThe primary focus of the 10th Award celebrations was a one-day workshop conducted with past winners of the awards. The focus of the Workshop was, for the first time, to bring together all the Alumnae, reconnect with those that had fallen off the radar and to give the ladies an opportunity to share skills and expertise, network among themselves and to learn first-hand about the success, issues and challenges of their continued work.

The workshop was well attended, with 32 past winners attending form all over PNG.

Pride of PNG 2016 winners, along with PNG’s Governor General, the late Sir Michael Ogio.


CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIESDIRECTORS’ REPORTFor the year ended 31 December 2016

T H E C P L F O U N D AT I O N G I V I N G B A C K T O O U R C O M M U N I T Y

THE CPL FOUNDATION IN 2016

Ginigoada Foundation Financial Literacy Training

Participants 5570

Training sessions 41

Graduates 4409

Graduation rate 79%

Male/female graduates 54%/46%

Buk bilong pikini

Visitors to Tatana Library 5000

Disadvantaged children assisted

47

Increase in literacy levels +17%

Segani Library sponsorship K5000

Kunai Paper Project

Chocolate boxes produced 20,684

Income generated K62,052

Pride of PNG Awards for Women

Women assisted 13

Assistance K30,456

Stand-alone donations

Donations 17

Value K17,566

KUNAI PAPER PROJECTThe Kunai Paper Project is a partnership with the Keasu Community Development Association, to create boxes made from kunai grass as packaging for Paradise Foods’ Queen Emma chocolate. The program continues to grow as the demand for the chocolate increases. Since the end of April 2016, the Association has completely taken over the production of the chocolate boxes, thus providing a regular income for unemployed youth, with a small portion set aside for community development projects.

This Project is subsidised by the income generated via the sale of the chocolate boxes to Paradise Foods. Over 20,000 boxes were produced for sale in 2016.

In 2017, the goal is to develop new products and then train the Keasu Association and other community groups to produce them. These will also include more craft/decorative pieces that can be retailed across Stop n Shop, City Pharmacy, Jacks and Prouds outlets in Port Moresby.

FARMERS FINANCIAL ASSISTANCE SCHEMEThis scheme assisted Thaddeus Mana—a Pawpaw farmer and supplier to Stop N Shop supermarkets—to purchase and install an irrigation system. Initially affected by PNG’s drought at the start of 2016, his farm slowly returned to pre-drought conditions and by June was harvesting (on average) 600kgs per week, slightly higher than 2015 levels. By December 2016, Thaddeus was supplying CPL up to one tonne per week, finally realising the full effects of the irrigation system. Repayments to the scheme increased with the increase in production and supply of the pawpaw and at the end of December, Thaddeus had repaid over half of the original assistance provided by the Foundation.

ONE-OFF DONATIONSThere were a few ad hoc donations, ranging from a few hundred to a few thousand kina made by CPL Group in 2016 to various community groups. These included The PNG Foundation for Women’s Cancer, the Advancing PNG Women’s Leadership Network, the Cyclone Winston Disaster relief fundraiser and the PNG Business Coalition.

CPL INITIATIVESApart from the partnered programs, the Foundation managed several of its own programs during the year.

Donation of Sewing Equipment to Safe City Safe Market Womens Group 2016

This report given by the Directors in respect of the City Pharmacy Limited Group (the “Group” or “Consolidated Entity”) consisting of City Pharmacy Limited (the ”Company”) and the entities it controlled at the end of, or during the financial period ended 31 December 2016.

The DirectorsThe persons who have been Directors of the Company at any time during or since the year end of the financial period and up to the date of this report are:

Mahesh Patel Executive Chairman

Peter John Aitsi Non-Executive Director

Graham John Dunlop Non-Executive Director

Anthony Smare Non-Executive Director

Peter Robinson Non-Executive Director

Robert Baily Non-Executive Director

Joseph Barberis Non-Executive Director

Company secretaryColin Young (Resigned March 2016)Raman Kumar (Appointed May 2016)

Principal activitiesCity Pharmacy Limited operates primarily in Papua New Guinea with 55 stores and approximately 2,600 employees at year end. The principle activities of the Group during the year were:Wholesale and retail of supermarket goods, bakery and pharmaceutical products; andWholesale and retail of hardware products.

The Group also participates in Joint Ventures whose principal activities comprise of:Retail clothing;Duty free products; andMultiplex cinemas.


City Pharmacy Limited and Subsidiaries Directors’ Report

For the year ended 31 December 2016

Consolidated results and review of operationsThe net amount of consolidated profit for the financial period after income tax expense attributable to members of the Company and its controlled entities was K1,373,503 (2015 restated: Loss K61,119).A review of the operations of the Consolidated Entity and its principal businesses during the financial period and the results of those operations are set out in the Chairman’s Statement on page 6.

DividendsA dividend of K0.03 was declared in April 2016 amounting to K3,740,389 (2015: K3,740,389) which was fully paid in June 2016. The Directors have decided that no dividend will be paid in 2017.

Significant changes in state of affairsDuring the financial year there was no significant change in the state of affairs of the Group other than that referred to in the financial statements or notes thereto.

Matters subsequent to the end of the financial periodThere has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

Directors’ interest in sharesParticulars of the Directors’ relevant interests in shares in the Company as at 31 December 2016 are disclosed in note 20.

Meetings of directorsThe table below sets out the number of meeting of the Directors held during the financial period ended 31 December 2016 and the number of meetings attended by each Director. There were five meetings held during the year ended 31 December 2016.

Directors Board Meetings attendedMahesh Patel 5Peter John Aitsi 4Graham John Dunlop 5Anthony Smare 3Peter Robinson 5Robert Baily 5Joseph Barberis 4

Directors remunerationDisclosure has been made at note 20.

Remuneration above K100,000 per annumDisclosure has been made at note 20.

For and on behalf of the Board of Directors

Director: Director:

Date: Date:


City Pharmacy Limited listed on the Port Moresby Stock Exchange (POMSOX) in a compliance listing on 20 February 2002.

Top ShareholdingShareholders No. of Shares %National Superannuation Fund 34,579,566 27.73Nambawan Super Limited 23,660,343 18.98Amar Business Holdings Pte Ltd 14,187,142 11.38New World Limited 9,681,228 7.76Mainsbridge Pty Ltd 6,305,692 5.06Mahesh Patel 6,227,597 4.99Comrade Trustee Services Ltd 2,576,921 2.07Mineral Resources OK Tedi No.2 Ltd 2,500,000 2.01Mineral Resources Star Mountain Ltd 2,500,000 2.01Manu Nominees Pty Ltd 2,000,000 1.60Credit Corporation (PNG) Ltd 1,953,544 1.57Real Genius Investments Ltd 1,825,000 1.46Even Stronger Investments Ltd 1,800,000 1.44Mineral Resources Development Company Ltd 1,651,119 1.32Society of the Divine Word 1,085,463 0.87TNG Constructions Ltd 1,000,000 0.80Capital Nominees Ltd 843,870 0.68Triglobal Management Ltd 840,000 0.67Capital Life Insurance Company Ltd 750,000 0.60Kina Asset Management No.1 Ltd 701,191 0.56Others * 8,010,856 6.43

Total 124,679,532 100.00

*763 other shareholders hold less than 701,000 shares.

Shareholding BandsShareholders No. of Shareholders No. of shares1 – 1,000 175 107,8521,001 – 10,000 516 1,369,71010,001 – 100,000 48 1,462,832100,001 and above 44 121,739,138

Total 783 124,679,532

CITY PHARMACY LIMITED AND SUBSIDIARIESSTOCK EXCHANGE INFORMATIONFor the year ended 31 December 2016


Shareholding BandsDuring the year, there were 43 transactions of shares traded with a volume of 1,474,536 shares for a value of K1,602,833.

Amounts in K’000’s

2012 2013 2014 2015 Restated 2016

Statement of Comprehensive IncomeTurnover 363,603 395,909 411,930 495,616 556,344Operating profit before tax 27,258 23,890 12,215 674 2,031Operating profit after taxattributable to the Group 19,354 16,390 6,913 (61) 1,373Dividends proposed 8,681 8,728 3,740 3,740 -Shares on issue (number) 124,019,532 124,679,532 124,679,532 124,679,532 124,679,532Dividend proposed per share (Kina) 7 toea 7 toea 3 toea 3 toea 0 toea

Amounts in K’000’s

2012 2013 2014 2015 Restated 2016

Statement of Financial Position

Shareholder’s Funds 98,204 115,288 112,301 109,811 109,257Inventories 50,410 53,187 66,418 90,845 97,751Other Assets* 113,355 133,181 139,736 195,569 233,132Borrowings 9,053 11,753 25,096 82,611 94,868Other Liabilities 56,508 59,327 67,806 92,965 125,847Current Ratio 1.43 1.46 1.42 1.14 1.10Debt to Net worth 9% 10% 22% 72% 87%Net Asset Backing per Share (Kina) 0.79 0.92 0.91 0.88 0.87Net Profit Margin 5.32% 4.14% 1.68% (0.01%) 0.25%Net Profit to Equity 19.71% 14.22% 6.10% (0.06%) 1.26%Earnings Per Share (Toea) 16 13 6 0 1.10

* There was land and building revaluation in 2016


INDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OF CITY PHARMACY LIMITED

Opinion

We have audited the financial report of City Pharmacy Limited and its subsidiaries (“the Group”) which comprise the consolidated statement of financial position as at 31 December 2016, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respect, the consolidated financial position of City Pharmacy Limited and the Group as at 31 December 2016, and its consolidated cash flows for the year ended in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Companies Act 1997.

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


Deloitte Touche Tohmatsu

Deloitte Haus, Level 9MacGregor StreetPort MoresbyPO Box 1275 Port MoresbyNational Capital DistrictPapua New GuineaTel: +675 308 7000Fax: +675 308 7001www.deloitte.com.pg

City Pharmacy Limited and Subsidiaries Stock Exchange Information

For the year ended 31 December 2016

Corporate Governance StatementThe Board of Directors conducts the affairs of the Company in accordance with best practices to achieve a high standard of governance. It sets the strategic direction of the Company and continually reviews management performance. Transparent reporting procedures are in place for all Company activities.

Composition of the BoardThe Board is made up of 1 executive and 6 non-executive directors. One-third of the directors retire on a rotational basis in accordance with the Company’s constitution (para. 38(4)). Retiring directors may be eligible for re-election by the shareholders at the Company’s Annual General Meeting. The Chairman is responsible for reviewing the Board’s membership following consultation with existing Board members.

Staff Appointments and remunerationOfficers and staff remuneration is now being handled by the Remuneration Committee, headed by Mr. Peter John Aitsi, and Mr. Peter Robinson. Company performance is assessed to determine the compensation of senior management staff and the directors themselves.

Risk ManagementThe Board approves an annual budget. Deviation from this budget may be permitted by the Board following detailed submissions from management.

Access to Professional AdviceDirectors are entitled to seek independent legal advice on their duties at the Company’s expense, provided that they seek the prior approval of the Chairman.

Key audit matter How our audit addressed the key audit matterImpairment of Indefinite Life Intangible Assets Including Goodwill

As at 31 December 2016, the Group’s balance sheet includes goodwill amounting to K20.5 million, contained in three cash generating units, (CGU/CGUs), with the two largest CGUs being City Pharmacy and Hardware Haus. Goodwill relating to the City Pharmacy and Hardware Haus CGUs amounts to K19.1 million, which represents 5.8% of the total assets of the Group as of 31 December 2016.As required by the applicable accounting standards, management conducts an annual impairment test for each CGU to assess the recoverability of the carrying value of indefinite life intangible assets, including goodwill. Significant judgement is required due to the size of the goodwill balance as well as the future results of the CGUs and the discount rates applied to the future cash flow forecasts.

Our procedures included, but are not limited to:• Assessing management’s determination of CGUs based on our understanding

of the nature of the Group’s business and the economic environment in which the CGUs operate. We also analysed the internal reporting of the Group to assess how earnings streams are monitored and reported;

• Challenging management’s process regarding the determination of the Group’s discounted cash flow model, including the verification of the mathematical accuracy of the underlying calculations;

• Challenging the assumptions included in management’s discounted cash flow models, including the growth rates, terminal growth rate and the discount rate applied, including comparison with similar CGUs and stress tested the assumptions used;

• Agreeing the budgeted values included in the discounted cash flow models to those budgets used by management, economic indicators within Papua New Guinea and assessed the historical accuracy of the budgets prepared by management in prior periods;

• Performing sensitivity analysis in three main areas; being the annual growth rates, the terminal growth rates and the discount rate applied; and

• We also assessed the appropriateness of the related disclosures in Note 12 to the Financial Statements.


Independent Audit Report To the Members of City Pharmacy Limited and its Subsidiaries

Key audit matter How our audit addressed the key audit matterEmployee Share Scheme

As at 31 December 2016, the Group has an employee share plan that extends to certain members of the Group’s executive. The share based payments expense was K1.8 million in 2015, as disclosed in Note 27.Recognition and measurement of the executive share plan involves significant management judgement in order to comply with the requirements of the accounting standard IFRS 2 Share Based Payment. Management has exercised judgement in respect of:• Vesting probability• Determination of an appropriate methodology/valuation technique to apply

that is consistent with the accounting standards and prior financial periods• Determination of the value of the restatements and the period to which they

apply.

Our audit procedures included but were not limited to:• Understanding the contractual arrangements entered into by the Company

with members of the Company’s executive;• Reviewing management’s calculation of the employee share based

payments expense, impact on the share capital of the Group and the fully diluted earnings per share calculation;

• Reviewing the vesting probability adopted for the scheme; • Evaluating whether the methodology/valuation technique is consistent with

the accounting standards and prior periods; and• Assessing whether the restatement related to prior periods is the appropriate

accounting treatment and the appropriate amount.We also assessed the appropriateness of the related disclosures in Note 21 to the Financial Statements.

Business Interruption Insurance Claim

The Group has lodged a business interruption claim with its insurance company (Pacific Assurance Group – “PAG”). The claim relates to a fire at the Waigani Central store that occurred during July 2015. The total value of the claim lodged with PAG is based on a calculation performed by an independent loss adjustor. The loss adjustor was engaged by the Group to quantify the value of the claim.Management has exercised judgement in recognising a receivable from PAG related to the business interruption claim, as disclosed in Note 7.

Our procedures included but were not limited to:• Holding discussions with the Board and management regarding their

confidence of a favourable outcome;• Reviewing the offer made by the insurer;• Discussions with the insurer; • Assessing whether the status of the claim meets the definition of an asset or

a contingent asset in accordance with accounting standards.We also assessed the appropriateness of the related disclosures in Note 7 to the financial statements.

Other Information

The directors are responsible for the other information. The other information comprises the information included in the Chairman’s report, the Director’s report and stock exchange information but does not include the consolidated financial statements and our auditor’s report thereon.

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

In connection with our audit of the consolidated 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 on the other information that we obtained prior to the date of this auditor’s report, 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 the Directors for the Consolidated Financial StatementsThe directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act 1997, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’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 the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 International Standards on Auditing (“ISAs”) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the consolidated 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 Group’s internal control.

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

• Conclude on the appropriateness of the directors’ 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 Group’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 consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

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

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.We communicate with the 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.From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the

consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ 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 RequirementsThe financial report of City Pharmacy Limited is in accordance with Companies Act 1997 and proper accounting records have been kept by the Company. During the year ended 31 December 2016 we did not provide any other services to City Pharmacy Limited.

DELOITTE TOUCHE TOHMATSU

Helen Hamilton-JamesRegistered under the Accountants Act 1996Partner, Chartered AccountantsPort Moresby 16th day of May 2017


CITY PHARMACY LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFor the year ended 31 December 2016

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORTCITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

Consolidated Financial Statements Notes to the Consolidated Financial Statements

Consolidated Statement of Profit or Loss and Other Comprehensive Income

47Basis of Preparation 51

1. Significant Accounting Policies 51

Consolidated Statement of Financial Position 48 2. Critical Accounting Estimates and Judgements 55

Consolidated Statement of Changes in Equity 49 Group Performance 55

3. Segment Disclosures 55

Consolidated Statement of Cash Flows 50 4. Revenue 56

5. Finance Costs 56Notes to the Consolidated Financial Statements 11 6. Other Income and Expenses 56

Directors Declaration 51 Assets and Liabilities 57

7. Trade and Other Receivables 57Independent Auditor’s Report to the Members of City Pharmacy Limited

52 8. Inventories 589. Related Party Receivables 58

10. Property, Plant and Equipment 59Stock Exchange Information 57 11. Taxation 61

12. Goodwill 62Company Directory 60 13. Borrowings 63

14. Trade and Other Payables 64

15. Related Party Payables 65

16. Finance Lease Liabilities 65

17. Employee Provisions 65

18. Financial Instruments 66

Group Structure, Capital Structure, Financing and Risk Management 66

19. Investments 66

20. Related Party Disclosure 67

21. Equity 69

22. Cash and Cash Equivalents 71

23. Financial Risk Management 72

24. Commitments for Expenditure 73

Other 74

25. Contingencies 74

26. Subsequent Events 74

27. Correction of Errors 74

CITY PHARMACY LIMITED AND SUBSIDIARIESFINANCIAL REPORT TABLE OF CONTENTS

NOTES CONSOLIDATED PARENT COMPANY

2016K’000

2015(restated) Note 27 K’000

2016K’000

2015(restated)Note 27K’000

Revenue 4 539,626 462,075 405,864 379,969 Cost of Sales (378,610) (323,932) (280,146) (263,409)Gross Profit 161,016 138,143 125,718 116,560

Distribution Expenses (9,864) (6,859) (4,665) (4,322)Marketing Expenses (6,366) (6,809) (5,472) (6,077)Administration Expenses (141,409) (143,345) (107,364) (124,160)Finance Costs 5 (6,332) (3,514) (4,749) (2,544)Other Income and Expenses 6 4,924 25,072 2,169 24,840 Profit from Joint Ventures 19 62 (2,014) 62 (2,014)

(158,985) (137,469) (120,019) (114,277)Profit before Income Tax 2,031 674 5,699 2,283Income Tax Expense 11 (658) (735) (1,758) (1,316)

Profit after Income Tax 1,373 (61) 3,941 967Other Comprehensive Income

Exchange differences on translating foreign operation 380 201 – –Gain on revaluation of Land & Buildings net of deferred tax 1,655 – 1,655 –

Total Comprehensive Income 3,408 140 5,596 967

Profit for year is attributable to:

Owners of the parent 1,227 (196) 3,941 967Non-Controlling Interest 146 135 – –

1,373 (61) 3,941 967

Total Comprehensive income for year is attributable to:Owners of the parent 3,186 (35) 5,596 967Non-Controlling Interest 222 175 – –

3,408 140 5,596 967

Earnings per share – basic and diluted (toea per share) 1.10 (0.05)

Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the notes to and forming part of the Consolidated Financial Statements set out on pages 51 to 76.



CITY PHARMACY LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2016

CITY PHARMACY LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENT OF FINANCIAL POSITIONFor the year ended 31 December 2016

NOTES CONSOLIDATED PARENT COMPANY2016K’000

2015(restated)Note 27K’000

1 January 2015K’000

2016K’000

2015(restated) Note 27K’000

1 January2015K’000

ASSETSCash and Cash Equivalents 22 7,606 5,752 4,846 5,683 2,061 4,209Trade and Other Receivables 7 58,347 47,556 20,116 46,689 34,917 16,720Inventories 8 97,751 90,845 66,418 67,554 58,735 64,508Prepayments 7,973 3,314 3,502 5,970 3,136 3,252Total Current Assets 171,677 147,467 94,882 125,896 98,849 88,689

Related Party Receivables 9 640 240 1,744 5,309 13,711 6,105Property, Plant and Equipment 10 122,947 107,971 95,068 108,767 90,390 93,352Investments 19 5,992 2,929 7,493 29,497 16,282 9,647Deferred Tax Assets 11 8,969 7,285 2,142 1,992 1,851 2,022Income tax receivables 136 – – – – –Goodwill 12 20,522 20,522 4,825 3,431 3,431 3,431Total Non-Current Assets 159,206 138,947 111,272 148,996 125,665 114,557

TOTAL ASSETS 330,883 286,414 206,154 274,892 224,514 203,246

LIABILITIES

Borrowings 13 23,558 11,229 1,365 15,353 5,613 1,365Bank Overdraft 22 19,084 33,139 4,731 9,718 24,292 4,731Trade and Other Payables 14 107,898 73,049 46,841 73,611 39,181 44,941Related Party Payables 15 43 – – 43 – 2Lease Liabilities 16 2,023 5,146 1,463 1,228 1,658 1,463Income Tax Liability – 3,260 8,182 91 3,038 7,945Employees provisions 17 1,916 2,449 2,983 1,330 2,039 2,732Total Current Liabilities 154,522 128,272 65,565 101,374 75,821 63,179

Borrowings 13 48,306 30,750 15,787 48,306 23,225 15,787Related Party Payables 15 189 155 133 – – –Other Payables 14 159 161 159 159 161 159Deferred Tax Liabilities 11 10,145 8,991 8,117 9,292 8,447 8,117Employee provisions 17 5,497 4,899 1,392 4,833 4,329 1,392Lease Liabilities 16 1,897 2,348 1,749 - 1,114 1,749Total Non-Current Liabilities 66,193 47,304 27,337 62,590 37,276 27,204

TOTAL LIABILITIES 220,715 175,576 92,902 163,964 113,097 90,383

NET ASSETS 110,168 110,838 113,252 110,928 111,417 112,863

SHAREHOLDERS’ EQUITYIssued Capital 21 21,897 21,897 21,897 21,897 21,897 21,897Reserves 21 38,807 37,152 37,152 38,807 37,152 37,152Share option reserve 21 1,327 1,327 – 1,327 1,327 –Other reserve 21 360 56 (105) – – –Retained Earnings 46,866 49,379 53,357 48,897 51,041 53,814Equity attributable to owners of the Company 109,257 109,811 112,301 110,928 111,417 112,863Non-Controlling Interest 911 1,027 951 – – –

TOTAL SHAREHOLDERS’ EQUITY 110,168 110,838 113,252 110,928 111,417 112,863

For and on behalf of the Board of Directors:

Director: .................................... Date: ..........................Director: ................................... Date: .............................

Consolidated Statement of Financial Performance is to be read in conjunction with the notes to and forming part of the Consolidated Financial Statements set out on pages 51 to 76.


Share Capital

Retained Earnings

Revaluation Reserve

Otherreserve

Share optionreserve

Attributable to owners of the parent

Non-Controlling Interest

Total

Group K’000 K’000 K’000 K’000 K’000 K’000 K’000 K’000

1 January 2015 21,897 53,357 37,152 (105) – 112,301 951 113,252

Movements 2015

Dividends declared – (3,740) – – – (3,740) – (3,740)

Prior year adjustment – (42) – – – (42) (99) (141)

Other comprehensive income – – – 161 – 161 40 201

Share based payment – – – – 1,327 1,327 – 1,327

Profit or loss – (196) – – – (196) 135 (61)

31 December 2015 21,897 49,379 37,152 56 1,327 109,811 1,027 110,838

31 December 2015 21,897 55,998 37,152 56 – 115,103 1,027 116,130

Adjustment on correction of error (Note 27) – (6,619) – – 1,327 (5,292) – (5,292)

As adjusted 21,897 49,379 37,152 56 1,327 109,811 1,027 110,838

Movements 2016

Dividends declared – (3,740) – – – (3,740) – (3,740)

Reclassification error – – – – – – (338) (338)

Other comprehensive income – – 1,655 304 – 1,959 76 2,035

Total comprehensive income for the year – 1,227 – – – 1,227 146 1,373

31 December 2016 21,897 46,866 38,807 360 1,327 109,257 911 110,168

Share Capital

Retained Earnings

Revaluation Reserve

Share option reserve

Total Equity

Parent Entity K’000 K’000 K’000 K’000 K’000

1 January 2015 21,897 53,814 37,152 – 112,863

Movements 2015

Dividends declared – (3,740) – – (3,740)

Issuance of Share – – – 1,327 1,327

Net Income – 967 – – 967

31 December 2015 21,897 51,041 37,152 1,327 111,417

As previously stated 21,897 57,420 37,152 – 116,469

Adjustment on correction of error (Note 27) – (6,379) – 1,327 (5,052)

As adjusted 21,897 51,041 37,152 1,327 111,417

Movements 2016

Dividends declared – (3,740) – – (3,740)

Other comprehensive income – – 1,655 – 1,655

Amalgamation of CFL & IDM – (2,345) – – (2,345)

Net income – 3,941 – – 3,941

31 December 2016 21,897 48,897 38,807 1,327 110,928

Consolidated Statement of Changes in Equity is to be read in conjunction with the notes to and forming part of the Consolidated Financial Statements set out on pages 51 to 76


CITY PHARMACY LIMITED AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2016

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORTCITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

BASIS OF PREPARATIONThe Group is Papua New Guinea’s largest retailing network. It has now established within the group and through joint ventures, eight strong retail brands namely City Pharmacy, Stop N Shop, Boncafe, Hardware Haus, Paradise Cinema, Jacks Retail and Prouds. As at 31 December 2016, the Group has a combined retail operation of 55 stores nationwide and employs over 2,600 staff of which 95 percent are Papua New Guinean citizens.

Statement of ComplianceThe Consolidated Financial Statements of City Pharmacy Limited (‘the Company’), its subsidiaries and joint ventures (together with the Company referred to as ‘the Group’) have been prepared in accordance with the accounting standards and the requirements of the Papua New Guinea Companies Act 1997 (Amended). The Financial Statements were authorised for issue by the Board of Directors to update on 13 March 2017.

Basis of preparationThe Consolidated Financial Statements are presented in Papua New Guinea Kina, and all values are rounded to the nearest thousand (K’000), except when otherwise indicated. The Consolidated Financial Statements have been prepared on the historical cost basis except for land and buildings that have been measured at fair value, as explained in the accounting policies.The consolidated financial statements provide comparative information in respect of the previous period. In addition, the Group presents an additional statement of financial position at the beginning of the earliest period presented when there is a retrospective application of an accounting policy, a retrospective restatement, or a reclassification of items in the financial statement. An additional statement of financial position as at 1 January 2015 in presented in these consolidated financial statement due to correction of an error retrospectively. See note 27. The accounting policies have been applied consistently to all periods presented in these Consolidated Financial statements, unless otherwise stated.

1. Significant Accounting PoliciesThis section sets out the significant accounting policies upon which the Group’s Financial Statements are prepared as a whole. Specific accounting policies are described in the respective notes to the Consolidated Financial Statements.

a. Basis of consolidationThe Consolidated Financial Statements incorporate the assets, liabilities and results of all subsidiaries as at 31 December 2016.Subsidiaries are all entities over which the Group has control.The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intra-group balances and transactions, and any unrealised gains and losses arising from intra-group transactions, are eliminated in preparing the Consolidated Financial Statements. Non-controlling interests in the equity are shown as a separate item in the Consolidated Financial Statements.

b. Foreign currencyItems included in the Consolidated Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Consolidated Financial Statements are presented in Papua New Guinea Kina (“PGK”), which is the Company’s functional and presentation currency.

i. Transactions and balances (entities with a functional currency of PGK)Foreign currency transactions are translated into PGK using the exchange rates at the dates of the transactions.

CITY PHARMACY LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2016

NOTES CONSOLIDATED PARENT COMPANY2016K’000

2015K’000

2016K’000

2015K’000

Operating activitiesCash receipts from customers 556,483 449,227 404,158 380,194Cash paid to suppliers and employees (532,670) (456,450) (388,942) (377,925)

Cash generated from operations 23,813 (7,223) 15,216 2,269Interest received 10 – 1 –Interest paid (6,332) (3,514) (4,749) (2,544)Insurance claims received 5,146 6,511 5,146 6,511 Income tax paid (684) (5,723) (684) (5,723)

Cash flow from operating activities 22 21,953 (9,949) 14,930 514

Investing activitiesAcquisitions of:

Property, plant and equipment – – – –Acquisitions of:

Property, Plant and equipment (26,016) (9,307) (25,026) (13,912)Investments – (6,853) – (6,853)

Cash flows from investing activities (26,016) (16,160) (25,026) (20,765)

Financing activitiesIncrease / (decrease) in:

Borrowings 23,312 2,862 30,278 11,686Related party loans 400 (515) 1,754 (9,404)Dividend payments (3,740) (3,740) (3,740) (3,740)

Cash flows from financing activities 19,972 (1,393) 28,292 (1,458)

Net increase/(decrease) in cash and cash equivalents 15,909 (27,501) 18,196 (21,709)

Opening balance cash and cash equivalents (27,387) 114 (22,231) (522)

Closing balance cash and cash equivalents 22 (11,478) (27,387) (4,035) (22,231)

Consolidated Statement of Cash Flows is to be read in conjunction with the notes to and forming part of the Consolidated Financial Statements set out on pages 51 to 76


CITY PHARMACY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016

Assets and liabilities denominated in foreign currencies are translated to PGK at reporting date at the following rates:

Foreign currency amount Applicable exchange rate

Monetary assets and liabilities Reporting date

Non-monetary assets and liabilities measured at historical costs Date of transaction

Non-monetary assets and liabilities measured at fair value Date fair value is determined

Foreign exchange differences arising on translation are recognised in profit or loss in the period in which they arise except items noted within paragraph (ii) below.

ii. Financial Statements of foreign operations (entities with a functional currency other than PGK)The results and financial position of foreign operations are translated to PGK at the following exchange rates:

Foreign currency amount Applicable exchange rate

Revenue and expenses of foreign operations Average for the period

Assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation

Reporting date

Equity items Historical rates

The following exchange differences are recognised in other comprehensive income: • Foreign currency exchange differences arising on translation of foreign operations; and• Exchange differences arising from a monetary item receivable from or payable to a foreign operation, the

settlement of which is neither planned nor likely in the foreseeable future.

c. Goods and Services Tax (GST)Revenue, expenses and assets are recognised net of GST, except where the GST incurred is not recoverable from the taxation authority, in which case the GST is recognised as part of the expense or cost of the asset.Receivables and payables are stated with the amount of GST included. The net amounts of GST recoverable from or payable to the taxation authorities are included as a current asset or liability in the Consolidated Statement of Financial Position.Cash flows are included in the Consolidated Statement of Cash Flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from or payable to taxation authorities are classified as operating cash flows.

d. Application of new and revised International Financial Reporting Standards (IFRSs)

Amendments to IFRSs that are mandatorily effective for the current yearIn the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2016.

Amendments to IAS 1 Disclosure InitiativeThe Group has applied these amendments for the first time in the current year. The amendments clarify that an entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, and give guidance on the bases of aggregating and disaggregating information for disclosure purposes. However, the amendments reiterate that an entity should consider providing additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users of financial statements to understand the impact of particular transactions, events and conditions on the entity’s financial position and financial performance. In addition, the amendments clarify that an entity’s share of the other comprehensive income of associates and joint ventures accounted for using the equity method should be presented separately from those arising from the Group, and should be separated into the share of items that, in accordance with other IFRSs: (i) will not be reclassified subsequently to profit or loss; and (ii) will be reclassified subsequently to profit or loss when specific conditions are met. As regards the structure of the financial statements, the amendments provide examples of systematic ordering or grouping of the notes. The application of these amendments has not resulted in any impact on the financial performance or financial position of the Group.

Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and AmortisationThe Group has applied these amendments for the first time in the current year. The amendments to IAS 16 prohibit entities using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. This presumption can only be rebutted in the following two limited circumstances:• When the intangible asset is expressed as a measure of revenue; or• When it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset are highly

correlated.As the Group already uses the straight-line method for depreciation and amortisation for its property, plant and equipment, the application of these amendments has had no impact on the Group’s consolidated financial statements.

Annual Improvements to IFRSs 2012-2014 cycleThe Group has applied these amendments for the first time in the current year. The Annual Improvements to IFRSs 2012-2014 Cycle include a number of amendments to various IFRS which are summarised below.The amendments to IFRS 5 introduce specific guidance in IFRS 5 for when an entity reclassifies an asset (or disposal group) from held for sale to held for distribution to owners (or vice versa). The amendments clarify that such a change should be considered as a continuation of the original plan of disposal and hence requirements set out in IFRS 5 regarding the change of sale plan do not apply. The amendments also clarifies the guidance for when held-for-distribution accounting is discontinued. The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets.The amendments to IAS 19 clarify that the rate used to discount post-employment benefit obligations should be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The assessment of the depth of a market for high quality corporate bonds should be at the currency level (i.e. the same currency as the benefits are to be paid). For currencies for which there is no deep market in such high quality corporate bonds, the market yields at the end of the reporting period on government bonds denominated in the currency should be used instead. The application of these amendments has had no effect on the Group’s consolidated financial statements.

New and revised IFRSs in issue but not yet effectiveThe Company has not applied the following new and revised IFRSs that have been issued but are not yet effective:

IFRS 9 Financial Instruments12

IFRS15 Revenue from Contracts with Customers (and the related Clarifications)2

IFRS 16 Leases3

Amendments to IFRS 2 Classification and measurement of share-based payment transactions2

Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an Investor and its associate or Joint venture 4

Amendments to IAS 7 Disclosure initiative1

Amendment to IAS 12 Recognition of Deferred tax assets for unrealised losses1

1 Effective for annual periods beginning on or after 1 January 2017,with earlier application permitted2 Effective for annual periods beginning on or after 1 January 2018,with earlier application permitted3 Effective for annual periods beginning on or after 1 January 2019,with earlier application permitted4 Effective for annual periods beginning on or after a date to be determined

IFRS 9 Financial Instruments IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.

Key requirements of IFRS 9:• All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised

cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on


the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instrument that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive (FVTOC). All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3 applies) in other comprehensive income, with only dividend income generally recognised in profit or loss.

The Directors of the Company have not performed an assessment of the impact of IFRS 9 to the Group’s consolidated financial statements.

IFRS 15 Revenue from Contracts with CustomersIFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customerStep 2: Identify the performance obligations in the contractStep 3: Determine the transaction priceStep 4: Allocate the transaction price to the performance obligations in the contractStep 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance. The Directors are still in the process of assessing the full impact of the application of IFRS 15 on the Group’s consolidated financial statements and it is not practicable to provide a reasonable financial estimate of the effect until the directors complete the detailed review. The Directors do not intend to early apply the standards and intend to use the full retrospective method upon adoption.

IFRS 16 LeasesIFRS 16 introduces a comprehensive model for the identification of lease arrangement and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective.IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right of use asset and a corresponding liability have to recognised for all leases by lessees (i.e all on balance sheet) except for short term leases and leases of low value assets. The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected as operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively. In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.Furthermore, extensive disclosures are required by IFRS 16.

The Directors are still in the process of assessing the full impact of the application of IFRS 16 on the Group’s consolidated financial statements and it is not practicable to provide a reasonable financial estimate of the effect until the directors complete the detailed review. The Directors do not intend to early apply the standards and intend to use the full retrospective method upon adoption.

Amendments to IFRS 10 and IAS 28 Sale or Contributions of Assets between an Investor and its Associate or Joint VentureThe amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognised in the parent’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. Similarly, gains or losses resulting from the remeasurement of investment retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognised in the former parent’s profit or loss only to the extent of the unrelated investors’ interest in the new associate or joint venture. The effective date of the amendments has yet to be set by the IASB; however, earlier application of the amendments is permitted. The directors of the Group do not anticipate that the application of these amendments will have an impact on the Group’s consolidated financial statements.

Amendments to IAS 7 Disclosure InitiativeThe amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments apply prospectively for annual periods beginning on or after 1 January 2017 with earlier application permitted. The Directors of the Group do not anticipate that the application of these amendments will have a material impact on the Group’s consolidated financial statements.

2. Critical accounting estimates and judgementsIn applying the Group’s accounting policies, the directors are required to make estimates judgements and assumptions that affect the amounts recorded in this Financial Report. The estimates, judgements and assumptions are based on historical experience, adjusted for current market conditions and other factors that are believed to be reasonable under the circumstances and are reviewed on a regular basis. Actual results may differ from these estimates.The estimates and judgements which involve a higher degree of complexity or that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next period are included in the following notes:• Note 10 Estimation of useful lives of assets;• Note 12 Impairment of non-financial assets;• Note 8 & 27 Inventories provisioning;• Note 7 & 27 Receivables provisioning

GROUP PERFORMANCE3. Segment Disclosures

Operating Segment ReportingReportable segments are identified on the basis of internal reports on the business units of the Group that are regularly reviewed by the Board of Directors in order to allocate resources to the segment and assess its performance.The Group has two reportable segments. These business units offer different products and services and are managed separately because they require different technology and marketing strategies. The Group’s reportable segments are as follows:

2016 Total Assets Total Liabilities Turnover Net Profit after tax

K’000 K’000 K’000 K’000Retail 312,205 218,739 525,817 (3,309)Wholesale and tender 18,678 1,976 30,527 4,682

330,883 220,715 556,344 1,373



d. Application of new and revised International Financial Reporting Standards (IFRSs) continued




2015 (Restated) Note 27 Total Assets Total Liabilities Turnover Net Profit after tax

K’000 K’000 K’000 K’000

Retail 274,513 175,231 468,225 (2,707)Wholesale and tender 11,901 345 27,391 2,646

286,414 175,576 495,616 (61)

Turnover includes revenue of K539,626 (2015: K462,075), rental income of K4,966 (2015:K2,674), other & rebate income of K11,607 (2015:K11,050) and insurance claims K145 (2015: K19,817).

Geographical informationThe Group operates predominantly in Papua New Guinea.

4. RevenueCONSOLIDATED PARENT COMPANY

2016 (K’000)

2015 (K’000)

2016 (K’000)

2015 (K’000)

Retail and wholesale revenue 539,626 462,075 405,864 379,969

Significant Accounting PoliciesRevenue is measured at the fair value of consideration received or receivable on the basis that it meets the recognition criteria, set out as follows:

Revenue from the sale of goodsRevenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods.The Group operates a loyalty points programme, which allows customers to accumulate points when they purchase products in the Group’s retail stores. The points can be redeemed for free products, subject to a minimum number of points being obtained. Consideration received is allocated between the products sold and the points issued, with the consideration allocated to the points equal to their fair value.

5. Finance costs

Significant Accounting PoliciesBorrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

6. Other Income and ExpensesOperating profit for the year is stated after the following (income)/expense items.

CONSOLIDATED PARENT COMPANY

2016 (K’000)

2015 (restated)Note 27 (K’000)

2016K’000


Auditors remuneration 443 376 231 293 Depreciation (Note 10) 11,927 8,400 8,094 8,193Increase / (Decrease) in provision

Employee entitlements 65 2,973 (205) 2,244Doubtful debts 2,183 25 (7) 25 Inventory provision (824) 3,036 486 287

Insurance claims (145) (19,817) (145) (19,817)(Profit) / loss on disposal of fixed assets (138) (2,388) (5) (2,318)Rental income (4,966) (2,674) (2,288) (2,409)Rebates from suppliers (5,204) (4,773) (4119) (4,157)Other Income (6,403) (6,277) (3,848) (3,579)Foreign exchange gain (2,997) (2,135) (2,635) (2,135)

Deloitte Touche Tohmatsu is the auditor. During the year, the total remuneration amounted to K421,928.

Significant Accounting Policies

Depreciation – Refer to note 10 for details on depreciation and amortisation respectively.Employee entitlements – Refer to note 17 for details on employee entitlementsDoubtful debts – Refer to note 7 for details on doubtful debts.Insurance income – Refer to note 7 for details on insurance income.Rental income – Rental income arising from operating leases on property and sub-leases to various tenants are accounted for on a straight-line basis over the lease terms.

ASSETS AND LIABILITIES7. Trade and Other Receivables

CONSOLIDATED PARENT COMPANY2016K’000

2015 (restated) Note 27 (K’000)

1 January2015 (K’000)

2016K’000


1 January2015 (K’000)

Trade Receivables 31,813 24,960 12,454 17,789 15,707 12,454 Other Receivables (i) 30,271 24,149 7,720 28,976 19,293 4,324

Total Receivables 62,084 49,109 20,174 46,765 35,000 16,778Less: Provision for doubtful debts (3,737) (1,553) (58) (76) (83) (58)

Net Receivables 58,347 47,556 20,116 46,689 34,917 16,720

A fire occurred at Stop N Shop Waigani Central on Monday 13 July 2015. The fire destroyed the back receiving area and the administration office. Due to the severe damage caused to the whole store, it has not been reopened to date. The Company have lodged isurance claims for fixed assets (K10,353), inventory (K5,250), working capital (K500) and business interruption (K6,404). To date the Company have received full payment for the claim lodged for inventory, working capital and part payment of fixed asset claim. All other claims have been included as other receivables.

As at 31 December, the aging analysis of trade receivables is as follows:


2016(K’000)


1 January2015 (K’000)

2016K’000


1 January2015 (K’000)

Not past due (current to 60 days) 17,072 12,038 8,527 12,215 8,526 8,527 Past due but not impaired (exceeding 60 days) 11,004 11,369 3,869 5,498 7,098 3,869

28,076 23,407 12,396 17,713 15,624 12,396

Add: Provision for doubtful debts 3,736 1,553 58 76 83 58

Total Trade receivables 31,813 24,960 12,454 17,789 15,707 12,454

As at 31 December, movements of provision for doubtful debts:


2016(K’000)

2015(K’000)

2016(K’000)

2015(K’000)

Balance beginning of the year 1,553 58 83 58Transfer from business combination – 1,470 – –Impairment recognised on receivable (i) 2,183 25 (7) 25Balance at the end of the year 3,736 1,553 76 83

In 2016, the Group recognised an additional provision relating to Kwik Built receivables.

3. Segment Disclosures continued


Breakdown of other receivables is as follows:


2016(K’000)


1 January 2015 (K’000)

2016(K’000)


1 January 2015 (K’000)

Medical claims 315 846 433 303 373 433Insurance claims 9,259 13,305 – 8,743 13,305 –Employee loans 406 139 564 395 73 564GST receivable 94 1,406 – 94 1,406 –Income tax receivable – 1,056 – – – –Freight and duty advances 1,160 1,674 266 1,153 1,317 266Landlord development costs 14,200 – – 14,200 – –Other 4,837 5,723 6,457 4,088 2,819 3,061

Total Other Receivables 30,271 24,149 7,720 28,976 19,293 4,324

Landlord development costs pertains to redevelopment of the Harbour city and Koki supermarkets cost of structural nature where incurred on behalf of the landlord. These cost will be recouped from lease payments due over the seven year term of the lease.


Trade and other receivablesTrade and other receivables are stated at their cost less provision for doubtful debts. Trade and other receivables are non-interest bearing and are generally on terms of 30 to 90 days.

Provision for doubtful debtsThe Group assesses, at each reporting date, whether there is objective evidence that trade and other receivables is impaired. Trade and other receivables are deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows that can be reliably estimated. Evidence of impairment may include indications that a receivable is experiencing significant financial difficulty or there is a probability that they will enter bankruptcy.

8. InventoriesCONSOLIDATED PARENT COMPANY

2016(K’000)


1 January 2015 (K’000)

2016(K’000)


1 January 2015 (K’000)

Inventory for resale 103,282 96,310 69,736 70,674 61,451 67,826Provision for inventory (5,531) (5,465) (3,318) (3,120) (2,716) (3,318)

97,751 90,845 66,418 67,554 58,735 64,508

Significant Accounting PoliciesInventory for resale and consumable materials are valued at the lower of purchase cost, which is based on invoice prices and includes expenditure incurred in acquiring the goods and bringing them to their existing condition, and net realisable value. Costs of inventories are determined on a weighted average basis. Due to the nature of the business environment and operations, a provision for stock shrinkage has been made based on past experience.

9. Related Party Receivables CONSOLIDATED PARENT COMPANY

2016(K’000)

2015(K’000)

2016(K’000)

2015(K’000)

Pharmacy Wholesalers Pty Ltd – – 579 579 City Foods Ltd – – – 3,392Jacks Retail (PNG) Ltd 129 – 129 –Hardware Haus Ltd – – 4,090 9,500Paradise Cinema (PNG) Ltd 511 240 511 240

640 240 5,309 13,711

Related Party Receivables bear no interest and have no fixed terms of repayment. These consist of ordinary advances made by the Company to these entities to conduct business.

10. Property, plant and equipmentParent Company Land and buildings Motor vehicle Office equipment and

furniture and fixtureTotal

2016 K’000 K’000 K’000 K’000Cost 65,088 11,120 77,483 153,691 Less: Accumulated depreciation / amortisation (2,997) (7,663) (34,264) (44,924)Carrying amount at the end of the period 62,091 3,457 43,219 108,767

Movement:Carrying amount at start of period 49,743 4,696 35,951 90,390Additions 11,842 244 12,940 25,026Revaluation gain 1,475 – – 1,475Disposals (i) – (28) (2) (30)Depreciation / Amortisation (969) (1,455) (5,670) (8,094)

Carrying amount at the end of the period 62,091 3,457 43,219 108,767

Parent Company Land and buildings Motor vehicle Office equipment and furniture and fixture

Total


Movement:Carrying amount at start of period 50,742 4,807 37,803 93,352 Additions – 1,745 12,745 14,490Disposals – (142) (9,117) (9,259)Depreciation / Amortisation (999) (1,714) (5,480) (8,193)


Group Land and buildings Motor vehicle Office equipment and furniture and

fixture

Total


Movement:Carrying amount at start of period 52,466 7,253 48,252 107,971Additions 12,049 390 13,757 26,196Revaluation gain 1,475 – – 1,475Disposals (i) – (82) (687) (768)Depreciation / Amortisation (969) (2,605) (8,352) (11,927)Transfers and other – (26) 26 –


Group Land and buildings Motor vehicle Office equipment and furniture and

fixture

Total

2015 K’000 K’000 K’000 K’000Cost 56,152 18,934 84,383 159,469Less: Accumulated depreciation / amortisation (3,686) (11,680) (36,131) (51,498)Carrying amount at the end of the period 52,466 7,253 48,252 107,971

Movement:Carrying amount at start of period 50,742 5,143 39,183 95,068 Additions – 1,775 12,831 14,606 Disposals – (483) (9,090) (9,573)Depreciation / Amortisation (999) (1,714) (5,687) (8,400)Transfers and other 2,723 2,532 11,015 16,270


Included in disposals is the write off of fixed assets due to the incident as described in note 7.



7. Trade and other receivables continued


The above assets are held as security for various loans with banks refer to note 13 for details of these loans.As at 31 December 2016, the Directors revalued land and building after considering the independent valuations from GDA Pacific a registered valuer. On 31 December 2016 the Directors have reviewed the valuation and current sales adjacent to the properties and have determine the valuations have not changed since the valuation significantly in the period up to 31 December 2016.


Leased assetsGroup as a lesseeAssets held under finance leases are initially recognised as assets of the Group at the fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the income statement.A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Property, plant and equipmentCarrying amount:With the exception of land and buildings, property, plant and equipment is measured at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Land and buildings are measured at fair value less accumulated depreciation on buildings and impairment losses recognised at the date of revaluation. Valuations are performed with sufficient frequency to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

DepreciationDepreciation is calculated on a diminishing balance basis over the estimated useful lives of the assets as follows:

Buildings 50 yearsOffice equipment 5 - 12 yearsMotor vehicles 3 - 8 yearsFixtures, fittings and equipment 5 - 10 years

Revaluation of land and buildingsA revaluation surplus is recorded in other comprehensive income and credited to the asset revaluation reserve in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognised in profit or loss, the increase is recognised in profit and loss. A revaluation deficit is recognised in the income statement, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

Critical accounting estimates

Estimation of useful life of assetsEstimates of remaining useful lives require significant management judgement and are reviewed at least annually. Where useful lives are changed, the net written-down value of the asset is depreciated or amortised from the date of the change in accordance with the revised useful life. Depreciation recognised in prior financial years is not changed. Reasonably possible changes in estimated useful lives are unlikely to have a material impact as the change is assessed for specific assets.

Fair Value measurement of the Group’s freehold land and buildingsThe Group’s freehold land and building are stated at their revalued amounts being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value measurements of the Groups freehold land and buildings as at 31 December 2016 and 31 December 2015 were performed by GDA

Pacific and Yagur Property valuers, independent valuers are not related to the Group. The valuers are member of the institute of Valuers and they have appropriate qualifications and recent experience in the fair value measurement of properties in the relevant locations.The fair value of the freehold land was determined (based on the market comparable approach that reflects recent transaction prices for similar properties/other methods).The fair value of the buildings was determined using capitalisation and direct comparison on a per square metre rate for the building area.

ImpairmentProperty, plant and equipmentWhen there is an indication that the asset may be impaired (assessed at each reporting date) or when there is an indication that a previously recognised impairment may have changed

11. Taxation

Income tax recognised in the Statement of Profit or Loss and Other Comprehensive incomeCONSOLIDATED PARENT COMPANY

2016 (K’000)


1 January2015 (K’000)

2016 (K’000)


1 January2015 (K’000)

Current tax 34 202 5,514 592 1,157 5,219Deferred tax 624 533 (213) 1,166 159 (195)Income tax expense 658 735 5,301 1,758 1,316 5,024

Reconciliation between tax expense and profit before income taxCONSOLIDATED PARENT COMPANY

2016 (K’000)


1 January2015 (K’000)

2016 (K’000)


1 January2015 (K’000)

Profit before tax 2,031 674 12,215 5,699 2,283 12,576Tax for the year at 30% 610 202 3,664 1,710 685 3,773 Previously unrecognised deferred tax recognised – – 386 – – –Share in Joint Venture profits 18 604 1,238 18 604 1,238Non-deductible expenses 30 – 13 30 27 13Non-taxable income – (71) – – – –

Income tax expense 658 735 5,301 1,758 1,316 5,024

Deferred tax balances recognised in the Statement of Financial PositionCONSOLIDATED PARENT COMPANY

2016 (K’000)


1 January2015 (K’000)

2016 (K’000)


1 January2015 (K’000)

Deferred tax assetsProvision for doubtful debts 1,121 466 17 23 25 18Provision for inventory losses 1,659 1,640 – 936 815 –Provision for employee benefits 2,224 2,204 1,313 1,849 1,910 1,237Others 38 61 45 – – –Carry forward losses 4,743 3,813 – – – –Fixed assets (816) (899) 767 (816) (899) 767

8,969 7,285 2,142 1,992 1,851 2,022

Deferred tax liabilitiesPrepaid expenses (2,450) (1,485) (976) (1,791) (941) (976)Lease liability (1,227) (728) (256) (1,033) (728) (256)Unrealised foreign gain 131 – (107) 131 – (107)Revaluation gain (6,599) (6,778) (6,778) (6,599) (6,778) (6,778)

(10,145) (8,991) (8,117) (9,292) (8,447) (8,117)

Net Deferred taxes (1,176) (1,706) (5,975) (7,300) (6,596) (6,096)



10. Property, plant and equipment continued


Significant Accounting PoliciesIncome tax in the Consolidated Statement of Profit or Loss and Other Comprehensive income for the period presented comprises current and deferred tax.

Current taxIncome tax payable represents the amount expected to be paid to taxation authorities on taxable income for the period, using tax rates enacted at the reporting date and any adjustment to tax payable in respect of the previous years.

Deferred taxDeferred tax is calculated using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting and taxation purposes. Deferred tax is measured at the rates that are expected to apply in the period in which the liability is settled or asset realised, based on tax rates enacted at the reporting date.A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences or unused tax losses and tax offsets can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on net basis.

12. GoodwillCONSOLIDATED PARENT COMPANY

K’000 K’000Net Carrying value 31 December 2016 20,522 3,431

Significant Accounting PoliciesGoodwill represents the excess of the cost of an acquisition over the fair value of the share of the net identifiable assets acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Impairment of non-financial assets:The carrying amounts of the Group’s goodwill is reviewed for impairment at least annually and when there is an indication that the asset may be impaired.

Calculation of recoverable amountThe recoverable amount of an asset is the greater of its value in use (“VIU”) and its fair value less costs to dispose (“FVLCTD”).An impairment loss is recognised whenever the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Impairment losses recognised in respect of the CGU will be allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of other assets in the CGU on a pro-rata basis to their carrying amounts.

Key assumptionsKey assumptions used in determining the recoverable amount of assets include expected future cash flows, long-term growth rates (terminal value assumptions) and discount rates.In assessing VIU, estimated future cash flows are based on the Group’s latest internal forecasts reviewed by the Board covering a period not exceeding five years. Cash flows beyond the forecast period are extrapolated using estimated long-term growth rates.In assessing FVLCTD, estimated future cash flows are based on the Group’s latest Board approved strategic plan. Cash flow forecasts beyond the period covered by the strategic plan are based on estimated long-term growth rates.Goodwill has been allocated for impairment testing purposes to the following cash-generating units.• City Pharmacy Limited• Hardware Haus Limited

City Pharmacy LimitedThe recoverable amount of this cash generating unit is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by the Directors covering a five-year period, and a discount rate of 24.33% per annum (2015: 24.33%). Cash flow projections during the budget period are based on the same expected gross margin and inventories price inflation throughout the budget period. The cash flow beyond that five year period have been extrapolated using a steady 1% (2015: 1%) per annum growth rate which is the projected long-term average growth rate. The Directors believe that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash generating unit.

Hardware Haus Limited The recoverable amount of this cash generating unit is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by the Directors covering a five-year period, and a discount rate of 15% per annum (2015: 15%). Cash flow projections during the budget period are based on the same expected gross margin and inventories price inflation throughout the budget period. The cash flow beyond that five year period have been extrapolated using a steady 1% (2015: 1%) per annum growth rate which is the projected long-term average growth rate. The Directors believe that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash generating unit. For both VIU and FVLCTD models, long-term growth rates are based on past experience, expectations of external market operating conditions, and other assumptions which take account of the specific features of each business unit. Terminal value growth is based on an estimated long-term growth rate of generally 1%, and does not exceed industry growth rates for the business in which the CGU operates. In this regard, the cash flow projections are based on assumptions that would be considered typical for a market participant. Estimated future cash flows in VIU models are discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Reversals of impairmentAn impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Recoverable amount calculationsThe value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes

13. BorrowingsCONSOLIDATED PARENT COMPANY

2016 (K’000)

2015 (K’000)

2016 (K’000)

2015 (K’000)

Non-CurrentFully drawn borrowings 48,306 30,750 48,306 23,225Finance Lease Liabilities (note 16) 1,897 2,348 – 1,114

Total non-current borrowings 50,203 33,098 48,306 24,339 Repayment scheduleBetween one and two years 15,353 14,252 15,353 6,727 Between two and five years 34,850 18,846 32,953 17,612

Total 50,203 33,098 48,306 24,339

CurrentFully drawn borrowings 23,558 11,229 15,353 5,613Finance Lease Liabilities (note 16) 2,023 5,146 1,228 1,658

Total current borrowings 25,581 16,375 16,581 7,271

Total borrowings 75,784 49,473 64,887 31,610



11. Taxation continued


Bank facilities and securityA. In 2011, the Company entered into a multi-option facility with Westpac Bank (PNG) Limited that includes loans, overdraft

and assistance for documentary letters of credit to finance import payments into PNG.The loan is secured by the following:• Various Registered Mortgage Deeds• Fixed and floating charge over all Company assets and undertakings• Carrying value of motor vehicles as security over leases• Unlimited interlinking guarantee and indemnity from its subsidiary company, International Distribution and Marketing Ltd• Deed of Cross Guarantee• Master Lease AgreementB. In June 2011, the Company entered into a loan agreement with ANZ Bank for K1.5 million for the purchase of Hagen

property. As at 31 December 2016, the carrying value of the loan amounted to K0.67 million (2015: K1.09 million).C. In March 2014, the Company entered into a 7-year loan agreement with Westpac Bank (PNG) Limited for K14 million.

The Company has paid Interest only for 2 years without repaying any principal amount. Then in the third year, the Company will pay principal and interest in the remaining 5 years. The interest rate is fixed. The loan is secured by a mortgage over all CPL properties. As at 31 December 2016, the carrying value of this loan amounted to K12.38 million (2015: K14.08 million)

D. The Company also has a finance lease facility with Westpac Bank PNG Limited. The bank is first mortgagee to all Company assets and undertakings. The interest rate is fixed. As at 31 December 2016, the carrying value of the lease finance amounted to K1.23 million (2015: K2.66 million).

E. The Company also has a finance lease facility with ANZ Bank. The bank is second mortgagee to all Company assets and undertakings. The interest rate is fixed. As at 31 December 2016, the carrying value of the lease finance amounted to KNil (2015: K0.11 million).

F. In September 2014, the Company entered into additional multi option facility (MOF) with Westpac Bank (PNG) Limited for K4 million which increased the facility to K16 million. The interest rate is fixed.

G. In August 2015, the Company entered into a five year loan agreement with ANZ Bank for K16.6 million for the acquisition of Hardware Haus Limited. The interest rate is fixed. As at 31 December 2016, the carrying value of the loan amounted to K12.33 million (2015: K12.59 million).

H. In October 2015, the Company entered into a seven year loan agreement with Westpac Bank (PNG) Limited for K35.1 million for capital expenditure and development of Harbour City and Koki supermarkets with an arrangement of interest only for one year. The loan drawdown in 2016. The interest rate is fixed. As at 31 December 2016, the carrying value of the loan amounted to K35.3 million (2015: Nil).

I. In November 2016, the Company entered into a five year loan agreement with Westpac Bank (PNG) Limited for K3 million for refinancing of Paradise Cinema’s loan. The interest rate is fixed. As at 31 December 2016, the carrying value of the loan amounted to K2.97million (2015: Nil).

The Company has fully utilised all available facilities except for the multi option facility (K6.3 million) and lease finance (K1.9 million).The Group breached the bank covenants for ANZ bank at the year-end 31 December 2016 and is currently in negotiations with financiers for refinancing of loans. All the ANZ borrowings have been classified as current as a result.

14. Trade and Other PayablesCONSOLIDATED PARENT COMPANY

2016 (K’000)


1 January2015 (K’000)

2016 (K’000)


1 January2015 (K’000)

Trade Payables 98,548 53,868 39,974 68,797 29,895 37,936 Other Payables and accruals 9,350 19,181 6,867 4,814 9,286 7,005Security Bonds 159 161 159 159 161 159

108,057 73,210 47,000 73,770 39,342 45,100

Current 107,898 73,049 46,841 73,611 39,181 44,941 Non - Current 159 161 159 159 161 159

108,057 73,210 47,000 73,770 39,342 45,100

Breakdown of other payable is as follows:CONSOLIDATED PARENT COMPANY

2016 (K’000)


1 January2015 (K’000)

2016 (K’000)


1 January2015 (K’000)

Advance payments received 4,145 10,048 1,277 841 1,290 1,277 Withholding Taxes 881 858 571 851 858 571Accruals 2,165 6,146 1,604 2,049 6,146 1,604Wages payable 1,042 564 754 1,006 564 754Other 1,117 1,565 2,661 67 428 2,799

Total Other Payables 9,350 19,181 6,867 4,814 9,286 7,005

15. Related Party PayablesCONSOLIDATED PARENT COMPANY

2016 (K’000) 2015 (K’000) 2016 (K’000) 2015 (K’000)Pharmacy Wholesalers Pty Ltd (non-current) 189 155 – –DFS (PNG) Limited (current) 43 – 43 –

232 155 43 –

16. Finance Lease LiabilitiesRefer to note 10 for accounting policy on finance Leases.

CONSOLIDATED PARENT COMPANY2016 (K’000) 2015 (K’000) 2016 (K’000) 2015 (K’000)

Minimum Lease PaymentsWithin one year 2,197 5,303 1,272 1,781 Between one and five years 1,923 2,358 – 1,158

4,120 7,661 1,272 2,939

Less: Future Finance Charges (200) (167) (44) (167)

Present Value of Minimum Lease Payments 3,920 7,494 1,228 2,772 Present Value of Minimum Lease PaymentsWithin one year 2,023 5,146 1,228 1,658Between one and five years 1,897 2,348 – 1,114

3,920 7,494 1,228 2,772

17. Employee ProvisionsCONSOLIDATED PARENT COMPANY

2016 (K’000)


1 January2015 (K’000)

2016 (K’000)


1 January2015 (K’000)

Current portion:Employee provisions 1,916 2,449 2,983 1,330 2,039 2,732

Non-current portion:Employee provisions 5,497 4,899 1,392 4,833 4,329 1,392

7,413 7,348 4,375 6,163 6,368 4,124


Employee BenefitsA liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and leave fares when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of employee benefits expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Company in respect of services provided by employees up to the reporting date.



13. Borrowings continued


18. Financial Instruments

Significant Accounting PoliciesFinancial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial AssetsThe Group classifies its financial assets into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘available-for-sale’ (AFS), held-to-maturity investments and ‘loans and receivables’. Management determines the appropriate classification of its investments at the time of the purchase.Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, related party receivables and bank balances) are measured at amortised costs using the effective interest method, less any impairment.Refer to note 7 and note 9 for details.

Financial LiabilitiesFinancial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.As at 31 December 2016 the Groups’ other financial liabilities were Trade and Other Payables, Related Party Payables, Bank Overdraft and Borrowings. Refer to note 13, note 14, and note 15 for details.

GROUP STRUCTURE, CAPITAL STRUCTURE, FINANCING AND RISK MANAGEMENT19. Investments

CONSOLIDATED PARENT COMPANY2016

(K’000)2015

(K’000)2016

(K’000)2015

(K’000)Subsidiaries – At cost – – 23,505 13,353Joint Ventures – Equity method 5,992 2,929 5,992 2,929

5,992 2,929 29,497 16,282

SUBSIDIARIES PARENT COMPANY

Country % held 2016(K’000)

2015(K’000)

Pharmacy Wholesalers Pty Ltd Australia 80% 2,105 2,105International Distribution and Marketing Ltd PNG 100% – 50Hardware Haus Ltd PNG 100% 21,400 11,198

23,505 13,353

JOINT VENTURESCountry % held 2016 % held 2015 2016

(K’000)2015

(K’000)Paradise Cinema (PNG) Ltd PNG 46.2% 43.87% 3,511 1,456Jacks Retail (PNG) Ltd PNG 50% 50% 1,367 861DFS (PNG) Ltd PNG 50% 50% 1,114 612

5,992 2,929

The following table illustrates the summarised financial information of the Group’s investment in Joint Ventures.

2016 (K’000) 2015 (K’000)Total Assets 24,817 23,568Total Liabilities (13,519) (18,240)

Net Assets 11,298 5,328

Group’s share of net assets of Joint Ventures

Total Revenue 25,759 17,279Total Profit / (Loss) of the Joint Ventures (30) (1,414)Group’s share of Profit / (Loss) of Joint Ventures 62 (2,014)


Business CombinationsDuring the current financial year the Board of directors made a decision to reclassify the intercompany loan of K10.2 million owing from Hardware Haus Limited. There is no intention for the loan to be repaid and it is treated as part of the Group’s investment in Hardware Haus Limited.During the current financial year the Group amalgamated two non-operating subsidiaries, City Foods Limited and International Distribution and Marketing Limited were amalgamated into the Parent Company and the entities were deregistered.A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the joint venture. In 2016, the Group has invested K3 million for the equivalent of 2% additional shareholding in Paradise Cinema (PNG) Limited. The Group does not have control over the investment and accordingly the investment is accounted for using the equity method of accounting .

20. Related Party DisclosureRelated party transactions are carried out on commercial terms and market rates, except for loans to subsidiaries and joint ventures which do not incur any interest and have no fixed terms of repayment.

Transactions with Subsidiaries and Joint VenturesTransactions with Hardware Haus Ltd ‘HHL’, a wholly owned subsidiary from 1 July 2015, are based on commercial arrangements. The Company’s total sales to HHL in 2016 were K152,043 (2015: K1,570,331) while purchases were K458,770 (2015: K525,755). As at 31 December 2016, the Company has a loan receivable from HHL of K257,401 (2015: K9,500,000). The Company also has trade receivables outstanding from HHL for the amount of K3,832,231 (2015: K4,269,530).The Company provides administration assistance to Paradise Cinema (PNG) Ltd, a joint venture. As at 31 December 2016, the Company has a receivable from Paradise Cinema of K688,261 (2015: K239,711).The Company provides administration assistance to DFS (PNG) Limited, a joint venture. As at 31 December 2016, the Company has a payable to DFS (PNG) Limited of K48,990 (2015: KNil).The Company provides administration assistance to Jacks Retail (PNG) Limited, a joint venture. As at 31 December 2016, the Company has a payable to Jacks Retail (PNG) Limited of K28,845 (2015: KNil).Mahesh Patel is a director of New World Limited, Fiji, a supplier to the company. In 2016 City Pharmacy Limited purchased stocks of K78,961 (2015: K64,927) which were fully paid. The Group has a receivable amount of K6,872 (2015: KNil).Mahesh Patel is a related party of US All American ENT.INC.USA, a supplier to the company. In 2016, City Pharmacy Limited’s total stocks purchased from US All American was K2,554,008 (2015: K1,816,466). The Group has an outstanding amount of payable K490,543 (2015: KNil) at the year end.




Due from/(to) key management personnel During the year, the key management personnel who are non-Company directors received advances from the City Pharmacy Limited amounting to K226,426 (2015: K448,683). As at 2016 year end, the balance owed to the Group is K111,507 (2015: K51,354).

Remuneration of the Directors and key management officersThe total remuneration paid to Directors and key management officers during the year was K10.04 million and consisted of fixed directors’ fees, salaries and fees and non-monetary benefits such as accommodation, motor vehicle, airfares and education cost as follows:

2016 (K’000) 2015 (K’000)Short-term employment benefits 10,043 10,612Bonuses – 301Total 10,043 10,913

The Company does not have post-employment benefits, other long-term benefits and termination benefits for its directors and employees.The equity settled share based payment form part of the remuneration of certain directors and key management officers of the Group. At the 2010 the shareholders approved the introduction of the employee share scheme. In 2015 the Group recognised K1.3 million of share based employee benefits.

Remuneration by Director:2016 (K’000) 2015 (K’000)

Mahesh Patel 642 631Peter John Aitsi 144 129Graham John Dunlop 144 128Anthony Smare 144 128Robert Baily (Appointed May 2015) 158 98Joseph Barberis (Appointed May 2015) 144 102Peter Robinson (Appointed May 2015) 144 96Bruce David Dalhenburg (Resigned May 2015) - 42Dame Carol Kidu (Resigned May 2015) - 61

In addition, Mahesh Patel is a full-time employee and received benefits of fully provided vehicles, accommodation and air fares, the value of which is included in the above. In 2015 Mahesh Patel received a bonus based on 3% pre-tax profit of K300, 821.

Remuneration of employees2016 2015

K80,001– K100,000 13 18K100,001– K200,000 35 38K200,001– K300,000 11 9K300,001– K400,000 7 7K400,001– K500,000 3 4K500,001– K600,000 7 4K600,001– K700,000 2 1K700,001– K800,000 3 4K800,001– K900,000 – 1K900,001– K1,000,000 – 1K1,000,001– K1,100,000 1 –K1,200,001– K1,300,000 – 1K1,600,001–K1,700,000 1 –K1,800,001–K1,900,000 – 1

83 89

Interest Register Name of Director Interest/Position Name of entityMahesh Patel Chairman/Shareholder City Pharmacy Ltd, Mainsbridge Pty Ltd Australia, Amar Business Holding Pte Ltd

Chairman Telikom PNG LtdDirector Shareholder

Hardware Haus Ltd, New World Limited Fiji Manu Nominees Pty Ltd

Peter John Aitsi Director/Shareholder RBC Holdings LtdDeputy Chairman Kumul Consolidated HoldingsSr Vice President PNG Chamber of Mines and PetroleumDirector City Pharmacy Ltd, PNG FM Ltd, Leadership PNG, Steamships Trading Company Ltd,

Newcrest PNG LtdGraham John Dunlop Director/Chairman Mainland Holdings Ltd,City Pharmacy Ltd,

Director Steamships Trading Company Ltd, Credit Corporation (PNG) Ltd

Robert Baily Director City Pharmacy Ltd, 7-Eleven Stores Pty LtdMember Starbucks Australia Advisory Board

Anthony Smare Director/Chairman Nambawan Super LtdDirector City Pharmacy Ltd, Paradise Foods Ltd, Nationwide Microbank Ltd

Peter Robinson Director/Chairman Australian Pharmaceuticals Industries Ltd, Clover Corporation Ltd, TPI Enterprises LtdDirector City Pharmacy Ltd

Joseph Barberis Director City Pharmacy Ltd, Zoos Victoria

Shareholdings of Directors and Related PartiesRelated party Number of shares in the Group % holding

Amar Business Holdings Pte Ltd 14,187,142 11.38%New World Ltd, Fiji 9,681,228 7.76%Mainsbridge Pty Ltd 6,305,692 5.06%Mahesh Patel 6,227,597 4.99%Manu Nominees Pty Ltd 2,000,000 1.60%Anthony Smare and Emma Smare 90,000 0.07%

21. Equity

Share capitalIn accordance with the provisions of the Companies Act 1997, the share capital does not have a par value. In accordance with the provisions of the constitution, the board of directors of the Company may issue shares at its discretion. The total issued shares is 124,679,532 (2015: 124,679,532).

Revaluation reserveCONSOLIDATED PARENT COMPANY

2016(K’000)

2015(K’000)

2016(K’000)

2015(K’000)

Balance at beginning of year 37,152 37,152 37,152 37,152Increase arising on revaluation of properties 1,655 – 1,655 –Balance at end of year 38,807 37,152 38,807 37,152

The property revaluation reserve arises on the revaluation of land and buildings. When the revalued land and buildings are sold, the portion of the property revaluation reserve that relates to that asset is transferred directly to retained earnings. Items of other comprehensive income included in the property revaluation reserve will not be reclassified subsequently to profit or loss.

Foreign currency translation reserveCONSOLIDATED

2016(K’000)

2015(K’000)

Balance at beginning of year 56 (105)Exchange differences arising on translating the foreign operations 304 161Balance at end of year 360 56



20. Related Party Disclosure continued


Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (PNG Kina) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve (in respect of translating both the net assets of foreign operations) are reclassified to profit on the disposal of the foreign operation.

Share option reserveThe group operates a share based payment scheme. The purpose of this scheme is to assist in the reward, retention and motivation of key management personnel and align the interest of management and shareholders.There is no movement in share option reserve for 2016.

Share-based payment scheme

Details of the employee share option plan of the CompanyIn accordance with the terms of the plan, as approved by shareholders in 2010, senior executive employees will receive a number of CPL shares be issued at the end of each year for 5 years at the ruling market price commencing 31 December 2010. Half of these shares will be service related and will become available on an annual basis provided the senior executive employees remain an employee of CPL for the relevant period. The remaining half will be subject to CPL satisfactorily meeting performance criteria set out in the Company’s strategic plan, with half of the performance shares being paid out in the following year and other half paid out equally over the next five years. The number of share rights granted is calculated in accordance with the performance-based formula approved by the Board, shareholders and is subject to approval by the remuneration committee. The formula rewards senior executive to the extent of the Company’s achievement judged against both qualitative and quantitative criteria from the following financial measures:• Group sales meet financial projections as set out in the strategic plan• Group sales increase by 17% for 2013 and 2014 financial years• Operating expense to sales ratio to remain consistent at 21%• Profit before interest, tax, depreciation & allocation at 8%• Profit before interest and tax at 6%• Net profit after tax at 4%The following share-based payment arrangements were in existence during the current and prior years:

Number of shares Grant date Fair value at grant date760,000 31.12.2011 1.12 per share660,000 31.12.2012 1.55 per share627,000 31.12.2013 1.96 per share330,000 31.12.2014 1.43 per share

Accounting policy

Share-based paymentsSenior executive employees are entitled to participate in a share ownership scheme. The fair value of share rights provided to senior executive employees as share-based payments is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and is recognised over the period the services are received being the expected vesting period during which the senior executive employees would become entitled to exercise their share rights.

Share option reserveShare option reserve comprises the fair value of share-based payment scheme during the vesting period.

Retained earnings and dividends on equity instrumentsCONSOLIDATED PARENT COMPANY

2016(K’000)


2016(K’000)


Retained earnings 46,826 49,379 48,897 51,041

Balance at beginning of year 55,998 53,357 57,420 53,814Correction of errors (note 27) (6,619) – (6,379) –As adjusted 49,379 53,357 51,041 53,814Movement during the period

Profit attributable to owners of the Company 1,227 (196) 3,941 967Amalgamation of Non-operating subsidiaries – – (2,345) –Payment of dividends (3,740) (3,740) (3,740) (3,740)Others – (42) – –Balance at end of year 46,866 49,379 48,897 51,041

On 21 June 2016, a dividend of 0.3 toea per share (total dividend K3.74m) was paid to holders of fully paid ordinary shares.The Directors have decided that no dividend will be paid in 2017.

22. Cash and Cash EquivalentsReconciliation of Cash


(K’000)2015

(K’000)2016

(K’000)2015

(K’000)Cash at bank 7,606 5,752 5,683 2,061 Bank overdraft (19,084) (33,139) (9,718) (24,292)

(11,478) (27,387) (4,035) (22,231)

Reconciliation of operating profit after income tax to net cash provided by operating activitiesCONSOLIDATED PARENT COMPANY

2016 (K’000)


1 January 2015 (K’000)

2016(K’000)


1 January 2015 (K’000)

Operating profit before tax 2,031 674 12,125 5,699 2,283 12,576Adjustments for:(Gain)/ Loss on disposal of fixed assets (138) (2,388) 264 (5) (1,019) 264Provision for bad debts 2,183 1,495 (10) (7) 25 (10)(Profit)/Loss from Joint Ventures (62) 2,014 4,128 (62) 2,014 4,128Insurance claims (145) (21,817) – (145) (21,817) –Interest expense 6,332 3,514 1,596 4,749 2,544 1,596Depreciation 11,927 8,400 7,930 8,094 8,193 7,599Inventory written off 2,000 6,123 – 2,000 6,123 –Property, plant and equipment written off 768 9,259 – 30 9,259 –Interest income (10) – 2 (1) – (2)

Operating profit before changes in working capital 24,886 7,274 26,035 20,352 7,605 26,151



21. Equity continued



(K’000)2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

2016 (K’000)


1 January 2015 (K’000)

(Increase)/ Decrease in:Trade and Other Receivables (10,791) (19,439) (6,150) (14,490) (7,710) (5,142)Inventories (6,906) (24,427) (13,228) (8,818) 5,773 (13,658)Prepayments (4,659) 188 (946) (2,834) 117 (1,065)(Decrease) / Increase in:Trade and Other Payables 26,624 26,208 13,167 24,158 (5,760) 13,263Income Tax Liability (3,260) – – (2,947) – –Employee Provisions 65 2,973 (222) (205) 2,244 (317)

(1,073) (14,497) (7,378) (5,136) (5,336) (6,918)Cash generated from/(used in) operations 23,813 (7,223) 18,657 15,216 2,269 19,233


(K’000)2015 (restated)

Note 27 (K’000)

1 January2015

(K’000)

2016 (K’000)


1 January2015

(K’000)Interest Received 10 – 2 1 – 2Interest Paid (6,332) (3,514) (1,596) (4,749) (2,544) (1,596)Insurance claims 5,146 6,511 – 5,146 6,511 –Income Tax Paid (684) (5,723) (9,975) (684) (5,723) (10,030)

(1,860) (2,726) (11,569) (286) (1,755) (11,624)Net cash provided by operating activities 21,953 (9,949) (7,088) 14,930 514 7,609

23. Financial Risk ManagementThe Group’s activities expose it to a variety of financial risks, including the effects of changes in market prices and interest rates. The Group monitors these financial risks and seeks to minimize the potential adverse effects on the financial performance of the Group. The Group does not use any derivative financial instruments to hedge these exposures.

Maximum credit risk and concentration of credit riskThe carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:


2016 (K’000)


1 January2015

(K’000)

2016 (K’000)


1 January2015

(K’000)Cash at bank 7,606 5,752 4,846 5,683 2,061 4,209 Trade and Other Receivables 58,347 47,556 20,116 46,689 34,917 16,720Related Party Receivables 640 240 1,744 5,309 13,711 6,105

66,593 53,548 26,706 57,681 50,689 27,034

Management does not expect any material accountable party to fail to meet its obligations.

Foreign Exchange RiskThe Group’s foreign currency risk arises from transactions with suppliers. Management usually manages the risk by taking out foreign cover in the event of anticipated large movements in exchange rates.

Liquidity RiskLiquidity risk is the risk that the Group will encounter difficulties in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

PARENT - 2016 At Call 0 – 3 Months 3 Months – 1 Year Beyond 1 YearK’000 K’000 K’000 K’000

AssetsCash and Cash Equivalents 5,683 – – –Trade and Other Receivables – 20,089 14,800 11,800Related Party Receivables – – – 5,309

Total Undiscounted Cash Inflows 5,683 20,089 14,800 17,109

LiabilitiesTrade and Other Payables – 73,611 – –Bank Overdraft 9,718 – – –Borrowings – – 15,353 48,306Finance Leases – – 1,228 –

Total undiscounted cash outflows 9,718 73,611 16,581 48,306

GROUP - 2016 At Call 0 – 3 Months 3 Months – 1 Year Beyond 1 YearK’000 K’000 K’000 K’000

AssetsCash and Cash Equivalents 7,606 – – –Trade and Other Receivables – 31,747 14,800 11,800Related Party Receivables 640 – – –

Total Undiscounted Cash Inflows 8,246 31,747 14,800 11,800

LiabilitiesTrade and Other Payables – 107,898 – –Bank Overdraft 19,084 – – –Borrowings – – 23,558 48,306 Finance Leases – – 2,023 1,897

Total undiscounted cash outflows 19,084 107,898 25,581 50,203

Interest Rate RiskInterest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group monitors the interest rate exposure on a regular basis. However, the Group is restricted in its ability to mitigate the risks associated with interest rate movements.

Sensitivity AnalysisAs at 31 December 2016, a general increase of one percentage point in interest rates or one percentage point in the value of the Kina against other foreign currencies will not have a significant impact on the Group’s profit.

Capital ManagementThe Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group’s overall strategy remains unchanged from 2015. The capital structure of the Group consists of net debt (borrowings as detailed in notes 13 and 22 offset by cash and bank balances) and equity of the Group (comprising issued capital, reserves and retained earnings and non-controlling interest as detailed in 21). The Group is not subject to any externally imposed capital requirements.



22. Cash and Cash Equivalents continued


26. Subsequent EventsNo matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations or state of affairs of the company in the financial year subsequent to 31 December 2016.

27. Correction of ErrorsAfter the end of year the Directors conducted a detailed examination of a number of areas of the Group’s activities. In particular a recalculation of the liability to staff for Long Service Leave benefits and the cost of a share plan relating to senior staff. Following that action and it was decided that a more punitive policy should have been taken in 2015 in regard to Inventory provisions of K2.4 million, receivables provisions of K2.4 million, employee share based payment scheme of K1.8 million, long service leave provisions of K2.7 million and other adjustments of K0.1 million. The review determined that the Group shareholders’ funds reported at 31 December 2015 should be reduced from K116.13 million to K110.84 million. The errors have been corrected by restating each of the affected financial statement line items for the prior periods as follows:

Impact on equity (increase/(decrease) CONSOLIDATED PARENT COMPANY

31 December 2015 (As previously

stated)K’000

31 December 2015

(restated) K’000

Increase/(Decrease)

K’000

31 December 2015 (As previously

stated)K’000

31 December 2015

(restated) K’000

Increase/(Decrease)

K’000Trade and Other Receivables 50,192 47,314 (2,878) 37,555 34,917 (2,638)Inventories 93,235 90,845 (2,390) 61,125 58,735 (2,390)Deferred Tax Assets 8,414 7,285 (1,129) 2,980 1,851 (1,129)Total Assets 151,841 145,444 (6,397) 101,660 95,503 (6,157)

Trade and Other Payables 72,748 72,806 58 39,122 39,180 58Income Tax Liability 7,163 3,260 (3,903) 6,941 3,038 (3,903)Deferred Tax Liabilities 8,950 8,991 41 8,406 8,447 41Employee Provision-Non current 2,200 4,899 2,699 1,629 4,328 2,699Total Liabilities 91,061 89,956 (1,105) 56,098 54,993 (1,105)Movement in net Assets 60,780 55,488 (5,292) 45,560 40,510 (5,052)

Share option reserve – 1,327 1,327 – 1,327 1,327Retained Earnings 55,998 49,379 (6,619) 57,420 51,041 (6,379)Movement in equity 55,998 50,706 (5,292) 57,420 52,368 (5,052)

Impact on statement of profit or loss (increase/(decrease) in profitConsolidated Parent Company

31 December 2015 (restated) (K’000)

31 December 2015(restated) (K’000)

Administration Expenses (7,206) (6,966)Other income and expenses (2,147) (2,147)Income tax benefits 2,734 2,734Net impact on profit for the year (6,619) (6,379)Attributable to:

Equity holders of the parent (6,619) (6,379)

Impact on basic and diluted earnings per share (EPS) (increase/ (decrease) in EPS)Consolidated

31 December 2015 toea

Earnings per shareBasic, profit for the year attributable to ordinary equity holders of the parent (5.31)

Gearing ratioThe gearing ratio at end of the reporting period was as follows:

CONSOLIDATED

2016 (K’000)


Debt (i) 90,948 75,118Cash and bank balances (7,606) (5,752)Net debt 83,342 69,366

Equity (ii) 110,168 110,838

Net debt to equity ratio 76% 63%

i. Debt is defined as long and short term borrowings, including bank overdraft. ii. Equity includes all capital and reserves of the Group that are managed as capital.

24. Commitments for ExpenditureFuture financial charges totalling K200,290 (2015: K166,605) in relation to various financial leases of vehicles and equipment from Westpac Bank PNG Limited. Total monthly lease repayments are K256,021 (2015: K175,226).The Company has committed to lease various retail store outlets from which they are operating from lessors for up to 5 years at commercial rates and conditions.

Leasing arrangementsOperating leases relate to leases of land with lease terms of between 5 and 10 years. All operating lease contracts over 5 years contain clauses for 5-yearly market rental reviews. The Group does not have an option to purchase the leased land at the expiry of the lease periods.

Payment recognised as an expenseCONSOLIDATED PARENT COMPANY

2016 (K’000)

2015 (K’000)

2016 (K’000)

2015 (K’000)

Minimum lease payments 27,153 19,125 17,725 14,082

Non-cancellable operating lease commitmentsCONSOLIDATED PARENT COMPANY

2016 (K’000)

2016 (K’000)

Not later than 1 year 28,821 19,323Later than 1 year and not later than 5 years 128,745 94,014Later than 5 years 46,130 11,832

203,696 125,169

OTHER25. Contingencies

The Company has a credit facility of K19.75 million (2015: K16 million) for Multi - Option Facilities which includes documentary letters of credit from Westpac Bank PNG Limited. As at 31 December 2016, the Company had utilised letters of credit amounting to K2,000,271 (2015: K930,107). The Company has guaranteed for the Hardware Haus Limited multi-option and fully drawn loan facilities from ANZ Bank. The guarantee is supported by a mortgage of the Company property in Mount Hagen as first mortgage, and second mortgage for the properties in Lae, Boroko and Gerehu.The Group has a contingent liability for long service leave for expatriate employees who have left the employment of the Group, however did not receive their long service leave entitlements upon leaving the employment of the Group. The directors are unable to accurately determine the amount that may be paid to the expatriate employees due to the significant amount of time since some employees left the Group.



23. Financial Risk Management continued


COMPANY DIRECTORY

City Pharmacy Limited is a registered company under the Papua New Guinea Companies Act 1997 (Amended) and is incorporated and domiciled in Papua New Guinea.

ChairmanMahesh Patel, OBE

DirectorsPeter John AitsiRobert BailyJoseph BarberisGraham John DunlopPeter RobinsonAnthony Smare

SecretaryRaman Kumar

Registered OfficeAllotment 18, Section 342Uduka StreetGerehu Stage 6National Capital DistrictPapua New GuineaTelephone +675 312 0000

AuditorsDeloitte Touche TohmatsuChartered AccountantsPO Box 1275, Port MoresbyPapua New Guinea

BankersANZ Banking Group LimitedBank of South Pacific LimitedWespac Bank PNG Limited

Stock exchangePort Moresby Stock Exchange (listing code: CPL)

BrokersBSP CapitalKina Securities

Share RegisterPNG Registries Limited

This report produced for CPL by Business Advantage International (businessadvantageinternational.com).

Directors’ DeclarationThe Directors’ declare that:a. In the Directors’ opinion, there are reasonable grounds to believe the Company will be able to pay its debts as and when

they become due and payable;b. In the Directors’ opinion, the attached Consolidated Financial Statements and notes thereto are in accordance with the

Companies Act 1997 (Amended), including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group.

Director: Director:

Date: Date:

Support Office

Uduka Street, Stage 6, Gerehu

Port Moresby

NCD

Papua New Guinea

Phone +675 3120000

Fax +675 3120100

Email [email protected]

Web www.cpl.com.pg

cpl group annual report 2016 singh will be the ... mahesh patel, obe chairman l ong stat bilong yia...

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