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Northern Nigeria Flour Mills PlcAnnual Report
For the year ended 31 March 2018
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Corporate Information
Country of incorporation and domiciliation Nigeria
Nature of business and principal activities The Company's main business is milling of Wheat, Sorghum, Maizeand similar grains.
Directors
Alhaji (Dr) Aminu Dantata, CON
Mr. John G. Coumantaros (US Citizen)
Alhaji Rabiu Muhammad Gwarzo, OON
Mr. Charl P.F Marais*** (South African)
Mr. Peter Kradolfer*** (Swiss)
Alhaji Sani Umar**
Mr. Paul M. Gbededo
Alhaji Y. Olalekan A. Saliu
Mallam Mahmud Ahmed
Mr. Richard Hedge (Swiss)
Dr. Jibrilla Mohammed
Alhaji Sadiq A. Usman*
Company registration number RC. 9409
Date of incorporation 29 October, 1971
Registered office 15 Maimalari road,
Bompai Industrial Estate,
Kano.
Postal address P.O.Box 6640
Kano.
Holding company Flour Mills of Nigeria Plc
Incorporated in Nigeria
Bankers Access Bank Plc
First Bank of Nigeria Limited
Guaranty Trust Bank Plc
Sterling Bank Plc
Union Bank of Nigeria Plc
Zenith Bank Plc
Independent Auditors KPMG Professional Services
KPMG Tower
Bishop Aboyade Cole Street
Victoria Island
Lagos
Ahmed Zakari & Co.
Chartered Accountants
5th Floor African Alliance Building
F.1 Sani Abacha Way
P.O Box 6500, Kano
Company Secretary Miyetti Nominees Limited
26, Post Office Road, Kano.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Corporate Information
Registrars and Transfer Office Atlas Registrars Limited
(BAGCO) Building
34, Eric Moore Road, Iganmu
Lagos State
Solicitor Messrs J. B. Maijiyagbe & Co.
4, Human Rights Avenue
P. O. Box 726 Kano
* Appointed as director 16 March 2018.
**Resigned as deputy managing director during the year to become non-executive director.
***Resigned as director 16 March 2018.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Index
The reports and statements set out below comprise the financial statements presented to the shareholders:
Page
Directors' Report 4
Statement of Directors' Responsibilities in Relation to the Financial Statements 10
Audit Committee Report 11
Independent Joint Auditors' Report 12
Statement of Financial Position 16
Statement of Profit or Loss and Other Comprehensive Income 17
Statement of Changes in Equity 18
Statement of Cash Flows 19
Notes to the Financial Statements 20
Other national disclosures 62
Value Added Statement 63
Five Year Financial Summary 64
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Directors' Report
The directors present their annual report together with the financial statements and independent auditor's report on NorthernNigeria Flour Mills Plc for the year ended 31 March 2018.
1. Legal form
The Company was incorporated as a private limited liability company on 29 October 1971. Its registered office is 15,Maimalari road, Bompai Industrial Estate, Kano. The Company was converted to a public limited liability company in 1978and its shares are qouted on the Nigerian Stock Exchange. It is a subsidiary of Flour Mills of Nigeria Plc, which holds53.06% of the company's equity. Flour Mills of Nigeria Plc is incorporated in Nigeria.
2. Principal activities
Northern Nigeria Flour Mills Plc was incorporated in Nigeria with interests in milling of wheat, maize and sorghum. TheCompany operates in Kano state, Nigeria. There have been no material changes to the nature of the Company's businessfrom the prior year.
3. Results
The summary of results for the year is as set out below:
31-Mar-18 31-Mar-17N '000 N '000
Revenue 2,861,752 940,521Operating profit 348,379 8,364(Loss)/profit before taxation (113,187) (8,778)Loss for the year (60,988) (18,024)Total comprehensive loss for the year (65,316) (11,359)
4. Directors and directors' interests
The directors that served in office during the year were as follows:
Directors DesignationAlhaji (Dr) Aminu Dantata, CON ChairmanMr. John G. Coumantaros (US Citizen) Vice ChairmanAlhaji Rabiu Muhammad Gwarzo, OON Vice ChairmanMr. Charl P.F Marais (South African) DirectorMr. Peter Kradolfer (Swiss) Director
Resigned 16 March 2018 Resigned 16 March 2018
Alhaji Sani Umar* Non-executiveMr. Paul M. Gbededo Non-executiveAlhaji Y. Olalekan A. Saliu Non-executiveMallam Mahmud Ahmed ExecutiveMr. Richard Hedge (Swiss) Executive Appointed 16 March 2018Dr. Jibrilla Mohammed Non-executiveAlhaji Sadiq A. Usman Non-executive
* Resigned as deputy managing director during the year to become non-executive director.
In accordance with Section 277 of the Companies and Allied Matters Act, Cap C.20 LFN 2004 none of the directors hasnotified the Company of any declarable interests in contracts with the Company during the year.
5. Directors' interests in shares
The directors who served during the year and their respective interests in the share capital of the company as recorded inthe Register of members and/or notified for the purpose of Section 275 of the Companies and Allied Matters Act, Cap C.20LFN 2004 are as follows:
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Directors' Report
Number of interests in shares
Director 2018Direct
2018Indirect
2017Direct
2017Indirect
Alhaji (Dr) Aminu Dantata, CON 1,216,782 9,894,362 1,111,195 9,894,362Mr. John G. Coumantaros - - - -Alhaji Rabiu Muhammad Gwarzo, OON 609,598 - 609,598 -Mr. Charl P.F Marais - - - -Mr. Peter Kradolfer - - - -Alhaji Sani Umar 237,363 - 237,363 -Mr. Paul M. Gbededo - - - -Alhaji Y. Olalekan A. Saliu 97,881 - 97,881 -Mallam Mahmud Ahmed - - - -Mr. Richard Hedge - - - -Dr. Jibrilla Mohammed - - - -Alhaji Sadiq A. Usman - - - -
2,161,624 9,894,362 2,056,037 9,894,362
6. Parent company
The parent company is Flour Mills of Nigeria Plc which holds 53% (2017: 53%) of the company's equity. Flour Mills ofNigeria Plc is incorporated in Nigeria.
7. Substantial Shareholders
According to the Register of Members, the following shareholders of the company held more than 5% of the issued sharecapital of the company.
There was no change in the shareholding structure of the Company during the year. As at 31 March, 2018, the shares of theCompany were held as follows:
Number ofshares
%
Flour Mills of Nigeria Plc. 94,545,159 53.06 Northern Nigeria Investment Limited 12,955,000 7.27
Dantata Investment & Securities Limited 9,894,362 5.55
8. Directors' Responsibilities
The Directors are responsible for the preparation of the financial statements which give a true and fair view in accordancewith International Financial Reporting Standards (IFRS) and in the manner required by the Companies and Allied MattersAct of Nigeria, Cap C20 LFN 2004 and the Financial Reporting Council of Nigeria (FRCN Act 2011). In doing so, theyensure that:
proper accounting records are maintained;
suitable accounting policies are adopted and consistently applied;
judgments and estimates made are reasonable;
the going concern basis is used, unless it is inappropriate to presume that the Company will continue in business and;
Internal control procedures are instituted which, as far as is reasonably possible, safeguard the assets, prevent and
detect fraud and other irregularities.
9. Corporate Governance
Introduction
The Company is committed to the best practice and procedures in corporate governance. Its business is conducted in a fair,honest and transparent manner which conforms to high ethical standards. This enables the directors and Management toaccomplish the company’s strategic goals, ensure good growth and corporate stability for the benefit of all stakeholders.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Directors' Report
Members of the Board of Directors hold a minimum of four quarterly meetings to approve the Company’s business strategy andobjectives, decide on policy matters, direct and oversee the company’s affairs, progress, performance, operations, finances;and ensure that adequate resources are available to meet the company’s goal and objectives. Attendance of Directors atquarterly meetings is very good.
In line with provisions of Section 258(2) of the Companies and Allied Matters Act of Nigeria, Cap C20 Laws of Federation ofNigeria 2004, record of Directors’ attendance at Board meetings is available for inspection at the Annual General Meeting
Role of Directors
The highlights of the role of directors include:
Critical and regular examination of the company’s overall strategy with a view to ensuring that its goals, businessplan and budget are in alignment.
Assign respective committees to consider and take appropriate decisions on issues requiring Board attention.
Establish well-considered objectives for the company and monitor implementation, reviewing performance andensure the deployment of appropriate competencies.
Ensure that adequate resources are available to meet the company’s goals and objectives.
Oversee Board appraisal, training, succession planning, appointment and remuneration of members.
Frequency and Attendance of Board Meetings
The Board held four (4) meetings during the financial year ended 31 March 2018. The notice for each meeting was in line withthe Company’s Articles of Association and board papers are usually provided to Directors in advance.
Senior Executives of the Company are invited to attend board meetings and make representations of their business units.
A summary of record of attendance at Board meetings is presented below:
Name 18-Jul-17 07-Sep-17 05-Dec-17 16-Mar-18Alhaji (Dr) Aminu Dantata, CON No No No NoMr. John G. Coumantaros Yes Yes Yes YesAlhaji Rabiu Muhammad Gwarzo, OON Yes Yes Yes YesMr. Charl P.F Marais Yes Yes No N/aMr. Peter Kradolfer Yes No Yes N/aAlhaji Sani Umar Yes Yes Yes YesMr. Paul M. Gbededo No Yes Yes YesAlhaji Y. Olalekan A. Saliu Yes Yes Yes YesMallam Mahmud Ahmed Yes Yes Yes YesMr. Richard Hedge N/a N/a N/a YesDr. Jibrilla Mohammed Yes Yes Yes YesAlhaji Sadiq A. Usman Yes Yes Yes Yes
Yes - Present
No - Absent
NA – Not applicable (not a director on this date)
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Board meetings
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Directors' Report
Statutory Audit Committee
Composition
Pursuant to section 359(3) of the Companies and Allied Matters Act of Nigeria, Cap C20 Laws of Federation of Nigeria 2004,the Company has put in place an Audit Committee comprising:
Alhaji Bello Umar Gwangwazo (Chairman)
Alhaji Rabiu Muhammad Gwarzo, OON
Alhaji Ashabu Madaki
Alhaji Lawan Sule Garo
Mallam Mahmud Ahmed
Dr. Jibrilla Mohammed
Alhaji Sadiq A. Othman
Alhaji Bello Umar Gwangwazo
Meetings
Members of the Audit Committee receive regular reports and updates on financial matters and internal control reviews frominternal and external auditors. A summary of record of attendance at Audit Committee meetings held during the financial yearended 31 March, 2018 is presented below:
Name 13-Jun-17 06-Sep-17 09-Nov-17 08-Mar-18Mr. J.O. Salami (KSM) Yes Yes N/a N/aAlhaji Rabiu Muhammad Gwarzo, OON Yes Yes Yes YesAlhaji Ashabu Madaki Yes Yes N/a N/aAlhaji Lawan Sule Garo Yes Yes Yes YesMallam Mahmud Ahmed Yes Yes Yes YesDr. Jibrilla Mohammed Yes Yes Yes YesAlhaji Sadiq A. Othman N/a N/a Yes YesAlhaji Bello Umar Gwangwazo N/a N/a Yes Yes
Yes- Present
No- Absent
N/A- Not applicable
Code of Business Conduct
In demonstration of strong commitment to best practices in corporate governance, integrity and high ethical standards in allaspects of our business, The Company has a Code of Conduct in place. Apart from being in line with current global trends, italso aligns with the requirements of regulatory authorities.
Through the provisions of the Code, the Company instills in its Directors and Employees the need to maintain high standard ofcorporate values, transparency, accountability, professionalism and promote good corporate governance.
Whistle Blowing
Under its whistle blowing mechanism, employees of the Company and other stakeholders including third parties areencouraged to report any observed or suspected acts of fraud, corruption or other irregularities, orally or anonymously contactthe independent helpline by telephone or online without fear of reprisal or recrimination.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Directors' Report
The company guarantees that the identity of the reporting individual or organization shall be accorded utmost protection andthe report timeously investigated and treated.
The robust system has been embraced by all employees and stakeholders and it is producing good results.
10. Donations
The Company made a donations of N70,000 during the year (2017: N400,000).
In compliance with Section 38(2) of the Companies and Allied Matters Act, CAP C20 Laws of the Federation of Nigeria,2004, the Company did not make any donation or gift to any political party, political association or for any political purposeduring the current and preceding years.
Donations31-Mar-18
N.Manufacturers association of Nigeria 50,000Nigerian Institute of Food and Science Technology (NSFST) 20,000
70,000
11. Property, plant and equipment
Movements in property, plant and equipment during the year are shown in Note 15 to the financial statements. In theopinion of the Directors, the market value of the Company's property, plant and equipment is not less than the value shownin the audited financial statements.
12. Human Capital
Employment and Employees
The Company reviews its employment policy in line with the needs of the business. Careful recruitment is undertaken toensure that potential high performers are attracted and retained.
Employee Development
Local Training and Development Programmes are organized to meet the needs of the Company’s modernization /automation strategy implementation.
The Company continues to place premium on its Human Capital Development arising from the fact that this would ensureimproved efficiency of the business and maintain strategic advantage over competition.
Equal Employment Opportunity and Diversity
The Company recognises its social duty to employ disabled people and follows a policy of providing, wherever possible, thesame employment opportunities for disabled people as for others. If employees become disabled every effort is made toensure their employment continues, with appropriate training where necessary.
Subject to the applicable laws, we recruit, hire, train, promote, discipline and provide other conditions of employment withoutregard to a person’s race, colour, religion, sex, age, national origin, disability or other classifications protected under thelaw. This includes providing reasonable accommodation for members’ disabilities or religious beliefs and practices. As atyear end, the Company had no physically challenged person in its employment (2017: Nil).
Health, Safety and Environment
The Company appreciates the value of safe work environment to business success and therefore embarks on periodicassessment to ensure compliance and safety. Employees are continuously sensitized and talks on safe work procedurespreceding the commencement of each shift in the operational areas. The Company provides Personal Protective Equipmentto employees as required by the nature of job and safety officers are on regular monitoring to ensure usage compliance.
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Northern Nigeria Flour Mills Plc Annual Report for the year ended 31 March 2018
Directors' Report HIV/AIDS Policy HIV/AIDS policy guidelines are in place and employees are encouraged to undertake voluntary counseling and testing (VCT) in order to confirm their HIV status. Continuous interactions at workshops with known HIV positive individuals are arranged from time to time to educate staff and eliminate discrimination and stigmatization. Performance Management/Target Setting
Performance Management/Target Setting is designed to achieve set strategic objectives for effective monitoring of performance of the Company and employees.
13. Events after the reporting period There were no significant developments since the reporting date which could have had a material effect on the state of affairs of the company at 31 March 2018 and the loss for the year ended on that date which have not been adequately provided for or recognized in the financial statements. 14. Independent Joint Auditors
Messrs. KPMG Professional Services and Ahmed Zakari & Co. were appointed as joint auditors during the year, and having satisfied the relevant corporate governance rules have indicated willingness to continue in office as joint auditors to the Company in accordance with Section 357(2) of the Companies and Allied Matters Act, CAP C20 Laws of the Federation of Nigeria, 2004, therefore, the auditors will be re-appointed at the next annual general meeting of the Company without any resolution being passed.
BY ORDER OF THE BOARD
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Northern Nigeria Flour Mills Plc Annual Report for the year ended 31 March 2018
Statement of Directors' Responsibilities in Relatio n to the Financial Statements for the year ended 31 March, 2018 The Directors accept responsibility for the preparation of the annual financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and the Financial Reporting Council (FRC) of Nigeria Act, 2011.
The Directors further accept responsibility for maintaining adequate accounting records as required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error. The Directors have made an assessment of the Company’s ability to continue as a going concern and have no reason to believe the Company will not remain a going concern in the year ahead. Signed on behalf of the Board of Directors By:
Date: 29 June 2018 Date: 29 June 2018
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Northern Nigeria Flour Mills Plc Annual Report for the year ended 31 March 2018
Audit Committee Report In compliance with section 359 (3) to (6) of the Companies and Allied Matters Act 1990 the Audit Committee received the Audited Financial Statements for the year ended 31 March 2018 together with Management Control Report from the External Auditors and management response thereto at the duly convened meetings of the Committee.
We reviewed the scope and planning of the audit requirements and found them adequate. After due consideration the Committee accepted the Report of the External Auditors that the financial statements give a true and fair view of the state of the Company's financial affairs as at 31 March 2018 having been prepared in accordance with generally accepted accounting principles, agreed ethical practices and statutory requirements. The Committee reviewed Management's response to the External Auditors findings in the Management Control Report and we and the External Auditors are satisfied with Management response.
The Committee considered and approved the provision made in the Financial Statements for the remuneration of the External Auditors.
We confirm that the internal control system was constantly and effectively monitored through effective internal audit function.
The External Auditors confirmed having received full cooperation from Management in the course of their statutory audit.
The Committee therefore recommended that the Audited Financial Statements for the year ended 31 March 2018 and the External Auditors' Report thereon be presented for adoption at this Annual General Meeting.
On behalf of the audit committee
Alhaji Bello Umar Gwangwazo Chairman Audit Committee Other Members
Alhaji R. M. Gwarzo, OON
Dr. Jibrilla Mohammed
Alhaji Lawan Sule Garo
Alhaji Sadiq A. Othman
Mallam Mahmud Ahmed
Signed
Kano, Nigeria
28 June 2018
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Northern Nigeria Flour Mills Plc Annual Report for the year ended 31 March 2018
Statement of Financial Position as at 31 March, 201 8 31-Mar-18 31-Mar-17
Note(s) N. '000 N. '000
Assets
Non-Current Assets Property, plant and equipment 15 2,109,691 2,008,933 Deferred tax assets 14 92,216 36,715
2,201,907 2,045,648 Current Assets Inventories 16 2,673,752 1,367,418 Trade and other receivables 17 459,476 437,433 Prepayments 18 20,253 17,006 Investment 19 5,943 - Cash and cash equivalents 20 556,308 469,939
3,715,732 2,291,796
Total Assets 5,917,639 4,337,444 Equity and Liabilities
Equity Share capital 21 89,100 89,100 Share premium 21 89,521 89,521 Retained earnings 995,641 1,060,957
1,174,262 1,239,578 Liabilities
Non-Current Liabilities Borrowings 22 1,061,702 - Retirement benefit obligation 23 80,945 93,186 Long service award 24 20,235 24,566 Deferred income 25 206,183 -
1,369,065 117,752 Current Liabilities Trade and other payables 26 679,050 454,255 Borrowings 22 2,465,130 2,423,606 Current tax payable 13 17,818 17,824 Deferred income 25 187,209 - Dividend payable 27 24,062 24,980 Customer deposits 28 1,043 59,449
3,374,312 2,980,114
Total Liabilities 4,743,377 3,097,866
Total Equity and Liabilities 5,917,639 4,337,444
The financial statements were approved by the Board of Directors on 29 June, 2018 and were signed on its behalf by:
The notes on pages 20 to 61 form an integral part of these financial statements.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Statement of Profit or Loss and Other Comprehensive Income31-Mar-18 31-Mar-17
Note(s) N. '000 N. '000
Revenue 5 2,861,752 1,330,536
Cost of sales 6 (2,149,621) (993,072)
Gross profit 712,131 337,464
Other income 7 90,522 40,969
Selling and distribution 8 (15,860) (50,086)
Administrative expenses 9 (438,414) (321,791)
Operating profit 10 348,379 6,556
Finance income 11 27,278 23,983
Finance costs 12 (479,621) (31,942)
(Loss)/profit before minimum tax (103,964) (1,403)Minimum tax 13 (9,223) (7,375)
(Loss) before taxation (113,187) (8,778)
Taxation 13 52,199 (9,264)
Loss for the year (60,988) (18,042)
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurements on net defined benefit liability 23 (6,365) 8,773
Related tax 14 2,037 (2,090)
Total items that will not be reclassified to profit or loss (4,328) 6,683
Other comprehensive income for the year net of taxation (4,328) 6,683
Total comprehensive loss for the year (65,316) (11,359)
Earnings per share (kobo)
Basic earnings per share 29 (34) (10)
Diluted earnings per share 29 (34) (10)
The notes on pages 20 to 61 form an integral part of these financial statements.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Statement of Changes in EquityShare capital Share
premiumRetainedearnings
Total equity
N. '000 N. '000 N. '000 N. '000
Balance at 1 April 2016 89,100 89,521 1,072,316 1,250,937
Loss for the year - - (18,042) (18,042)Other comprehensive income - - 6,683 6,683
Total comprehensive Loss for the year - - (11,359) (11,359)
Balance at 31 March 2017 89,100 89,521 1,060,957 1,239,578
Balance at 1 April 2017 89,100 89,521 1,060,957 1,239,578
Loss for the year - - (60,988) (60,988)Other comprehensive income - - (4,328) (4,328)
Total comprehensive Loss for the year - - (65,316) (65,316)
Balance at 31 March 2018 89,100 89,521 995,641 1,174,262
The notes on pages 20 to 61 form an integral part of these financial statements.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Statement of Cash Flows31-Mar-18 31-Mar-17
Note(s) N. '000 N. '000
Cash flows from operating activities
(Loss)/profit before taxation (113,187) (8,778)
Adjustments for:
Depreciation of property, plant and equipment 15 190,363 71,117
Profit on sale of assets (220) (820)
Interest income 11 (27,278) (23,983)
Finance costs 12 479,621 31,942
Provision for retirement benefit 23 20,100 15,471
(Credit)/provision for long service award 24 (1,238) 8,155
Write-off of property, plant and equipment 15 5,196 -
Gain on foreign exchange transactions 7 (1,605) (180)
Minimum tax 9,223 7,375
Changes in working capital:
Inventories (1,306,334) (971,285)
Trade and other receivables (22,043) (149,639)
Prepayments (3,247) (8,349)
Investment (5,943) -
Trade and other payables 26 321,044 174,045
Deferred income 393,392 -
Customer deposits (58,406) 6,777
Dividend payable (918) 24,980
(121,480) (823,172)
Tax paid 13 (10,494) (2,826)
Value added tax paid (94,644) (34,885)
Retirement benefit paid 23 (38,706) (6,228)
Long service award benefit paid 24 (3,093) (4,419)
Net cash used in operating activities (268,417) (871,530)
Cash flows from investing activities
Purchase of property, plant and equipment 15 (296,317) (1,463,517)
Proceeds on sale of property, plant and equipment 220 820
Interest income received 11 27,278 23,983
Net cash used in investing activities (268,819) (1,438,714)
Cash flows from financing activities
Proceeds from borrowings 22 2,974,690 2,423,606
Repayment of borrowings 22 (1,950,000) -
Finance costs paid 22 (401,085) (31,942)
Net cash generated from financing activities 623,605 2,391,664
Net cash inflow for the year 86,369 81,420
Cash and cash equivalents at the beginning of the year 469,939 388,519
Total cash and cash equivalents at end of year 20 556,308 469,939
The notes on pages 20 to 61 form an integral part of these financial statements.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
1 Corporate information
Northern Nigeria Flour Mills Plc was incorporated as a private limited liability company on 29 October 1971. The Company wasconverted to a public limited liability company in 1978 and was quoted on the Nigeria Stock Exchange in the same year. TheCompany's registered office and factory is located at No 15 Maimalari Road, Bompai, Kano. Its present ownership structure is47% owned by individuals and institutions in Nigeria and 53% owned by Flour Mills Nigeria Plc which is the parent Companyand ultimate controlling party.
1.1 Principal activities
The Company's main business is milling of wheat, maize and other associated grains.
1.2 Registered Office
The address of its registered office is:
15 Maimalari road,Bompai Industrial Estate,Kano.
1.3 Composition of financial statements
The Company's financial statements comprise:
Statement of profit or loss and other comprehensive IncomeStatement of financial positionStatement of changes in equityStatement of cash flowsNotes to the financial statements.
Additional information provided by management in line with the requirements of the Company and Allied Matters Act, CAP C20Laws of the Federation of Nigeria, 2004 includes
Directors' reportValue added statementStatement of directors' responsibilitiesFive year financial summary.
1.4 Financial period
These financial statements cover the financial year from 1 April 2017 to 31 March 2018 with comparatives for year ended 31March 2017.
1.5 Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards as issued by theInternational Accounting Standard Board (IASB) and the requirements of the Companies and Allied Matters Act of Nigeria, CapC20 Laws of Federation of Nigeria 2004 and the Financial Reporting Council (FRC) of Nigeria Act, 2011.
Functional and presentation currency
These financial statements have been expressed in Naira, which is the functional currency of the Company, and thepresentation currency for the financial statements.
All amounts have been rounded to the nearest thousand, unless otherwise indicated.
Ownership Structure
The parent company is Flour Mills of Nigeria Plc, a company registered in Nigeria.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
1. Corporate information (continued)
Number ofshares
% of sharecapital
Flour Mills of Nigeria Plc 94,545,159 53.06Northern Nigeria Investment Limited 12,955,000 7.27Dantata Investment & Securities Limited 9,894,362 5.55Other individuals and institutional shareholders 60,805,479 34.12
178,200,000 100
2. Significant accounting policies
The following is the summary of principal accounting policies applied in the preparation of these financial statements.
2.1 Basis of preparation and measurements
The financial statements have been prepared on the going concern basis in accordance with International Financial ReportingStandards ("IFRS") issued and effective at the time of preparing these financial statements and in accordance with theCompanies and Allied Matters Act of Nigeria, Cap C20 Laws of Federation of Nigeria 2004 and the Financial Reporting Councilof Nigeria Act,2011.
The financial statements have been prepared on the historical cost basis except for the following: Financial instuments - Initially measured at fair value and subsequently at amortised cost using the effective interest
method Inventories - Lower of cost and net realisable value Defined benefit obligation - Present value of the obligation determined using the Projected Unit Credit method
2.2 Segmental reporting
The Company is involved in the milling of wheat, Sorghum and other local grains. All of the Company's products have similarrisks and returns thus the management does not use any operating segments results to make decisions about resources to beallocated to the segment and assess its performance. The Company has only one business segment.
2.3 Revenue
Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable forgoods and services provided in the normal course of business, net of trade discounts and volume rebates, and value addedtax.
Revenue from the sale of goods is recognised when all the following conditions have been satisfied: the company has transferred to the buyer the significant risks and rewards of ownership of the goods; the company retains neither continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the company; and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Rendering of services
When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with thetransaction is recognised by reference to the stage of completion of the transaction at the end of the reporting period. Theoutcome of a transaction can be estimated reliably when all the following conditions are satisfied:
the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the company; the stage of completion of the transaction at the end of the reporting period can be measured reliably; and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall berecognised only to the extent of the expenses recognised that are recoverable.
Revenue from contract processing is recognised when the processing is completed and based on the agreed processing feeper tonne.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.3 Revenue (continued)
Deferred revenue represents the revenue collected from customers from which services is yet to be rendered. This isrecognised as a liability until the company fulfills its contractual obligation to provide the service.
2.4 Finance income and Finance cost
Interest income is recognised when it is probable that the economic benefits will flow to the Company and the amount ofincome can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and atthe effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through theexpected life of the financial asset to that asset’s net carrying amount on initial recognition.
Finance costs comprise interest expense on borrowings. Borrowing cost that are not directly attributable to the acquisition,construction or production of a qualifying asset are recognized in profit or loss. Foreign currency gains and losses arerecognised in profit or loss and presented on a net basis as either finance income or finance cost.
2.5 Translation of foreign currencies
Foreign currency transactions
A foreign currency transaction is recorded, on initial recognition in Naira, by applying to the foreign currency amount the spotexchange rate between the functional currency and the foreign currency at the date of the transaction.
At the end of the reporting period: foreign currency monetary items are translated using the closing rate; non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction; and non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at
the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from thoseat which they were translated on initial recognition during the period or in previous financial statements are recognised in profitor loss in the period in which they arise.
Cash flows arising from transactions in a foreign currency are recorded in Naira by applying to the foreign currency amount theexchange rate between the Naira and the foreign currency at the date of the cash flow.
2.6 Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expectedto be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service providedby the employee and the obligation can be estimated reliably.
The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacationleave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which theservice is rendered and are not discounted.
Defined contribution plan
The Company operates a defined contribution based retirement benefit scheme for its staff, in accordance with the PensionReform Act of 2014 with employee and employer contributing 8% and 10% respectively of the employee’s relevant emoluments(basc salary, housing and transportation allowances). Payments to defined contribution benefit plans are recognised as anexpense when employees have rendered the service entitling them to the contributions.
Employee contributions are funded through payroll deductions. The funds are managed by several independent fund managersapproved by the Pension Commission. The Company's only obligation is the monthly contributions to the fund.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.6 Impairment of tangible and intangible assets (continued)
Defined benefit plans
The Company also operates a defined benefit gratuity scheme for its qualified staff. Benefits are related to the employees'length of service and remuneration. The cost of providing gratuity benefits is determined using the Projected Unit CreditMethod, with actuarial valuations being carried out at the end of each reporting period. The obligation is determined by anindependent actuary at each reporting period. Actuarial gains and losses (if any) are recognised fully in other comprehensiveincome. Also, past service cost is recognised immediately in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past serviceor the gain or loss on curtailment is recognised immediately in profit or loss. The Company recognises gains and losses on thesettlement of a defined benefit plan when the settlement occurs.
The Company's obligation in respect of the scheme is the amount of future benefits that employees have earned in return fortheir service in the current and prior periods. The benefit is discounted to determine its present value. The discount rate is theyield at the reporting date on Federal Government of Nigeria issued bonds that have maturity dates that approximates the termof the Company's defined benefits obligation. Defined benefits costs are categorised as follows:
Service cost (including current service cost, past service cost, as well as gains and losses on curtailment and settlements.)
Interest expense
Re-measurement (actuarial gains and losses)
The service cost and interest expense are charged to the profit or loss while the gains and loss due to remeasurement arecharged to other comprehensive income.
Although the fund is not funded, the Company ensures that adequate arrangements are in place to meet its obligations underthe scheme.
Long service award
The Company operates long service award for its qualified staff. The benefits are graduated depending on the employeesnumber of years in service to the company. The Company's obligation in respect of the scheme is the amount of future benefitsthat employees have earned in return for their service in the current and prior periods. The benefit is discounted to determine itspresent value. The obligation is determined by an independent actuary at each reporting period.
Gains or losses due to remeasurement of long service awards are recognised in profit or loss.
2.7 Taxation
Tax expenses
Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to theextent that the tax arises from:
a transaction or event which is recognised, in the same or a different period, in other comprehensive income, or a business combination.
Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged,in the same or a different period, directly in equity.
The tax currently payable is based on taxable profit for the period in accordance with the Company Income Tax Act, CAP C21,LFN 2004 and Education Tax Act, CAP E4, LFN 2004. The Company’s liability for current tax is calculated using tax rates thathave been enacted or substantively enacted by the balance sheet date.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.7 Taxation (continued)
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement ofprofit or loss because of items of income or expense that are taxable or deductible in future years and items that are nevertaxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted orsubstantively enacted at the reporting date.
The Company is subject to the Companies Income Tax Act (CITA). Total amount of tax payable under CITA is determinedbased on the higher of two components namely Company Income Tax (based on taxable income (or loss) for the year); andMinimum tax based on CITA. Taxes based on taxable profit for the period are treated as income tax in line with IAS 12;whereas Minimum tax which is based on gross amount is outside the scope of IAS 12 and therefore, are not presented as partof income tax expense in profit or loss.
Where the minimum tax charge is higher than the Company Income Tax (CIT), a hybrid tax situation exists. In this situation, theCIT is recognized in the income tax expense line in the profit or loss and the excess amount is presented above the income taxline as minimum tax.
Deferred tax assets and liabilities
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxable profit.Deferred tax liabilities are generallyrecognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporarydifferences to the extent that it is probable that taxable profits will be available against which those deductible temporarydifferences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises fromgoodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction thataffects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longerprobable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability issettled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end ofthe reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would followfrom the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount ofits assets and liabilities.
Current and deferred tax are recognised in the statement of profit or loss except when they relate to items that are recognisedin other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in othercomprehensive income or directly in equity respectively.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets againstcurrent income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
2.8 Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalisedas part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligiblefor capitalisation is determined as follows:
Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less anytemporary investment of those borrowings.
Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose ofobtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred.
The capitalisation of borrowing costs commences when: expenditures for the asset have occurred; borrowing costs have been incurred, and activities that are necessary to prepare the asset for its intended use or sale are in progress.
Capitalisation is suspended during extended periods in which active development is interrupted.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.8 Borrowing costs (continued)
Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or saleare complete.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
Finance cost includes interest expense on borrowing.
2.9 Property, plant and equipment
Property, plant and equipment are tangible assets which the company holds for its own use or for rental to others and which areexpected to be used for more than one year.
An item of property, plant and equipment is recognised as an asset when it is probable that future economic benefitsassociated with the item will flow to the company, and the cost of the item can be measured reliably.
Property, plant and equipment is initially measured at cost. Cost includes all of the expenditure which is directly attributable tothe acquisition or construction of the asset, including the capitalisation of borrowing costs on qualifying assets.
Expenditure incurred subsequently for major services, additions to or replacements of parts of property, plant and equipmentare capitalised if it is probable that future economic benefits associated with the expenditure will flow to the company and thecost can be measured reliably. Day to day servicing costs are included in profit or loss in the year in which they are incurred.
Depreciation of an asset commences when the asset is available for use as intended by management. Depreciation isrecognised so as to write off the cost or valuation of assets (other than land and properties under construction) less theirresidual values over their useful lives, using the straight-line method, on the following basis by the company. Depreciation onproperty, factory buildings, machinery, vehicles, furniture and equipment is calculated on a straight-line basis at rates deemedappropriate to write off the cost of the assets to their residual values over their expected useful lives.
The useful lives of items of property, plant and equipment have been assessed as follows:
Item Depreciation method Average useful life
Land - NilBuildings Straight line 50 yearsPlant and machinery Straight line 10-15 yearsFurniture and equipment Straight line 3-10 yearsVehicles Straight line 5 years
The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting year. Profitsand losses on disposals of assets are determined by comparing proceeds with the carrying amounts. These profits and lossesare included in profit or loss. Properties in the course of construction (capital work-in-progress) are carried at cost, less anyrecognised impairment losses and are not depreciated. Cost includes professional fees and for qualifying assets, borrowingcost capitalised in accordance with the Company accounting policy.
The depreciation charge for each year is recognised in profit or loss unless it is included in the carrying amount of anotherasset.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expectedfrom its continued use or disposal. Any gain or loss arising from the derecognition of an item of property, plant and equipment,determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, is included inprofit or loss when the item is derecognised.
Engineering spare parts and stand-by equipment are capitalised as property, plant and equipment when the Company expectsto use them for more than one year.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.10 Impairment of tangible and intangible assets
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets todetermine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it isnot possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount ofthe cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can beidentified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to thesmallest Company of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimatedfuture cash flows are discounted to their present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows havenot been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carryingamount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognisedimmediately in the profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairmentloss is treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increasedto the revised estimate of its recoverable amount, but the increased carrying amount does not exceed the carrying amountthat would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prioryears. A reversal of an impairment loss is recognised immediately in the income statement, unless the relevant asset iscarried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
2.11 Inventories
Inventories are measured at the lower of cost and net realisable value.
The Company's Inventories consist of raw materials, consumables, finished goods and spare parts.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion andthe estimated costs necessary to make the sale.
The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing theinventories to their present location and condition.
Raw Materials which include purchase cost and other costs incurred to bring the materials to their location and condition, arevalued at First-In-First-Out (FIFO). Cost of finished goods and work-in-progress include cost of materials used in production,direct labour and factory overheads. Finished goods are valued on a weighted average cost basis.
When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which therelated revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventoriesare recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down ofinventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventoriesrecognised as an expense in the period in which the reversal occurs.
Engineering spare parts and other consumables are valued at weighted average cost and adjusted for allowance for obsoleteand damaged stocks.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.12 Financial instruments
Initial recognition and measurement
Financial instruments are recognised initially when the company becomes a party to the contractual provisions of theinstruments.
The company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financialliability or an equity instrument in accordance with the substance of the contractual arrangement.
Financial instruments are measured initially at fair value.
For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initialmeasurement of the instrument.
Classification
The company classifies financial assets and financial liabilities into the following categories: Loans and receivables Other financial liabilities
Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initialrecognition. Classification is re-assessed on an annual basis, except for derivatives and financial assets designated as at fairvalue through profit or loss, which shall not be classified out of the fair value through profit or loss category.
Subsequent measurement
Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulatedimpairment losses.
Other financial liabilities are subsequently measured at amortised cost, using the effective interest method.
Financial assets
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in thestatement of comprehensive income when the loans and receivables are derecognised or impaired, as well as through theamortisation process. This category of financial assets includes trade and other receivables and cash and cash equivalents.
Trade and other receivables
Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using theeffective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss whenthere is objective evidence that the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investmentsgenerally with maturities of three months or less from date of acquisition. They are readily convertible to a known amount ofcash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.
Held to maturity investment
Investments are initially measured at fair value plus direct transaction cost. At subsequent reporting dates these are measuredat amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts.An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measuredas the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted atthe effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when anincrease in the investment’s recoverable amount can be related objectively to an event occurring after the impairment wasrecognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall notexceed what the amortised cost would have been had the impairment not been recognised.
Impairment of financial assets
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.12 Financial instruments (continued)
At each reporting date the company assesses all financial assets, other than those at fair value through profit or loss, todetermine whether there is objective evidence that a financial asset or group of financial assets has been impaired.
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, anddefault or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable may beimpaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present valueof estimated future cash flows discounted at the effective interest rate computed at initial recognition.
For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individuallyare, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivablescould include the Company's past experience of collecting payments, an increase in the number of delayed payments in theportfolio past the average credit period of 90 days, as well as observable changes in national or local economic conditions thatcorrelate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between theasset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's originaleffective interest rate.
Impairment losses are recognised in profit or loss.
Impairment losses are reversed when an increase in the financial asset's recoverable amount can be related objectively to anevent occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset atthe date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment notbeen recognised.
Reversals of impairment losses are recognised in profit or loss except for equity investments classified as available-for-sale.
Derecognition of financial assets
Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have beentransferred and the company has transferred substantially all risks and rewards of ownership of the asset to another entity.
If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control thetransferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may haveto pay.
Other financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance withthe substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Financial liabilities
Financial liabilities are classified as other financial liabilities.
Other financial liabilities
All other financial liabilities are initially recognised at fair value. For interest-bearing loans and borrowings this is the fair value ofthe proceeds received net of issue costs associated with the borrowing. After initial recognition, other financial liabilities aresubsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking intoaccount any issue costs and any discount or premium on settlement. Gains and losses arising on the repurchase, settlement orcancellation of liabilities are recognised respectively in interest and finance costs. This category of financial liabilities includestrade and other payables and finance debt.
Trade and other payables
Trade payables are stated at amortised cost. Payables principally comprise trade and other payables, accruals and amountsdue to related parties. Payables are only recognised if they qualify as a liability.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.12 Financial instruments (continued)
Bank overdraft and borrowings
Bank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, usingthe effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement orredemption of borrowings is recognised over the term of the borrowings in accordance with the company’s accounting policy.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled orthey expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid andpayable is recognised in profit or loss.
Equity instrument
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of itsliabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, andonly when the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realise theasset and settle the liabilities simultaneously.
2.13 Share Capital and Share premium
The Company has only one class of shares, ordinary shares. Ordinary shares are classified as equity. When new shares areissued, they are recorded in share capital at their par value. The excess of the issue price over the par value is recorded in theshare premium reserve. The use of the share premium account is governed by S.120(3) of CAMA. All ordinary shares rankequally with regard to the Company's residual assets. Holders of these shares are entitled to dividends as declared from time totime and are entitled to one vote per share at general meetings of the Company.
2.14 Provisions and contingencies
Provisions are recognised when: the company has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the obligation.
The amount of a provision is the present value of the expenditure expected to be required to settle the obligation at the end ofthe reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measuredusing the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, thereimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entitysettles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursementshall not exceed the amount of the provision.
Provisions are not recognised for future operating losses.
Contingent liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by theoccurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company, or a presentobligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficientreliability. Contingent liabilities are only disclosed and not recognised as liabilities in the statement of financial position. If thelikelihood of an outflow of resources is remote, the possible obligation is neither a provision nor a contingent liability and nodisclosure is made.
29
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
2.15 Leases
At inception date an arrangement is assessed to determine whether it is, or contains, a lease. An arrangement is accounted foras a lease where it is dependent on the use of a specific asset and it conveys the right to use that asset.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease isclassified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.
Finance leases – lessee
Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair valueof the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor isincluded in the statement of financial position as a finance lease obligation.
The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.
The lease payments are apportioned between the finance charge and reduction of the outstanding liability.The finance chargeis allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of theliability.
Operating leases – lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference betweenthe amounts recognised as an expense and the contractual payments are recognised as an operating lease asset. This liabilityis not discounted.
Any contingent rents are expensed in the period they are incurred.
2.16 Earnings per share
The company presents basic earnings per share(EPS) for its ordinary shares. Basic earnings per share is calculated by dividingthe profit or loss attributable to ordinary shareholders of the company by the weighted average number of ordinary shares inissue during the year.
Diluted earnings per share
Diluted earnings per share are computed by dividing adjusted net income available to shareholders of the Company by theweighted average number of ordinary shares outstanding during the year adjusted to include any dilutive potential ordinaryshares. Potential dilutive ordinary shares result from stock options and convertible bonds issued by the Company on its ownordinary shares.
2.17 Government grants
Government grants are recognised when there is reasonable assurance that: the company will comply with the conditions attaching to them; and the grants will be received.
Government grants are recognised as income over the periods necessary to match them with the related costs that they areintended to compensate.
A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose ofgiving immediate financial support to the Company with no future related costs is recognised as income of the period in which itbecomes receivable.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Company recognises asexpenses the related costs for which the grants are intended to compensate.
Where a loan is received from government at below market interest rate, the difference between the fair value of the loan andthe amount received is recognised as government grant (deferred income) amortised to the profit or loss over the term of theloan on a systematic basis.
30
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
3 Significant judgements and sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management, from time to time, to make judgments,estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income andexpenses. These estimates and associated assumptions are based on experience and various other factors that are believed tobe reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlyingassumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which theestimates are revised if the revision affects only that period, or in the period of the revision and future periods if the revisionaffects both current and future periods.
Critical judgments in applying accounting policies
The critical judgements made by management in applying accounting policies, apart from those involving estimations, thathave the most significant effect on the amounts recognised in the financial statements, are outlined as follows:
Lease classification
The company is party to leasing arrangements, both. The treatment of leasing transactions in the financial statements is mainlydetermined by whether the lease is considered to be an operating lease or a finance lease. In making this assessment,management considers the substance of the lease, as well as the legal form, and makes a judgement about whethersubstantially all of the risks and rewards of ownership are transferred.
Taxation
The Company’s tax charge on ordinary activities is the sum of the total current and deferred tax charges. The calculation of theCompany’s total tax charge necessarily involves a degree of estimation and judgment in respect of certain items whosetreatment cannot be finally determined until resolution has been reached with the relevant tax authority. Under the Nigerian taxsystem, self-assessment returns are subjected to a desk review for the determination of tax due for remittance in the relevantyear of assessment. This is however not conclusive as field audits are carried out within six years of the end of the relevantyear of assessment to determine the adequacy or otherwise of sums remitted under self-assessment thus making tax positionsuncertain.
Key sources of estimation uncertainty
Trade receivables
The company assesses its trade receivables for impairment at the end of each reporting period. In determining whether animpairment loss should be recorded in profit or loss, the company makes judgements as to whether there is observable dataindicating a measurable decrease in the estimated future cash flows from the financial asset. Based on objective evidence ofimpairment, the Company makes a collective impairment allowance for doubtful debt.
Impairment testing
The company reviews and tests the carrying value of assets when events or changes in circumstances suggest that thecarrying amount may not be recoverable. When such indicators exist, management determine the recoverable amount byperforming value in use and fair value calculations. These calculations require the use of estimates and assumptions thataffects the amount of impairment. When it is not possible to determine the recoverable amount for an individual asset,management assesses the recoverable amount for the cash generating unit to which the asset belongs.
Property, plant and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Company, accounting for about 36%of the Company’s total assets. Therefore the estimates and assumptions made to determine their carrying value and relateddepreciation are critical to the Company’s financial position and performance.
The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life andthe expected residual value at the end of its life. Increasing an asset’s expected life or it residual value would result in thereduced depreciation charge in the statement of profit or loss.
The useful lives and residual values of property, plant and equipment are determined by management based on historicalexperience as well as anticipation of future events and circumstances which may impact their useful lives
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
3 Significant judgements and sources of estimation uncertainty (continued)
Provision for gratuity
The Company operates an unfunded defined benefit scheme which entitles staff who put in a minimum qualifying workingperiod of five years to gratuity upon leaving the employment of the Company. IAS 19 requires the application of the ProjectedUnit Credit Method for actuarial valuations. Actuarial measurements involve making several demographic assumption regardingmortality, rates of employee turnover etc and financial assumption in the area of future salaries and benefit levels, discountrate, inflation etc, which impact the obligation.
Provision for long term service award
A provision for Long term service award is granted at first to employees that have spent a minimum of ten years in service andfor every multiple five years an employee remains in service. IAS19 requires the application of the Projected Unit Credit Methodfor actuarial valuations. Actuarial measurements involve making several demographic assumptions regarding mortality, rates ofemployee turnover etc. and financial assumptions in the area of future salaries and benefit levels, discount rate, inflation etc,that affect the obligation.
Fair value estimation
Several assets and liabilities of the company are either measured at fair value or disclosure is made of their fair values.
A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial
and non-financial assets and liabilities. When applicable, further information about the assumptions made in determining fair
values is disclosed in the notes specific to that asset or liability.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair
values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as
follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. asprices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
In some cases, if the inputs used to measure the fair value of an asset or a liability is categorised in different levels of the
fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as
the lowest level input that is significant to the entire measurement.
Further information about the assumptions made in measuring fair value is included in the note on financial instruments
- Financial risk management and fair values (Note 36).
32
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
4. New Standards and Interpretations
4.1 Standards and interpretations effective and adopted in the current year
In the current year, the company has adopted the following standards and interpretations that are effective for the currentfinancial year and that are relevant to its operations:
Amendments to IAS 7: Disclosure initiative
The amendment requires entities to provide additional disclosures for changes in liabilities arising from financing activities.Specifically, entities are now required to provide disclosure of the following changes in liabilities arising from financing activities:
changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchanges; changes in fair values; and other changes.
The effective date of the amendment is for years beginning on or after 1 January, 2017.
The company has adopted the amendment for the first time in the 2018 financial statements.
The impact of the amendment is not material.
Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses
In terms of IAS 12 Income Taxes, deferred tax assets are recognised only when it is probable that taxable profits will beavailable against which the deductible temporary differences can be utilised. The following amendments have been made;
If tax law restricts the utilisation of losses to deductions against income of a specific type, a deductible temporary difference isassessed in combination only with other deductible temporary differences of the appropriate type.
Additional guidelines were prescribed for evaluating whether the company will have sufficient taxable profit in future periods.The company is required to compare the deductible temporary differences with future taxable profit that excludes taxdeductions resulting from the reversal of those deductible temporary differences. This comparison shows the extent to whichthe future taxable profit is sufficient for the entity to deduct the amounts resulting from the reversal of those deductibletemporary differences.
The amendment also provides that the estimate of probable future taxable profit may include the recovery of some of an entity’sassets for more than their carrying amount if there is sufficient evidence that it is probable that the entity will achieve this.
The effective date of the amendment is for years beginning on or after 1 January, 2017.
The company has adopted the amendment for the first time in the 2018 financial statements.
The impact of the amendment is not material.
4.2 Standards and interpretations not yet effective
The company has chosen not to early adopt the following standards and interpretations, which have been published and aremandatory for the company’s accounting periods beginning on or after 1 April, 2018 or later periods:
IFRS 16 Leases
IFRS 16 Leases is a new standard which replaces IAS 17 Leases, and introduces a single lessee accounting model. The mainchanges arising from the issue of IFRS 16 which are likely to impact the company are as follows:
Company as lessee: Lessees are required to recognise a right-of-use asset and a lease liability for all leases, except short term leases or
leases where the underlying asset has a low value, which are expensed on a straight line or other systematic basis. The cost of the right-of-use asset includes, where appropriate, the initial amount of the lease liability; lease payments
made prior to commencement of the lease less incentives received; initial direct costs of the lessee; and an estimatefor any provision for dismantling, restoration and removal related to the underlying asset.
33
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
4. New Standards and Interpretations (continued) The lease liability takes into consideration, where appropriate, fixed and variable lease payments; residual value
guarantees to be made by the lessee; exercise price of purchase options; and payments of penalties for terminatingthe lease.
The right-of-use asset is subsequently measured on the cost model at cost less accumulated depreciation andimpairment and adjusted for any re-measurement of the lease liability. However, right-of-use assets are measured atfair value when they meet the definition of investment property and all other investment property is accounted for onthe fair value model. If a right-of-use asset relates to a class of property, plant and equipment which is measured onthe revaluation model, then that right-of-use asset may be measured on the revaluation model.
The lease liability is subsequently increased by interest, reduced by lease payments and re-measured forreassessments or modifications.
Re-measurements of lease liabilities are affected against right-of-use assets, unless the assets have been reducedto nil, in which case further adjustments are recognised in profit or loss.
The lease liability is re-measured by discounting revised payments at a revised rate when there is a change in thelease term or a change in the assessment of an option to purchase the underlying asset.
The lease liability is re-measured by discounting revised lease payments at the original discount rate when there is achange in the amounts expected to be paid in a residual value guarantee or when there is a change in futurepayments because of a change in index or rate used to determine those payments.
Certain lease modifications are accounted for as separate leases. When lease modifications which decrease thescope of the lease are not required to be accounted for as separate leases, then the lessee re-measures the leaseliability by decreasing the carrying amount of the right of lease asset to reflect the full or partial termination of thelease. Any gain or loss relating to the full or partial termination of the lease is recognised in profit or loss. For allother lease modifications which are not required to be accounted for as separate leases, the lessee re-measures thelease liability by making a corresponding adjustment to the right-of-use asset.
Right-of-use assets and lease liabilities should be presented separately from other assets and liabilities. If not, thenthe line item in which they are included must be disclosed. This does not apply to right-of-use assets meeting thedefinition of investment property which must be presented within investment property. IFRS 16 contains differentdisclosure requirements compared to IAS 17 leases.
Company as lessor: Accounting for leases by lessors remains similar to the provisions of IAS 17 in that leases are classified as either
finance leases or operating leases. Lease classification is reassessed only if there has been a modification. A modification is required to be accounted for as a separate lease if it both increases the scope of the lease by
adding the right to use one or more underlying assets; and the increase in consideration is commensurate to thestand alone price of the increase in scope.
If a finance lease is modified, and the modification would not qualify as a separate lease, but the lease would havebeen an operating lease if the modification was in effect from inception, then the modification is accounted for as aseparate lease. In addition, the carrying amount of the underlying asset shall be measured as the net investment inthe lease immediately before the effective date of the modification. IFRS 9 is applied to all other modifications notrequired to be treated as a separate lease.
Modifications to operating leases are required to be accounted for as new leases from the effective date of themodification. Changes have also been made to the disclosure requirements of leases in the lessor's financialstatements.
Sale and leaseback transactions: In the event of a sale and leaseback transaction, the requirements of IFRS 15 are applied to consider whether a
performance obligation is satisfied to determine whether the transfer of the asset is accounted for as the sale of anasset.
If the transfer meets the requirements to be recognised as a sale, the seller-lessee must measure the new right-of-use asset at the proportion of the previous carrying amount of the asset that relates to the right-of-use retained. Thebuyer-lessor accounts for the purchase by applying applicable standards and for the lease by applying IFRS 16
If the fair value of consideration for the sale is not equal to the fair value of the asset, then IFRS 16 requiresadjustments to be made to the sale proceeds. When the transfer of the asset is not a sale, then the seller-lesseecontinues to recognise the transferred asset and recognises a financial liability equal to the transfer proceeds. Thebuyer-lessor recognises a financial asset equal to the transfer proceeds.
Transition
As a lessee, the Company can either apply the standard using the retrospective approach or modified retrospective approach.The lessee applies the election consistently to all of its leases.
34
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
4. New Standards and Interpretations (continued)
The Company plans to apply IFRS 16 initially on 1 April 2019, using the modified retrospective approach. Therefore, thecumulative effect of adopting IFRS16 will be recognized as an adjustment to opening balance of retained earnings at 1 April2019, with no restatement of comparative information.
The effective date of the standard is for years beginning on or after 1 January, 2019.
The company expects to adopt the standard for the first time in the 2020 financial statements.
The impact of this standard is currently being assessed.
IFRIC 22 Foreign Currency Transactions and Advance Consideration
This Interpretation applies to a foreign currency transaction (or part of it) when an entity recognises a non-monetary asset ornon-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the relatedasset, expense or income (or part of it)
This Interpretation does not apply to income taxes, insurance contracts and circumstances when an entity measures the relatedasset, expense or income on initial recognition:
(a) at fair value; or
(b) at the fair value of the consideration paid or received at a date other than the date of initial recognition of the non-monetaryasset or non-monetary liability arising from advance consideration (for example, the measurement of goodwill applying IFRS 3Business Combinations).
The amendments apply retrospectively for annual periods beginning on or after 1 January 2018, with early applicationpermitted.
The Company does not plan to adopt this amendment early.
It is unlikely that the amendment will have a material impact on the company's financial statements.
IFRS 9 Financial Instruments
IFRS 9 issued in November 2009 introduced new requirements for the classification and measurements of financial assets.IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financialliabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Anotherrevised 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 othercomprehensive income" (FVTOCI) measurement category for certain simple debt instruments.
Key requirements of IFRS 9: All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and
Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debtinvestments that are held within a business model whose objective is to collect the contractual cash flows, and thathave contractual cash flows that are solely payments of principal and interest on the outstanding principal aregenerally measured at amortised cost at the end of subsequent reporting periods. Debt instruments that are heldwithin a business model whose objective is achieved by both collecting contractual cash flows and selling financialassets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that aresolely payments of principal and interest on outstanding principal, are measured at FVTOCI. All other debt andequity investments are measured at fair value at the end of subsequent reporting 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) in other comprehensive income with only dividend income generally recognised in profitor loss.
With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9requires that the amount of change in the fair value of the financial liability that is attributable to changes in the creditrisk of the liability is presented in other comprehensive income, unless the recognition of the effect of the changes ofthe liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit orloss. Under IAS 39, the entire amount of the change in fair value of a financial liability designated as at fair valuethrough profit or loss is presented in profit or loss.
35
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
4. New Standards and Interpretations (continued) In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an
incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expectedcredit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risksince initial recognition. It is therefore no longer necessary for a credit event to have occurred before credit lossesare recognised.
The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currentlyavailable in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible forhedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the typesof risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness testhas been replaced with the principle of an "economic relationship". Retrospective assessment of hedgeeffectiveness is also no longer required. Enhanced disclosure requirements about an entity's risk managementactivities have also been introduced.
The effective date of the standard is for years beginning on or after 1 January, 2018.
The company expects to adopt the standard for the first time in the 2019 financial statements.
In determining the estimated impact of IFRS 9 on 1 April 2018, the Company applied the simplified model to estimate ECLs,adopting a provision matrix to determine the lifetime ECLs for its trade and other receivables. The provision matrix estimatesECLs on the basis of historical default rates, adjusted for current and future economic conditions (expected changes in defaultrates) without undue cost and effort.
Based on assessments undertaken to date, the total estimated adjustment of the adoption of IFRS 9 on trade receivables isapproximately N0.34 million indicating an increase of 0.21% over the impairment recognized under IAS 39
The above assessment is preliminary because not all transition work has been finalized. The actual impact of adopting IFRS 9on 1 April 2018 may change due to the following reasons;
- the Company is refining and finalising its provision matrix (model) for ECL calculations; and
- the new accounting policies, assumptions and judgements employed are subject to change until the Company finalises itsfirst financial statements that include the date of initial application.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction contracts; IAS 18 Revenue; IFRIC 13 Customer Loyalty Programmes; IFRIC 15Agreements for the construction of Real Estate; IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue - BarterTransactions Involving Advertising Services.
The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices. An entity recognises revenue in accordance with that core principle by applying the following steps:
Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognise revenue when (or as) the entity satisfies a performance obligation.
IFRS 15 also includes extensive new disclosure requirements.
The effective date of the standard is for years beginning on or after 1 January, 2018.
The company expects to adopt the standard for the first time in the 2019 financial statements.
The Company has undertaken a review of the main types of commercial arrangements with customers under the new five-stepmodel and tentatively concluded that the application of IFRS15 will not have a material impact on the profit or loss and financialposition of the Company
36
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements31-Mar-18 31-Mar-17
N. '000 N. '000
5. Revenue
Sale of goods 2,071,442 940,521Rendering of services - Contract milling 790,310 390,015
2,861,752 1,330,536
The revenue for the year was derived from sales made and services provided in Nigeria.
6. Cost of sales (analysed by nature)
Raw materials consumed 1,668,841 684,584Allowance for obsolete inventory 12,000 25,288Manufacturing - Employee costs 122,040 92,454Manufacturing - Depreciation and impairments 178,329 63,006Petrol, gas and oil 138,466 91,463Rent and Rates 2,522 2,507Factory repairs and maintenance 20,892 27,179Insurance 3,741 5,724Other direct expenses 2,790 867
2,149,621 993,072
7. Other income
Gain on sale of assets 220 820Gain on exchange differences 1,605 180Liabilities no longer required - 5,979Rental income 1,800 1,800Sales of scrap 14,795 32,190Government grants 72,102 -
90,522 40,969
31-Mar-18 31-Mar-17N. '000 N. '000
8. Selling and distribution expenses (analysed by nature)
Staff costs 7,517 1,210Advertisement 97 38,172Selling expenses 8,246 10,704
15,860 50,086
37
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements31-Mar-18 31-Mar-17
N. '000 N. '000
9. Administrative expense by nature
Analysis of administrative expensesAuditors remuneration 18,000 14,500Bad debts (recovered)/allowance (9,387) 62,369Bank charges 1,360 5,103Consulting and professional fees 35,809 9,479Depreciation 12,034 8,111Donations 70 400Employee costs 100,481 84,191Directors' emoluments 42,980 29,822Fines, penalties and non-recoverable taxes 105,229 11,235IT expenses 16,396 -Insurance 2,194 2,385Medical expenses 1,383 398Motor vehicle expenses 80 -Shared services costs 30,090 42,223Petrol and oil 955 -Printing and stationery 1,155 1,459Repairs and maintenance 13,725 26,970Postage and communication expenses 7,880 4,407Subscriptions 4,979 1,275Travel 24,728 7,437General expenses 28,273 10,027
438,414 321,791
10. Operating profit
Operating profit for the year is stated after charging/(crediting) the following:
Gain on sale of property, plant and equipment (220) (820)Gain on exchange differences (1,605) (180)Depreciation on property, plant and equipment 190,363 71,117Employee costs 222,521 176,645Directors' emoluments 42,980 29,822Auditors remuneration* 18,000 14,500Interest on bank loans 479,621 31,942
The auditors did not provide any non-audit services to the Company during the year.
11. Finance income
Interest income 27,278 23,983
12. Finance costs
Interest on intragroup loan 243,005 -Interest on bank loans 236,616 31,942
479,621 31,942
38
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements31-Mar-18 31-Mar-17
N. '000 N. '000
13. Taxation
Per profit or loss
Income tax charged -Education tax 1,265 3,119Capital gains tax - 2,826
Current tax expense 1,265 5,945Deferred taxation (53,464) 3,319
Net income tax expense as per profit or loss (52,199) 9,264
Corporation tax is calculated at 30% (2017: 30%) of the estimated taxable profit for the year while tertiary education tax iscalculated at 2% (2017: 2%) of the estimated assessable profit for the year.
Per statement of financial positionAt 1 April 17,824 7,330Charge for the year 1,265 5,945Minimum tax 9,223 7,375Payment during the yearCash (10,494) (2,826)
Current tax payable 17,818 17,824
Reconciliation of effective tax rate(Loss)/profit before tax (113,187) 405
Tax at the statutory corporation tax rate of 30% (33,956) 122Effect of income that is exempt from taxation (5,429) -Effect of expenses that are not deductible in determining taxable profit 38,011 3,506Effect of investment allowance (41,560) (3,451)Tertiary education tax at 2% (2,264) 3,119Adjustments recognized in the current period in relation to the deferred tax ofprior periods
(7,001) 3,142
Adjustments recognized in the current period in relation to income, capital gainsand education tax of prior years
- 2,826
Income tax expense recognized in profit or loss (52,199) 9,264
Effective tax rate (B/A above) %46 %2,287
Minimum tax
The Company has been assessed for tax on minimum tax basis as there was no assessable profit as at year end.
14. Deferred tax assets
Analysis of deferred tax (assets)/liabilities
2018
Deferred tax (assets)/liabilities in relation to:
At 1 April
N'000
Recognisedin profit or
loss
N'000
Recognised inother
comprehensiveincome
N'000
At 31 March
N'000Property, plant and equipment 122,167 (98,669) - 23,498Unused tax losses (27,730) 19,044 - (8,686)Exchange difference (26,144) 26,658 - 514Retirement benefits (35,326) 4,985 (2,037) (32,378)Provisions for bad debt (53,612) (570) - (54,182)Provisions for obsolete inventories (16,070) (4,912) - (20,982)
(36,715) (53,464) (2,037) (92,216)
39
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
14. Deferred tax assets (continued)31 March, 2017
Deferred tax (assets)/liabilities in relation to:
At 1 April
N'000
Recognisedin profit or
loss
N'000
Recognised inother
comprehensiveincome
N'000
At 31 March
N'000Property, plant and equipment 146,953 (24,786) - 122,167Tax losses (75,661) 47,931 - (27,730)Exchange difference (24,693) (1,451) - (26,144)Retirement benefit (34,064) (3,352) 2,090 (35,326)Provisions for bad debt (34,902) (18,710) - (53,612)Provisions for obsolete inventories (19,757) 3,687 - (16,070)
(42,124) 3,319 2,090 (36,715)
31-Mar-18 31-Mar-17N. '000 N. '000
Movement in Deferred tax credit/(charge)
Beginning of the year 36,715 42,124(Credit)/charge for the year recognised in profit or loss 53,464 (3,319)
Charge/(Credit) to other comprehensive income 2,037 (2,090)
End of the year 92,216 36,715
Assets Liabilities NetDeferred taxassets areattributable tothe following:
31 March,2018
31 March,2017
31 March,2018
31 March,2017
31 March,2018
31 March,2017
Property, plantand equipment
- - 23,498 122,167 23,498 122,167
Tax losses (8,686) (27,730) - - (8,686) (27,730)Exchangedifference
- (26,144) 514 - 514 (26,144)
Retirement benefit (32,378) (35,326) - - (32,378) (35,326)Provisions for baddebt
(54,182) (53,612) - - (54,182) (53,612)
Provisions forobsoleteinventories
(20,982) (16,070) - - (20,982) (16,070)
(116,228) (158,882) 24,012 122,167 (92,216) (36,715)
The directors have recognised a deferred tax asset of N92 million relating to deductible temporary differences and unusedtax losses available for utilization against future taxable profits. Management assessment of the recoverability of thedeferred tax asset is based on approved forecast which reflects improved trading performance arising from introduction ofnew products and strengthening of the sales and distribution channels of the Company by partnering with the sales team ofthe parent company, Flour Mills of Nigeria PLC.
40
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
15. Property, plant and equipment
Land andbuilding
Plant andmachinery
Furniture andequipment
Motorvehicles
Capital work-in-progress
Total
N.'000 N.'000 N.'000 N.'000 N.'000 N.'000CostBalance at 1 April 2016 111,765 1,229,703 85,389 331,923 13,661 1,772,441Additions - 39,409 1,500 1,200 1,421,408 1,463,517Disposals - - - (8,973) - (8,973)Reclassification - 75,637 - - (75,637) -Write-off - - - (18,379) - (18,379)
Balance at 31 March 2017 111,765 1,344,749 86,889 305,771 1,359,432 3,208,606
Balance at 1 April 2016 111,765 1,344,749 86,889 305,771 1,359,432 3,208,606Additions - - 282 4,038 291,997 296,317Disposal - - - (1,617) - (1,617)Transfer - 1,399,995 - - (1,399,995) -Reclassification 14,649 (14,649) - - - -Write-off - - - - (5,196) (5,196)
Balance at 31 March 2018 126,414 2,730,095 87,171 308,192 246,238 3,498,110
Accumulated depreciationBalance at 1 April 2016 42,095 720,805 75,138 317,870 - 1,155,908Charge for the year 2,197 54,297 3,381 11,242 - 71,117Disposals - - - (8,973) - (8,973)Transfer (216) 4,670 - (4,454) - -Write-off - - - (18,379) - (18,379)
Balance at 31 March 2017 44,076 779,772 78,519 297,306 - 1,199,673
Balance at 1 April 2016 44,076 779,772 78,519 297,306 - 1,199,673Charge for the year 2,647 181,115 416 6,185 - 190,363Disposals - - - (1,617) - (1,617)
Balance at 31 March 2018 46,723 960,887 78,935 301,874 - 1,388,419
Carrying amount
Balance as at 31 March 2018 79,691 1,769,208 8,236 6,318 246,238 2,109,691
Balance as at 31 March 2017 67,689 564,977 8,370 8,465 1,359,432 2,008,933
All Capital work in progress relates to the installation of certain items of plant and machinery.
Impairment losses recognised in the year
One of the Company's milling lines (The D-Mill plant) which was previously idle has been upgraded and put to use to enable themilling of sorghum which the Directors have projected to be a major source of revenue in the next financial year.
No impairment loss has been recognised in the current year (2017: Nil))
Capital commitments
At 31 March 2018, the company had no capital commitments for the acquisition of property, plant and equipment (2017: Nil).
Pledged as security
There is a negative pledge over the Company's property, plant and equipment given in relation to one of the Company'sborrowing (2017: Nil).
41
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements31-Mar-18 31-Mar-17
N. '000 N. '000
16. Inventories
Raw materials 2,501,002 1,066,659Finished goods 57,956 92,076Maintenance spares and consumables 180,363 262,252
2,739,321 1,420,987Inventories (write-downs) (65,569) (53,569)
2,673,752 1,367,418
The cost of inventories recognised as an expense (raw material consumed) during the year was N.1.67 billion (2017: N. 684.6million).
17. Trade and other receivables
Trade receivables 252,453 156,719Amount due from related companies (Note 32) 355,899 429,486Staff debtors 7,384 19,088Impairment loss (169,322) (178,708)
446,414 426,585Unclaimed dividends receivables from registrar 13,062 10,848
459,476 437,433
Before accepting a new customer, the Company initially trades with the customer on a cash basis to assess the customer’scredit worthiness and also determine the customer’s transaction volumes. This enables a reasonable credit limit to be set.Once these are determined, the customer is then allowed to apply for a credit facility from the Company through a rigorousprocess with several levels of approval.
Credit sales form a small portion of overall sales. The concentration of credit risk is limited due to this fact and the large andunrelated customer base. The Company has pledged no trade receivables during the year. 73% of the carrying amount oftrade and other receivables are due from Flour Mills of Nigeria, while 18% was from third parties.
Fair value of trade and other receivables
The carrying amount of these assets approximate their fair value based on management assessment that the impact ofdiscounting is insignificant due to their current nature.
Movement in impairment of trade and other receivables during the year
31-Mar-18 31-Mar-17N'000 N'000
Opening balance 178,708 116,339Allowance for impairment - 62,369Amounts recovered during the year (9,386) -
169,322 178,708
In determining the recoverability of the trade receivables, management considers any change in the credit quality of the tradereceivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is high because theparent company, Flour Mills of Nigeria Plc is a major customer of the Company. However, the Company has not suffered anyloss on amounts due from the parent company in the past. Accordingly, the directors believe that there is no further impairmentrequired in excess of the allowance for doubtful debts already recognised.
The Company does not hold any collateral or other credit enhancements to cover its credit risks associated with its tradereceivables.
42
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements31-Mar-18 31-Mar-17
N. '000 N. '000
18. Prepayments
Prepaid rent & rates 19,070 6,624Prepayments -Insurance premium - 8,019Other prepaid expenses 1,183 2,363
20,253 17,006
19. Investment
Investment represents a portion of unclaimed dividend which the Company has invested in treasury bills through an investmentmanager, in line with the requirements of the Securities and Exchange Commission that unpaid dividends be invested in aninterest bearing instrument with an Investment manager. This amount is restricted from use by the Company. The investment isfor 6 months with an interest rate of 14%.
20. Cash and cash equivalents
Cash and cash equivalents consist of:
Cash on hand 148 334Bank balances 534,138 469,605Short term investments 22,022 -
556,308 469,939
21. Share capital
Authorised200,000,000 (2017: 200,000,000) ordinary shares of 50 kobo each 100,000 100,000
Issued and fully paid share capital178,200,000 (2017: 178,200,000) ordinary shares of 50 kobo each 89,100 89,100Share premium 89,521 89,521
178,621 178,621
22. Borrowings
Unsecured borrowingsRelated party loan 1,004,515 2,423,606
Secured Borrowings at amortised costBank of Industry loan 1,616,559 -CBN RSSF loan 905,758 -
2,522,317 -
3,526,832 2,423,606
Analysed intoCurrent 2,465,130 2,423,606Non-current 1,061,702 -
3,526,832 2,423,606
Loan movementOpening balance 2,423,606 -Loans obtained 2,974,690 2,423,606Accrued interest 479,621 -Principal repayment (1,950,000) -Interest, monitoring and other fees (401,085) -
Closing balance 3,526,832 2,423,606
43
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
22. Borrowings (continued)
Details of Borrowings
During the year, the Company obtained loans from the Bank of Industry (BOI) and Central Bank of Nigeria (CBN) during theyear.
The terms of the loans are provided below;
31 March 2018 Currency Nominalinterest rate
Maturity Carryingamount
Face value
Bank of industry loan 1 Naira 10% 2024 734,730 968,000Bank of industry loan 2 Naira 12% 2021 881,830 1,000,000Real Sector SupportFacility
Naira 9% 2019 905,758 1,000,000
Intercompany loan Naira 18-21% Payable ondemand
1,004,514 1,004,514
3,526,832 3,972,514
The Bank of Industry (BOI) loans are secured by a Bank guarantee.
The Real Sector Support Facility (RSSF) loan is guaranteed by a negative pledge on the Company's assets.
The Bank of Industry (BOI) and the Real Sector Support Facility (RSSF) loans were obtained at below market interest ratesand were hence recorded at their fair value at inception using the appropriate market rate at date of draw down. Due to thenature of the lending and the providers, the benefit of the below market rate has been treated as government grants andincluded in deferred revenue (Note 25).
23. Retirement benefits
Defined benefit plan
The Company operates unfunded defined benefit plans for qualifying employees of the Company. Under the plans, theemployees are entitled to retirement benefits attainment of a retirement age of 60.
The obligation is independently determined at each year end by an external actuary. The most recent actuarial valuation ofthe present value of the defined benefit obligation was carried out at 31 March 2018 by Ernst & Young(FRC/2012/NAS/00000000738). The present value of the defined benefit obligation and the related current services costwere measured using the projected unit credit method.
Amounts recognised in the financial statements in respect of the defined benefit scheme are as follows:
31-Mar-18 31-Mar-17N. '000 N. '000
Carrying value
Present value of the defined benefit obligation 80,945 93,186
Movements for the year
Opening balance 93,186 90,908Benefits paid (38,706) (6,228)Actuarial loss/(gains)-change in assumptions 12,890 (25,373)Actuarial loss/(gains)-experience adjustment (6,525) 16,600Expense recognised in profit or loss 20,100 17,279
Closing balance 80,945 93,186
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
23. Retirement benefits (continued)
Expense recognised in profit or loss
Current service cost 5,272 5,514Interest cost 14,828 11,765
20,100 17,279
The expense for the year of N20.10 million is recognised in profit or loss as follows cost of sales: N9.40 million, selling anddistribution expenses: N0.59 million and administrative expenses: N10.11 million) (2017: N17.28 million (cost of sales:N8.08 million, selling and distribution expenses: N0.51 million and administrative expenses: N8.69 million). Actuarial gainsand losses of N6.37 million have been recognised in other comprehensive income net of tax.
Key assumptions used
Assumptions used on last valuation at 31 March, 2018.
Financial assumptions
31-Mar-18 31-Mar-17
Discount rates used %14 %16Expected increase in salaries %12 %15Average rate of inflation %12 %15Average duration of the plan (years) 9.02 8.89
Demographic assumptions
Mortality in serviceThe rates of mortality assumed for employees are the rates published in A67/70 Ultimate Tables published by the Instituteand Faculty of Actuaries in the UK.
Sample age Number of deaths in year out of 10,000 lives25 730 735 940 1445 26
Withdrawal from service
Age band RateLess than or equal to 30 2.50 %31 - 39 1.50 %40 - 44 1.00 %45 and above 0.00 %
Sensitivity analysis
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptionsconstant, would have affected the defined benefits obligation as shown below:
31-Mar-18 AccruedliabilityN '000
Base 80,945Discount rate +1%
-1%74,98087,653
Salary increase +1%-1%
83,73678,393
Mortality experience Age rated up by 1 yearAge rated down by 1 year
80,99880,897
45
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
23. Retirement benefits (continued)
Defined contribution plan
The employees of the Company are members of a government approved Pension scheme (Pension Reform Act, 2014) which ismanaged by several private sector service providers. The Company and employees are required to contribute 10% and 8%respectively of the employees basic salaries, housing and transport allowances to the retirement benefit scheme to fund thebenefits. The only obligation of the Company with respect to the retirement benefit plan is to make the specified contributions.
The total expense recognised in the Company's statement of profit or loss and other comprehensive income of N19.45 million(cost of sales:N1.59 million, selling and distribution expenses N7.86 million and administrative expenses: N10.00 million) (2017:N15.33 million (cost of sales: N1.25 million, selling and distribution expenses: N6.20 million and administrative expenses: N7.88million)) represents contributions payable to these plans by the Company at rates specified by the Act. The contribution yet tobe remitted as at the year end amounted to N14.40 million (2017: N5.73 million and is included in the trade and other payablesin Note 26. The movement in the pension payable account during the year was as follows:
31-Mar-18 31-Mar-17N. '000 N. '000
Movement in pension payableOpening balance 5,730 966Employee's contribution 8,644 6,278Employer's contribution 10,805 9,055Remittances (10,783) (10,569)
Closing balance (Note 26) 14,396 5,730
24. Long service awards
The Company operates a long service award scheme where employees are rewarded after a specific number of years inservice. Employees are entitled to the benefits after being in service for 10, 15, 20, 25, 30 and 35 years. The amounts anditems given are based on the number of years in service.
The most recent actuarial valuations of the present value of the defined benefit obligation were carried out by Ernst &Young. The present value of the defined benefit obligation, and the related current service cost and past service cost, weremeasured using the Projected Unit Credit Method.
The principal assumptions for the purpose of the actuarial valuations were as follows:
Valuation at
31-Mar-18 31-Mar-17% %
Discount Rate 14 16Salary increase 12 15Average rate of inflation (p.a.) 12 12Benefit escalation rate 6 6Average duration of the plan (years) 6.80 8.89
Movement in Long service award
At 1 April 24,566 22,638Additional provision recognised 5,343 4,539Benefits paid (3,093) (4,419)Actuarial (gains) / loss (6,581) 1,808
At 31 March 20,235 24,566
Amounts recognised in the statement of profit or loss respect of this defined benefit scheme are as follows:
46
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements31-Mar-18 31-Mar-17
N. '000 N. '000
24. Long service awards (continued)
Net (credit)/expense recognised in profit or loss
Current service cost 1,698 1,726Interest on obligation 3,645 2,813Actuarial (gain)/loss (6,581) 1,808
(1,238) 6,347
Sensitivity analysis
Base 20,235Discount rate +1%
-1%19,18321,394
Benefit Escalation Rate +1%-1%
21,32119,237
Mortality experience Age rated up by 1 yearAge rated down by 1 year
20,16120,302
31-Mar-18 31-Mar-17N. '000 N. '000
25. Deferred income
At 1 April - -Additions 465,494 -Release of deferred income from government grant (72,102) -
At 31 March 393,392 -
Non-current liabilities 206,183 -Current liabilities 187,209 -
393,392 -
The deferred income represents government grants arising from the benefit received from below-market-interest rategovernment assisted loans (BOI and RSSF loans) granted to date (Note 22). The income is recognised in profit or loss over thetenor of the loan on a systematic basis. See Notes 7 and 22.
26. Trade and other payables
Trade payables 335,667 132,739Statutory payables 81,253 1,593Amount due to related companies (Note 32) 136,796 215,714Accruals 45,664 75,790Minimum tax payables 9,223 -Other payables 27,442 22,514Pension payable (Note 23) 14,396 5,730Payroll related liabilities 28,609 175
679,050 454,255
The average credit period on purchases is 58 days. No interest is charged on trade payables. The Company have financial riskmanagement policies in place to ensure that all payables are paid within a reasonable time of the credit time frame.
47
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
26. Trade and other payables (continued)
31-Mar-18 31-Mar-17N. '000 N. '000
Changes in trade and other payables per statement of cash flowTrade payables as at 31 March 679,050 454,255Trade payables as at 1 April (454,255) (315,275)
224,795 138,980
Vat paid 94,644 34,885Effect of exchange differences 1,605 -
321,044 173,865
27. Dividend payable
Opening balance 24,980 24,980Unclaimed dividend written back after the statutory period of 12 years (918) -
24,062 24,980
28. Customer deposits
Advance payment by customers for goods to be supplied 1,043 59,449
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
29. Earnings per share
Basic earnings per share
Basic earnings per share is determined by dividing profit or loss attributable to the ordinary equity holders of the Company bythe weighted average number of ordinary shares outstanding during the year.
31-Mar-18 31-Mar-17N. '000 N. '000
Reconciliation of profit or loss for the year to earnings per shareProfit or loss for the year attributable to equity holders of the parent (60,988) (18,042)
Weighted average number of shares ('000) 178,200 178,200
Basic (loss) earnings per shareKobo per share (34.22) (10.12)
Diluted earnings per share
In the determination of diluted earnings per share, profit or loss attributable to the equity holders of the Company and theweighted average number of ordinary shares are adjusted for the effects of all dilutive potential ordinary shares.
Where there is a discontinued operation, diluted earnings per share is determined for both continuing and discontinuedoperations.
31-Mar-18 31-Mar-17N. '000 N. '000
Reconciliation of profit or loss for the year to earnings per shareProfit or loss for the year attributable to equity holders of the company (60,988) (18,042)
Weighted average number of shares ('000) 178,200 178,200
Diluted (loss) earnings per shareFrom continuing operations (kobo per share) (34.22) (10.12)
The Company has no potentially dilutive instruments as at year end
30. Employee information
30.1 Employee costs
Employee cost comprise:
Salaries, wages and other benefits 191,727 138,896Pensions 19,449 15,333Long service awards (net) (1,238) 6,347Gratuity 20,100 17,279
230,038 177,855
Total employee costs have been recognised in profit or loss as follows:Cost of sales 122,040 92,454Selling and distribution expenses 7,517 1,210Administrative expenses 100,481 84,191
230,038 177,855
49
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
30. Employee information (continued)
30.2 Number of employees
The number of persons employed as at year end was as follows:
31-Mar-18 31-Mar-17Number Number
Managerial 9 9Non-managerial staff 54 54
63 63
The number of employees in receipt of emoluments within the following ranges were:
=N= 31-Mar-18Number
31-Mar-17Number
500,001 - 1,000,000 33 471,000,001 - 1,500,000 17 81,500,001 - 2,000,000 4 -2,000,001 - 2,500,000 2 42,500,001 - 3,000,000 3 -3,000,001 - 3,500,000 1 1
Over 3,500,000 3 3
63 63
31. Major shareholders
According to the Register of Members, the following shareholders of the Company held more than 5% of the issued sharecapital of the Company.
Shareholders Number of shares Percentage holding (%)31-Mar-18 31-Mar-17 31-Mar-18 31-Mar-17
Flour Mills of Nigeria Plc 94,545,159 94,545,159 %53.06 %53.06Northern Nigeria Investment Limited 12,955,000 12,955,000 %7.27 %7.27Dantata Investment & Securities Limited 9,894,362 9,894,362 %5.55 %5.55
None of the Directors has notified the Company for the purpose of Section 277 of the Companies and Allied Matters Act ofNigeria, Cap C20 Laws of Federation of Nigeria 2004 of any declarable interest in contracts in which the Company is involvedas at 31 March 2018.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
32. Related parties
Flour Mills of Nigeria Plc is the ultimate parent company which owns 53% (2017: 53%) of Northern Nigeria Flour Mills Plc.
Nature of relationship EntitiesParent company Flour Mills of Nigeria PlcFellow subsidiaries: Apapa Bulk Terminal Limited
Golden Shipping Company Nigeria Agro Allied Farms Sunti LimitedGolden Sugar Company LimitedKaboji Farms LimitedPremier Feed Mills Company LimitedNigerian Eagle Flour Mills LimitedCrestview Towers LimitedOlympic Towers LimitedROM Oil Mills LimitedThai Farm International LimitedAgri Palm LimitedAgri Estates LimitedAgro Allied Farms Sunti LimitedAgro Allied Syrups LimitedSunti Golden Sugar EstatesBest Chickens LimitedGolden Agri Input Limited
Related party balances
The Company entered into various transactions with related parties ranging from purchase and sale of goods and services toexpenses incurred on behalf of each other. The outstanding amounts relate to the various transactions entered with the relatedparties.
31-Mar-18 31-Mar-17N. '000 N. '000
Amount due from related companiesFlour Mills of Nigeria Plc 333,141 429,486Premier Feed Mills Company Limited 18,560 -Apapa Bulk Terminal Limited 4,198 -
355,899 429,486
Amount due to related companiesFlour Mills of Nigeria Plc 19,495 168,352Golden Shipping Company Limited 14,043 14,043Apapa Bulk Terminal Limited 30,064 33,319Golden Agri Input Limited 73,194 -
136,796 215,714
Loans from related partyFlour Mills of Nigeria Plc (Note 22) 1,004,515 2,423,606
Flour Mills of Nigeria PLC, settled some long outstanding obligations on behalf of the Company, this was converted to a loanand forms part of the outstanding loan payable to Flour Mills PLC at year end (Note 22).
Related party transactions
The following transactions were carried out with related parties during the year:
Purchases and services from related partiesFlour Mills of Nigeria Plc. 340,863 71,403Golden Agri Input Limited 2,664,498 -Apapa Bulk Terminal Limited - 26,994
3,005,361 98,397
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements31-Mar-18 31-Mar-17
N. '000 N. '000
32. Related parties (continued)
Sale and services to related partiesFlour Mills of Nigeria Plc 1,005,605 404,530Premier Feed Mills Company Limited 154,120 -Eastern Premier Feed Mills Limited 208,140 69,368
1,367,865 473,898
Included in sales and services to Flour Mills of Nigeria Plc is an amount of N715 million representing fees charged for localgrain milling services provided to FMN during the year.
Compensation to directors and other key managementShort-term benefits 45,997 27,803Post-employment benefits - Pension - Defined contribution plan 335 -Termination benefits 35,810 -
82,142 27,803
The remuneration of directors during the year was as follows:
31-Mar-18 31-Mar-17N'000 N'000
Fees-Chairman - 100-Other Directors 12,790 630Salaries, allowances and expenses-Executive Directors 7,688 9,210-Other Directors 22,502 16,086
42,980 26,026
33. Directors' emoluments
The remuneration of directors and key executives is determined by the Remuneration Committee having regard to theperformance of individuals and market trends.
Number of Directors (excluding chairman and highest paid directors) whose emoluments were within the following ranges:
Range ( N.) Number Number1 - 5,000,000 9 95,000,001 - 20,000,000 2 2
- -
11 11
Emolument of highest paid director
Highest paid director 22,502 16,086
The Chairman did not receive any remuneration during the year.
52
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
34. Classification and fair values of financial assets
Financial instruments are classified into the following category:
2018
Loans andreceivables
Total
Trade and other receivables 459,476 459,476Cash and cash equivalents 556,308 556,308Investments 5,943 5,943
1,021,727 1,021,727
2017
Loans andreceivables
Total
Trade and other receivables 437,433 437,433Cash and cash equivalents 469,939 469,939
907,372 907,372
35. Classification of financial liabilities
Financial instruments are classified into the following category:
2018
Other financialliabilities
Total
Loans and borrowings 3,526,832 3,526,832Trade and other payables (excluding statutory deductions) 554,792 554,792
4,081,624 4,081,624
2017
Other financialliabilities
Total
Loans and borrowings 2,423,606 2,423,606Trade and other payables (excluding statutory deductions) 446,757 446,757
2,870,363 2,870,363
36. Risk management
Capital risk management
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern inorder to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure toreduce the cost of capital.
The Company manages its capital through the optimisation of the net to debt equity ratio. The overall strategy remainsunchanged from the previous year.
The capital structure of the Company consists of debt, which includes the borrowings disclosed in notes 22, cash and cashequivalents disclosed in note 20, and equity as disclosed in the statement of financial position.
The management of the Company reviews the capital structure on a frequent basis to ensure that gearing is within acceptablelimit.
The Company is not subject to any externally imposed capital requirements.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
36. Risk management (continued)
The gearing ratio at 2018 and 2017 respectively were as follows:
31-Mar-18 31-Mar-17N. '000 N. '000
Total borrowings 3,526,832 2,423,606Less: Cash and cash equivalents 20 556,308 469,939
Net debt 2,970,524 1,953,667Total equity 1,174,262 1,239,578
Total capital 4,144,786 3,193,245
Gearing ratio 2.53 : 1 1.58 : 1
Financial risk management
Risk management roles and responsibilities are assigned to stakeholders in the company at three levels: The board, executiveand line managers.
The Board oversight is performed by the Board of Directors through Board Risk and Ethics Committee.
The second level is performed by the Executive Management Committee (EXCOM).
The third level is performed by all line managers under EXCOM and their direct reports. They are required to comply with allrisk management policies and procedures and to manage risk exposures that arise from daily operations.
The Internal Audit Department provides an independent assurance of the risk frame work. They assess compliance withestablished controls and recommendations for improvement in processes are escalated to relevant management, AuditCommittee and Board of Directors.
The company monitors and manages financial risks relating to its operations through internal risk report which analysesexposures by degree and magnitude of risks. These risks include market risk (including currency risk ), credit risk and liquidityrisk.
Market risk
Market risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in marketprice such as interest rate, exchange rates and other prices.
The company's activities expose it primarily to market risk comprising mainly of foreign currency exchange rates, interest rateand commodity price risks.
Market risk exposures are measured using sensitivity analysis.
There has been no change to the company's exposure to market risks or the manner in which these risks are managed andmeasured.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
36. Risk management (continued)
Foreign exchange risk
The Company is mainly exposed to fluctuation in the exchange rate of the American Dollar (USD).
Effective closing rate as at 31 March 2018 is N360/ US Dollar (2017: 400/ US Dollar). Average rate for the year is N360/ USDollar (2017: N440/ US Dollar).
The following table details the Company's sensitivity to a 10%, increase and decrease in the value of Naira against USD.Management believes that a 10% movement in either direction is reasonably possible at the balance sheet date. The sensitivityanalysis below include outstanding balances of USD denominated assets and liabilities. A positive number indicates anincrease in profit where Naira strengthens by 10% against the USD. For a 10% weakening of Naira against the USD therewould be an equal and opposite impact on profit, and the balances below would be negative.
Foreign currency exposure at the end of the reporting period
31-Mar-18 31-Mar-17USD USD
Cash and bank balance 879 275Trade payables (41,871) -
Net exposure (40,992) 275
Sensitivity analysis
31-Mar-18 31-Mar-17Profit/ (loss) after tax
N. '000 N. '000
Naira strengthens by 10% against the USD 1,475 11
Naira weakens by 10% against the USD (1,475) (11)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to the changes inmarket interest rates. The Company maintains a centralised treasury department and Group borrowing is done in order toobtain lower interest rates. The Company negotiates long term credit facilities and obtains subsidised loans from theGovernment in order to reduce the risk associated with high cost of borrowing and also takes advantage of the Central Bank ofNigeria intervention funds and grants from the Federal Government at below market rate in order to mitigate this risk.
At the reporting date, the interest rate profile of the company's interest bearing instruments was as follows:
Carrying amountIn thousands of Naira 2018 2017
Fixed rate instrumentsFinancial liabilities 2,522,317 -
Variable rate instrumentsFinancial liabilities 1,004,515 2,423,606
The sensitivity analysis below have been determined based on the exposure to interest rates for borrowings at the end of thereporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the endof the reporting period was outstanding for the whole year.
55
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
36. Risk management (continued)
If NIBOR had been 1000 basis points (i.e. 10%) higher/lower and all other variables were held constant, the Company's profit orloss will be affected as follows:
31-Mar-18 31-Mar-17Profit/(loss) after taxN. '000 N. '000
If NIBOR is 1000 BP lower:Borrowings 100,451 242,361
If NIBOR is 1000 BP higher:Borrowings (100,451) (242,361)
Price risk
The Company is further exposed to commodity price risk. The risk arises from the Company’s need to buy specific quantitiesand qualities of raw materials to meet its milling requirements. These raw materials include wheat. The risk is partly mitigatedby buying these raw materials 3 months in advance of use. This is based on management past experience with pricemovements.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to theCompany. The Company has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the riskof financial loss from defaults. Credit exposure is controlled by counterparty limits that are reviewed and approved by theexecutive committee periodically.
Trade receivables consist of a large number of customers. Ongoing credit evaluation is performed on the financial condition ofcounterparties to assess recoverability of amount due. See Note 17.
The carrying value of the Company's financial assets represents its maximum exposure to credit risk. The maximum exposureto credit risk at the reporting date by type of counterparty was:
31-Mar-18 31-Mar-17Bank balances 534,138 469,605Trade receivables - third party 252,453 156,719Trade receivables - related party 355,899 429,486Trade receivables - staff debtors 7,384 19,088Investments in treasury bills 5,943 -
1,155,817 1,074,898
The amount of cash and cash equivalents and investments disclosed in the table above represents the Company's maximumcredit exposure on these assets. These financial assets are held with banks and financial institution counterparties, which arereputable and have a sound financial position.
The aging of trade and other receivables is as follows:
Trade and other receivables neither past due nor impaired0-30 days 746 463Trade and other receivables past due but not impaired31-60 days 26,055 16,17561-180 days 55,989 34,757181-365 days 341 212Trade receivables impairedPast due and impaired 169,322 105,112
252,453 156,719
The Company believes that the unimpaired amounts that are past due are still collectible based on historcal payment behaviourand extensive analysis of the underlying customers' credit ratings. Based in historic default rates, the Company believes thatapart from the above, no impairment allowance is necessary in respect of trade receivables not past due by up to 30 days.
56
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
36. Risk management (continued)
Collateral held as security and other credit enhancements
The company does not hold any collateral or other credit enhancements to cover its credit risks associated with its financialassets. The Company mitigates its credit risk exposure of its bank balances by selecting and transacting with reputablefinancial institutions and a history of strong financial performance.
Liquidity risk
Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities thatare settled by delivering cash or another financial asset.
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriateliquidity risk management framework for the management of the company’s short-, medium- and long-term funding and liquiditymanagement requirements. The company manages liquidity risk by maintaining adequate cash reserves, banking facilities andreserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles offinancial assets and liabilities.
Maturity analysis of financial liabilities
The following tables details the company’s remaining contractual maturity for its non-derivative financial liabilities with agreedrepayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on theearliest date on which the company can be required to pay. The table includes both interest and principal cash flows.
At 31 March 2018 Carryingamount
Contractualcash flows
0-1 month 1-3 months 3 months-1 year
1-5 years Above5 years
N.'000 N.'000 N.'000 N.'000 N.'000 N.'000 N.'000Borrowings 3,526,832 4,630,716 89,921 112,520 2,446,176 1,747,810 234,289Trade and other payables(excluding statutorydeductions)
554,792 554,792 - 554,792 - - -
4,081,624 5,185,508 89,921 667,312 2,446,176 1,747,810 234,289
At 31 March 2017 Carryingamount
Contractualcash flows
0-1 month 1-3 months 3 months-1 year
1-5 years Above5 years
At 31 March 2017 N.'000 N.'000 N.'000 N.'000 N.'000 N.'000 N.'000Borrowings 2,423,606 2,423,606 - - 2,423,606 - -Trade and other payables(excluding statutorydeductions)
446,757 449,559 - 449,559 - - -
2,870,363 2,873,165 - 449,559 2,423,606 - -
37. Fair value information
The following table shows the carrying amount and fair values of financial assets and liabilities, including their levels in the fairvalue hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value ifthe carrying amount is a reasonable approximation of fair value.
57
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
37. Fair value information (continued)
Carrying amount Fair value31 March 2018In thousands of Naira Note Loans and
receivablesOther
financialliabilites
Total Level 1 Level 2 Level 3 Total
Financial assets not measured at fair valueTrade and other receivables 17 459,476 - 459,476 - - - -Cash and cash equivalents 20 556,308 - 556,308 - - - -Investment 5,943 - 5,943 - - - -
1,021,727 - 1,021,727 - - - -
Financial liabilities not measured at fair valueSecured borrowings 22 - (2,522,317) (2,522,317) - (2,522,317) - (2,522,317)Unsecured borrowings 22 - (1,004,515) (1,004,515) - - - -Trade and other payables (excluding statutory taxes) - (596,319) (596,319) - - - -
- (4,123,151) (4,123,151) - (2,522,317) - (2,522,317)
Carrying amount Fair value31 March 2017In thousands of Naira Note Loans and
receivablesOther
financialliabilites
Total Level 1 Level 2 Level 3 Total
Financial assets not measured at fair valueTrade and other receivables 17 437,433 - 437,433 - - - -Cash and cash equivalents 20 469,939 - 469,939 - - - -
907,372 - 907,372 - - - -
Financial liabilities not measured at fair valueUnsecured borrowings 22 - (2,423,606) (2,423,606) - (2,423,606) - (2,423,606)Trade and other payables (excluding statutory payables) - (452,998) (452,998) - - - -
- (2,876,604) (2,876,604) - (2,423,606) - (2,423,606)
Discounted cash flow valuation technique has been used to determine the fair value of the secured bank loans and shareholder's loans. The valuation model considers the present value ofexpected cash flows discounted using market related interest rates. The future cash flows are based on contractual amounts and considers the probability of occurrence of the cash flows.There are no significant unobservable inputs. The fair values were determined on the same basis in prior year and there have been no transfers between levels during the year.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
37. Fair value information (continued)
Measurement of fair values
Financial instruments in level 1
The fair value of financial instruments traded in active markets (quoted equity) is based on quoted market prices at thereporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer,broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurringmarket transactions on an arm’s length basis.
The quoted market price used for financial assets held by the Company is the bid price at the reporting date. Theseinstruments are included in level 1. There were no transfers between levels during the year.
Financial instruments in level 2
The fair value of financial instruments that are not traded in an active market (loans and borrowings) is determined by usingdiscounted cash flow valuation techniques. This valuation technique maximize the use of observable market data by usingthe market related interest rate for discounting the contractual cash flows. There are no significant unobservable inputs.There were no transfers between levels during the year. The basis of measurement has remained the same betweencurrent and prior years.
The fair value of future and forward exchange contracts is determined using quoted forward exchange rates at the reportingdate and present value calculations based on high credit quality yield curves in the respective currencies.
Financial instruments in level 3
The valuation model is based on market multiples derived from quoted prices of companies comparable to the investee andthe expected revenue and EBITDA of the investee. The estimate is adjusted for the effect of non-marketability of the equitysecurities.
Financial instruments not measured at fair value
The valuation model considers the present value of expected payment, discounted using a risk-adjusted discount rate.
There was no reclassification between fair value levels during the year.
38. Contingencies
The company has no contingent liability arising from pending or ongoing litigation at the year end.
39. Commitments
Financial commitments
The directors are of the opinion that all known liabilities and commitments which are relevant in assessing the company's stateof affairs have been taken into consideration in the preparation of these financial statements.
40. Going concern
The Company recorded a loss after tax of N61.0million for the year ended 31 March 2018 (2017: N16.2million). The Companyhas been making losses since the year ended 31 March 2016 following the significant decline in the Company’s operations inthe same year. In addition to this, the Company generated a negative operating cash flow in during these years.
The Company has made further investments in current year by refurbishing one of the major milling lines to enable the millingand sales of its own sorghum and wheat based products. This is to commence in 2019 financial year. The Directors have alsoplanned to strengthen the sales and distribution channels of the Company to cover more geographical locations within thenorthern part of the Country by partnering with the sales team of the parent company, Flour Mills of Nigeria Plc.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
40. Going concern (continued)
The parent company has decided to use the Company as a local grain milling hub for the group. As part of this arrangement,the Company mills locally produced wheat for the parent company for which a fee is payable to the Company. Managementexpects the fee from the arrangement to be an additional source of revenue for the Company. The parent company, Flour Millsof Nigeria Plc, has also confirmed that it will continue to provide financial and other support necessary for the Company tocontinue to settle its liabilities and realize its assets in the normal course of business.
On the basis of the foregoing, the directors believe it is appropriate to prepare the financial statements on the basis ofaccounting policies applicable to a going concern.
41. Events after the reporting period
There are no significant events after the reporting date which could have had a material effect on the financial position and theloss for the year ended on that date, which have not been adequately provided for or disclosed in the Company's financialstatements.
42. Changes in presentation and correction of prior period errors
The following tables summarise the reclassifications arising from change in the presentation on the statement of profit orloss and other comprehensive income. The changes have been made by restating the affected financial statements lineitems for prior periods. The changes were made in order to achieve fairer presentation. Further details are shown below:
As reported in2017 financial
year
Reclassifcation/re-presentation
As presented in2017
comparativeNotes N. '000 N. '000 N. '000
Statement of Profit or Loss and Other ComprehensiveincomeRevenue (a) 940,521 390,015 1,330,536Cost of sales (b) (967,784) (25,288) (993,072)
Gross profit (27,263) 364,727 337,464
Net operating gains and losses (c) 429,984 (429,984) -Other income (d) (64,703) 105,672 40,969Selling and distribution (50,086) - (50,086)Administrative expenses (e) (279,568) (42,223) (321,791)
Operating profit 8,364 (1,808) 6,556Finance income 23,983 - 23,983Finance costs (31,942) - (31,942)Minimum tax (f) - (7,375) (7,375)
(Loss)/profit before taxation 405 (9,183) (8,778)Taxation (f) (16,639) 7,375 (9,264)
(16,234) (1,808) -
Other Comprehensive IncomeRemeasurements on net defined benefit liability (g) 4,875 3,898 8,773Related tax (g) - (2,090) (2,090)Impact on Other comprehensive income 4,875 1,808 6,683
Total comprehensive income (11,359) - (11,359)
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Notes to the Financial Statements
42. Changes in presentation and correction of prior period errors (continued)
NOTES
CHANGES IN PRESENTATION
a Contract milling fee previously presented as part of net operating gains and losses has now been reclassified to revenue.
b Inventory write down previously presented as part of other gains and losses has now been reclassified to cost of sales
c Net operating gains and losses (which included the contract milling fee, sale of scraps ) is no longer presented andhas been reclassified as indicated in note a and d
d Prior year other gains and losses (other income) was previously presented as a net amount. In current year, however, comparative other income now includes only gross non-operational income.
e. Shared service costs previously presented as part of other income has now been reclassified to administrative expenses.
f. Minimum tax has been previously presented as part of taxation. This has now been shown separately in the profit or loss.
g. Remeasurements on net defined benefit liability was previously presented net of tax in the profit or loss but now shown as a gross amount together with the related taxes to reflect the tax portion. Also lactuarial movements on long service awards previously presented as part of other comprehensive income has now been reclassified to profit or loss under administrative expenses
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Other national disclosures
Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Value Added Statement31-Mar-18 31-Mar-17
N. '000 % N. '000 %
VALUE ADDED
Turnover: Local 2,861,752 1,330,536Export - -
Interest received 27,278 23,983Other income 90,522 40,969
Bought - in materials and services: - Local (2,183,494) (1,114,169) - Foreign - -
Total Value Added 796,058 100 279,511 100
DISTIBUTION OF VALUE ADDED
To Pay EmployeesSalaries, wages, medical and other benefits 230,038 177,855
230,038 29 177,855 64
To Pay Providers of CapitalFinance costs 479,621 31,942Dividend paid - -
479,621 60 31,942 11
To Pay GovernmentIncome tax 9,223 10,201Education tax 1,265 3,119
10,488 1 13,320 5
To be retained in the business for expansion and future wealthcreation:
Depreciation, amortisation and impairments 190,363 71,117Restructuring - -Deferred tax (53,464) 3,319To deplete reserves (60,988) (18,042)
75,911 10 56,394 20
Total Value Distributed 796,058 100 279,511 100
Value added represents the additional wealth which the company has been able to create by its own and employees efforts.
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Northern Nigeria Flour Mills PlcAnnual Report for the year ended 31 March 2018
Five Year Financial Summary31-Mar-18 31-Mar-17 31-Mar-16 31-Mar-15 31-Mar-14
N. '000 N. '000 N. '000 N. '000 N. '000
Statement of Financial Position
AssetsNon-current assets 2,201,907 2,045,648 658,657 734,721 689,689Current assets 3,715,732 2,291,796 1,081,103 1,688,990 2,576,926
Total assets 5,917,639 4,337,444 1,739,760 2,423,711 3,266,615
LiabilitiesNon-current liabilities 1,369,065 117,752 113,546 343,908 304,989Current liabilities 3,374,312 2,980,114 375,277 599,740 1,187,714
Total liabilities 4,743,377 3,097,866 488,823 943,648 1,492,703
EquityShare capital 89,100 89,100 89,100 89,100 89,100Share premium 89,521 89,521 89,521 89,521 89,521Retained earnings 995,641 1,060,957 1,072,316 1,301,442 1,595,291
Total equity 1,174,262 1,239,578 1,250,937 1,480,063 1,773,912
Total equity and liabilities 5,917,639 4,337,444 1,739,760 2,423,711 3,266,615
Profit and loss account
Revenue 2,861,752 1,330,536 979,038 10,529,075 11,392,017
(Loss) / profit before taxation (103,964) (1,403) (233,071) (215,430) 341,800
(Loss) / profit for the year (60,988) (18,042) (197,240) (199,558) 233,545
Other comprehensive income/(loss) net oftaxes
(4,328) 6,683 21,574 (23,011) 5,930
Per share data
Earnings per share (Basic) (34) (10) (111) (112) 131Earnings per share (Diluted) (34) (10) (111) (112) 131Net assets per share 659 696 702 831 995
Loss/earnings per share are based on loss/profit after tax and the number of issued and fully paid ordinary shares at theend of each financial year.
Net assets per share is based on the net assets and the number of issued and fully paid ordinary shares at the end of eachfinancial year.
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