CPL Group Annual Report 2016 by Business Advantage International

CPL GROUP ANNUAL REPORT 2016

PAPUA NEW GUINEAâ&#x20AC;&#x2122;S LEADING RETAILER

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.

CONTENTS

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

n 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

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C H A I R M A N â&#x20AC;&#x2122; 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 Groupâ&#x20AC;&#x2122;s cash position remains strained. Discussions continue with major financers to renew and strengthen facilities, but it is acknowledged that further growth in the Groupâ&#x20AC;&#x2122;s operations may proceed only after disposal of noncore 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, OBE CHAIRMAN

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TOKTOK BILONG SIAMAN BILONG CPL

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 NonEkseketiv 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: â&#x20AC;˘ Stretim pei bilong ol wokman na wokmeri

â&#x20AC;˘ Apim mani mak bilong redi long ol dinau we i no klia tumas â&#x20AC;˘ 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 C P L G R O U P A N N U A L R E P O RT 2 0 1 6

TOKTOK RIPOT BILONG SIAMAN

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. 10

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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, OBE SIAMAN.

THE CPL GROUP BOARD

Mr Mahesh Patel, OBE

Mr Peter Aitsi

Mr Robert (Bob) Baily

Mr Joseph Barberis

Mahesh Patel is the cofounder 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.

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.

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 cofounder 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.

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 nonexecutive 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.

Chairman

Independent Director

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THE CPL GROUP BOARD

Mr Graham John Dunlop Independent 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 Robinson

Mr Anthony Smare

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).

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.

Independent Director

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Independent Director

CPL GROUP’S LEADERSHIP TEAM

SENIOR MANAGEMENT TEAM Ravi Singh

Chief Executive Officer

Omprakash Seshadri

General Manager—Commercial

Raman Kumar

General Manager—Finance

Steve Beattie

General Manager—Hardware

Shane Byrne

General Manager—Human Resources

Owen O’Shea

General Manager—Information Technology

Mandy Copeland

General Manager—Marketing

Mike Shields

General Manager—Pharmacy

Lee Green

General Manager—Retail Operations

Ratnesh Mishra

General Manager—Pharmacy Wholesalers Limited

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CPL GROUP: AN OVERVIEW

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.

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W H AT C P L S TA N D S F O R

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

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Manus

Vanimo

Maprik

Wewak

NATIONWIDE LOCATIONS

Madang Mt Hagen Goroka

PA P U A N E W G U I N E A

Lae

Popondetta

Port Moresby

(Sydney) 16

AUSTRALIA

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Kavieng Lihir

NEW IRELAND

Kokopo

Kimbe

Buka

N E W B R I TA I N

BOUGAINVILLE

Port Moresby Gerehu

North Waigani

Vision City Airport Paradise Cinemas (PNG) Limited

Airways

Waigani Central

Paradise Cinemas (PNG) Limited

Harbour City Deloitte Tower Downtown Plaza

Boroko Koki

Port Moresby General Hospital

Badili

Alotau

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OUR CHAIN OF STORES

CITY PHARMACY

STOP N SHOP EXPRESS

Alotau Boroko Buka Goroka Kavieng Kimbe Kokopo Lae Lihir Madang MST Supermarket Madang Beckslea Plaza Manus Maprik Mt Hagen Best Buy Mt Hagen Mt Hagen Dobel Popondetta Port Moresby General Hospital Port Moresby Town Stop N Shop Badili Stop N Shop Harbour City Stop N Shop Koki Stop N Shop North Waigani Stop N Shop Rainbow Stop N Shop Town Stop N Shop Waigani Central Stop N Shop Express—Airways Vision City Waigani Drive (Showroom) Wewak

Airways Deloitte Tower

STOP N SHOP SUPERMARKET

Sydney, Australia

Badili Boroko Harbour City Koki North Waigani Rainbow Town Waigani Central

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HARDWARE HAUS Goroka Kavieng Kimbe Kokopo Lae Madang Mt Hagen Mt Hagen Mitre Hardware Popondetta Port Moresby Wewak

BONCAFÉ City Pharmacy Waigani Drive Deloitte Tower Harbour City Paradise Cinema—Vision City Stop N Shop Town Stop N Shop Express—Airways Stop N Shop Waigani Central Vision City

PARADISE CINEMA Vision City Waigani Central

PHARMACY WHOLESALERS JACK’S OF PNG Waigani Central Vision City

PROUDS DUTY FREE Jackson’s Airport

IGA EXPRESS Jackson’s Airport

A special supplement to City Pharmacy Limitedâ&#x20AC;&#x2122;s 2016 Annual Report

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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 … THE HUNCH

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

In 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.’

Gil and Cathy Madrid Gil started work with City Pharmacy in March 1997, and wife Cathy joined a few months later. Qualified pharmacists in their native Philippines, YEARS 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.

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‘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 TAPE

Even 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:

“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 FORMULA

Eventually, 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

Damien Kalawis 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 YEARS 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.

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Bennett Kumanai 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 YEARS 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.’

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

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

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

BACKS TO THE WALL

PUBLIC LISTING

While 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 22

Listing 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

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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 ACQUISITION

By 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.

Tuana Kamo Leaving school after Grade 10, Tuana joined City Pharmacy in YEARS 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.’

Above and below: CPL public listing celebrations in 2002.

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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.

EXPANSION

Since 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 C P L G R O U P A N N U A L R E P O RT 2 0 1 6

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 Guineadesigned 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 LOCAL

CPL 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 airfreight 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 COMMUNITY

Supporting 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

Leo Janginen ‘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 YEARS 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 interestfree 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.’

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Fifi Saregu 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 YEARS 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!’

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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 BEYOND

As 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.

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

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CPL THE RISE OF PNG’S LEADING RETAILER 1987

1992

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

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

2007

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

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

2005

2003

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

2010

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.

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.

2015

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. 26

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1998

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

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

2011

2002 CPL Group lists on the Port Moresby Stock Exchange.

2002 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.

2012

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.

2013

2014

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

2016

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

OUR RETAIL BRANDS

City Pharmacy

Stop N Shop

City 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, onestop 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.

CPL 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 catchphrase ‘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.

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

Paradise Cinemas (PNG) Limited

Hardware Haus

Bon Café

Paradise Cinema

Housing 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.

Until 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 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-theart 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.

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

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Pharmacy Wholesalers Limited The 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 PNG

Prouds Duty Free

Jack’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, welldesigned 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.

In 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.

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THE YEAR IN REVIEW

THE YEAR IN REVIEW 2016 NEW STOP N SHOP STORE IN KOKI On 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. 30

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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.

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THE YEAR IN REVIEW

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

NEW MODEL STOP N SHOP STORE IN HARBOUR CITY Fourteen 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

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.

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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.’

THE CPL FOUNDATION GIVING BACK TO OUR COMMUNITY 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 sports 2016 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.

GINIGOADA FOUNDATION The 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.

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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 PRIDE OF PAPUA NEW GUINEA 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 & Courage

Community spirit

Enid Barlong Kantha

Ann Hilda

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.

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.

Care and Compassion Mary 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.

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Education/role model Sister 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.

AWARDS FOR WOMEN

Young PNG Stephanie 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.

BUK BILONG PIKINI

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

Environment

Financial 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.

No award The Judges decided not to make an award in this category in 2016.

PRIDE OF PNG ALUMNAE

The 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. C P L G R O U P A N N U A L R E P O RT 2 0 1 6

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

CPL INITIATIVES

Apart 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

KUNAI PAPER PROJECT

The 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 SCHEME

This 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 DONATIONS There 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.

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THE CPL FOUNDATION IN 2016 Ginigoada Foundation Financial Literacy Training Participants

5570

Training sessions

Graduates

4409

Graduation rate

79%

Male/female graduates

54%/46%

Buk bilong pikini Visitors to Tatana Library

5000

Disadvantaged children assisted

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

Assistance

K30,456

Stand-alone donations Donations

Value

K17,566

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIES

DIRECTORS’ REPORT For the year ended 31 December 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 Directors The 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 secretary Colin Young (Resigned March 2016) Raman Kumar (Appointed May 2016)

Principal activities City 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; and Wholesale and retail of hardware products.

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

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

City Pharmacy Limited and Subsidiaries Directorsâ&#x20AC;&#x2122; Report For the year ended 31 December 2016

Consolidated results and review of operations The 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 Chairmanâ&#x20AC;&#x2122;s Statement on page 6.

Dividends A 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 affairs During 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 period There 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

Directorsâ&#x20AC;&#x2122; interest in shares Particulars of the Directorsâ&#x20AC;&#x2122; relevant interests in shares in the Company as at 31 December 2016 are disclosed in note 20.

Meetings of directors The 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 attended

Mahesh Patel

Peter John Aitsi

Graham John Dunlop

Anthony Smare

Peter Robinson

Robert Baily

Joseph Barberis

Directors remuneration Disclosure has been made at note 20.

Remuneration above K100,000 per annum Disclosure has been made at note 20. For and on behalf of the Board of Directors

Director:

Date:

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIES

STOCK EXCHANGE INFORMATION For the year ended 31 December 2016

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

Top Shareholding Shareholders

No. of Shares

National Superannuation Fund

34,579,566

27.73

Nambawan Super Limited

23,660,343

18.98

Amar Business Holdings Pte Ltd

14,187,142

11.38

New World Limited

9,681,228

7.76

Mainsbridge Pty Ltd

6,305,692

5.06

Mahesh Patel

6,227,597

4.99

Comrade Trustee Services Ltd

2,576,921

2.07

Mineral Resources OK Tedi No.2 Ltd

2,500,000

2.01

Mineral Resources Star Mountain Ltd

2,500,000

2.01

Manu Nominees Pty Ltd

2,000,000

1.60

Credit Corporation (PNG) Ltd

1,953,544

1.57

Real Genius Investments Ltd

1,825,000

1.46

Even Stronger Investments Ltd

1,800,000

1.44

Mineral Resources Development Company Ltd

1,651,119

1.32

1,085,463

0.87

1,000,000

0.80

Society of the Divine Word TNG Constructions Ltd Capital Nominees Ltd

843,870

0.68

Triglobal Management Ltd

840,000

0.67

Capital Life Insurance Company Ltd

750,000

0.60

Kina Asset Management No.1 Ltd

701,191

0.56

8,010,856

6.43

124,679,532

100.00

Others * Total

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

Shareholding Bands Shareholders

No. of Shareholders

No. of shares

1 – 1,000

175

107,852

1,001 – 10,000

516

1,369,710

10,001 – 100,000

1,462,832

100,001 and above

121,739,138

783

124,679,532

Total

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

Shareholding Bands During 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 Income Turnover Operating profit before tax

363,603

395,909

411,930

495,616

556,344

27,258

23,890

12,215

674

2,031

19,354

16,390

6,913

(61)

1,373

8,681

8,728

3,740

124,019,532

124,679,532

7 toea

3 toea

0 toea

Operating profit after tax attributable to the Group Dividends proposed Shares on issue (number) Dividend proposed per share (Kina)

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

Inventories

50,410

53,187

66,418

90,845

97,751

113,355

133,181

139,736

195,569

233,132

Other Assets* Borrowings Other Liabilities

9,053

11,753

25,096

82,611

94,868

56,508

59,327

67,806

92,965

125,847

1.43

1.46

1.42

1.14

1.10

10%

22%

72%

87%

0.79

0.92

0.91

0.88

0.87

Current Ratio Debt to Net worth Net Asset Backing per Share (Kina) Net Profit Margin Net Profit to Equity

109,257

5.32%

4.14%

1.68%

(0.01%)

0.25%

19.71%

14.22%

6.10%

(0.06%)

1.26%

1.10

Earnings Per Share (Toea)

* There was land and building revaluation in 2016

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

City Pharmacy Limited and Subsidiaries Stock Exchange Information For the year ended 31 December 2016

Corporate Governance Statement The 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 Board The 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 remuneration Officers 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 Management The Board approves an annual budget. Deviation from this budget may be permitted by the Board following detailed submissions from management.

Access to Professional Advice Directors 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF CITY PHARMACY LIMITED

Opinion Deloitte Touche Tohmatsu Deloitte Haus, Level 9 MacGregor Street Port Moresby PO Box 1275 Port Moresby National Capital District Papua New Guinea Tel: +675 308 7000 Fax: +675 308 7001 www.deloitte.com.pg

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 Matters Key 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.

Key audit matter

How our audit addressed the key audit matter

Impairment 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

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

Key audit matter

How our audit addressed the key audit matter

Employee 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.

Our audit procedures included but were not limited to:

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:

• 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;

• 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.

• Understanding the contractual arrangements entered into by the Company with members of the Company’s executive;

• 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.

Our procedures included but were not limited to:

Management has exercised judgement in recognising a receivable from PAG related to the business interruption claim, as disclosed in Note 7.

• Assessing whether the status of the claim meets the definition of an asset or a contingent asset in accordance with accounting standards.

• 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;

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 Statements The 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

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 Requirements The 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-James Registered under the Accountants Act 1996 Partner, Chartered Accountants Port Moresby 16th day of May 2017

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIES

FINANCIAL REPORT TABLE OF CONTENTS

Consolidated Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income

Notes to the Consolidated Financial Statements 47

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Directors Declaration

Independent Auditor’s Report to the Members of City Pharmacy Limited

Stock Exchange Information Company Directory

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

57 60

Basis of Preparation

1. Significant Accounting Policies

2. Critical Accounting Estimates and Judgements

Group Performance

3. Segment Disclosures

4. Revenue

5. Finance Costs

6. Other Income and Expenses

Assets and Liabilities

7. Trade and Other Receivables

8. Inventories

9. Related Party Receivables

10. Property, Plant and Equipment

11. Taxation

12. Goodwill

13. Borrowings

14. Trade and Other Payables

15. Related Party Payables

16. Finance Lease Liabilities

17. Employee Provisions

18. Financial Instruments

Group Structure, Capital Structure, Financing and Risk Management

19. Investments

20. Related Party Disclosure

21. Equity

22. Cash and Cash Equivalents

23. Financial Risk Management

24. Commitments for Expenditure

Other

25. Contingencies

26. Subsequent Events

27. Correction of Errors

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 December 2016

NOTES

CONSOLIDATED 2016 K’000

Revenue

PARENT COMPANY 2016 K’000

2015 (restated) Note 27 K’000

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) (124,160)

Administration Expenses

(141,409)

(143,345)

(107,364)

Finance Costs

(6,332)

(3,514)

(4,749)

(2,544)

Other Income and Expenses

4,924

25,072

2,169

24,840

Profit from Joint Ventures

Profit before Income Tax Income Tax Expense Profit after Income Tax

(2,014)

(158,985)

(137,469)

(120,019)

(114,277)

2,031

674

5,699

2,283

(658)

(735)

(1,758)

(1,316)

1,373

(61)

3,941

967

Other 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

1,227

(196)

3,941

967

146

135

–

1,373

(61)

3,941

967

3,186

(35)

5,596

967

222

175

–

3,408

140

5,596

967

1.10

(0.05)

Profit for year is attributable to: Owners of the parent Non-Controlling Interest

Total Comprehensive income for year is attributable to: Owners of the parent Non-Controlling Interest

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

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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION For the year ended 31 December 2016 NOTES

CONSOLIDATED 2016 2015 K’000 (restated) Note 27 K’000

1 January 2015 K’000

2016 K’000

PARENT COMPANY 1 January 2015 2015 (restated) K’000 Note 27 K’000

ASSETS Cash and Cash Equivalents

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

16,720

Inventories

97,751

90,845

66,418

67,554

58,735

64,508

7,973

3,314

3,502

5,970

3,136

3,252

171,677

147,467

94,882

125,896

98,849

88,689

Prepayments Total Current Assets Related Party Receivables

640

240

1,744

5,309

13,711

6,105

Property, Plant and Equipment

122,947

107,971

95,068

108,767

90,390

93,352

Investments

5,992

2,929

7,493

29,497

16,282

9,647

Deferred Tax Assets

8,969

7,285

2,142

1,992

1,851

2,022

136

–

20,522

4,825

3,431

Total 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 1,365

Income tax receivables Goodwill

LIABILITIES Borrowings

23,558

11,229

1,365

15,353

5,613

Bank Overdraft

19,084

33,139

4,731

9,718

24,292

4,731

Trade and Other Payables

107,898

73,049

46,841

73,611

39,181

44,941

Related Party Payables

–

Lease Liabilities

2,023

5,146

1,463

1,228

1,658

1,463

–

3,260

8,182

3,038

7,945

1,916

2,449

2,983

1,330

2,039

2,732

154,522

128,272

65,565

101,374

75,821

63,179 15,787

Income Tax Liability Employees provisions Total Current Liabilities Borrowings

48,306

30,750

15,787

48,306

23,225

Related Party Payables

189

155

133

–

Other Payables

159

161

159

161

159

Deferred Tax Liabilities

10,145

8,991

8,117

9,292

8,447

8,117

Employee provisions

5,497

4,899

1,392

4,833

4,329

1,392

Lease Liabilities

1,897

2,348

1,749

1,114

1,749

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

Total Non-Current Liabilities

SHAREHOLDERS’ EQUITY Issued Capital

21,897

Reserves

38,807

37,152

38,807

37,152

Share option reserve

1,327

–

1,327

–

Other reserve

360

(105)

–

46,866

49,379

53,357

48,897

51,041

53,814

109,257

109,811

112,301

110,928

111,417

112,863

911

1,027

951

–

110,168

110,838

113,252

110,928

111,417

112,863

Retained Earnings Equity attributable to owners of the Company Non-Controlling Interest TOTAL SHAREHOLDERS’ EQUITY

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. 48

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2016 Share Capital Group 1 January 2015

Retained Earnings

Revaluation Reserve

K’000

21,897

53,357

K’000 37,152

Other reserve

Share option reserve

K’000

(105)

Attributable to owners of the parent

NonControlling Interest

K’000

–

112,301

Total

K’000

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

201

Share based payment

–

1,327

–

1,327

Profit or loss

–

(196)

–

(196)

135

(61)

31 December 2015

21,897

49,379

37,152

1,327

109,811

1,027

110,838

31 December 2015

21,897

55,998

37,152

–

115,103

1,027

116,130

–

(6,619)

–

1,327

(5,292)

–

(5,292)

21,897

49,379

37,152

1,327

109,811

1,027

110,838 (3,740)

Adjustment on correction of error (Note 27) As adjusted Movements 2016 Dividends declared

–

(3,740)

–

(3,740)

–

Reclassification error

–

(338)

Other comprehensive income

–

1,655

304

–

1,959

2,035

Total comprehensive income for the year 31 December 2016

–

1,227

–

1,227

146

1,373

21,897

46,866

38,807

360

1,327

109,257

911

110,168

Share Capital

Retained Earnings

Revaluation Reserve

K’000

Share option reserve

Parent Entity

K’000

1 January 2015

21,897

53,814

K’000 37,152

Dividends declared

–

(3,740)

Issuance of Share

–

Net Income

–

31 December 2015 As previously stated

Total Equity

K’000

K’000 –

112,863

–

(3,740)

–

1,327

967

–

967

21,897

51,041

37,152

1,327

111,417

21,897

57,420

37,152

–

116,469

–

(6,379)

–

1,327

(5,052)

21,897

51,041

37,152

1,327

111,417

Dividends declared

–

(3,740)

–

(3,740)

Movements 2015

Adjustment on correction of error (Note 27) As adjusted Movements 2016 Other comprehensive income

–

1,655

–

1,655

Amalgamation of CFL & IDM

–

(2,345)

–

(2,345)

Net income

–

3,941

–

3,941

21,897

48,897

38,807

1,327

110,928

31 December 2016

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

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2016

NOTES

CONSOLIDATED 2016 K’000

PARENT COMPANY

2015 K’000

2016 K’000

2015 K’000

Operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest received Interest paid Insurance claims received Income tax paid Cash flow from operating activities

556,483

449,227

404,158

380,194

(532,670)

(456,450)

(388,942)

(377,925)

23,813

(7,223)

15,216

2,269

–

(6,332)

(3,514)

(4,749)

(2,544)

5,146

6,511

5,146

6,511

(684)

(5,723)

(684)

(5,723)

21,953

(9,949)

14,930

514

–

(26,016)

(9,307)

(25,026)

(13,912)

–

(6,853)

–

(6,853)

(26,016)

(16,160)

(25,026)

(20,765)

11,686

Investing activities Acquisitions of: Property, plant and equipment Acquisitions of: Property, Plant and equipment Investments Cash flows from investing activities Financing activities Increase / (decrease) in: Borrowings

23,312

2,862

30,278

Related party loans

400

(515)

1,754

(9,404)

Dividend payments

(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)

(27,387)

114

(22,231)

(522)

(11,478)

(27,387)

(4,035)

(22,231)

Opening balance cash and cash equivalents Closing balance cash and cash equivalents

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

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES DIRECTORS’ REPORT

CITY PHARMACY LIMITED AND SUBSIDIARIES

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

BASIS OF PREPARATION The 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 Compliance The 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 preparation The 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 Policies This 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 consolidation The 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 currency Items 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

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 year In 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 Initiative The 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation The 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 cycle The Group has applied these amendments for the first time in the current year. The Annual Improvements to IFRSs 20122014 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 effective The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective:

1 2 3 4

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

Effective for Effective for Effective for Effective for

annual annual annual annual

periods periods periods periods

beginning beginning beginning beginning

on or on or on or on or

after after after after

1 January 2017,with earlier application permitted 1 January 2018,with earlier application permitted 1 January 2019,with earlier application permitted 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 C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

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

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 Customers IFRS 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 customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 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 Leases IFRS 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. 54

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

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 Venture The 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 Initiative The 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 judgements In 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 PERFORMANCE 3. Segment Disclosures Operating Segment Reporting Reportable 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 Retail Wholesale and tender

Total Assets

Total Liabilities

Turnover

Net Profit after tax

K’000

312,205

218,739

525,817

(3,309)

18,678

1,976

30,527

4,682

330,883

220,715

556,344

1,373

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

3. Segment Disclosures continued 2015 (Restated) Note 27

Total Assets

Total Liabilities

Turnover

Net Profit after tax

K’000

Retail

274,513

Wholesale and tender

175,231

468,225

(2,707)

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 information The Group operates predominantly in Papua New Guinea.

4. Revenue CONSOLIDATED 2016 (K’000) Retail and wholesale revenue

PARENT COMPANY 2015 (K’000)

539,626

2016 (K’000)

462,075

2015 (K’000)

405,864

379,969

Significant Accounting Policies Revenue 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 goods Revenue 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 Policies Borrowing 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 Expenses Operating profit for the year is stated after the following (income)/expense items. CONSOLIDATED 2016 (K’000) Auditors remuneration Depreciation (Note 10)

PARENT COMPANY

2015 (restated) Note 27 (K’000)

2016 K’000

2015 (restated) Note 27 (K’000)

443

376

231

293

11,927

8,400

8,094

8,193 2,244

Increase / (Decrease) in provision Employee entitlements Doubtful debts Inventory provision Insurance claims (Profit) / loss on disposal of fixed assets

2,973

(205)

2,183

(7)

(824)

3,036

486

287

(145)

(19,817)

(145)

(19,817)

(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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

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 entitlements Doubtful 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 LIABILITIES 7. Trade and Other Receivables CONSOLIDATED 2016 K’000

2015 (restated) Note 27 (K’000)

PARENT COMPANY 1 January 2015 (K’000)

2016 K’000

2015 (restated) Note 27 (K’000)

1 January 2015 (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

16,778

Less: 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: CONSOLIDATED 2016 (K’000)

2015 (restated) Note 27 (K’000)

PARENT COMPANY 1 January 2015 (K’000)

2016 K’000

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

Not past due (current to 60 days)

17,072

12,038

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

3,736

1,553

31,813

24,960

12,454

17,789

15,707

12,454

Add: Provision for doubtful debts Total Trade receivables

8,527

12,215

8,526

8,527

As at 31 December, movements of provision for doubtful debts: CONSOLIDATED 2016 (K’000) Balance beginning of the year

PARENT COMPANY

2015 (K’000)

2016 (K’000)

2015 (K’000)

1,553

–

1,470

–

Impairment recognised on receivable (i)

2,183

(7)

Balance at the end of the year

3,736

1,553

Transfer from business combination

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

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

7. Trade and other receivables continued

Breakdown of other receivables is as follows: CONSOLIDATED 2016 (K’000) Medical claims

PARENT COMPANY

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000) 433

315

846

433

303

373

Insurance claims

9,259

13,305

–

8,743

13,305

–

Employee loans

406

139

564

395

564

GST receivable

1,406

–

1,406

–

1,056

–

1,160

1,674

266

1,153

1,317

266

Income tax receivable Freight and duty advances Landlord development costs

14,200

–

14,200

–

4,837

5,723

6,457

4,088

2,819

3,061

30,271

24,149

7,720

28,976

19,293

4,324

Other Total Other Receivables

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.

Significant Accounting Policies Trade and other receivables Trade and other receivables are stated at their cost less provision for doubtful debts. Trade and other receivables are noninterest bearing and are generally on terms of 30 to 90 days.

Provision for doubtful debts The 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. Inventories CONSOLIDATED 2016 (K’000) Inventory for resale Provision for inventory

PARENT COMPANY

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

103,282

96,310

69,736

(5,531)

(5,465)

(3,318)

97,751

90,845

66,418

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

70,674

61,451

67,826

(3,120)

(2,716)

(3,318)

67,554

58,735

64,508

Significant Accounting Policies Inventory 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 2016 (K’000)

PARENT COMPANY 2015 (K’000)

2016 (K’000)

2015 (K’000)

Pharmacy Wholesalers Pty Ltd

–

579

City Foods Ltd

–

3,392

129

–

129

–

4,090

9,500

Jacks Retail (PNG) Ltd Hardware Haus Ltd Paradise 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. 58

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

10. Property, plant and equipment Parent Company

Land and buildings

Motor vehicle

Office equipment and furniture and fixture

Total

2016

K’000

Cost

65,088

11,120

77,483

Less: Accumulated depreciation / amortisation

(2,997)

(7,663)

(34,264)

153,691 (44,924)

Carrying amount at the end of the period

62,091

3,457

43,219

108,767

Carrying amount at start of period

49,743

4,696

35,951

90,390

Additions

11,842

244

12,940

25,026

1,475

–

1,475

–

(28)

(2)

(30)

(969)

(1,455)

(5,670)

(8,094)

62,091

3,457

43,219

108,767

Movement:

Revaluation gain Disposals (i) Depreciation / Amortisation Carrying amount at the end of the period Parent Company

Land and buildings

Motor vehicle

Office equipment and furniture and fixture

Total

2015

K’000

Cost

51,771

11,011

64,621

127,403

Less: Accumulated depreciation / amortisation

(2,028)

(6,315)

(28,670)

(37,013)

Carrying amount at the end of the period

49,743

4,696

35,951

90,390

Movement: Carrying amount at start of period

50,742

4,807

37,803

93,352

Additions

–

1,745

12,745

14,490

Disposals

–

(142)

(9,117)

(9,259)

(999)

(1,714)

(5,480)

(8,193)

49,743

4,696

35,951

90,390

Depreciation / Amortisation Carrying amount at the end of the period Group

Land and buildings

Motor vehicle

Office equipment and furniture and fixture

Total

2016

K’000

Cost

69,676

18,245

98,451

Less: Accumulated depreciation / amortisation

(4,655)

(13,315)

(45,455)

186,372 (63,425)

Carrying amount at the end of the period

65,021

4,930

52,996

122,947

Carrying amount at start of period

52,466

7,253

48,252

107,971

Additions

12,049

390

13,757

26,196

1,475

–

1,475

–

(82)

(687)

(768)

(969)

(2,605)

(8,352)

(11,927)

–

(26)

–

65,021

4,930

52,996

122,947

Movement:

Revaluation gain Disposals (i) Depreciation / Amortisation Transfers and other Carrying amount at the end of the period Group

Land and buildings

Motor vehicle

Office equipment and furniture and fixture

Total

2015

K’000

Cost

56,152

18,934

84,383

Less: Accumulated depreciation / amortisation

(3,686)

(11,680)

(36,131)

159,469 (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 Additions Disposals Depreciation / Amortisation Transfers and other Carrying amount at the end of the period

50,742

5,143

39,183

95,068

–

1,775

12,831

14,606

–

(483)

(9,090)

(9,573)

(999)

(1,714)

(5,687)

(8,400)

2,723

2,532

11,015

16,270

52,466

7,253

48,252

107,971

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

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

10. Property, plant and equipment 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.

Significant Accounting Policies Leased assets Group as a lessee Assets 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 equipment Carrying 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.

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

50 years

Office equipment

5 - 12 years

Motor vehicles

3 - 8 years

Fixtures, fittings and equipment

5 - 10 years

Revaluation of land and buildings A 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 assets Estimates 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 Groupâ&#x20AC;&#x2122;s freehold land and buildings The Groupâ&#x20AC;&#x2122;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 60

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

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.

Impairment Property, plant and equipment When 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 income CONSOLIDATED 2016 (K’000)

2015 (restated) Note 27 (K’000)

Current tax

PARENT COMPANY 1 January 2015 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

202

5,514

592

1,157

Deferred tax

624

533

(213)

1,166

159

5,219 (195)

Income tax expense

658

735

5,301

1,758

1,316

5,024

Reconciliation between tax expense and profit before income tax CONSOLIDATED 2016 (K’000) Profit before tax Tax for the year at 30%

2015 (restated) Note 27 (K’000)

PARENT COMPANY 1 January 2015 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

2,031

674

12,215

5,699

2,283

12,576

610

202

3,664

1,710

685

3,773

Previously unrecognised deferred tax recognised

–

386

–

Share in Joint Venture profits

604

1,238

604

1,238

Non-deductible expenses

–

Non-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 Position CONSOLIDATED 2016 (K’000)

2015 (restated) Note 27 (K’000)

PARENT COMPANY 1 January 2015 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

Deferred tax assets Provision for doubtful debts

1,121

466

Provision for inventory losses

1,659

1,640

–

936

815

–

Provision for employee benefits

2,224

2,204

1,313

1,849

1,910

1,237

–

4,743

3,813

–

Others Carry forward losses Fixed assets

(816)

(899)

767

(816)

(899)

767

8,969

7,285

2,142

1,992

1,851

2,022

Prepaid expenses

(2,450)

(1,485)

(976)

(1,791)

(941)

(976)

Lease liability

(1,227)

(728)

(256)

(1,033)

(728)

(256)

131

–

(107)

131

–

(107)

Deferred tax liabilities

Unrealised foreign gain Revaluation gain

Net Deferred taxes

(6,599)

(6,778)

(6,599)

(6,778)

(10,145)

(8,991)

(8,117)

(9,292)

(8,447)

(8,117)

(1,176)

(1,706)

(5,975)

(7,300)

(6,596)

(6,096)

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

11. Taxation continued

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

Current tax Income 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 tax Deferred 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. Goodwill Net Carrying value 31 December 2016

CONSOLIDATED

PARENT COMPANY

K’000

K’000 20,522

3,431

Significant Accounting Policies Goodwill 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 amount The 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 assumptions Key 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 longterm 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

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

City Pharmacy 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 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 impairment An 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 calculations The 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. Borrowings CONSOLIDATED 2016 (K’000)

PARENT COMPANY

2015 (K’000)

2016 (K’000)

2015 (K’000)

Non-Current Fully drawn borrowings

48,306

30,750

48,306

23,225

1,897

2,348

–

1,114

50,203

33,098

48,306

24,339

Between 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

23,558

11,229

15,353

5,613

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

Finance Lease Liabilities (note 16) Total non-current borrowings Repayment schedule

Current Fully drawn borrowings Finance Lease Liabilities (note 16)

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

13. Borrowings continued

Bank facilities and security A. 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 Agreement B. 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 Payables CONSOLIDATED 2016 (K’000) Trade Payables Other Payables and accruals Security Bonds

Current Non - Current

2015 (restated) Note 27 (K’000)

PARENT COMPANY 1 January 2015 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

98,548

53,868

39,974

68,797

29,895

37,936

9,350

19,181

6,867

4,814

9,286

7,005

159

161

159

161

159

108,057

73,210

47,000

73,770

39,342

45,100

107,898

73,049

46,841

73,611

39,181

44,941

159

161

159

161

159

108,057

73,210

47,000

73,770

39,342

45,100

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

Breakdown of other payable is as follows: CONSOLIDATED 2016 (K’000) Advance payments received

2015 (restated) Note 27 (K’000)

PARENT COMPANY 1 January 2015 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

4,145

10,048

1,277

841

1,290

881

858

571

851

858

571

Accruals

2,165

6,146

1,604

2,049

6,146

1,604

Wages payable

1,042

564

754

1,006

564

754

Other

1,117

1,565

2,661

428

2,799

Total Other Payables

9,350

19,181

6,867

4,814

9,286

7,005

Withholding Taxes

1,277

15. Related Party Payables CONSOLIDATED 2016 (K’000) Pharmacy Wholesalers Pty Ltd (noncurrent) DFS (PNG) Limited (current)

PARENT COMPANY

2015 (K’000)

2016 (K’000)

2015 (K’000)

189

155

–

232

155

–

16. Finance Lease Liabilities Refer to note 10 for accounting policy on finance Leases. CONSOLIDATED 2016 (K’000)

PARENT COMPANY

2015 (K’000)

2016 (K’000)

2015 (K’000)

Minimum Lease Payments Within 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

(200)

(167)

(44)

(167)

3,920

7,494

1,228

2,772

Within one year

2,023

5,146

1,228

1,658

Between one and five years

1,897

2,348

–

1,114

3,920

7,494

1,228

2,772

Less: Future Finance Charges Present Value of Minimum Lease Payments Present Value of Minimum Lease Payments

17. Employee Provisions CONSOLIDATED 2016 (K’000)

2015 (restated) Note 27 (K’000)

PARENT COMPANY 1 January 2015 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (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

Significant Accounting Policies Employee Benefits A 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

18. Financial Instruments Significant Accounting Policies Financial 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 Assets The 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 Liabilities Financial 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 MANAGEMENT 19. Investments CONSOLIDATED 2016 (K’000) Subsidiaries – At cost Joint Ventures – Equity method

PARENT COMPANY

2015 (K’000)

2016 (K’000)

2015 (K’000)

–

23,505

5,992

2,929

5,992

2,929

5,992

2,929

29,497

16,282

SUBSIDIARIES

13,353

PARENT COMPANY Country

Pharmacy Wholesalers Pty Ltd

% held

Australia

2016 (K’000)

2015 (K’000)

80%

2,105

International Distribution and Marketing Ltd

PNG

100%

–

2,105 50

Hardware Haus Ltd

PNG

100%

21,400

11,198

23,505

13,353

JOINT VENTURES Country

% held 2016

% held 2015

2016 (K’000)

2015 (K’000)

Paradise Cinema (PNG) Ltd

PNG

46.2%

43.87%

3,511

1,456

Jacks Retail (PNG) Ltd

PNG

50%

1,367

861

DFS (PNG) Ltd

PNG

50%

1,114

612

5,992

2,929

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

The following table illustrates the summarised financial information of the Group’s investment in Joint Ventures. 2016 (K’000) Total Assets Total Liabilities Net Assets

2015 (K’000)

24,817

23,568

(13,519)

(18,240)

11,298

5,328

25,759

17,279

(30)

(1,414)

(2,014)

Group’s share of net assets of Joint Ventures Total Revenue Total Profit / (Loss) of the Joint Ventures Group’s share of Profit / (Loss) of Joint Ventures

Significant Accounting Policies Business Combinations During 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 Disclosure Related 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 Ventures Transactions 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

20. Related Party Disclosure continued

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 officers The 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) Short-term employment benefits Bonuses Total

2015 (K’000)

10,043 –

10,612 301

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

631

Peter John Aitsi

144

129

Graham John Dunlop

144

128

Anthony Smare

144

128

Robert Baily (Appointed May 2015)

158

Joseph Barberis (Appointed May 2015)

144

102

Peter Robinson (Appointed May 2015)

144

Bruce David Dalhenburg (Resigned May 2015)

Dame Carol Kidu (Resigned May 2015)

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 employees 2016

2015

K80,001– K100,000

K100,001– K200,000

K200,001– K300,000

K300,001– K400,000

K400,001– K500,000

K500,001– K600,000

K600,001– K700,000

1 4

K700,001– K800,000

K800,001– K900,000

–

K900,001– K1,000,000

–

K1,000,001– K1,100,000

–

K1,200,001– K1,300,000

–

K1,600,001–K1,700,000

–

K1,800,001–K1,900,000

–

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

Interest Register Name of Director

Interest/Position

Name of entity

Mahesh Patel

Chairman/Shareholder

City Pharmacy Ltd, Mainsbridge Pty Ltd Australia, Amar Business Holding Pte Ltd

Chairman

Telikom PNG Ltd

Director Shareholder

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

Director/Shareholder

RBC Holdings Ltd

Deputy Chairman

Kumul Consolidated Holdings

Sr Vice President

PNG Chamber of Mines and Petroleum

Director

City Pharmacy Ltd, PNG FM Ltd, Leadership PNG, Steamships Trading Company Ltd, Newcrest PNG Ltd

Director/Chairman

Mainland Holdings Ltd,City Pharmacy Ltd,

Director

Steamships Trading Company Ltd, Credit Corporation (PNG) Ltd

Director

City Pharmacy Ltd, 7-Eleven Stores Pty Ltd

Peter John Aitsi

Graham John Dunlop

Robert Baily

Member

Starbucks Australia Advisory Board

Anthony Smare

Director/Chairman

Nambawan Super Ltd

Director

City Pharmacy Ltd, Paradise Foods Ltd, Nationwide Microbank Ltd

Peter Robinson

Director/Chairman

Australian Pharmaceuticals Industries Ltd, Clover Corporation Ltd, TPI Enterprises Ltd

Director

City Pharmacy Ltd

Joseph Barberis

Director

City Pharmacy Ltd, Zoos Victoria

Shareholdings of Directors and Related Parties Related party

Number of shares in the Group

Amar Business Holdings Pte Ltd

% holding

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%

90,000

0.07%

Anthony Smare and Emma Smare

21. Equity Share capital In 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 reserve CONSOLIDATED 2016 (K’000) Balance at beginning of year Increase arising on revaluation of properties Balance at end of year

PARENT COMPANY

2015 (K’000)

2016 (K’000)

2015 (K’000)

37,152

1,655

–

1,655

–

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 reserve CONSOLIDATED 2016 (K’000) Balance at beginning of year

2015 (K’000) 56

(105)

Exchange differences arising on translating the foreign operations

304

161

Balance at end of year

360

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

21. Equity 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 reserve The 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 Company In 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

760,000

31.12.2011

Fair value at grant date 1.12 per share

660,000

31.12.2012

1.55 per share

627,000

31.12.2013

1.96 per share

330,000

31.12.2014

1.43 per share

Accounting policy Share-based payments Senior 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 reserve Share option reserve comprises the fair value of share-based payment scheme during the vesting period.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

Retained earnings and dividends on equity instruments CONSOLIDATED 2016 (K’000)

PARENT COMPANY

2015 (restated) Note 27 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

Retained earnings

46,826

49,379

48,897

51,041 53,814

Balance at beginning of year

55,998

53,357

57,420

Correction of errors (note 27)

(6,619)

–

(6,379)

–

As adjusted

49,379

53,357

51,041

53,814

1,227

(196)

3,941

967

Movement during the period Profit attributable to owners of the Company Amalgamation of Non-operating subsidiaries Payment of dividends

–

(2,345)

–

(3,740)

–

(42)

–

46,866

49,379

48,897

51,041

Others Balance at end of year

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 Equivalents Reconciliation of Cash CONSOLIDATED 2016 (K’000) Cash at bank Bank overdraft

PARENT COMPANY

2015 (K’000)

2016 (K’000)

2015 (K’000)

7,606

5,752

5,683

2,061

(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 activities CONSOLIDATED 2016 (K’000) Operating profit before tax

PARENT COMPANY

2015 (restated) 1 January 2015 Note 27 (K’000) (K’000)

2016 (K’000)

2015 (restated) 1 January 2015 Note 27 (K’000) (K’000)

2,031

674

12,125

5,699

2,283

12,576

(138)

(2,388)

264

(5)

(1,019)

264

2,183

1,495

(10)

(7)

(10) 4,128

Adjustments for: (Gain)/ Loss on disposal of fixed assets Provision for bad debts (Profit)/Loss from Joint Ventures

(62)

2,014

4,128

(62)

2,014

Insurance claims

(145)

(21,817)

–

(145)

(21,817)

–

Interest expense

6,332

3,514

1,596

4,749

2,544

1,596

11,927

8,400

7,930

8,094

8,193

7,599

2,000

6,123

–

2,000

6,123

–

Property, plant and equipment written off

768

9,259

–

9,259

–

Interest income

(10)

–

(1)

–

(2)

24,886

7,274

26,035

20,352

7,605

26,151

Depreciation Inventory written off

Operating profit before changes in working capital

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

22. Cash and Cash Equivalents continued CONSOLIDATED 2016 (K’000)

PARENT COMPANY

2015 (restated) 1 January 2015 Note 27 (K’000) (K’000)

2016 (K’000)

2015 (restated) 1 January 2015 Note 27 (K’000) (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)

Trade and Other Payables

26,624

26,208

13,167

24,158

(5,760)

13,263

Income Tax Liability

(3,260)

–

(2,947)

–

2,973

(222)

(205)

2,244

(317)

(1,073)

(14,497)

(7,378)

(5,136)

(5,336)

(6,918)

23,813

(7,223)

18,657

15,216

2,269

19,233

(Decrease) / Increase in:

Employee Provisions Cash generated from/(used in) operations

CONSOLIDATED 2016 (K’000) Interest Received Interest Paid

2015 (restated) Note 27 (K’000)

PARENT COMPANY 2016 (K’000)

1 January 2015 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

–

(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)

21,953

(9,949)

(7,088)

14,930

514

7,609

Net cash provided by operating activities

23. Financial Risk Management The 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 risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: CONSOLIDATED 2016 (K’000) Cash at bank Trade and Other Receivables Related Party Receivables

2015 (restated) Note 27 (K’000)

PARENT COMPANY 1 January 2015 (K’000)

2016 (K’000)

2015 (restated) Note 27 (K’000)

1 January 2015 (K’000)

7,606

5,752

4,846

5,683

2,061

4,209

58,347

47,556

20,116

46,689

34,917

16,720

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 Risk The 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 Risk Liquidity 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

PARENT - 2016

At Call

0 – 3 Months

3 Months – 1 Year

Beyond 1 Year

K’000

Assets 5,683

–

Trade and Other Receivables

Cash and Cash Equivalents

–

20,089

14,800

11,800

Related Party Receivables

–

5,309

5,683

20,089

14,800

17,109

–

Total Undiscounted Cash Inflows Liabilities Trade and Other Payables

–

73,611

–

9,718

–

Borrowings

–

15,353

48,306

Finance Leases

–

1,228

–

9,718

73,611

16,581

48,306

Bank Overdraft

Total undiscounted cash outflows GROUP - 2016

At Call

0 – 3 Months

3 Months – 1 Year

Beyond 1 Year

K’000

Assets Cash and Cash Equivalents Trade and Other Receivables Related Party Receivables Total Undiscounted Cash Inflows

7,606

–

31,747

14,800

11,800

640

–

8,246

31,747

14,800

11,800

–

Liabilities Trade and Other Payables

–

107,898

–

19,084

–

Borrowings

–

23,558

48,306

Finance Leases

–

2,023

1,897

19,084

107,898

25,581

50,203

Bank Overdraft

Total undiscounted cash outflows

Interest Rate Risk Interest 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 Analysis As 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 Management The 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

CITY PHARMACY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

23. Financial Risk Management continued

Gearing ratio The gearing ratio at end of the reporting period was as follows: CONSOLIDATED 2016 (K’000)

2015 (restated) Note 27 (K’000)

Debt (i)

90,948

Cash and bank balances

(7,606)

(5,752)

Net debt

83,342

69,366

Equity (ii)

110,168

110,838

76%

63%

Net debt to equity ratio

75,118

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 Expenditure Future 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 arrangements Operating 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 expense CONSOLIDATED 2016 (K’000) Minimum lease payments

27,153

PARENT COMPANY 2015 (K’000)

2016 (K’000)

2015 (K’000)

19,125

17,725

14,082

Non-cancellable operating lease commitments

Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years

CONSOLIDATED

PARENT COMPANY

2016 (K’000)

28,821

19,323

128,745

94,014

46,130

11,832

203,696

125,169

OTHER 25. 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.

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

26. Subsequent Events No 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 Errors After 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 31 December 2015 (As previously stated) K’000

31 December 2015 (restated) K’000

PARENT COMPANY

Increase/ (Decrease) K’000

31 December 2015 (As previously stated) K’000

31 December 2015 (restated) K’000

Increase/ (Decrease) K’000

Trade 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)

8,414

7,285

(1,129)

2,980

1,851

(1,129)

151,841

145,444

(6,397)

101,660

95,503

(6,157)

72,748

72,806

39,122

39,180

7,163

3,260

(3,903)

6,941

3,038

(3,903)

Deferred Tax Assets Total Assets Trade and Other Payables Income Tax Liability Deferred Tax Liabilities

8,950

8,991

8,406

8,447

Employee Provision-Non current

2,200

4,899

2,699

1,629

4,328

2,699

Total 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

Retained 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 profit Consolidated

Parent Company

31 December 2015 (restated) (K’000)

Administration Expenses

(7,206)

(6,966)

Other income and expenses

(2,147)

Income tax benefits Net impact on profit for the year

2,734

(6,619)

(6,379)

(6,619)

(6,379)

Attributable to: Equity holders of the parent

Impact on basic and diluted earnings per share (EPS) (increase/ (decrease) in EPS) Consolidated 31 December 2015 toea Earnings per share Basic, profit for the year attributable to ordinary equity holders of the parent

(5.31)

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Directors’ Declaration The 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:

Date:

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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. Chairman Mahesh Patel, OBE Directors Peter John Aitsi Robert Baily Joseph Barberis Graham John Dunlop Peter Robinson Anthony Smare Secretary Raman Kumar Registered Office Allotment 18, Section 342 Uduka Street Gerehu Stage 6 National Capital District Papua New Guinea Telephone +675 312 0000 Auditors Deloitte Touche Tohmatsu Chartered Accountants PO Box 1275, Port Moresby Papua New Guinea Bankers ANZ Banking Group Limited Bank of South Pacific Limited Wespac Bank PNG Limited Stock exchange Port Moresby Stock Exchange (listing code: CPL) Brokers BSP Capital Kina Securities Share Register PNG Registries Limited

This report produced for CPL by Business Advantage International (businessadvantageinternational.com). C P L G R O U P A N N U A L R E P O RT 2 0 1 6

C P L G R O U P A N N U A L R E P O RT 2 0 1 6

Support Office Uduka Street, Stage 6, Gerehu Port Moresby NCD Papua New Guinea Phone +675 3120000 Fax +675 3120100 Email enquiries@cpl.com.pg Web www.cpl.com.pg