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Fujairah Cement Industries Company (Public Shareholding Company) Fujairah - United Arab Emirates Independent auditors' report and financial statements For the year ended December 31, 2013 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Independent auditors' report and financial statements For the year ended December 31, 2013 Table of contents Pages General information Independent auditors' report 1 2&3 Statement of financial position 4 Statement of profit or loss 5 Statement of other comprehensive income 6 Statement of changes in shareholders' equity 7 Statement of cash flows 8 Notes to the financial statements 9 - 31 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates General information Head Office Address : P. O. Box: 600 Fujairah - United Arab Emirates T: +971 9 222 3111 F: +971 9 222 7718 Email: hofci79@fciho.ae Factory Address : P.O. Box: 11477 Fujairah - United Arab Emirates T: +971 9 244 4011 F: +971 9 244 4016 Email: fujcem82@emirates.net.ae Website : www.fujairahcement.com The Auditors : Horwath Mak P. O. Box: 1650 Fujairah - United Arab Emirates 1 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Statement of changes in shareholders' equity for the year ended December 31, 2013 (In Arab Emirates Dirhams) Share capital Balance as at January 1, 2012 355,865,320 Profit for the year - Transferred to statutory reserve Transferred to voluntary reserve - Balance as at December 31, 2012 355,865,320 (Loss) for the year - Balance as at December 31, 2013 355,865,320 The accompanying notes form an integral part of these financial statements. The report of the auditors is set out on pages 2 and 3. 7 Statutory reserve 138,982,458 - Voluntary reserve 216,207,106 - 3,516,053 - 6,328,896 142,498,511 222,536,002 142,498,511 222,536,002 Retained earnings Total shareholders' equity 191,583,025 902,637,909 35,160,533 35,160,533 (3,516,053) (6,328,896) - 216,898,609 937,798,442 (12,190,025) (12,190,025) 204,708,584 925,608,417 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Statement of cash flows for the year ended December 31, 2013 (In Arab Emirates Dirhams) 2013 Cash flows from operating activities (Loss)/profit for the year Adjustments for: Depreciation on property, plant and equipment Allowance for slow-moving spare parts Amortization of extraction and concession rights Provision for employees' end of service benefits Operating profit before changes in operating assets and liabilities 2012 (12,190,025) 35,160,533 48,731,886 1,000,000 4,693,828 1,513,378 43,749,067 48,404,146 1,000,000 4,693,828 258,434 89,516,941 58,799,464 (44,485,263) (348,919) (59,293,099) 8,970,475 (108,101) (33,042,165) 24,672,184 38,886,404 77,972,620 (817,841) 23,854,343 (1,088,332) 76,884,288 Cash flows from investing activities Acquisition of property, plant and equipment Net cash (used in) investing activities (17,086,756) (17,086,756) (5,366,993) (5,366,993) Cash flows from financing activities (Repayment) of term loans Proceeds/(repayment) of bank borrowings, net (Repayment) of finance lease liability Dividends paid Net cash (used in) financing activities Net (decrease) in cash and cash equivalents (45,284,943) 60,239,713 (27,405,720) (14,890) (12,465,840) (5,698,253) (48,584,589) (23,307,452) (13,702,860) (1,160,704) (86,755,605) (15,238,310) 18,451,836 12,753,583 33,690,146 18,451,836 65,352 12,688,231 12,753,583 145,639 11,306,197 7,000,000 18,451,836 (Increase) / decrease in current assets Inventories Trade receivables Advances, deposits and other receivables Increase / (decrease) in current liabilities Trade and other payables Cash generated from operations Employees' end-of-service benefits paid Net cash from operating activities Cash and cash equivalents, beginning of the year Cash and cash equivalents, end of the year Represented by: Cash in hand Bank balances - current accounts Short-term fixed deposits The accompanying notes form an integral part of these financial statements. The report of the auditors is set out on pages 2 and 3. 8 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 1 Legal status and business activities 1.1 1.2 The principal activities of the Entity are unchanged since the previous year and include the manufacturing of cement and erecting, operating and managing the required stores and silos necessary for this purpose, formation or participation in the formation of industrial companies and other similar activities. 1.3 The registered address of the Entity is P.O. Box: 600, Fujairah - United Arab Emirates. 1.4 2 M/s. Fujairah Cement Industries Company P.S.C. (the \"Entity\") is a public shareholding company in the Emirate of Fujairah - United Arab Emirates established on December 20, 1979. The Entity's ordinary shares are listed on the Abu Dhabi Securities Exchange and Kuwait Stock Exchange. These financial statements incorporate the operating results of the Industrial license no. 80001. Application of new and revised International Financial Reporting Standards (IFRS) 2.1 New and revised IFRSs applied with no material effect on the financial statements The following new and revised IFRSs have been adopted in these financial statements. The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements. IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosures of Interest in Other Entities IFRS 13 Fair Value Measurement IAS 27 Separate Financial Statements (revised 2011) IAS 28 Investments in Associates and Joint Ventures (revised 2011) IFRIC 20 Stripping Costs in the Production of a Surface Mine 2.2 New and revised IFRSs that have been issued and are effective for periods after January 1, 2013 but not early adopted The Entity has not adopted the following new and revised IFRSs that have been issued. New and revised IFRSs Effective for annual periods beginning on or after Amendments to IAS 32 Financial Instruments: Presentation relating to application guidance on the offsetting of financial assets and financial liabilities. These amendments clarify the meaning of \"currently has a legally enforceable right to set-off\" and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. January 1, 2014 Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of interest in Other Entities and IAS 27 Separate Financial Statements (as amended in 2011), provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. Changes have also been made IFRS 12 to introduce disclosures that and investment entity needs to make. January 1, 2014 Amendments to IAS 36 Impairment of assets , addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposals. January 1, 2014 Amendments to IAS 39 Financial Instruments: Recognition and MeasurementNovation of derivatives and continue of hedge accounting, provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument to a central counter party meets certain criteria. January 1, 2014 9 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 2 Application of new and revised International Financial Reporting Standards (IFRS) (continued) 2.2 New and revised IFRSs that have been issued and are effective for periods after January 1, 2013 but not early adopted (continued) New and revised IFRSs Effective for annual periods beginning on or after IFRS 9 Financial Instruments is the first standard issued as part of a wider project to replace IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The basis of classification depends on the Entity's business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. January 1, 2015 z IFRIC 21, 'Levies', clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. January 1, 2014 Management anticipates that the adoption of these Standards and Interpretations will have no material impact on the financial statements of the Entity in the period of initial application. 3 Significant accounting policies 3.1 Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations. These financial statements are presented in Arab Emirates Dirham (AED), which is the Entity's functional and presentation currency. 3.2 Basis of preparation These financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets or goods or services. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed after significant accounting policies. The principal accounting policies applied in the financial statements are set out below. 3.3 Current/ Non-current classification The Entity presents assets and liabilities in the statement of financial position based on currenton-current classification. An asset is current when it is: Expected to be realised or intended to sold or consumed in normal operating cycle or held primarily for the purpose of trading or expected to be realised within twelve months after the reporting period, or cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when: It is expected to be settled in normal operating cycle or it is held primarily for the purpose of trading or it is due to be settled within twelve months after the reporting period, or there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Entity classifies all other liabilities as non-current. 10 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 3 Significant accounting policies (continued) 3.4 Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Entity. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 inputs are quoted price (unadjusted) in active market for identical asset or liabilities that the entity can access at the measurement date, Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly, and Level 3 inputs are unobservable inputs for the asset or liability. 3.5 Foreign currency In preparing the financial statements of the Entity, transactions in currencies other than the Entity's functional currency are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognised in profit or loss in the period in which they arise. Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on nonmonetary financial assets, such as equities classified as available-for-sale, are included in other comprehensive income. 3.6 Property, plant and equipment Land is stated at cost. Other property, plant and equipment are stated at cost less accumulated depreciation and identified impairment loss, if any. The cost comprise of purchase price, together with any incidental expense of acquisition. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Entity and the cost of the item can be measured reliably. All other repairs and maintenance expenses are charged to profit or loss during the financial period in which they are incurred. 11 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 3 Significant accounting policies (continued) 3.6 Property, plant and equipment (continued) Depreciation is charged so as to write off the cost of property, plant and equipment (other than land and capital workin-progress), using the straight-line method over their useful lives as follows: Years Buildings 8 to 35 Plant and machinery 6 to 35 Furniture and fixtures 4 Vehicles and mobile plant 4 Tools and equipment 4 Quarry development costs 6 to 20 The buildings and leasehold improvements are being depreciated over the period from when these became available for use up to the end of the lease term. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Capital work in progress Properties in the course of construction for production, supply or administrative purposes or for purposes not yet determined are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Entity's accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. 3.7 Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. 3.8 Derecognition of intangible assets An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and carrying amount of the asset, are recognised in profit or loss. 3.9 Impairment of tangible assets and intangible assets At the end of each reporting period, the Entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. 12 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 3 Significant accounting policies (continued) 3.9 Impairment of tangible assets and intangible assets (continued) If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cashgenerating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. 3.10 Financial instruments Financial assets and financial liabilities are recognised when the Entity becomes a party to the contractual provisions of the instrument. 3.11 Financial assets Financial assets are classified into the following specified categories: 'financial assets at fair value through profit or loss', 'held-to-maturity investments', 'available-for-sale' financial assets and 'loans and receivables'. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Entity's loans and receivables comprise "trade receivables", "advances, deposits and other receivables" and "cash and cash equivalents" in the statement of financial position. Trade receivables, advances, deposits and other receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost reduced by appropriate allowance for estimated doubtful debts. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Impairment of financial assets Assets carried at amortised cost The Entity assesses at the end of each reporting period, whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are recognized only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. 13 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 3 Significant accounting policies (continued) 3.11 Financial assets (continued) Impairment of financial assets (continued) Assets carried at amortised cost (continued) Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The Entity may measure impairment on the basis of an instrument's fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in profit or loss. Derecognition of financial assets The Entity derecognises a financial asset only when the contractual rights to the cash flows from the asset expire or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another Entity. If the Entity neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Entity recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Entity retains substantially all the risks and rewards of ownership of a transferred financial asset, the Entity continues to recognise the financial asset. 3.12 Financial liabilities and equity Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trades payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.Trade and other payables are recognised initially at fair value and subsequently are measured at amortised cost using effective interest method. Loans and borrowings Borrowings are recorded at the proceeds received, net of direct issue costs, if any. Finance charges are accounted on accrual basis and are added to the carrying value of the instruments to the extent that they are not settled in the period in which they arise. Share capital Equity instruments are recorded at the proceeds received, net of direct issue costs. Dividends to shareholders Dividends to shareholders are recorded as payable in the period in which such dividends are approved by the shareholders. 14 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 3 Significant accounting policies (continued) 3.12 Financial liabilities and equity (continued) Derecognition of financial liabilities The Entity derecognises financial liabilities when, and only when, the Entity's obligations are discharged, cancelled or they expire. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss. 3.13 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. 3.14 Inventories Inventory of raw materials are valued of the lower of first-in-first-out cost or net realizable value. Inventories of finished goods and semi-finished goods are valued at the lower of average production cost or net realizable value. Production costs include materials, labour, direct expenses and production overheads. Inventories of spare parts are valued at the lower of weighted average cost or net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale. 3.15 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Where applicable, investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 3.16 Provisions Provisions are recognised when the Entity has a present obligation (legal or constructive) as a result of a past event, it is probable that the Entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 3.17 Defined contribution plan U.A.E. national employees of the Entity are members of the Government-managed retirement pension and social security benefit scheme pursuant to U.A.E. labour law no. 7 of 1999. The Entity is required to contribute 12.5% of the "contribution calculation salary" of payroll costs to the retirement benefit scheme to fund the benefits. The employees and the Government contribute 5% and 2.5% of the "contribution calculation salary" respectively, to the scheme. The only obligation of the Entity with respect to the retirement pension and social security scheme is to make the specified contributions. The contributions are charged to profit or loss. 15 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 3 Significant accounting policies (continued) 3.18 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Sale of goods Revenue from the sale of goods is recognised when all the following conditions are satisfied: the Entity has transferred to the buyer the significant risks and rewards of ownership of the goods; the Entity 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 Entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Specifically, revenue from the sale of goods is recognised when goods are delivered and legal title is passed. 3.19 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are initially recognised as assets of the Entity at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Entity's general policy on borrowing costs. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 3.20 Critical accounting judgements and key sources of estimation uncertainty In the application of the Entity's accounting policies, which are described in policy notes, the management is required to make judgements, assumptions and estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The significant judgments, assumptions and estimates made by management, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. 16 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 3 Significant accounting policies (continued) 3.20 Critical accounting judgements and key sources of estimation uncertainty (continued) Critical accounting judgements Revenue recognition In recognising revenue, management is of the view that in line with the requirement of IAS 18 Revenue, the risk and reward of ownership is transferred to the buyers of the goods and services and that revenue is reduced for the estimated returns, rebate and other allowances (if any). Equity instruments Management has reviewed the equity instruments disclosed in the financial statements, in the light of its capital requirements to maintain the current level of business. Management confirms the Entity's positive intention and ability to continue the equity instruments on a long term basis. Related parties Management has disclosed the related parties and the related due from and to related parties as per the requirements of IAS 24, Related Party Disclosures. In view of due from and to related parties being receivable and payable on demand and management's intention to realise or pay the related parties as and when necessarily required, the disclosed balances are classified as current assets and current liabilities. Key sources of estimation uncertainty Allowance for doubtful debts Allowances for doubtful debts are determined using a combination of factors to ensure that trade receivables are not overstated due to uncollectibility. The allowance for doubtful debts for all customers is based on a variety of factors, including the overall quality and ageing of receivables, continuing credit evaluation of the customer's financial conditions and collateral requirements from customers in certain circumstances. In addition, specific allowances for individual accounts are recorded when the Entity becomes aware of the customer's inability to meet financial obligations. Inventories Inventories are stated at the lower of cost or net realizable value. Adjustments to reduce the cost of inventory to its realizable value, if required, are made for estimated obsolescence or impaired balances. Factors influencing these adjustments include changes in demand, product pricing, physical deterioration and quality issues. Based on the factors, management has identified certain inventory items to calculate the allowance for slow-moving inventories. Revisions to the allowance would be required if the outcome of these indicative factors differ from the estimates. Property, plant and equipment Property, plant and equipment are depreciated over their estimated useful lives, which are based on expected usage of the assets and expected physical wear and tear which depends on operational factors. Management has not considered any residual value as it is deemed immaterial. Amortisation Extraction rights are being amortised over extraction rights period upto December 31, 2016 and concession rights are being amortised over 10 years as estimated by management. Leasehold improvements Management determines the estimated useful life and related depreciation charges for its leasehold improvements. This estimate is based on an assumption that the Entity will renew its annual lease over the estimated useful life of the asset. It could change significantly should the annual lease not be renewed. Management will increase the depreciation charge where the useful life is less than the previously estimated useful life. 17 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 3 Significant accounting policies (continued) 3.20 Critical accounting judgements and key sources of estimation uncertainty (continued) Key sources of estimation uncertainty (continued) Operating lease expenses Lease payments under operating lease have been recognised as an expense on a straight-line basis over the lease rental period after considering the rent escalation as per the rent agreements. The rent charge could significantly change in subsequent accounting periods should the lease contract not be renewed or there be change in lease terms of the contract. Fair value measurement For the purpose of fair value disclosures, the Entity has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The Entity uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The Entity has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values and reports directly to the Directors or Shareholders. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If the third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value heirarchy in which such valuations should be classified. 18 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 4 Property, plant and equipment Land and buildings Cost As at December 31, 2011 Addition during the year Transferred from capital work-inprogress 119,198,630 - Plant and machinery 1,786,768,738 3,146,401 Furniture and fixtures Vehicles and mobile plant 2,319,353 37,360 - 25,097,839 - Tools and Quarry Capital equipment development costs work-in-progress 10,985,776 163,501 - 30,918,672 - 1,380,143 2,019,731 (2,014,758) Total 1,976,669,151 5,366,993 950,000 1,064,758 As at December 31, 2012 Addition during the year 120,148,630 - 1,790,979,897 16,800,273 2,356,713 44,217 25,097,839 4,500 11,149,277 89,771 30,918,672 - 1,385,116 147,995 1,982,036,144 17,086,756 As at December 31, 2013 120,148,630 1,807,780,170 2,400,930 25,102,339 11,239,048 30,918,672 1,533,111 1,999,122,900 Accumulated depreciation As at December 31, 2011 Charge for the year 13,212,437 3,215,889 585,352,186 43,859,241 2,099,854 95,950 24,726,841 214,275 10,614,176 239,918 17,693,556 778,873 - 653,699,050 48,404,146 As at December 31, 2012 Charge for the year 16,428,326 3,247,555 629,211,427 44,339,619 2,195,804 88,011 24,941,116 111,325 10,854,094 166,503 18,472,429 778,873 - 702,103,196 48,731,886 As at December 31, 2013 19,675,881 673,551,046 2,283,815 25,052,441 11,020,597 19,251,302 - 750,835,082 Carrying value as at December 31, 2013 100,472,749 1,134,229,124 117,115 49,898 218,451 11,667,370 1,533,111 1,248,287,818 Carrying value as at December 31, 2012 103,720,304 1,161,768,470 160,909 156,723 295,183 12,446,243 1,385,116 1,279,932,948 Notes: - Part of the Entity's property, plant and equipment is erected on land leased from the Government of Fujairah. - Capital work-in-progress mainly represents the costs incurred for the additions to plant & machinery, pending capitalization. - Property, plant and equipment having a carrying value of AED 140,353,813 (2012: AED 144,660,426) are mortgaged to banks against finance lease liability (note 16). - Cost of fully depreciated property, plant and equipment that was still in use, at the end of the reporting period, amounted to AED 36,729,652 (December 31, 2012: AED 35,877,260). 19 - Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 2013 5 2012 7,481,461 9,900,000 17,381,461 9,975,289 12,100,000 22,075,289 Extraction and concession rights The carrying values are as follows: Extraction rights Concession rights Extraction rights Concession rights Total Cost As at December 31, 2011 As at December 31, 2012 As at December 31, 2013 76,500,000 76,500,000 76,500,000 22,000,000 22,000,000 22,000,000 98,500,000 98,500,000 98,500,000 Accumulated amortisation As at December 31, 2011 Amortisation As at December 31, 2012 Amortisation As at December 31, 2013 64,030,883 2,493,828 66,524,711 2,493,828 69,018,539 7,700,000 2,200,000 9,900,000 2,200,000 12,100,000 71,730,883 4,693,828 76,424,711 4,693,828 81,118,539 As at December 31, 2013 7,481,461 9,900,000 17,381,461 As at December 31, 2012 9,975,289 12,100,000 22,075,289 Carrying value: Extraction rights Extraction rights are being amortized over the extraction rights period granted to the Entity and ending on December 31, 2016. Concession rights Concession rights are being amortised over a period of 10 years as estimated by the management. 2013 6 2012 32,161,535 64,219,850 2,032,209 98,413,594 33,778,773 76,029,112 3,014,594 112,822,479 140,521,919 72,836,354 732,131 (20,000,000) 194,090,404 292,503,998 142,412,569 115,562,548 505,866 (19,000,000) 239,480,983 352,303,462 19,000,000 1,000,000 20,000,000 18,000,000 1,000,000 19,000,000 Inventories Raw materials Semi-finished products Finished products (a) Spare parts Burning media Bags and packing materials Less: Allowance for slow-moving spare parts (b) (a)+(b) Allowance for slow-moving inventories Movement in allowance for slow-moving spare parts is as follows: Balance at the beginning of the year Charge during the year Balance at the end of the year 20 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 2013 7 2012 Trade receivables Trade receivables Less: Allowance for doubtful debts 143,995,863 (2,306,755) 141,689,108 73,683,305 68,005,803 141,689,108 Analysis of trade receivables: Secured against unconditional bank guarantees Open credit 99,510,600 (2,306,755) 97,203,845 54,538,540 42,665,305 97,203,845 The average credit period for the trade receivables is 90 days (2012: 64 days). No interest is usually charged on trade receivables balances in the normal course of business. At the end of the reporting period, AED 24.4 million (2012: AED 22.7 million) is due from the Entity's largest customer. There are 6 (2012: 4) other customers who represent individually more than 5% of the total trade receivables. Before accepting a new customer, the Entity normally obtains a bank guarantee from a potential customer. Included in the Entity's trade receivables are debtors with a carrying amount of AED 8.1 million (2012: AED 10.1 million) which are past due. Of this amount, AED 7.6 million (2012: AED 9.4 million) is fully secured by bank guarantees. In determining the recoverability of a trade receivable, the Entity considers any change in the credit quality of the trade receivable from the date credit was initially granted upto the reporting date. Since, the overdue trade receivables are secured against bank guarantees, the management believes that no further allowance is required for doubtful debts. Geographical analysis The geographical analysis of receivables is as follows: Within U.A.E. Outside U.A.E. : G.C.C. 97,203,845 252,650 8,018,129 118,492 8,389,271 211,430 7,675,309 153,613 8,040,352 65,352 12,688,231 12,753,583 145,639 11,306,197 7,000,000 18,451,836 Advances, deposits and other receivables Prepayments Advances to suppliers Other receivables 9 83,857,854 13,345,991 141,689,108 8 100,796,331 40,892,777 Cash and bank balances Cash in hand Bank balances - current accounts Short-term fixed deposits Maturity dates of short-term fixed deposits range from 1 to 3 months from the date of placement. Bank balances and fixed deposits are maintained with banks registered in the United Arab Emirates. 21 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 2013 10 2012 Share capital Number of ordinary shares 355,865,320 355,865,320 Nominal value per ordinary share (AED) 1 1 Issued and fully paid-up share capital (AED) 355,865,320 355,865,320 (Loss)/profit for the year (AED) (12,190,025) 35,160,533 Weighted average number of shares 11 (Nos.) (Nos.) 355,865,320 355,865,320 Basic (loss)/earnings per share (Loss)/earnings per share 12 (U.A.E. Fils) (3.4) 9.9 Statutory reserve Balance at the beginning of the year Add: Transferred from profit for the year (note 14) Balance at the end of the year 142,498,511 142,498,511 138,982,458 3,516,053 142,498,511 In accordance with United Arab Emirates Federal Commercial Companies Law No. 8 of 1984 (as amended), the Entity has established a statutory reserve by appropriation of 10% of the profit for each year. The shareholders' general assembly may stop appropriations to the statutory reserve once its balance reaches 50% of the paid-up share capital. This reserve is not available for distribution except in the circumstances stipulated by law. 13 Voluntary reserve Balance at the beginning of the year Add: Transferred from profit for the year (note 14) Balance at the end of the year 222,536,002 222,536,002 216,207,106 6,328,896 222,536,002 Appropriation to the voluntary reserve account is at 20% of the annual profit after deducting the appropriation to statutory reserve. This appropriation includes 10% to the voluntary reserve and the balance to establish an additional reserve as proposed by the Board of Directors and approved by the shareholders' general assembly. This reserve is distributable, when approved by a shareholders' resolution, based on the recommendation of the Board of Directors. 14 Retained earnings Balance at the beginning of the year Add: (Loss)/profit for the year Less: Transferred to statutory reserve (note 12) Less: Transferred to voluntary reserve (note 13) Balance at the end of the year 15 216,898,609 (12,190,025) 204,708,584 191,583,025 35,160,533 (3,516,053) (6,328,896) 216,898,609 303,922,784 (45,284,943) 258,637,841 352,507,373 (48,584,589) 303,922,784 217,638,613 40,999,228 258,637,841 258,637,841 45,284,943 303,922,784 Bank borrowings (a) Term loans Balance at the beginning of the year Less: (Repaid) during the year Balance at the end of the year Comprising: Non-current portion Current portion 22 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 2013 15 2012 257,209,270 1,428,571 258,637,841 296,779,926 7,142,858 303,922,784 Bank borrowings (continued) (a) Term loans (continued) Break-up of term loans Term loan 1 Term loan 2 Term loan 1 During 2006, the Entity obtained this loan from an overseas bank to partly finance the cost of constructing a new clinker production line with a capacity of 7,500 metric tonnes per day. Repayment of AED 336,350,584, as rescheduled during 2010, is in seventeen semi-annual installments of AED 19,785,328 commenced on February 15, 2012 and ending on February 15, 2020. Interest, accrued on monthly basis, is paid separately on the due dates. Term loan 2 During 2010, the Entity obtained this loan from a bank operating in United Arab Emirates for AED 20 million to finance the purchase of plant and machinery. Repayment of the loan is in fourteen equal quarterly installments of AED 1,428,571 each, commenced on December 1, 2010 and ending on February 28, 2014. Interest, accrued on monthly basis, is paid separately on the due dates. (b) Due to bank Trust receipts Bills discounted Acceptances 178,402,693 13,827,523 65,380,835 257,611,051 151,691,849 12,452,278 33,227,211 197,371,338 Trust receipts Trust receipts are a form of bank credit facility granted against the purchase of certain raw materials. Interest on trust receipts are calculated for the duration of the repayment period and collected by the financing bank on monthly basis or at maturity, whichever is applicable. Bank borrowings - non-current portion Non-current portion of term loans are to be repaid as follows: In the second year In the third to fifth year Payable after five years Term loans (refer a) 39,570,657 118,711,970 59,355,986 217,638,613 40,999,228 118,711,970 98,926,643 258,637,841 40,999,228 257,611,051 298,610,279 45,284,943 197,371,338 242,656,281 516,248,892 501,294,122 Bank borrowings - current portion Term loans Due to bank (refer a) (refer b) Total bank borrowings 23 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 16 Finance lease liability The Entity entered into a sale and lease back arrangement with a bank operating in the United Arab Emirates to finance the thermal power plant. Lease term is 5 years with semi-annual payments of AED 13,702,860 commenced from August 1, 2012 and ending on August 1, 2017. Finance charge, based on 6 months EIBOR plus margin of 4.5% per annum, accrued on monthly basis, is paid separately on the due dates. The payments due under leasing arrangements are as follows: Minimum lease payments 2013 2012 Present value of minimum lease payments 2013 2012 Due within one year 35,412,575 35,818,003 27,405,720 27,405,720 Due in the second year through fifth year Non-current liability 93,433,774 93,433,774 125,562,015 125,562,015 82,217,161 82,217,161 109,622,881 109,622,881 128,846,349 (19,223,468) 109,622,881 161,380,018 (24,351,417) 137,028,601 109,622,881 109,622,881 137,028,601 137,028,601 2013 137,028,601 (27,405,720) 109,622,881 2012 150,731,461 (13,702,860) 137,028,601 82,217,161 27,405,720 109,622,881 109,622,881 27,405,720 137,028,601 Total Less: Future finance costs Movement in finance lease liability is as follows: Balance at the beginning of the year Less: (Repaid) during the year Balance at the end of the year Comprising: Non-current portion Current portion Finance lease liability is secured by mortgage over property, plant and equipment (note 4). 17 Employees' end of service benefits Balance at the beginning of the year Add: Charge for the year Less: (Paid) during the year Balance at the end of the year 11,840,362 1,513,378 (817,841) 12,535,899 12,670,260 258,434 (1,088,332) 11,840,362 Amounts required to cover end of service benefits at the statement of financial position date are computed pursuant to the applicable Labour Law based on the employees' accumulated period of service and current basic remuneration at that date. 18 Trade and other payables Trade payable Retention payable Dividends payable Advance received from customers Accruals Interest payable Other payables 107,961,202 1,914,911 4,458,991 7,336,129 27,597,275 5,870,682 1,849,960 156,989,150 24 138,378,114 2,914,911 4,473,881 12,174,826 21,268,694 7,074,531 3,761,248 190,046,205 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) For the year ended December 31, 2013 2012 19 Sales Sales : Within U.A.E. : Outside U.A.E. : GCC : Outside U.A.E. : Others 20 242,777,230 331,984,088 13,459,022 588,220,340 1,353,031 228,281 96,377 65,762 1,743,451 21 22 3,071,914 1,000,000 765,537 435,762 442,263 379,142 373,674 265,736 251,721 65,920 583,561 7,635,230 14,913,314 15,208,576 21,571 166,407 650,590 608,560 1,447,128 General and administrative expenses Salaries and related benefits Allowance for slow-moving spare parts (note 6) Legal, visa, professional and related expenses Rent Utilities Telephone and communication Insurance Travelling and entertainment Repairs and maintenance Printing and stationery Exchange loss Others 1,689,817 560,294 109,410 67,410 2,426,931 4,971,230 1,000,000 961,671 351,641 425,146 335,235 298,277 224,041 265,228 48,355 26,572 395,178 9,302,574 Selling and distribution expenses Salaries and related benefits Vehicle expenses Advertisement and business promotion Others 258,911,313 310,746,997 569,658,310 2,798,925 414,314 241,434 813,660 4,268,333 Finance costs Interest on bank borrowings 23 24 Other income Insurance claim received Gain on currency exchange Sale of scrap materials Reversal of provision Others Operating lease commitments Cement and clinker plants, buildings and thermal power plant are erected on land leased from Fujairah Municipality for which lease rents are payable. Management considers these lease arrangements as non-cancellable. Future commitments under the operating leases fall due as follows: 2013 9,097,619 39,061,093 290,810,545 338,969,257 Within one year More than 1 year and less than 5 years More than 5 years 25 2012 8,898,592 38,274,547 286,116,522 333,289,661 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 25 Related party transactions The Entity enters into transactions with other entities that fall within the definition of a related party as contained in IAS 24 Related Party Disclosures. Such transactions are in the normal course of business and at terms that correspond to those on normal arms-length transactions with third parties. Related parties comprise entities under common ownership and/or common management and control, their partners and key management personnel. Management decides on the terms and conditions of the transactions and services received/rendered from/to related parties as well as other charges, if applicable. 2013 1,846,478 Portion of above balance covered by bank guarantees 935,167 270,950 a) Balances due from related parties (included in trade receivables) 2012 187,425 No expense has been recognised for bad and doubtful debts on receivable from related parties. b) Transactions with related parties The nature of significant related party transactions and the amounts involved were as follows: For the year ended December 31, 2013 2012 Sales 5,107,103 4,614,219 1,580,390 1,793,123 c) Key management personnel compensation The compensation of key management personnel is as follows: Key management remuneration 26 Financial instruments a) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in note 3 to the financial statements. b) Fair value of financial assets and financial liabilities that are not measured at fair value on recurring basis As at December 31, 2013 2012 Financial assets Trade receivables Advances, deposits and other receivables Cash and bank balances Carrying amount As at December 31, 2013 2012 Fair value 141,689,108 118,492 12,753,583 154,561,183 97,203,845 153,613 18,451,836 115,809,294 141,689,108 118,492 12,753,583 154,561,183 97,203,845 153,613 18,451,836 115,809,294 516,248,892 109,622,881 149,653,021 775,524,794 501,294,122 137,028,601 177,871,379 816,194,102 516,248,892 109,622,881 149,653,021 775,524,794 501,294,122 137,028,601 177,871,379 816,194,102 Financial liabilities Bank borrowings Finance lease liability Trade and other payables 26 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 26 Financial instruments (continued) b) Fair value of financial assets and financial liabilities that are not measured at fair value on recurring basis (continued) Financial instruments comprise of financial assets and financial liabilities. Financial assets consist of trade receivables, advances, deposits and other receivables and cash and bank balances. Financial liabilities consist of bank borrowings, finance lease liability and trade and other payables. The fair values of financial assets and liabilities approximate their carrying amounts, as at the reporting date, largely due to short-term maturities of these instruments. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties. The following methods and assumptions were used to estimate the fair values: Long-term fixed-rate and variable-rate borrowings or receivables are evaluated by the Entity based on parameters such as interest rates, individual creditworthiness of the customer. Based on this evaluation, allowances are taken into account for the expected losses of these receivables. As at the end of the reporting period, the carrying amounts of such receivables, net of allowances, were not materially different from their calculated fair values. The fair value of loans from banks and other financial liabilities, obligations under finance leases, as well as other noncurrent financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. 27 Financial risk management objectives Management has set out the Entity's overall business strategies and its risk management philosophy. The Entity's overall financial risk management program seeks to minimize potential adverse effects on the financial performance of the Entity. The Entity's policies include financial risk management policies covering specific areas, such as market risk (including foreign exchange risk and interest rate risk), liquidity risk and credit risk. Periodic reviews are undertaken to ensure that the Entity's policy guidelines are complied with. There has been no change to the Entity's exposure to these financial risks or the manner in which it manages and measures the risk. The Entity is exposed to the following risks related to financial instruments. The Entity has not framed formal risk management policies, however, the risks are monitored by management on a continuous basis. The Entity does not enter into or trade in financial instruments, investment in securities, including derivative financial instruments, for speculative or risk management purposes. a) Foreign currency risk management Exposures to exchange rate fluctuations arise as the Entity undertakes certain transactions denominated in foreign currencies. There are no significant exchange rate risks, as substantially all financial assets and financial liabilities are denominated in Arab Emirates Dirhams, other G.C.C. currencies or United States Dollars to which the Arab Emirates Dirhams is fixed. Management undertakes suitable procedures to minimize risks associated with transactions denominated in currencies other than Arab Emirates Dirhams and United States Dollars. b) Interest rate risk management The Entity's exposure to the risk of changes in market interest rates relates primarily to the Entity's borrowings with floating interest rates. The Entity's policy is to manage its interest cost using a mix of fixed and variable rate debts. Interest on financial instruments having floating rates is re-priced at intervals of less than one year and interest on financial instruments having fixed rate is fixed until the maturity of the instrument. 27 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 27 Financial risk management objectives (continued) b) Interest rate risk management (continued) Interest rate sensitivity analysis The sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments at the reporting date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the reporting date was outstanding for the whole year. A 50 basis point increase or decrease is used for reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonable possible change in interest rates. If interest rates had been 50 basis points higher/(lower) and all other variables were held constant, the financial result for the current year ended would increase/(decrease) by AED 3,129,359 (2012: AED 3,191,614). c) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the management which has built an appropriate liquidity risk management framework for the management of the Entity's short, medium and long-term funding and liquidity management requirements. The Entity manages liquidity risk by maintaining adequate reserves, continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Entity's objective is to maintain a balance between continuity of funding and flexibility through the use of bank borrowings and shareholders' equity. Liquidity and interest risk tables The table on the following page summarises the maturity profile of the Entity's financial instruments. The contractual maturities of the financial instruments have been determined on the basis of the remaining period at the end of the reporting period to the contractual maturity date. The maturity profile is monitored by the management to ensure adequate liquidity is maintained. The maturity profile of the financial assets and financial liabilities at the end of the reporting period, based on contractual repayment arrangements, is also shown on the following page: 28 Fujairah Cement Industries Company P.S.C. Fujairah - United Arab Emirates Notes to the financial statements for the year ended December 31, 2013 (In Arab Emirates Dirhams) 27 Financial risk management objectives (continued) c) Liquidity risk management (continued) Liquidity and interest risk tables (continued) Interest bearing Particulars On demand or less than 3 months Non-Interest bearing On Within 1 More than 1 demand or year year less than 3 months Within 1 year Mor