SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A, AS AMENDED

ANNUAL REPORT PURSUANT TO SECTION 17

OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended May 31, 2018

2. SEC Identification Number A200013157 3.BIR Tax Identification No. 208-052-307-000

4. Exact name of issuer as specified in its charter SL Agritech Corporation

5. Makati City, Philippines 6. 0111,5190 (SEC Use Only)

Province, Country or other Industry Classification Code:
jurisdiction of incorporation or
organization

7. Sterling Place Building, 2302 Pasong Tamo Extension, Makati City

Address of principal office Postal Code

8. (02) 813-7828
Issuer's telephone number, including area code

9. N/A
Former name, former address, and former fiscal year, if changed since last
report.

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8
of the RSA

Title of Each Class Number of Shares of Common Stock

Outstanding and Amount of Debt
Outstanding

Common 1,160,000,001
Short Term Commercial Paper 2,000,000,000

11. Are any or all of these securities listed on a Stock Exchange.

Yes [ x ] No [ ]

If yes, state the name of such stock exchange and the classes of securities listed
therein:
Philippine Dealing Exchange Short Term Commercial Paper

12. Check whether the issuer:

February 2001
 (a) has filed all reports required to be filed by Section 17 of the SRC and SRC
Rule 17.1 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder,
and Sections 26 and 141 of The Corporation Code of the Philippines during the
preceding twelve (12) months (or for such shorter period that the registrant was
required to file such reports);

Yes [x] No [ ]

(b) has been subject to such filing requirements for the past ninety (90) days.

Yes [x] No [ ]

13. State the aggregate market value of the voting stock held by non-affiliates of the
registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within sixty (60) days prior to the date of filing. If a
determination as to whether a particular person or entity is an affiliate cannot be
made without involving unreasonable effort and expense, the aggregate market
value of the common stock held by non-affiliates may be calculated on the basis
of assumptions reasonable under the circumstances, provided the assumptions
are set forth in this Form. (See definition of "affiliate" in “Annex B”).

APPLICABLE ONLY TO ISSUERS INVOLVED IN

INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:

14. Check whether the issuer has filed all documents and reports required to be filed
by Section 17 of the Code subsequent to the distribution of securities under a
plan confirmed by a court or the Commission.

Yes [ ] No [ x ]

DOCUMENTS INCORPORATED BY REFERENCE

15. If any of the following documents are incorporated by reference, briefly describe
them and identify the part of SEC Form 17-A into which the document is
incorporated:

(a) Any annual report to security holders;

(b) Any information statement filed pursuant to SRC Rule 20;

(c) Any prospectus filed pursuant to SRC Rule 8.1.

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February 2001
 SIGNATURES

Pursuant to the requirements of Section 17 of the Code and Section 141 of the
Corporation Code, this report is signed on behalf of the issuer by the undersigned,
thereunto duly authorized, in the City of
________________________on__________, 20__.

By:

DR. HENRY LIM BON LIONG GERRY LIM BON HIONG

Principal Executive Officer Comptroller

____________________________ GERRY LIM BON HIONG

Principal Operating Officer Principal Accounting Officer

GERRY LIM BON HIONG CHRISTINE BASE

Principal Financial Officer Corporate Secretary

SUBSCRIBED AND SWORN to before me this _____ day of _________

20__ affiant(s) exhibiting to me his/their Residence Certificates, as follows:

NAMES RES. CERT. NO. DATE OF ISSUE PLACE OF ISSUE

_______________ _______________ _______________ _______________

______________________
Notary Public

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February 2001
 PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

THE COMPANY OVERVIEW

The Company, registered with the SEC on September 11, 2000, is engaged in the
production of hybrid rice seeds and buys and sells rice grains. It also conducts
research and development for the production of aromatic super hybrid rice. The rice
grains are marketed to domestic channels under the following brands: Dona Maria,
Cherry Blossom, and Willy Farms.

The Company maintains production hubs in three strategic locations: Nueva Ecija,
Laguna, and Davao. These locations enable the Company to market its products
through dealers and distributors situated across the Philippines. The Company also
caters to foreign markets and exports a fraction of its production volume to countries
such as Bangladesh, Vietnam, Myanmar, India and Indonesia. For the fiscal year
ending May 31, 2018, 2017 and 2016, the percentage to total sale contributed by
sales to Asian countries is 1.00%,1.00% and 3.00% respectively, while sales to the
rest of the world is negligible.

The Company was granted by the BOI non-pioneer status for its hybrid rice
production in Nueva Ecija in March 2015 and pioneer status for its seeds production
in Lupon, Davao Oriental in February 2009. The Company’s main activities are
covered under the Investment Priority Plan of the BOI and thereby granted
incentives. The hybrid seed production in Lupon, Davao Oriental is a registered as a
pioneer producer of hybrid rice seed with an annual capacity of 33.2 million tons,
while the rice processing plant in Talavera, Nueva Ecija is registered as a new
producer of milled hybrid rice with an annual capacity of 29,225 metric tons. As a
BOI-registered company, the Company is entitled to certain benefits including
Income Tax Holiday for a period of five (5) years from the date of registration with an
extension of two (2) years. The Company further avails of BOI benefits under the l
aw as result of the additions and expansion of its production facilities.

Since 2010, the Company has been certified as implementing a quality management
system that conforms to ISO 9001:2008. This certification supports the Company’s
ability to provide quality products that meet customer and applicable statutory and
regulatory requirements. The Company has already renewed its certification last
April 12, 2016 which will expire on September, 2018.

HISTORY

The Company initially began its operations as a non-registered entity that conducted
research on the development of hybrid rice seeds in 1998. The Chairman and
President of the Company, Mr. Henry Lim Bon Liong, took inspiration from China’s
accomplishments in the production of hybrid rice. In 1997, China was already the
top producer and net exporter of rice, despite initially having food shortage problems
after the Second World War. The demand for rice in the Philippines has always

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February 2001
been greater than its domestic supply, which compels the Government to import rice.
The Lim family considered entering into the hybrid rice market, as this specific breed
of rice generates high crop yield and could potentially alleviate the Philippines’ rice
shortage problem.

Mr. Henry Lim Bon Liong sought the expertise of Professor Yuan Longping, a
Chinese agricultural scientist and educator considered to be the “Father of Hybrid
Rice” in China, as he is known for developing the first hybrid rice variety in China in
1973.

Under the tutelage of Professor Yuan Longping, Henry Lim Bon Liong engaged
Professor Zhang Zhaodong, to test the viability of the Chinese hybrid rice in the
Philippines. The performance of the Chinese varieties under Philippine conditions
was poor, due to the differing weather conditions between the two countries. A new
variety, one that that would adapt to the tropical climate and land conditions of the
Philippines, would have to be developed locally. In October 1999, Henry Lim Bon
Liong and Professor Zhang Zhaodong began developing several parental lines in a
parcel of land leased from the provincial government of Laguna. Shortly after, Henry
Lim Bon Liong procured a 40 hectare property in Barangay Oogong, Santa Cruz,
Laguna and built a research and development facility especially dedicated to the
production of hybrid rice.

On September 11, 2000, SL Agritech Corporation was officially registered with the
Securities and Exchange Commission with the primary objective of cultivating and
growing rice seeds, palay, corn, and other agricultural grains. The Company
conducts research and development activities for the production of aromatic hybrid
rice and cereals. Two months after its registration, the Company discovered that it
had successfully bred its first tropical hybrid rice variety, SL-8H. The new variety
was high yielding, sturdy, and resistant to diseases. The Company immediately
began to propagate the SL-8H seeds for the market. Later in the same year, the
Company purchased its second facility, in Banay-banay, Davao Oriental in
anticipation of the mass production of SL-8H which included a 1.7 hectare facility for
seed processing.

Having successfully demonstrated the ability of SL-8H to thrive on local conditions

for both the wet and dry seasons, the National Seed Industry Council granted the
Company full accreditation in the year 2002. The accreditation allows the Company
to commercially produce and distribute the SL-8H variety to farmers. Shortly after,
the Company began marketing and selling activities to re-introduce the use of hybrid
rice and SL-8H. The Company also sponsored harvest festivals in order to educate
local farmers on the advantages of using the SL-8H hybrid rice. Farmers in key
areas such as Regions 1, 2, 3, 4, and other parts of the Philippines began their use
of SL-8H, and were satisfied as their yield increased significantly. Encouraged by
the growing acceptance of its product, the Company expanded its seed production to
Davao and Laguna.

The Company continued its research efforts which resulted in the discovery of two
more varieties, SL-7H and SL-9H. Compared to its predecessor, the new seed
varieties are of higher palate quality, but produce less yield. As a result of these new

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February 2001
varieties, the Company decided to expand its business by producing rice. Under the
brand name Doña Maria, named after the matriarch of the Lim family, the Company
currently produces five kinds of premium rice, Jasponica, Jasponica Brown,
Jasponica Plus, Miponica, and Miponica Brown. The Company’s rice products are
considered as premium or of higher grade than that of ordinary rice. The products
are currently available in leading grocery stores nationwide and are also being used
by caterers and Japanese restaurants in Metro Manila.

At present, the Company has also begun to export SL-8H to neighboring countries
with similar tropical weather conditions, such as Indonesia, Bangladesh and
Vietnam. It is also under negotiations with other countries such as India and
Myanmar. With the increasing demand for both its hybrid rice seed and premium
rice products, the Company intends to expand its operations by increasing its lot
area for production and by building facilities such as the milling plant in Talavera,
Nueva Ecija and the soon to be constructed SILO Storage Facilities in the same
area.

PRODUCTS

Hybrid Seeds

The Company began marketing its seed products in 2003, introducing the SL-8H
variety to the market. SL-8H is a high-yield resilient rice variety that allows farmers
to harvest more produce at the end of each cropping season. The Company has
distributed the SL-8H hybrid seed variety across several provinces in the Philippines,
particularly in Regions 1, 2, 3 and 4. The Company has tested the viability of the SL-
8H seeds in different areas in the Philippines to ensure its adaptability to local
conditions. This resulted in its certification by the National Seeds Industry Council in
2004 as the “pioneer hybrid rice variety in the tropics, with high yielding potential and
multiple resistance.”

Aside from Philippine testing, SL-8H has also been tested in other countries such as
Vietnam, Malaysia, China, Madagascar, Indonesia, Myanmar, India, Nigeria and
Bangladesh. All of which have resulted in acceptable yields. Following the success
of SL-8H, the Company is continuing its research efforts to develop other varieties of
hybrid rice to be distributed commercially.

Currently, revenues from the sale of hybrid rice seeds contribute 60% of the
Company’s 2018 fiscal year revenues. Table 7 below sets forth each of the
Company’s products, organized by variety, and includes a description of the product,
its packaging and countries where it is exported.

List of SLAC’s Commercially Available Seed Varieties

Variety Description Packaging Country

SL-8H Hybrid seed with high 18kg Philippines

heterotic performance, Bangladesh

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February 2001
 good disease resistance, Indonesia
excellent adaptability to Vietnam
tropical conditions, good
palate qualities, good
milling qualities, and easy
hybrid seed production.

Used for the Company’s 15kg Philippines

SL-7H premium rice products. For
contract growing

Used for the Company’s 15kg Philippines

SL-9H premium rice products. For
contract growing
Hybrid seed with a 28kg Philippines
potential yield ranging from
7 up to 12 metric tons or
equivalent to 140 to 240
SL-12H
cavans per hectare and is
suitable for wet and dry
season. Used for
commercial planting.
Hybrid seed with a 20kg Philippines
potential yield ranging from
230 to 300 cavans per
SL-18H
hectare and is suitable for
wet and dry season. Used
for commercial planting

Premium Rice

The Company’s premium rice products currently contribute 41% of the Company’s
2018 fiscal year revenues. The rice products are currently under three brands, Doña
Maria, Cherry Blossom and Willy Farms, each targeting a specific market segment.
All rice products were developed through the Company’s hybrid seed research, and
were planted specifically to be marketed as rice ready for cooking. Upon discovery
that the produce of SL-7H and SL-9H were of superior palate quality, the Company
opted not to distribute the seeds to the public.

The succeeding table sets forth each of the Company’s rice products, organized by
variety, and includes a description of the product, its targeted market segment and
packaging.

List of SLAC’s Rice Brands

Market
Variety Description Packaging
Segment
Doña The Doña Maria High to 0.3 kg
Maria Jasponica Rice mid 2.0 kg
Jasponica combines the income 5.0 kg

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February 2001
 Rice fragrant aroma of segment 10.0 kg
Jasmine rice and 25.0 kg
the excellent palate
quality of Japanese
rice. When cooked,
the grains achieve a
soft and chewy
texture enhanced
further by its aroma.

Doña The Doña Maria High to 0.3 kg

Maria Jasponica Brown mid 2.0 kg
Jasponica Rice offers the income 5.0 kg
Brown healthy benefits of segment 10.0 kg
Rice brown rice to the
Jasmine-Japanese
rice mix. High in
fiber with no
cholesterol and fully
flavored by the
natural nutty texture
of brown rice, the
variant is an
alternative for
health-conscious,
rice-loving Filipino
families.

Doña The Doña Maria High to 2.0 kg

Maria Jasponica Plus is a mid 5.0 kg
Jasponica combination of income
Plus Jasponica Brown segment
Rice and Jasponica
Rice. This product
specifically targets
customers who are
still unfamiliar with
brown rice but would
like to make the
change.
Doña The Doña Maria High to 2.0 kg
Maria Jasponica Congee mid 5.0 kg
Jasponica can be an income
Congee alternative to segment
malagkit rice.
It can be used in
making risotto,
sticker rice and
makis.

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February 2001
 Doña The Doña Maria High to 0.3 kg
Maria Miponica Rice is a mid 2.0 kg
Miponica combination of the income 5.0 kg
Rice clear, translucent, segment 10.0 kg
long and slender 25.0 kg
grain quality of
Milagrosa and the
exceptional palate
quality of Japanese
rice. Fluffy and
sticky with a
pleasant aroma,
Miponica rice is
easy to cook and
stays soft
throughout.

Doña The Doña Maria High to 2.0 kg

Maria Miponica Brown mid 5.0 kg
Miponica Rice is the brown income 10.0 kg
Brown rice alternative of segment
Rice the Milagrosa and
Japanese rice mix.
It still maintains the
long grain and sticky
qualities of the
Miponica rice.

Cherry The Cherry Blossom Mid 2.0 kg

Blossom Rice is a mix of income 5.0 kg
Rice straight milled SL segment 25.0 kg
hybrid rice.
Willy The Willy Farms Mid 2.0 kg
Farms Jasmine Rice income 5.0 kg
Sticky contains the segment 25.0 kg
Jasmine fragrance of
Rice Jasmine in sticky
rice and is ideal for
Paella, Arroz ala
Valenciana, and
Risotto.

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February 2001
 Willy The Willy Farms Mid 2.0 kg
Farms Japanese Textured income 5.0 kg
Long Rice has the quality segment
Grain and texture of
Japanese Japanese rice but in
Textured long grains.
Rice

Willy The Willy Farms Mid 2.0 kg

Farms Premium Dinorado income 5.0 kg
Premium Rice caters to all segment 10.0 kg
Dinorado types of occasions 25.0 kg
Rice and preparations.

RESEARCH AND DEVELOPMENT

The rice consumed or used for cooking is technically the fruit of the rice plant,
resulting from a sexual cross between male and female organs of the plant. The
reproductive parts of rice grow side by side in the flower of a single plant. Given that
the plant can pollinate itself, the reproductive process can be completed within the
floret of the plant almost immediately after the pollen is released from the anther, as
illustrated in Figure 3 below. Due to its self-fertilization in reproduction, the offspring
is genetically similar, hence the term “inbred”. Inbred rice is also referred to as
conventional or regular rice.

Figure 3. Inbred Rice from Self-Pollination

Parts of female Parts of male

A “hybrid”, on the other hand, is an offspring that comes from cross-breeding two
genetically different individuals, as seen in Figure 4 below. To produce hybrid rice,
an individual male with functional male and female parts, and a created female
(disabled male; female functional) are cross-pollinated, which results in the female

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February 2001
plant bearing hybrid rice seeds as offspring. Hybrid rice seed is the first filial (“F1”) of
a cross of two genetically different varieties of rice.

Figure 4. Hybrid Rice from Diverse Parents

Male plant
Female plant (both male
(disabled and female
male; female parts are
functional) functional)

Unlike in breds, hybrid cultivars usually possess unique heterosis or hybrid vigor,
which is the tendency of hybrids to perform better than each of its parents. It has
been proven that offspring from more diverse parents produce even higher hybrid
vigor. Not only do hybrids fare better than their parents, they also outperform inbred
varieties in characteristics like seed quality and yield. As a result of the outcome of
mix breeding different plants, one of the early hybrids adapted in the Philippines was
named Mestizo rice.

As a biological phenomenon, heterosis is present in most plant species. Currently, it

is a major factor for increased crop production in most crop and vegetable species
such as maize, sorghum, pear millet, cotton, sunflower, tomato, eggplants, chilies,
onion, and sugar beet. It is widely recognized as the main component of the world’s
multi-billion dollar agri-business.

Knowledge about the phenomenon of heterosis in rice has been developed for a
number of decades but its application has been hampered by the self-pollinating
characteristics of the plant. Since each plant consists of both male and female parts
(versus a male plant and a female plant), even if one brings together different
varieties, pure cross-pollination will not be possible.

In 1972, a group of Chinese scientists led by Professor Yuan Long Ping succeeded
in creating a genetic cytoplasmic male-sterile (“CMS”) line, a feat similar to placing
an off switch on the anther of the plant, thereby making its male part sterile while its
female part performs its normal function. This CMS-line is also called the “A-line” or,
more specifically, the female parent.

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February 2001
The reproduction process of the A-line is completed by crossing it with a partner from
a B-line. The “B-line”, also called the Maintainer line, is similar to A except that its
male parts are not sterile and its pollen are viable, as illustrated in Figure 3 below. It
maintains the original genetic make-up of the A-line and multiplies A-line as parental
lines for commercial hybrid rice seed production.
Using the CMS A-line, the group of Professor Yuan Longping successfully forged a
hybrid combination using a Restorer line (“R line”), which is genetically different from
the A-line. The R-line restores the fertility of the pollen in the offspring. The
offspring in turn, is the source of the first generation “F1” seed used to plant
commercial hybrid rice.

Figure 5. A-line, B-line, and R-line flowers

The hybrid rice seeds produced through the A, B, and R lines are called hybrid rice
of 3-line methods. The production combinations of 3-line hybrid rice seeds are
shown in Figure 6 below, where A x B crosses produce A-line parents, then the A x
R crosses produce commercial hybrid rice F1 seeds with viable pollen, and B and R
lines multiply by themselves much like inbred lines.

Figure 6. A-Line, B-Line, and R-Line Flowers

A Line B Line R Line

F1-Unviable Pollen F1-Viable Pollen

Hybrid seeds are F1 offspring. The seeds harvested from F1 rice are called “F2” and
are used for consumption only. Unlike the inbred varieties, F2 seeds cannot be
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February 2001
replanted again due to lack of uniformity and productivity. As such, farmers have to
purchase F1 seeds every cropping season.

In the past three years, the Company has spent a total of approximately P529.49
million on its research and development activities. These costs were incurred for the
development and further enhancement of the Company’s existing and commercially
viable hybrid rice seeds. Aside from SL-7H, SL8H, and SL-9H, the Company is
developing the following varieties: SLs 5, 11, 12, 16, 18 and 19.

The latter are hybrid rice seeds that have been initially determined as viable having
been gone through several testing and experimentation stages that stabilized the
parental lines. Currently, the Company is preparing for bigger volume of production
of parental lines for further enhancement prior to commercial production to make the
hybrid seeds tolerant to tropical conditions and it followed the same processes
involved in the development of SLs 7, 8 and 9.

PRODUCTION PROCESS

Hybrid rice seed production is more complicated, as compared to inbred seed

production. Expertise on rice cultivars and extensive knowledge on breeding
and plant anatomy are extremely important in high-yield production, not to
mention the proper crop management and fair weather condition. The
researchers and scientists personally train the farmers that are involved in the
preparation, planting, and harvesting of the hybrid rice seeds. As discussed
in the previous section, the process begins with the process of crossing the A-
line and B-line. This produces an A-line offspring that is to be crossed once
again with the R-line, which results in the F1 seeds to be sold and planted by
the Company. Due to the multiple breeding processes, two planting seasons
are required to produce hybrid seeds.

The process of producing the seeds begins with the normal land preparation
activities such as irrigation and cleaning. The A-line and B-line, or A-line and R-line
seedlings are then planted in rows adjacent to each other. This allows the different
lines to breed each other through air pollination. As the seedlings grow, certain
fertilizers are applied to ensure the plant’s health and maximum seed yield. To
illustrate further, the general steps in hybrid rice seed production are outlined in the
table below.

Step by Step Process in Seed and Rice Propagation per Hectare

Duration (Hours)
Steps Hybrid Hybrid Number of Workers
Seed Rice
Land Preparation
Dike Cleaning & Preparation 8 8 5
Canal Preparation 8 8 2
Irrigation 8 8 1
Plowing 8 8 1
Harrowing 8 8 1
Rat & Snail Control 8 8 1
Finishing 8 8 1

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 Step by Step Process in Seed and Rice Propagation per Hectare
Duration (Hours)
Steps Hybrid Hybrid Number of Workers
Seed Rice
Seed Bed Preparation
Canal Cleaning 8 4 5
Lot Leveling 8 4 3
Seed Bed Plotting 8 4 3
Pre- Germination
Soaking 8 8 1
Incubation 8 8 1
Sowing 8 8 1
Chemical Application 8 8 1
Transplanting
Pulling of Seedlings 8 5.5 10
Distribution of Seedlings 8 5.5 10
Planting of Seedlings 8 5.5 25
Chemical & Insecticide 5.5
8 2
Application
Fertilizer Application 8 5.5 2
Water Management 8 5.5 1
Replanting 8 5.5 15
Weeding 8 5.5 2
Supplementary Pollination
Pollination 8 - 2
Roughing 8 - 15
GA-3 Application 8 - 3
Harvesting / Processing
Cutting 8 8 45
Threshing 8 8 10
Drying 3 8 10
Blowing / Cleaning 3 8 10
Packing 3 8 2
Hauling 3 8 10
Storage
Distribution to dealers
Purchase by Farmers
Source: Information provided by management

Hybrid rice seed cultivation requires approximately 30% more labor or approximately
100 days per hectare. This is due to the supplementary procedures taken to
produce the hybrid seeds. Additional processes include pollination, roughing, and
growth enhancer application. Similarly, hybrid rice propagation as increased yield
implies an increase in the labor force requirement, especially during the harvest
seasons.

However, the difference in yield entails higher income for the farmer, which may
cover the additional costs to plant and harvest hybrid rice. Notably, the use of hybrid
seeds generates net income per hectare of P166,320 , more than four times that of
inbred seeds as shown in the table below. Approximately forty percent (40%) of seed
production volume is done through contract farming under similar mechanics in the
contract farming of the rice business as discussed below.

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February 2001
 Economic Comparison of Hybrid and Inbred Seeds
Hybrid Inbred
Yield per hectare (kgs.) 8,000 10,500 13,000 5,000
(Low-end) (Average) (High-end) (High-end)
In Philippine pesos (P)
Sales price per kg. 17 17 17 17
Total Sales 136,000 178,500 221,000 85,000
Production Costs
Labor Cost 30,910 30,910 30,910 23,275
Seedbed preparation and sowing 1,000 1,000 1,000 1,000
Land preparation 4,200 4,200 4,200 4,200
Pulling of seedlings 1,500 1,500 1,500 1,500
Transplanting 3,500 3,500 3,500 3,500
Harvesting 11,760 11,760 11,760 7,350
Hauling 1,600 1,600 1,600 1,000
Caretaking 7,350 7,350 7,350 4,725
Material Cost 21,070 21,470 22,070 19,270
Cost of seeds 4,500 4,500 4,500 3,300
Fertilizers 13,500 13,500 13,500 13,500
Pesticides 1,470 1,470 1,470 1,470
Sacks and twines 1,600 2,000 2,600 1,000
Other cost 1,700 1,700 1,700 1,700
Irrigation fee 1,700 1,700 1,700 1,700
Total Costs 53,680 54,080 54,680 44,245
Net Income 82,320 124,420 166,320 40,755
Return on Investment 153% 230% 304% 92%
Source: Information provided by management

The Company engages contract farming for the premium rice production. SLAC
provides SL-7H and SL-9H seeds to contracted farmers (who own parcels of lands)
together with the necessary fertilizers, pesticides, and other farm inputs. In other
cases, the Company provides, instead, financing to contracted farmers for the
expected farming costs. The entire farm produce will eventually be bought back by
the Company at the prevailing market price less costs of inputs provided.

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February 2001
 Figure 7. Contract Farming Business Model

As the Company production process is fully integrated, from research and

development to producing premium rice varieties, the Company does not need as
much raw materials since it relies mainly on internal operations. The Company is
able to mill and process its SL-7H and SL-9H hybrid rice varieties into its premium
rice products. Occasionally, the Company procures some items such as
commercially available pesticides or fertilizers from different companies, and is not
dependent on one source.

MARKETING, SALES AND DISTRIBUTION

Hybrid Seeds

SL-8H seeds are currently commercially available and accessible to farmers

nationwide. Aside from dealers and the Irrigator’s Association, the seeds are also
available through the MAO, who are currently responsible for the distribution of the
seeds to the farmers. The Company has undertaken a Memorandum of Agreement
which allows the MAO to act as its intermediary with the farmers.

Under the agreement, the MAO is required to provide to both the Company and the
Department of Agriculture a roster of farmers to whom the seeds were distributed.
The list of farmers serves as the basis of both the Company’s deliveries and the
subsidy to be released by the Department of Agriculture. The farmers transact solely
with the MAO, which in turn collects the payments arising from the purchase of
hybrid seeds.

Farmers may also opt to obtain the SL-8H seeds from local dealers with which the
Company has contracts with. There is also a need for dealers because certain areas
such as Nueva Ecija and Cagayan are not eligible for the subsidies. As a result the
supply of seeds to the farmers in these areas is not monitored by the MAOs, but
instead must be coursed through dealers.

The Company’s supply of hybrid seeds is currently located in its warehouse facilities
in Laguna and Davao. The seeds are stored in large refrigerators that prolong its
shelf life and prevent the growth of mites residing in the seeds. A fleet of delivery
trucks deliver the seeds to the different MAOs for distribution to the farmers.

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February 2001
 Figure 8. Distribution
Chain

To increase farmers’ knowledge on the product, the Company conducts several

marketing activities in order to increase awareness for its products. The Company
has released radio advertisements to promote the use of SL-8H. It also conducts
and participates in harvest festivals not only to promote the product, but to also
provide technical briefings, explain the process of procuring the seeds, and planting
instructions.

International Business Development

The SL-8H hybrid rice seed of the Company was specifically developed for tropical
countries such as those in South East Asia. Following its success as a high-yielding
variety here in the Philippines, the Company began testing the viability of SL-8H in
neighboring countries. SL-8H also produced high yields in countries such as
Indonesia, Bangladesh, Myanmar, Papua New Guinea and Vietnam, which
prompted the Company to export its parental line hybrid rice seeds to these
countries.

In those markets, the Company partners with government-affiliated agencies to roll-

out the program. Agreements with these agencies involve hybrid rice seed
production. Last fiscal year, the Company sealed a partnership with Calmwind Pty.
Ltd. in Papua New Guinea for the development of SL-12H, SL-8H and SL-18H. In a
similar pursuit, the Company signed a Memorandum of Agreement (MOA) with the
state-run Bangladesh Agricultural Development Corp. for a seed production
collaboration. The Company previously worked with the Bangladeshi government for
a seed production program. This recently signed MOA will strengthen said
partnership by extending the program to 2019.

International sales comprise 1.00%,1.00% and 3.00% of the Company’s hybrid rice
seed revenue in 2018, 2017 and 2016 respectively.

17
February 2001
Premium Rice

The Doña Maria, Cherry Blossom, and Willy Farms rice products are distributed
through retail stores, wholesalers, dealers, hotels, restaurants, and cafes. The retail
stores, including supermarkets, groceries, and price clubs, makeup about 80% of the
Company’s sales revenues. Wholesalers and dealers, who distribute the rice
products to smaller channels such as drug stores, department stores, and market
stalls, account for 10% of sales revenues. Lastly, the Company also provides rice to
hotels, restaurants, and cafes, known collectively as “HORECA”. The HORECA
market comprises around 10% of the sales revenues.

COMPETITION

Table 11. Competitive Space and Price Points

Company Variety Pack Size SRP Cost/kl Per ha.
Bayer Arize Bigante Plus 3kg 965.00 321.67 4,825.00
Arize Bigante (TEJ) 5kg 1,376.00 275.20 4,128.00
Arize H 64 5kg 1,376.00 275.20 4,128.00
Pioneer Phb 77,79,81 3kg 850.00 283.33 4,250.00
Syngenta Frontline Gold 5kg 1,400.00 280.00 4,200.00
SL Agritech SL-8H 5KG 1,400.00 280.00 4,200.00
18KG 4,800.00 266.67 4,800.00
Source: Information provided by management

For its hybrid rice seed products, the Company faces competition from seven other
hybrid rice seed varieties present in the Philippine market. These varieties are
Phb77 by Pioneer Company, Bigante by Bayer Philippines, and Frontline Gold by
Syngenta. Market data regarding hybrid rice seeds is not available, but the Company
estimates that 80% of the market is using SL-8H. The Company differentiates its
seeds business by providing farmers with the advantage of higher yield and cheaper
cost of production.

In the Php450 billion market of rice, the Company estimates that only Php45 billion
belongs to the premium packed rice market. The Company believes that its main
competitors are the products of other companies which produce premium rice
varieties such as Jasmine rice, Japanese rice, Thai Jasmine rice, Brown rice, Red
rice, Long grain rice, and High-fiber rice. Brands that produce these varieties include
Sunnywood, LH Cereal Corp. (Vita Rice), Northern Luzon (Farmer’s Choice),
Worthgold, and Quali grains, among others. The Company believes that its premium
rice business provides for consistent quality supported by monitoring and control
systems that were ISO-certified.

18
February 2001
COMPETITIVE STRENGTHS

Innovation of high yielding rice technology

Through its researchers and scientists, the Company has successfully developed
several hybrid rice seeds that are either sold or used for the Company’s premium
rice products. SL-8H, the Company’s premier hybrid rice seed product, has been
distributed around the country and has proven to be a true high-yield variety,
acclimatized to Philippine conditions. The Company has marketed its SL-8H seeds
nationwide and in other countries while varieties of competitors are still on the testing
and development stages. The Company has also developed SL-7H and SL-9H,
which are varieties with qualities comparable to Japanese, Milagrosa, and Jasmine
rice.

Fully integrated operations

The Company began as a private agricultural research facility, and has now grown
into a fully integrated hybrid rice seed and premium rice producer. It has the
facilities for research and development, seed production, rice production, and
packaging, and the resources for planning, marketing, and sales. The Company is
able to efficiently conduct its research and development activities in Oogong,
Laguna, whilst its hybrid rice seed and premium rice production is spread out to its
different farms and contract growers. Marketing and sales of both the hybrid rice
seeds and the premium rice are executed by separate teams. Hybrid rice seeds are
marketed to farmers and local cooperatives through seminars and harvest festivals
around the Philippines. On the other hand, the team for the premium rice promotes
its products to the different stores, groceries, hotels, and restaurants.

Attractive growth prospects

The Philippines continues to import rice in order to satisfy its national demand. As
the population of the country continues to grow, the demand for rice is estimated to
continue to increase as well. The increase in rice consumption per capita is
estimated at 134.7 kg/year in 2010 to 148.9 kg/year in 2014, which translates to a
consumption of 13.0 million MT of rice in 2010 and to a 16.1 million MT in 2014.
Local varieties are currently unable to fulfill demand of rice, and coupled with
diminishing rice fields due to industrialization, the increasing demand for rice without
concomitant increase in supply continues to be a national problem. The Company
presents a possible solution to this problem through the introduction of hybrid rice.
Being the only Company to achieve national success in marketing hybrid rice, the
Company’s products may lead the Philippines into self-sufficiency in rice.

Strong market position

The Company currently dominates the market for hybrid rice, as it has proprietary
rights over several high-yielding varieties of hybrid rice seeds. The Company
estimates that SL-8H currently captures 80% of the market share for hybrid rice.
Competitors have yet to introduce a variety that can compete with the yield of SL-8H.
The Company also employs aggressive and innovative marketing strategies, such as

19
February 2001
harvest festivals, seminars, technical farm demonstrations and contests, to further
expand its market share. Competitors may find it difficult to enter the Philippine
market for hybrid rice seeds, as the development of the products require extensive
research that is both expensive and time consuming.

BUSINESS STRATEGY

Increase brand awareness

As of the date of this report, the Company has developed three hybrid rice seed
varieties and nine premium rice products. Both the hybrid rice seeds and premium
rice products are marketed aggressively throughout the Philippines. The SL-8H
hybrid rice is being marketed nationwide to farmers through seminars, harvest
festivals, and contests. Doña Maria premium rice on the other hand is brought to the
market through sampling booths, recipes, food kiosks, and television
advertisements. The Company intends to continue its marketing efforts to further
strengthen its brand and to attract a larger market for its products.

Maintain its product leadership

Based on Company data, the Company’s hybrid rice seeds account for 80% of the
total market share of hybrid rice, making it the current leader for hybrid rice seeds.
The Company intends to maintain this through the development of better hybrid rice
seed products and continuous marketing activities. Despite having the majority of
the hybrid rice market, the Company would like to expand the overall market for
hybrid rice seeds. This can be achieved through the continuous expansion of the
Company’s market reach in the different provinces of the Philippines. The Company
also intends to strengthen its position in the premium rice market by capturing a
larger share of the high to mid-income rice consumers.

Improve customer and market knowledge

The Company intends to take advantage of the increasing sophistication or changing

lifestyles of its hybrid rice seed and premium rice customers. Farmers are slowly
shying away from traditional methods of farming and are willing to try other products
to improve their output. Farmers who have tried hybrid rice seeds of the Company
have seen the benefits of investing in high-yielding varieties. The Company is aware
that the willingness of farmers to use new products is sometimes hindered by
existing traditions or Government policies. By conducting seminars, the Company is
made aware of the issues of farmers, and thus is able to educate them on the best
solutions. The Company is also aware of the Government policies and programs
governing rice production, and thus ensures that farmers are educated on these as
well.

The tastes and preferences of Filipino consumers are constantly changing. The
target markets of the Company, the high to mid-income consumers, are becoming
more sophisticated and are more particular on the products they purchase. As they
become more quality, health, and price conscious, the Company intends to provide

20
February 2001
more premium rice products that would satisfy their needs. This would include
products and recipes that are healthier, with better palate quality, and are worth their
value for money.

Development of new products

The Company has developed several varieties of hybrid rice seeds, but is continuing
its research and development activities to further develop better products. Research
is simultaneously done for both the Company’s hybrid rice seeds and premium rice
products. Through the utilization of the Company’s researchers and scientists, who
have been trained by Professor Yuan Longping of China, the Company continues to
develop new varieties of rice to expand the Company’s brand portfolio. The
Company aims to develop high-yielding rice products with good planting and palate
quality.

Expansion of market share

The Company has employed several marketing strategies to increase its market
share in its seed and rice business. For its seed business, the Company periodically
introduces the products to farmers in the Philippines through seminars and
demonstration activities. Farmers are then encouraged to continue the use of hybrid
seeds through harvest festivals and contests. For its rice products, the Company
currently employs the use of television commercials, booths, technical farm
demonstration, and sampling to further introduce its products to the market. The
Company has also developed the brands “Doña Maria” and “Cherry Blossom” to
further distinguish itself from its competitors in the market. The Company aims to
continue these marketing strategies to gain a larger share of the seed and rice
markets.

NON-DEPENDENCE ON A SINGLE CUSTOMER

In its three businesses, hybrid rice seeds, international business development, and
premium rice, the Company’s sales and growth is not dependent on a single
customer. The Company employs different channels of distribution in order for its
products to be known to the market, both here in the Philippines and in other
countries.

The Company has several products in its pipeline for all three businesses. These,
however, are still in the development stages and have no set launch dates as of the
date of this Report.

TRANSACTIONS WITH OR DEPENDENCE ON RELATED PARTIES

Related party transactions are made under the normal course of business. Parties
are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making
financial and operating decisions and the parties are subject to common control or
common significant influence. Related parties are corporate entities that are owned
and controlled by the same owner of the Company (e.g. Sterling Paper Products

21
February 2001
Enterprises Inc. (SPPEI) and Mart One Supermarket), and neither a subsidiary or
affiliate of the Company.

In the regular course of business, the Company’s significant transactions with related
parties include the following:

a. At fiscal year ending May 31, 2018, the Company has outstanding receivables
arising from sale of seeds and rice products with Sterling Paper Products
Enterprise (P4,941,192) and Central Bookstore (P3,069,440). The foregoing
entities have common shareholders with the Company.

Terms and conditions of transactions with related parties

Outstanding balances at year-end are unsecured, interest-free and settlement

occurs in cash. There have been no guarantees provided or received for any related
party receivables or payables.

The Company has not recognized any impairment losses on amounts due from
related parties for the years ended May 31, 2018, 2017 and 2016. This assessment
is undertaken each financial year through a review of the financial position of the
related party and the market in which the related party operates.

INTELLECTUAL PROPERTIES

As of the date of this Report, the Company has registered the following trademarks
and/or copyrights with relevant authorities:

DATE OF TITLE OF WORK Principal

REGISTRATION Terms and
Expiration
Dates
February 16, 2005 Copyright Created and Lifetime of the
Registration and Published: author and for
Deposit of SL- 8H October 12, 2004 fifty (50) years
Hybrid Rice Club- after his death.
Busog Yaman Ka
Dito! (National
Commission for
Culture and the
Arts)
January 10, 2005 Copyright Created and Lifetime of the
Registration and Published: author and for
Deposit of Dona October 28, 2004 fifty (50) years
Maria Jasponica after his death.
Rice (National
Commission for
Culture and the
Arts)
May 21, 2005 Trademark: Doña For rice, corn, Until October 1,

22
February 2001
 Maria (Intellectual grains of all kinds, 2021 unless
Property Office) fresh fruits, sooner
natural plants and cancelled in
flowers, live accordance
animals, seeds, with laws and
vegetables, regulations.
horticultural
growths.
May 13, 2016 Trademark of Yuan For rice, corn, Five (5) years;
Long Ping with grains of all kinds, until May 13,
representation of and other 2021.
rice stalk and grain agricultural farm
within an arc. products, seeds,
(Bureau of vegetables, and
Trademarks) horticultural
growths.
December 18, Trademark: For agricultural Ten (10) years;
2006 stylized Warak chemical until December
(Bureau of (insecticide) for 18, 2016.
Trademarks) the control of
chewing and
sucking insect
pests of rice, corn,
tobacco, and other
crops namely,
cucurbits, onions,
legumes.
October 2, 2006 Trademark: SL- 8H For rice. Ten (10) years;
(Bureau of until October 2,
Trademarks) 2016.
October 2, 2006 Trademark: SL- 7H For rice. Ten (10) years;
(Bureau of until October 2,
Trademarks) 2016.
September 2, Registration of
2004 ‘Mestiso 6’ (Oryza
sativa) (Bureau of
Plant Industry)
December 15, Certificate of Plant Twenty (20)
2006 Variety Protection years from
to SL-8R (Bureau December 15,
of Plant Industry) 2006, unless
sooner voided
or cancelled as
provided in the
law and
regulations.
December 15, Certificate of Plant Twenty (20)
2006 Variety Protection years from
to SL-8H (Bureau December 15,
23
February 2001
 of Plant Industry) 2006, unless
sooner voided
or cancelled as
provided in the
law and
regulations.
December 15, Certificate of Plant Twenty (20)
2006 Variety Protection years from
to SL-1B (Bureau December 15,
of Plant Industry) 2006, unless
sooner voided
or cancelled as
provided in the
law and
regulations.
July 13, 2007 Certificate of Plant Twenty (20)
Variety Protection years from July
to SL-1A (Bureau 13, 2007,
of Plant Industry) unless sooner
voided or
cancelled as
provided in the
law and
regulations.
December 18, Certificate of Plant Twenty (20)
2008 Variety Protection years from
to SL-9H(Bureau of December 18,
Plant Industry, 2008, unless
Philippines) sooner voided
or cancelled as
provided in the
law and
regulations.
December 18, Certificate of Plant Twenty (20)
2008 Variety Protection years from
to SL-7R(Bureau of December 18,
Plant Industry, 2008, unless
Philippines) sooner voided
or cancelled as
provided in the
law and
regulations.
December 15, Provisional
2011 Certificate of Plant
Variety Protection
to SL-11R (Bureau
of Plant Industry,
Philippines)
December 15, Provisional
24
February 2001
2011 Certificate of Plant
Variety Protection
to SL-18R (Bureau
of Plant Industry,
Philippines)
December 15, Provisional
2011 Certificate of Plant
Variety Protection
to SL-11H (Bureau
of Plant Industry,
Philippines)
October 9, 2009 Certificate of Plant Twenty (20)
Varieties years from
Protection to SL- October 9,
1A(Centre of Plant 2009, unless
Varieties sooner voided
Protection, or cancelled as
Indonesia) provided in the
law and
regulations.
October 9, 2009 Certificate of Plant Twenty (20)
Varieties years from
Protection to SL- October 9,
1B(Centre of Plant 2009, unless
Varieties sooner voided
Protection, or cancelled as
Indonesia) provided in the
law and
regulations.
October 9, 2009 Certificate of Plant Twenty (20)
Varieties years from
Protection to SL- October 9,
8R(Centre of Plant 2009, unless
Varieties sooner voided
Protection, or cancelled as
Indonesia) provided in the
law and
regulations.
October 9, 2009 Certificate of Plant Twenty (20)
Varieties years from
Protection to SL- October 9,
8SHS(Centre of 2009, unless
Plant Varieties sooner voided
Protection, or cancelled as
Indonesia) provided in the
law and
regulations.
September 24, Trademark: Cherry Until May 2,
2007 Blossom Rice With 2017 unless
25
February 2001
 The (Intellectual sooner
Property Office) cancelled in
accordance
with laws and
regulations.
October 24, 2013 Trademark: Doña Until April 18,
Maria Coco Shake 2023 unless
(Intellectual sooner
Property Office) cancelled in
accordance
with laws and
regulations.
November 14, Trademark: Doña Until June 24,
2013 Maria Rice Pao 2023 unless
(Intellectual sooner
Property Office) cancelled in
accordance
with laws and
regulations.
December 19, Trademark: Doña Until April 18,
2013 Maria Rice 2023 unless
Surprise sooner
(Intellectual cancelled in
Property Office) accordance
with laws and
regulations.
September 10, Trademark: Until
2007 Gintong Butil & September 10,
Device (Intellectual 2016 unless
Property Office) sooner
cancelled in
accordance
with laws and
regulations.
November 10, Trademark: Until November
2005 Jasponica 10, 2020 unless
(Intellectual sooner
Property Office) cancelled in
accordance
with laws and
regulations.
Renewal has
been applied
for but is
pending
approval.
October 1, 2007 Trademark: Until January
Kristina 16, 2017 unless
(Intellectual sooner
26
February 2001
 Property Office) cancelled in
accordance
with laws and
regulations.
August 28, 2005 Trademark: Logo Until August 3,
(Registration No. 2021 unless
5626) (Intellectual sooner
Property Office) cancelled in
accordance
with laws and
regulations.
March 24, 2011 Trademark: Until November
Miponica 22, 2020 unless
(Intellectual sooner
Property Office) cancelled in
accordance
with laws and
regulations.
October 2, 2006 Trademark: SL-7H Until October
(Intellectual 2, 2016 unless
Property Office) sooner
cancelled in
accordance
with laws and
regulations.
Renewal has
been applied
for but is
pending
approval.
October 2, 2006 Trademark: SL-8H Until October 2,
(Intellectual 2016 unless
Property Office) sooner
cancelled in
accordance
with laws and
regulations.
Renewal has
been applied
for but is
pending
approval.
April 14, 2013 Trademark: SL-9H Until April 14,
(Intellectual 2023 unless
Property Office) sooner
cancelled in
accordance
with laws and
regulations.
27
February 2001
May 13, 2006 Trademark: Until May 13,
Sterling 2021 unless
(Intellectual sooner
Property Office) cancelled in
accordance
with laws and
regulations.
Renewal has
been applied
for but is
pending
approval.
July 21, 2015 Trademark: Willy Until July 21,
Farms Farm Fresh 2018 unless
Goodness! sooner
(Intellectual cancelled in
Property Office) accordance
with laws and
/regulations.
Renewal has
been applied
for but is
pending
approval.
August 30, 2012 Trademark: Willy Until May 16,
and W Device 2022 unless
(Intellectual sooner
Property Office) cancelled in
accordance
with laws and
regulations.
September 2, Registration of
2004 ’SL- 8H’ (Oryza
sativa) (Bureau of
Plant Industry)
August 11, 2015 Trademark: Doña August 11,
Maria (US PTO) 2025
Status:
Registered
August 11, 2015 Trademark: August 11,
Jasponica (US 2025 Status:
PTO) Registered
August 11, 2015 Trademark: August 11,
Miponica (US PTO) 2025
Status:
Registered
February 11, 2014 Trademark: Until February
Jasponica (SG 11, 2024
Registrar of TM) Status:
28
February 2001
 Registered
February 11, 2014 Trademark: Until February
Miponica (SG 11, 2024
Registrar of TM) Status:
Registered
June 5, 2014 Trademark: February 12,
Jasponica (UAE 2024
Ministry of Status:
Economy TM Registered
Department)
June 5, 2014 Trademark: February 12,
Miponica (UAE 2024
Ministry of Status:
Economy TM Registered
Department)
June 5, 2014 Trademark: Dona February 12,
Maria (UAE 2024
Ministry of Status:
Economy TM Registered
Department)
Sep. 16, 2014 Trademark: Dona Sep. 15, 2024
Maria (Taiwan IPO) Status:
Registered
Sep. 16, 2014 Trademark: Sep. 15, 2024
Jasponica(Taiwan Status:
IPO) Registered
Sep. 16, 2014 Trademark: Sep. 15, 2024
Miponica(Taiwan Status:
IPO) Registered
April 28, 2015 Trademark: Dona April 27, 2025
Maria (China TO) Status:
Registered
April 28, 2015 Trademark: April 27, 2025
Miponica (China Status:
TO) Registered
April 28, 2015 Trademark: April 27, 2025
Jasponica(China Status:
TO) Registered
January 30, 2015 Trademark: Dona January 31,
Maria (Korean IPO) 2025
Status:
Registered
January 30, 2015 Trademark: January 31,
Jasponica (Korean 2025
IPO) Status:
Registered
January 30, 2015 Trademark: January 31,
Miponica (Korean 2025
IPO) Status:
29
February 2001
 Registered
February 10, 2014 Trademark: February 9,
Miponica (HK IPO) 2024
Status:
Registered
February 10, 2014 Trademark: February 9,
Jasponica (HK 2024
IPO) Status:
Registered
February 10, 2014 Trademark: Dona February 9,
Maria (HK IPO) 2024
Status:
Registered

GOVERNMENT APPROVALS AND PERMITS

All government approvals and permits issued by the appropriate government

agencies or bodies which are material and necessary to conduct the business and
operations of the Company, were obtained by SL Agritech and are in full force and
effect.

The Company's operations and products are subject to standards and regulations
set forth by the Government and regulatory agencies (DA and NFA), which may
introduce new rules and policies or implement changes in the enforcement of
existing laws and regulations, which could directly affect the operations and
profitability of the Company and/or may be costly to comply with. Although the
Company endeavors to maintain compliance with the required operational licenses,
accreditations, and certifications, there can be no assurance that the aforementioned
agencies will not introduce more stringent rules and regulations in the future. These
and other legal or regulatory changes could materially and adversely affect the
Company's financial condition and results of operations

The table below lists the Company’s regulatory permits:

REGULATORY PERMITS ISSUE DATE EXPIRY DATE

National Food Authority January 11, 2018 February 28,2019

Grains Business License-
Retailing and Wholesaling
National Food Authority February 11, 2016 December 11, 2018
Grains Business License-
Exporting
National Food Authority February 11, 2016 December 11, 2018
Grains Business License-
Importing

30
February 2001
Department of Environment and January 7, 2011
Natural Resources
Environment Compliance
Certificate
(Talavera, Nueva Ecija)
Drying, Milling, and
Warehousing
Laguna Lake Development
Authority May 8, 2008
CLEARANCE
Warehouse and Rice Mill
Facility Project
Laguna Lake Development May 8, 2008
Authority
CERTIFICATE OF
ENVIRONMENT COMPLIANCE
COMMITMENT

EFFECT OF EXISTING OR PROBABLE GOVERNMENT REGULATIONS ON THE

COMPANY’S BUSINESSs

The DENR is the primary agency responsible for the conservation, management,
development, and proper use of the country's environment and natural resources
and the implementation of laws and regulations pertaining thereto. It also has the
authority to promulgate additional regulations of its own.

The DA on the other hand is responsible for the promotion of agricultural

development. The DA provides the policy framework and support services needed to
effect its mandate.

Finally, the NFA is an agency of the Philippine government under the Office of the
President responsible for ensuring food security. The NFA is also mandated to
ensure stability of rice supply and its prices.

The Company incurs expenses for the purpose of complying with the law that
consists primarily of payments for regulatory fees to these agencies. Such fees are
standard in the industry and are minimal. Costs related to securing the
Environmental Compliance Certificates have no material impact on the financial
position of the Company.

The operations of the Company is also monitored and to a certain extent, restricted
by these agencies. The Company must always abide by the rules and programs set
forth by said agencies. To the best of the Company’s knowledge, it has complied
with all applicable environmental laws.

31
February 2001
EMPLOYEES

As of the date of this Report, SLAC employs 112 officers and 176 rank-and-file
employees. Presently, SLAC has no existing collective bargaining agreement with its
employees. Furthermore, SLAC employees are not part of any organized labor
organizations.

The Company complies with the minimum compensation and benefits standards
pursuant to Philippine law. The Company has not experienced any disruptive labor
disputes, strikes or threats of strikes and the Company believes that its relationship
with its employees in general is satisfactory.

PLANS AND PROGRAMS

The Company is expanding its hybrid rice production and strengthening its
organization to effectively manage the high growth in demand. The Company
intends to achieve this through:

 Capital expenditures – for the use of procuring production and delivery

equipment, cold storage, bulk grain storage facility and build warehouses
 Manpower complement – to employ more researchers and scientists
 Research and development – continuous research and development of
commercially viable hybrid rice seed varieties. Research on the market of
premium rice, and to develop products depending on market needs.
Sales and marketing – to increase its current number of employees to strengthen its
sales and marketing group for both hybrid rice seeds and premium rice.

Item 2. Properties

DESCRIPTION OF PROPERTIES
Bagong Silang, Talavera, Nueva Ecija

A parcel of land situated in Bagong Silang, Talavera, Nueva Ecija containing an area
of of 6 hectares with at least 35 meters-wide frontage. This is also the major site
used for producing Dona Maria rice. A 1,600MT-grain silo is expected to be
operational by end of 2016 to complement the existing 7,000-sqm warehouse facility
for rice.

Barangay Oogong, Santa Cruz, Laguna

A parcel of land situated in Barangay Oogong, Santa Cruz, Laguna totaling 41

hectares with 150 meters-wide frontage. This site houses the facilities for seeds
research and development as well as the processing facility for rice milling. Another
warehouse with total area of 5,000 sqm is being erected to complement the existing
7,500-sqm facility. The R&D also takes pride to have the first Cool Greenhouse in
the Philippines that is used for development of two-line hybrid rice seed varieties.

32
February 2001
This is with the objective of offering top of the line hybrid rice seeds varieties to uplift
the lives of the farmers.

Lupon, Davao Oriental

A parcel of land situated in Bagumbayan, Lupon, Davao Oriental containing an area

of 15,998 square meters. The Company’s production facility in the said area consists
of sun drying area, office and processing facilities, warehouse, staff house,
fumigation area and covered court.

Some of the real estate properties in Talavera, Nueva Ecija and Santa Cruz, Laguna
referred to above are the subject of real estate mortgage in favor of certain bank
creditors.

Barangay Cabligan Matanao Davao Del Sur

A parcel of land newly acquired to house a 5,000 sqm processing facility for the
production of hybrid rice seeds. The site is strategically situated in the rice granary
bowl of Davao Del Sur, providing an advantage of access areas for hybrid rice seeds
production. This site is expected to be completed by end of 2016.

Leased Properties

Aside from the properties owned by the Company, it also leases agricultural land in
Lupon, Davao Oriental with an area of 135.83 hectares for purposes of seed
production. The lease is for terms of up to three (3) years, at an average price of
Php30,000.00 per hectare per season. The existing lease contracts will expire by
2018 but are renewable subject to renegotiation. The Company also leases
warehouses in Talavera, Nueva Ecija with a total area of 8,600 square meters (sqm)
at an average leasing rate of Php62 per sqm renewable every six (6) months subject
to renegotiation.

Future Acquisition

The Company is presently negotiating to acquire properties in Northern Luzon and

Mindanao for purposes of expansion of its seed and rice production and construction
of warehouses. Acquisition of said properties will be funded through existing
internally-generated funds.

INSURANCE

The Company has sufficient insurance coverage that is required by Philippine

regulations for real and personal property. Subject to the customary deductibles and
exclusions, the Company’s insurance policy include coverage for, among other
things, buildings, improvements, machinery and equipment, furniture, fixture, fittings
and motor vehicles against damage from fire and natural perils, machinery
breakdown, third-party liability to the public and construction works.

33
February 2001
Item 3. Legal Proceedings

LEGAL PROCEEDINGS

There are no material legal proceedings, pending or threatened against the

Company, or in which the properties of the Company is the subject thereof. The
existing legal proceedings involve labor disputes, the adverse decision of which
would not have any material impact on the Company and its financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

The stockholders’ meeting of the Company was held last August 15, 2016 at Sterling
Place, 2302 Pasong Tamo Extension, Makati City. At the said meeting, the following
were presented and approved by the Stockholders present representing majority of
the outstanding shares entitled to vote:

(a) Approval of the Minutes of the Regular Meeting of the Stockholders held on
2015;
(b) Management’s Report;
(c) Presentation and approval of the Financial Statements as of May 31, 2015;
(d) Confirmation and Ratification of acts of the Board of Directors and Officers;
(e) Election of the members of the Board of Directors;
(f) Confirmation of Appointment of the external auditor;
(g) Ratification of the approval of the Board of Directors to amend the
Company’s Articles of Incorporation to create preferred shares and the
delegation to the management of the Company the determination of the
other terms and conditions of such issuance;
(h) Ratification of the approval of the Board of Director to amend the
Company’s By-laws and change the date of annual meeting;
(i) Declaration of Stock Dividends

The following were elected as Directors of the Company for the year 2016-2017 and
until their successors are elected, namely:

Directors:
Henry Lim Bon Liong
Joseph Lim Bon Huan
Gerry Lim Bon Hiong
Ruben Lim Bon Siong
Evelyn Lim

Independent Directors:
Diosdado D. Salavador Jr.
Gregorio Pio Catapang

Other than those matters mentioned above, there are no other matters submitted to
a vote by the security holders.

34
February 2001
PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer's Common Equity and Related Stockholder Matters

MARKET INFORMATION

The Company’s shares are not registered and publicly traded. There has also been no
recent transfer of the common shares of the Company which would provide a price
information of such shares. The common shares are not subject to outstanding options or
warrants to purchase, or securities convertible into common shares.

No stockholder shall have a right to purchase or subscribe to any additional share of the
capital stock of the Company whether such shares of capital stock are now or hereafter
authorized, whether or not such stock is convertible into or exchangeable for any stock of the
Company or of any other class, and whether out of the number of shares authorized by the
Articles of Incorporation of the Company as originally filed, or by any amendment thereof, or
out of shares of the capital stock of any class of the Company acquired by it after the issue
thereof; nor shall any holder of any such stock of any class, as such holder, have any right to
purchase or subscribe for any obligation which the Company may issue or sell that shall be
convertible into, or exchangeable for, any shares of the capital stock of any class of the
Company or to which shall be attached or appertain any warrant or warrants or any
instrument or instruments that shall confer upon the owner of such obligation, warrant or
instrument the right to subscribe for, or to purchase from the Company, any shares of its
capital stock of any class.

The Board of Directors may, from time to time, grant stock options, issue warrants or enter
into stock purchase or similar agreements for purposes necessary or desirable for the
Company and allocate, sell or otherwise transfer, convey or dispose of shares of stock of the
Company of a class or classes and to such persons or entities to be determined by the
Board of Directors including, but not limited, to employees, officers and directors of the
Company.

DIVIDEND POLICY

The Company’s board of directors is authorized to declare cash or stock dividends or

a combination thereof. A cash dividend declaration requires the approval of the
Board and no shareholder approval is necessary. A stock dividend declaration
requires the approval of the Board and shareholders representing at least two-thirds
of the Company’s outstanding capital stock. Holders of outstanding shares on a
dividend record date for such shares will be entitled to the full dividend declared
without regard to any subsequent transfer of shares.

Under the Corporation Code, the Company may not make any distribution of
dividends other than out of its unrestricted retained earnings.

Each holder of a common share is entitled to such dividends as may be declared in

accordance with the Company’s dividend policy. The Company’s current dividend
policy entitles holders of common shares to receive dividends based on the
recommendation of the board of directors. Such recommendation will take into

35
February 2001
consideration factors such as operating expenses, implementation of business plans,
and working capital among other factors.

As a policy, the Company intends to declare at least 5% of its prior year’s net income
as dividends, whether in stock or in cash, subject to statutory limitations and/or
creditor restrictions.

Dividend History for the last three (3) years

2017, 2016, 2015

In 2015, the Company declared stock dividends to existing stockholders amounting

to One Hundred Million (100,000,000) shares with a par value of P1.00. In 2016, the
Company declared stock dividends to existing stockholders amounting to Three
Hundred Fifty Million (350,000,000) shares with a par value of P1.00.

RECENT ISSUANCE OF EXEMPT OR UNREGISTERED SECURITIES

In 2015, the Board of Directors of the Company declared stock dividends to existing
stockholders amounting to One Hundred Million (100,000,000) shares with a par
value of P1.00. In 2016, the Company declared stock dividends to existing
stockholders amounting to Three Hundred Fifty Million (350,000,000) shares with a
par value of P1.00. The same was approved by the Company’s stockholders.

Said issuance is exempt under Section 10(D) of the Securities Regulation Code,
which exempts the distribution by a corporation, actively engaged in the business
authorized by its articles of incorporation, of securities to its stockholders or other
security holders as a stock dividend or other distribution out of surplus.

Item 6. Management's Discussion and Analysis or Plan of Operation.

The following management’s discussion and analysis of the Company’s financial

condition and results of operations should be read in conjunction with the Company’s
audited financial statements, including the related notes. This contains forward-
looking statements that are based largely on the Company’s current expectations
and projections about future events and trends affecting its business and operations.
The Company cautions investors that its business and financial performance is
subject to substantive risks and uncertainties. The Company’s actual results may
differ materially from those discussed in the forward-looking statements as a result of
various factors, including, without limitation, those set out in “Risk Factors.” In
evaluating the Company’s business, investors should carefully consider all of the
information contained in “Risk Factors."

The selected financial information set forth in the following table has been derived
from the Company’s audited consolidated financial statements for the years ended
May 31, 2018, 2017 and 2016.

36
February 2001
The Company’s financial statements were audited by Sycip, Gorres, & Velayo for
2018, 2017 and 2016, in accordance with PFRS.
In Php, except for per share amounts

Audited As of and for the years ended May 31

Income Statement Data: 2018 2017 2016
Revenues……………………. 3,498,791,361 3,336,750,855 2,552,208,495
Cost of Sales………………… 2,259,820,541 2,179,021,887 1,528,159,216
Net Profit…………………….. 508,661,851 509,225,660 458,990,823

Balance Sheet Data:

Current Assets………………. 8,103,047,346 5,796,730,254 5,055,937,154
Noncurrent Assets………….. 2,783,606,709 2,624,272,083 1,968,037,696
Total Assets…………………. 10,886,654,055 8,421,002,337 7,023,974,850
Total Liabilities………………. 7,895,282,589 5,963,957,028 5,070,709,655
Stockholders’ Equity………... 2,990,871,089 2,457,045,309 1,953,265,195
Non-Controlling Interest……. 500,377 - -

Earnings per share- adjusted… 0.44 0.44 0.40

Book Value per share………… 2.58 2.12 1.68

OVERVIEW

The increasing population coupled with the effect of climate change and the quest for
rice sufficiency has forced the Government to focus on modern farming technology
such as the use of hybrid rice seeds that has been proven to deliver high yield and
good tasting quality rice. Being the market leader in this segment, SLAC was able to
post gains in its sales and net income for the last three fiscal years. From fiscal years
2016 to 2018’s, the Company’s net sales increased by an average rate of 37.09%.
On the other hand, net income for the same three-year period significantly grew by
an average rate of 10.82%.

As SLAC continues to expand its network of customers here and abroad, the
Company expects to continually grow its revenues and profits. Its hybrid rice
varieties continue to be the “farmer’s choice” and has gained market leadership with
its competitors lagging behind. Dona Maria rice brand dominates the premium rice
market and started to gain consumer preference abroad. Last year, the Company
started exporting rice to the United States and the Middle East. Its international
seed business is growing as well as it enters new territories such as Myanmar,
Bangladesh, Indonesia, India, Papua New Guinea, Nigeria, Vietnam and other
neighboring countries. Management believes that growth opportunity for the
Company is wide as it expands its operations beyond Philippine borders.

RESULTS OF OPERATIONS

Fiscal year ended May 31, 2018 compared to fiscal year ended May 31, 2017

The Company’s sales registered a 4.86% growth for the fiscal year ended May 31,
2018 from ₱ 3.34 billion last year to ₱3.50 billion this fiscal year. The continuing
growth has been due to the continuing demand in Doña Maria Rice products and
37
February 2001
increase in farmer’s preference for SL-8H seeds in assisting the Government
program for rice sufficiency.

Cost of Sales in fiscal year 2018 increased to ₱2.26 billion from ₱2.18 billion in fiscal
year 2017 or an increase of 3.71%. Increase in cost of sales is volume-related.

Total Operating Expenses increased by ₱184.28 million or 34.90% from ₱527.97

million in fiscal year ended 2017 to ₱712.24 million in fiscal year ended 2018. The
increase is due to the management’s decision to increase its allowance for bad
debts.

For the fiscal year ended May 31, 2018, the Company recognized fair value gain of
₱300.39 million, a significant increase of 92.64% as compared to last year’s ₱155.93
million

Finance cost was recorded at ₱324.04 million during the year which is 14.29%
higher than the comparative period’s ₱283.52 million. The increase in Finance cost
was due to increased working capital requirement for the expected high sales
volume in the year.

Other income decreased by ₱1.90 million or 28.47% from last year’s ₱6.69 million to
₱4.55 million in fiscal year 2018. The change is primarily attributable to the net effect
of revaluation of foreign currency bank accounts and of receivables/payables from/to
foreign parties. The Company Equity share in Net Losses of an Associate amounting
to ₱1.02 million and recognized a Gain on disposal of Property and Equipment of
₱1.26 million in fiscal year 2018.

The Company recognized Finance Income of ₱1.43 million in fiscal year 2018 and
₱1.35 million in fiscal year 2017.

The Company enjoy income tax holidays resulting from its registration with the Board
of Investment under the Investment Priority Plan. Income tax expense reflected in
the Income Statements comprise of tax on income from activities not covered by the
income tax holiday, and of final tax incurred on interest income on savings deposits
of the Company.

As a result of the foregoing, net income decreased by only 0.11%, or ₱564 thousand
pesos from ₱509.23 million on May 2017 to ₱508.66 million on May 2018.

During the period, the Company’s newly incorporated subsidiary in Myanmar

commenced its operations which resulted to net loss of ₱9.44 million, of which ₱1.42
million is allocated to non-controlling interest.

Material Changes to the Company’s Audited Income Statement as of Fiscal

Year ended May 31, 2018 compared to the Audited Income Statement as of
Fiscal Year ended May 31, 2017 (increase/decrease of 5% or more)

34.90% increase in Operating expenses

38
February 2001
Reassessment of receivables resulted to increased allowance for doubtful accounts.

92.64% increase in Fair value gain on agricultural produce

Increase in the inventory level of hybrid rice seeds.

14.29% increase in Finance cost

Increase in the level of borrowings to support working capital requirements.

6.22% increase in Finance income

Increase in the level of bank deposits.

29.90% decrease in Other Income

Unfavorable foreign exchange rate on dollar denominated transactions.

Fiscal year ended May 31, 2017 compared to fiscal year ended May 31, 2016

The Company’s sales registered a 30.74% growth for the fiscal year ended May 31,
2017 from ₱ 2.55 billion last year to ₱3.34 billion this fiscal year. The continuing
growth has been due to the continuing increase in farmer’s preference for SL-8H
seeds in assisting the Government program for rice sufficiency.

Cost of Sales in fiscal year 2017 increased to ₱2.18 billion from ₱1.53 billion in fiscal
year 2016 or an increase of 42.59%, due to increase in sales volume.

Total Operating Expenses increased by ₱70.72 million or 15.47% from ₱457.25

million is fiscal year 2016 to ₱527.97 million in fiscal year 2017.The Company hired
additional manpower and engaged in a number of activities promoting the premium
rice products. As such, increases in personnel and advertising and promotional
expenses were the major cause of the increase in the costs incurred by the
Company.

For the fiscal year ended May 31, 2017, the Company recorded a fair value gain on
agricultural produce of ₱155.93 million as compared to ₱69.71 million last fiscal year
or a huge increase of 123.68%.

Finance cost amounted to ₱283.52 million and ₱182.58 million in fiscal years 2017
and 2016, respectively. The increase in Finance cost was due to increased working
capital requirement for the expected high sales volume in the year.

Other income increased by ₱1.86 million or 40.25% in fiscal year 2017 primarily
attributable to foreign exchange gain incurred on US dollar denominated
transactions. The company recognized a Gain on disposal of Property and
Equipment of ₱0.200 million in fiscal year 2017.

The Company recognized Finance Income of ₱1.35 million in fiscal year 2017 and
₱.500 million in fiscal year 2016.

39
February 2001
The Company enjoy income tax holidays resulting from its registration with the Board
of Investment under the Investment Priority Plan. Income tax expense reflected in
the Income Statements comprise of final tax incurred on interest income on savings
deposits of the Company.

As a result of the foregoing, net income of ₱509.03 million for the fiscal year ended
May 31, 2017 registered a significant increase of 10.90% or ₱50.03 million
compared to last fiscal year’s net income of ₱458.99 million.

Material Changes to the Company’s Audited Income Statement as of Fiscal

Year ended May 31, 2017 compared to the Audited Income Statement as of
Fiscal Year ended May 31, 2016 (increase/decrease of 5% or more)

30.74% increase in Net Sales

Higher sales volume of SLAC’s hybrid rice seeds and premium rice products as the
Company expanded its market coverage.

15.47% increase in Operating expenses

Higher personnel and advertising and promotional expenses resulting from higher
sales of hybrid rice seeds and premium rice products in fiscal year 2017.

123.68% increase in Fair value gain on agricultural produce

Increase in the inventory level of hybrid rice seeds to support high volume of sales
expected for the period.

55.29% increase in Finance cost

Increase in the level of borrowings to support working capital requirements.

148.28% increase in Finance income

Increase level of bank deposits.

22.71% increase in Other Income

Favorable foreign exchange rate on dollar denominated transactions.

FINANCIAL CONDITION

Fiscal year ended May 31, 2018 compared to fiscal year ended May 31, 2017

Total assets grew by 29.28% from ₱8.42 billion in fiscal year ended May 31, 2017 to
₱10.89 billion in fiscal year ended May 31, 2018.

The Company’s net trade receivables increased by ₱693.09 million or 24.16% from
₱2.87 billion on May 2017 to ₱3.56 billion on May 2018. The increase in receivables
is due to the higher sales generated that are still uncollected as of the end of the
fiscal year.

40
February 2001
The Company’s net inventories increased by ₱938.60 million from ₱2.57 billion on
fiscal year 2017 to ₱3.51 billion in fiscal year 2018. The increase is attributable to
high yield of hybrid rice seeds during the year and fair value changes.

The Company recognized biological assets amounting to ₱332.40 million for the
parental line growing crops.

Prepayments and other currents assets increases by ₱38.59 million or 59.25% from
₱65.13 million in fiscal year 2017 to ₱103.71 million in fiscal year 2018. Majority of
the prepayments arise from advance payment of interests for the commercial
papers.

Property and equipment as of May 2018 amounted to ₱1.20 billion, a net increase of
₱112.58 million from ₱1.09 billion on May 2017. Newly acquired assets include land
in Tarlac and Talavera.

Security deposits in fiscal year 2018 rose by 82.84% or ₱7.14 million from
₱8.62million in fiscal year 2017 to ₱15.76 million in fiscal year 2018. Escrow
deposits and performance bonds contributed to such increase.

The Investment in associates account in the balance sheet amounting to ₱9.40

million reflects the amount invested in the Company’s Indonesian affiliate which
started operations during the fiscal year.

Other noncurrent assets includes the advance payment for long-term lease on a
warehouse in Marilao. The monthly amortization of payment resulted to the ₱18.74
million decrease from ₱224.78 million to ₱206.04 million.

Accounts and other payables amounted to ₱369.28 million and ₱267.90 million for
fiscal years ending May 31, 2018 and 2017, respectively. The increase is attributed
to the normal operations of the company plus the additional bank loans for lease of
vehicles and equipments.

The Company availed its Trust Receipts (“TR”) facilities made available by local
banks to procure imported and local raw materials to be used in its production.
During the fiscal year ending May 31, 2018, TR payable increased by 24.59% from
₱573.59 million to ₱714.61 million.

Short-term debts include promissory notes and commercial paper. For the fiscal year
2018, short-term notes payable increased by 23.86% or ₱1.21 billion from last year’s
₱5.08 billion to ₱6.30 billion in current year. The prevailing annual market rates
ranging from 3.88% - 5.50% and maturity dates ranging from (3) three months to (1)
one year. In addition, the Company was authorized to issue ₱2.00 billion worth of
short-term commercial papers.

The Company borrowed on long-term basis from local banks amounting to ₱500.00
million for fiscal year ending May 31, 2018, ₱100 million of which is classified as
Current Portion of Long-Term Debt in the financial statements.

41
February 2001
The Company maintains an unfunded noncontributory defined benefit plan type of
retirement plan which substantially covers all of its employees based on the
minimum contribution required by law. Pension liability decreased by ₱3.01 million
from ₱17.24 million in fiscal year 2018 to ₱20.25 million in fiscal year 2018, the
decrease is brought about by adjustments based on the latest actuarial valuation
conducted.

Stockholders’ equity grew by 21.03% from fiscal year 2017’s balance of ₱2.46 billion
to ₱2.97 billion in fiscal year 2018. ₱0.50 million from such balance is attributable to
non-controlling interest of the Company’s subsidiary. The increase in equity was
primarily due to the profitable operations of the Company.

Material Changes to the Company’s pro-forma Balance Sheet as of Fiscal Year

ended May 31, 2018 compared to the pro-forma Balance Sheet as of Fiscal
Year ended May 31, 2017 (increase/decrease of 5% or more)

145.67% increase in Cash and Cash Equivalents

From additional financing to be used for operations in coming period.

24.16% increase in Receivables - net

Higher sales revenue generated by the Company.

584.89% increase in Biological assets

Parental line growing crops

59.25% increase in Prepayments and other currents assets

Increase in advance payment of interest on commercial papers

10.33% increase in Property and equipment

Additional capital expenditures.

82.84% Increase in Security deposits

Escrow deposits on banks.

37.84% Increase in Accounts and other payable

24.59% Increase in Trust receipts payable

Additional availments as a form of financing for normal operations.

23.86% Increase in Short-term notes payable

Additional short-term borrowings and ₱2 billion pesos short-term commercial papers
authorized by SEC to cover working capital requirements

14.88% Decrease in Pension liability

Adjustments based on the latest actuarial conducted.

Fiscal year ended May 31, 2017 compared to fiscal year ended May 31, 2016

42
February 2001
Total assets grew by 19.89% from ₱7.02 billion in fiscal year ended May 31, 2016 to
₱8.42 billion in fiscal year ended May 31, 2017.

The Company’s net trade receivables increased by ₱822.34 million or 40.19% from
₱2.87 billion in fiscal year 2017 to ₱2.05 billion in fiscal year 2016. The increase in
receivables is due to the higher sales generated in fiscal year 2017. The Company’s
net inventories decreased by ₱25.57 million from ₱2.60 billion in ₱2.57 billion in
fiscal year 2017 to fiscal year 2016 . The Company recognized biological assets
amounting to ₱48.53 million for the parental line growing crops. Prepayments and
other currents assets increases by ₱12.69 million or 24.19% from ₱65.13 million in
fiscal year 2017 to ₱52.44 million in fiscal year 2016 , with the advance rental for
cold storage and warehouse lease as the major cause of the increase. The
Company invested in a new milling plant and other equipment in fiscal year 2017
which led to the increase of the Property and equipment account to ₱1.09 billion in
fiscal year 2017 from ₱643.20 million in fiscal year 2016 or an increase of 69.37%.
Security deposits in fiscal year 2017 decreased by ₱1.36 million from ₱9.98 million in
fiscal year 2016 to ₱8.62 million in fiscal year 2017.

Accounts and other payables amounted to ₱267.90 million and ₱182.18 million for
fiscal years ending May 31, 2017 and 2016, respectively. The increase can be
mainly attributed to the recognition of payables related to lease of vehicles for the
fiscal year 2017. The Company availed its Trust Receipts (“TR”) facilities made
available by local banks to procure imported and local raw materials to be used in its
production. For fiscal year 2017, TR payable decreased by 14.28% from ₱669.13
million in fiscal year 2016 to ₱573.59 million in fiscal year 2017. In addition, the
Company borrowed on short-term basis from local banks and was authorized to
issue ₱1.5 billion worth of short-term commercial papers. For the fiscal year 2017,
short-term notes payable increased by 20.85% or ₱877.35 million from fiscal year
2016’s ₱4.21 billion to ₱5.08 billion in year fiscal year 2017 with the prevailing
annual market rates ranging from 3.625% - 5.25% and maturity dates ranging from
(3) three months to (1) one year. The Company maintains an unfunded
noncontributory defined benefit plan type of retirement plan which substantially
covers all of its employees based on the minimum contribution required by law.
Pension Liability account increased by ₱9.58 million from ₱20.25 million in fiscal
year 2017 to ₱10.67 million in fiscal year 2016, the decrease is brought about by
adjustments based on the latest actuarial valuation conducted. Stockholders’ equity
grew by 25.79% from fiscal year 2016’s balance of ₱1.95 billion to ₱2.46 billion in
fiscal year 2017. The increase was primarily due to profitable operations of the
Company.

Material Changes to the Company’s pro-forma Balance Sheet as of Fiscal Year

ended May 31, 2017 compared to the pro-forma Balance Sheet as of Fiscal
Year ended May 31, 2016 (increase/decrease of 5% or more)

30.13% decrease in Cash and Cash Equivalents

40.19% increase in Receivables - net

Higher sales revenue generated by the Company’s Seeds Division.

43
February 2001
274.77% increase in Biological assets
Parental line growing crops

24.19% increase in Prepayments and other currents assets

Decrease in advance rental on cold storage and warehouse lease.

69.37% increase in Property and equipment

Additional capital expenditures.

13.65% decrease in Security deposits

47.05% increase in Accounts and other payable

14.28% decrease in Trust receipts payable

Payments of outstanding trust receipts.

20.85% increase in Short-term notes payable

Additional short-term borrowings and (1.5) one billion five hundred million pesos
short-term commercial papers authorized by SEC to cover working capital
requirements

89.71% increase in Pension liability

Adjustments based on the latest actuarial conducted.

There are no other material changes in the Company’ financial position (5% or more)
and condition that will warrant a more detailed discussion. Further, there are no
material events and uncertainties known to management that would impact or
change reported financial information and condition of the Company.

There are no known trends or demands, commitments, events or uncertainties that

will result in or that are reasonably likely to result in increasing or decreasing the
Company’s liquidity in any material way. The Company does not anticipate having
any cash flow or liquidity problems. The Company is not in default or breach of any
note, loan, lease or other indebtedness or financing arrangement requiring it to make
payments.

There are no material off-balance sheet transactions, arrangements, obligations

(including contingent obligations), and other relationships of the Company with
unconsolidated entities or other persons created during the reporting period.

There are no material commitments for capital expenditures, events or uncertainties

that have had or that are reasonably expected to have a material impact on the
continuing operations of the Company.

There are no material amounts affecting assets, liabilities, equity, net income or cash
flows that are unusual in nature; neither are there changes in estimates of amounts
reported in prior interim period of the current financial year.

44
February 2001
LIQUIDITY AND CAPITAL RESOURCES

In the years 2018, 2017 and 2016, the Company’s primary source of liquidity was
proceeds from sales and bank borrowings. Net cash from operating and financing
activities were sufficient to cover the Company’s working capital and CAPEX
requirements in the years 2018, 2017, and 2016. In addition, the Company repaid
some loans in all the periods under review. As of fiscal year ended May 31, 2018,
the Company’s cash and cash equivalents totaled ₱593.94 million.

Cash Flows

The following table sets forth information from the Company’s pro forma statements
of cash flows for the period indicated:

For the years ended May 31

(audited)
Cash Flow 2018 2017 2016
Net cash provided by (used (1,116,409,410) (301,192,425) (847,474,518)
in) operating activities
Net cash provided by (used (382,176,788) (626,678,462) (657,447,559)
in) investing activities
Net cash provided by (used 1,850,410,446 827,717,923 1,562,960,705
in) financing activities

Indebtedness

To date, the Company has not been in default in paying interests and principal
amortizations

KEY PERFORMANCE INDICATORS

The Company’s top five (5) key performance indicators are listed below:

As of and for the years ended May 31

2018 2017 2016
Current Ratio¹ 1.08 0.98 1.00
Debt to Equity Ratio² 2.64 2.43 2.60
Earnings per Share³ 0.44 0.44 0.40
Earnings before Interest and Taxes⁴ 833.33M 793.73M 641.68M
Return on Equity⁵ 17.01% 20.73% 23.50%

Notes:

(1) Current Assets/Current Liabilities

45
February 2001
(2) Total Liabilities/Stockholder’s Equity
(3) Net Income/Outstanding Shares
(4) Net Income plus Interest Expenses and Provision for Income Tax
(5) Net Income/Total Stockholders’ Equity
(6) The computed return on equity on a quarterly basis is reflective of the first quarter
net income only. It must be noted that the Company’s revenues are subject to
seasonality and about 60% of the revenues for the year is historically realized in the
second half of its fiscal year (December to May). Consequently, there is historically a
very significant increase in the Company's net income during the same period
compared to the prior period (June to November).

These key indicators were chosen to provide Management with a measure of the
Company’s financial strength (i.e., Current Ratio, Debt to Equity Ratio, and Earnings
before Interest and Taxes) and the Company’s ability to maximize the value of its
stockholders’ investment in the Company (i.e., Return on Equity, Earnings per
Share). Current ratio shows the liquidity of the Company by measuring how much
current assets it has over its current liabilities. The Debt to Equity Ratio indicates
how much debt the Company has incurred for each amount of equity in the
Company. A higher ratio means that the Company is more aggressive in its use of
capital. Earnings per share shows how much the Company is earning for each share
that is currently issued and outstanding. Earnings before interest and taxes indicates
how much income the Company is generating from its entire operations before
interest charges and taxes are deducted. Return on Equity shows how much profits
the Company is making for each amount of equity invested in the Company.
Likewise, these ratios are used to gauge the performance of the Company in the
industry in which it operates.

Significant Accounting Policies

Current versus Non-current Classification

The Group presents assets and liabilities in consolidated statement of financial
position based on current/non-current classification. An asset is current when it
is:

 Expected to be realized or intended to be sold or consumed within normal

operating cycle
 Held primarily for the purpose of trading
 Expected to be realized 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 within normal operating cycle

46
February 2001
  It is held primarily for the purpose of trading
 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 Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and
liabilities.

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 Group.

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.

The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximizing the
use of relevant observable inputs and minimizing the use of unobservable
inputs.

All assets and liabilities for which fair value is measured or disclosed in the
consolidated financial statements are categorized 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 – Quoted (unadjusted) market prices in active markets for identical

assets or liabilities
 Level 2 – Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable
 Level 3 – Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial
statements on a recurring basis, the Group determines whether transfers have
47
February 2001
 occurred between Levels in the hierarchy by re-assessing categorization (based
on the lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group 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 as explained above.

Cash
Cash includes cash on hand and in banks and are stated at face amount in the
consolidated statement of financial position.

Financial Instruments
Date of recognition
The Group recognizes a financial asset or a financial liability in the consolidated
statement of financial position when it becomes a party to the contractual
provisions of the instrument. Purchases or sales of financial assets that require
delivery of assets within the time frame established by regulation or convention
in the marketplace are recognized on the settlement date.
Initial recognition
All financial instruments are initially recognized at fair value. Except for financial
assets and financial liabilities at fair value through profit or loss (FVPL), the initial
measurement of financial assets and financial liabilities include transaction
costs. Financial assets are classified as either financial assets at FVPL, held-to-
maturity investments, available for sale (AFS) financial assets, or loans and
receivables. Financial liabilities are classified as either financial liabilities at
FVPL or other financial liabilities. The classification depends on the purpose for
which the financial assets were acquired and financial liabilities incurred and
whether these are quoted in an active market. The Group determines the
classification of its financial instruments at initial recognition and, where allowed
and appropriate, re-evaluates such designation at every reporting date.

Financial instruments are classified as liabilities or equity in accordance with the

substance of the contractual arrangement. Interest, dividends, gains and losses
relating to a financial instrument or a component that is a financial liability, are
reported as expense or income. Distributions to holders of financial instruments
classified as equity are charged directly to equity net of any related income tax
benefits.

As of May 31, 2018 and 2017, the financial assets of the Group are of the nature
of loans and receivables, while its financial liabilities are of the nature of other
financial liabilities.

‘Day 1’ difference
Where the transaction price in a non-active market is different to the fair value
from other observable current market transactions in the same instrument or
based on a valuation technique whose variables include only data from
observable market, the Group recognizes the difference between the transaction
price and fair value (a ‘Day 1’ difference) in the profit or loss unless it qualifies

48
February 2001
 for recognition as some other type of asset. In cases where the valuation
technique used is made of data which is not observable, the difference between
the transaction price and model value is only recognized in the profit or loss
when the inputs become observable or when the instrument is derecognized.
For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ profit or loss amount.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. These are not
entered into with intention of immediate or short-term resale and are not
designated as AFS financial assets or financial assets at FVPL.

After initial measurement, loans and receivables are subsequently carried at

amortized cost using the effective interest rate method (EIR) less allowance for
impairment. Amortized cost is calculated by taking into account any discount or
premium on acquisition and includes fees that are an integral part of the EIR.
The amortization is included in the “Finance income” caption in the consolidated
statement of comprehensive income. The losses arising from impairment of
such loans and receivables are charged to “Provision for bad debts” account
under operating expenses caption in the consolidated statement of
comprehensive income. This accounting policy applies primarily to the Group’s
“Receivables” and “Security deposits”.

Other financial liabilities at amortized cost

All loans and borrowings are initially recognized at fair value of the consideration
received less directly attributable transaction costs. After initial measurement,
other financial liabilities are subsequently measured at IER method. Amortized
cost is calculated by taking into account any discount or premium on acquisition
and fees that are an integral part of the EIR. Any effects of restatement of
foreign currency-denominated assets or liabilities are recognized in profit or loss.

This accounting policy applies primarily to the Group’s “Accounts and other
payables”, “Trust receipts payable”, “Short-term debt” and “Long-term debt”.

Derecognition of Financial Assets and Financial Liabilities

Financial asset
A financial asset (or, where applicable a part of a financial asset or part of a
group of similar financial assets) is derecognized when:

 the right to receive cash flows from the asset has expired;
 the Group retains the right to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to a third
party under a “pass-through” arrangement; or
 the Group has transferred its right to receive cash flows from the asset and
either: (i) has transferred substantially all the risks and rewards of the asset,
or (ii) has neither transferred nor retained the risk and rewards of the asset
but has transferred the control of the asset.

49
February 2001
 When the Group has transferred its right to receive cash flows from an asset or
has entered into a pass-through arrangement, and has neither transferred nor
retained substantially all the risks and rewards of the asset nor transferred
control of the asset, the asset is recognized to the extent of the Group’s
continuing involvement in the asset. Continuing involvement that takes the form
of a guarantee over the transferred asset is measured at the lower of original
carrying amount of the asset and the maximum amount of consideration that the
Group could be required to repay.

Financial liability
A financial liability is derecognized when the obligation under the liability is
discharged or cancelled or has expired.

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 a
derecognition of the original liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognized in the consolidated
statement of comprehensive income.

Impairment of Financial Assets

The Group assesses at each financial reporting date 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 deemed to be impaired if, and
only if, there is objective evidence of impairment as a result of one or more
events that has occurred after the initial recognition of the asset (an incurred
‘loss event’) and that loss event (or events) has an impact on the estimated
future cash flows of the financial asset or the group of financial assets that can
be reliably estimated. Objective evidence of impairment may include indications
that the borrower or a group of borrowers is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability
that they will enter bankruptcy or other financial reorganization and where
observable data indicate that there is measurable decrease in the estimated
future cash flows, such as changes in arrears or economic conditions that
correlate with defaults. For the Group’s receivables from customers, evidence of
impairment may also include non-collection of the Group’s trade receivables,
which remain unpaid after series of follow ups upon lapse of credit terms.

Loans and receivables

For loans and receivables carried at amortized cost, the Group first assesses
whether objective evidence of impairment exists individually for financial assets
that are individually significant, or collectively for financial assets that are not
individually significant. If the Group determines that no objective evidence of
impairment exists for individually assessed financial asset, whether significant or
not, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses for impairment.

Those characteristics are relevant to the estimation of future cash flows for
groups of such assets by being indicative of the debtors’ ability to pay all
amounts due according to the contractual terms of the assets being evaluated.
50
February 2001
 Assets that are individually assessed for impairment and for which an
impairment loss is, or continues to be, recognized are not included in a collective
assessment for impairment.

If there is objective evidence that an impairment loss on financial asset carried at

amortized cost (e.g., loans and receivables) has been incurred, the amount of
the loss is measured as the difference between the assets’ carrying amount and
the present value of the estimated future cash flows discounted at the asset’s
original EIR. The carrying amount of the asset is reduced through use of an
allowance account and the amount of loss is charged to the consolidated
statement of comprehensive income. Interest income continues to be recognized
based on the original EIR of the asset. Receivables, together with the
associated allowance accounts, are written off when there is no realistic
prospect of future recovery and all collateral has been realized.

If, in a subsequent year, the amount of the estimated impairment loss decreases
because of an event occurring after the impairment was recognized, the
previously recognized impairment loss is reversed.

Any subsequent reversal of an impairment loss is recognized in consolidated

statement of comprehensive income, to the extent that the carrying value of the
asset does not exceed its amortized cost at the reversal date.

Future cash flows in a group of financial assets that are collectively evaluated for
impairment are estimated on the basis of historical loss experience for assets
with credit risk characteristics similar to those in the group. Historical loss
experience is adjusted on the basis of current observable data to reflect the
effects of current conditions that did not affect the period on which the historical
loss experience is based and to remove the effects of conditions in the historical
period that do not exist currently.

The methodology and assumptions used for estimating future cash flows are
reviewed regularly by the Group to reduce any differences between loss
estimates and actual loss experience.

Offsetting of Financial Instruments

Financial instruments are offset and the net amount reported in the consolidated
statement of financial position if, and only if, there is currently enforceable legal
right to offset the recognized amounts and the Group intends to either settle on a
net basis, or to realize the asset and settle the liability simultaneously. The
Group assesses that it has currently enforceable right of offset if the right is not
contingent on a future event, and is legally enforceable in the normal course of
business, event of default, and event of insolvency or bankruptcy of the Group
and all of the counterparties.

Inventories
Milled rice
The Group uses a standard costing method to account for milled rice inventories.
The cost of processed milled rice inventories comprises all costs of purchase
cost of conversion and other costs incurred in bringing the inventories to their
51
February 2001
 present location and condition. The costs of conversion include raw materials,
direct labor, certain freight and warehousing cost, indirect production and
overhead cost.

Agricultural produce
Agricultural produce (i.e. hybrid rice seeds) are carried at fair value less
estimated point-of-sale costs at point of harvest. Agricultural produce are the
harvested product from the Group’s biological assets. A harvest occurs when the
biological asset’s life processes cease.

The fair value is determined by reference to current market transaction price.

The fair value resulting from initial measurement is subsequently used as cost if
the product is subsequently sold. Other costs such as drying and chemical
treatment are included but only to the extent that these are incurred in bringing
the agricultural produce to its present location and condition. Point-of-sale costs
exclude transport and other costs necessary to get the agricultural produce to a
market. Gains and losses arising from changes in fair values are included in the
consolidated statement of comprehensive income for the period in which they
arise.

Agricultural and supplies inventories

Agricultural and supplies inventories (i.e. packaging materials) are valued at the
lower of cost or NRV. Costs are determined using the moving average method.

Dried palay
Dried palay are valued at the lower of cost or NRV. Cost is determined using the
moving average method. Cost includes purchase price and other cost
attributable in bringing the dried palay to its intended condition and location such
as cost for labor and freight in

Biological Assets
The biological assets of the Group consist of parental line and hybrid seeds
growing crops. The cost of biological assets such as labor cost, seeds, fertilizers
and chemicals are based on the actual cost.

The Group’s biological assets are measured at their fair value. The Group uses
the future selling price and gross margin of finished goods less future growing
costs applied to the estimated volume of harvest as the basis of fair value.

Property and Equipment

Land is stated at cost less impairment in value. Property and equipment, other
than land, is stated at cost less accumulated depreciation and accumulated
impairment in value. The initial costs of property and equipment consist of its
construction cost or purchase price including non-refundable taxes, import duties
and taxes, and any directly attributable costs of bringing the property and
equipment to working condition and location for its intended use.

52
February 2001
 Depreciation commences once the property and equipment are put into
operational use and is computed on a straight-line basis over the estimated
useful lives of the property and equipment as follows:

Years
Machinery and equipment 5
Buildings and warehouse 5
Office equipment 5
Transportation equipment 5
Tools and equipment 5
Furniture and fixtures 2

Subsequent costs are capitalized as part of property and equipment only when it
is probable that economic benefits associated with the item will flow to the Group
and the cost of the property and equipment can be measured reliably. All other
repairs and maintenance costs are charged to current operations as incurred.

The assets’ residual values, useful lives and depreciation method are reviewed
at each financial reporting date and adjusted if appropriate. Impairment reviews
take place when events or changes in circumstances indicate that the carrying
values may not be recoverable. Impairment losses are recognized in the
consolidated statement of comprehensive income.

An item of property and equipment is derecognized upon disposal or when no

further future economic benefits are expected from its use or disposal. Any gain
or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the original cost of the asset) is included
in the consolidated statement of comprehensive income in the year the asset is
derecognized. This is not applicable to items that still have a useful life but are
currently classified as idle, depreciation continues for those items.

Assets under construction are stated at cost. These include costs of construction
of property and equipment and other direct costs. Assets under construction are
not depreciated until such time as the relevant assets are completed and put into
operational use.
Investment in an Associate
Associates are entities in which the Group has significant influence and which are
neither subsidiaries nor joint ventures of the Group. Significant influence is the
power to participate in the financial and operating policy decisions of the
investee, but is not control or joint control over those policies. The considerations
made in determining significant influence are similar to those necessary to
determine control over subsidiaries.

Investments in an associate is accounted for under the equity method of

accounting in the consolidated financial statements.

Under the equity method, the investments in associate is carried in the

consolidated statements of financial position at cost plus post-acquisition
changes in the Group’s share of net assets of the associate, less dividends
declared and impairment in value. If the Group’s share of losses of an associate
53
February 2001
 equals or exceeds its interest in the associate, the Group discontinues
recognizing its share of further losses. The interest in an associate is the
carrying amount of the investment in the associate under the equity method
together with any long-term interests that, in substance, form part of the
investor’s net investment in the associate. After application of the equity method,
the Group determines whether it is necessary to recognize any impairment loss
with respect to the Group’s net investments in the associate.

The consolidated statements of comprehensive income reflects the Group’s

share in the results of operations of its associate. This is included in the “Equity
share in net losses of an associate” account in the consolidated statements of
comprehensive income. After the Group’s interest is reduced to zero, additional
losses are provided to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the associate.
When there has been a change recognized directly in the equity of the associate,
the Group recognizes its share of any change and discloses this, when
applicable, in the consolidated statements of changes in equity.
The reporting dates of the associate and the Group are identical and the
accounting policies of the associate conform to those used by the Group for like
transactions and events in similar circumstances.
Unrealized gains arising from intercompany transactions with its associate are
eliminated to the extent of the Group’s interest in the associate. Unrealized
losses are eliminated similarly but only to the extent that there is no evidence of
impairment of the asset transferred.
Upon loss of significant influence over the associate, the Group measures and
recognizes any remaining investment at fair value and will subsequently be
measured using the policy on financial assets. Any difference between the
carrying amount of the associate upon loss of significant influence and the fair
value of the remaining investment and proceeds from disposal is recognized in
profit or loss.

Development Cost
Expenditure on research activities, undertaken with the prospect of gaining new
scientific or technical knowledge and understanding, is recognized in the
consolidated statement of comprehensive income.

Development expenditures refer to hybrid seeds development cost. Development

expenditures on an individual project are recognized as an intangible asset when
the Group can demonstrate:

 the technical feasibility of completing the intangible asset so that it will be

available for use or sale;
 its intention to complete and its ability to use or sell the asset;
 how the asset will generate future economic benefits;
 the availability of resources to complete the asset; and
 the ability to measure reliably the expenditure during development.

The Group capitalizes hybrid seed development costs once management deems
a hybrid seed is probable of being commercially viable. This occurs in tandem
54
February 2001
 with management’s determination that a seed will provide high-yield crops and
crops that are tolerant to adverse tropical conditions.

Following initial recognition of the development expenditure as an asset, the

asset is carried at cost less any accumulated amortization and accumulated
impairment losses. Amortization of the asset begins when development is
complete and the asset is available for use. It is amortized over the period of
expected future benefit.

Subsequent expenditures is capitalized only when it increases the future

economic benefits embodied in the specific asses to which it relates.

Development costs are amortized on a straight-line basis over the EUL of twenty
(20) years. Amortization of “Development costs” is recorded in consolidated
statement of comprehensive income under “Cost of sales” account in profit or
loss and “Inventories” in the consolidated statements of financial position. During
the period of development, the hybrid seeds development cost is tested for
impairment annually.

Prepaid Expenses
Prepaid expenses are being reduced on a monthly basis by the amount already
expensed for the period.

Deposit for future investment

The Group’s share in an undivided interests on unincorporated joint ventures are
classified by the management as outside the scope of PFRS 11, Joint
Arrangements.

Impairment of Nonfinancial Assets

The Group assesses at each financial reporting date whether there is an
indication that and an asset may be impaired. If any such indication exists, the
Group makes an estimate of the asset’s recoverable amount. An asset’s
recoverable amount is the higher of an asset’s or cash-generating unit’s fair value
less costs to sell and its value in use and is determined for an individual asset,
unless the asset does not generate cash inflows that is largely independent of
those from other assets or groups of assets.

Where the carrying amount of an asset exceeds its recoverable amount, the
asset is considered impaired and is written down to its recoverable amount.
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.

Impairment losses are recognized in the consolidated statement of

comprehensive income in those expense categories consistent with the function
of the impaired asset.

An assessment is made at each financial reporting date as to whether there is an

indication that previously recognized impairment losses may no longer exist or
55
February 2001
 may have decreased. If such indication exists, the recoverable amount is
estimated.

A previously recognized impairment loss is reversed only if there has been a

change in the estimates used to determine the asset’s recoverable amount since
the last impairment loss was recognized. If that is the case, the carrying amount
of the asset is increased to its recoverable amount. That increased amount
cannot exceed the carrying amount that would have been determined, net of
depreciation and amortization, had no impairment loss been recognized for the
asset in prior years.

Such reversal is recognized in the consolidated statement of comprehensive

income unless the asset is carried at revalued amount, in which case, the
reversal is treated as a revaluation increase. After such reversal, the depreciation
and amortization are adjusted in future periods to allocate the asset’s revised
carrying amount, less any residual value, on a systematic basis over its
remaining useful life.

This accounting policy applies primarily to the Group’s property and equipment
and development costs.

Foreign Currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional
currencies of Group entities at the exchange rate at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting
date are retranslated to the functional currency at the exchange rate at that date.
The foreign currency gain or loss on monetary items is the difference between
amortized cost in the functional currency at the beginning of the year, adjusted for
effective interest and payments during the year, and the amortized cost in foreign
currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are

measured at fair value are retranslated to the functional currency at the exchange
rate at the date that the fair value was determined. Non-monetary items in a
foreign currency that are measured in terms of historical cost are translated using
the exchange rate at the date of the transaction.

Foreign currency differences arising on translation are recognized in the income

statement, except for differences which are recognized in OCI arising on the
retranslation of qualifying cash flow hedges to the extent the hedge is effective.

Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on acquisition, are translated to Philippine Peso at exchange
rates at the reporting date. The income and expenses of foreign operations are
translated to Philippine Peso using monthly average exchange rates.

56
February 2001
 Foreign currency differences are recognized in other comprehensive income and
presented in the foreign currency translation adjustment in equity. However, if the
operation is a non-wholly-owned subsidiary, then the relevant proportionate share
of the translation difference is allocated to the non-controlling interests. When a
foreign operation is disposed of such that control, or joint control is lost, the
cumulative amount in the translation adjustment related to that foreign operation
is reclassified to profit or loss as part of the gain or loss on disposal. When the
Group disposes of only part of its interest in a subsidiary that includes a foreign
operation while retaining control, the relevant proportion of the cumulative
amount is reattributed to non-controlling interests. When the Group disposes of
only part of its investment in joint venture that includes a foreign operation while
retaining significant influence or joint control, the relevant proportion of the
cumulative amount is reclassified to the income statement.

When the settlement of a monetary item that is a receivable from or payable to a

foreign operation is neither planned nor likely in the foreseeable future, foreign
exchange gains and losses arising from such a monetary item are considered to
form part of a net investment in a foreign operation and are recognized in other
comprehensive income, and presented in the translation adjustment in equity.

Taxes
Current tax
Current tax assets and liabilities for the current and prior periods are measured at
the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted at the financial reporting date.

Deferred tax
Deferred tax is provided, using the balance sheet liability method, on all
temporary differences, with certain exceptions, at financial reporting date
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences and
deferred tax assets are recognized for all deductible temporary differences,
carryforward of unused tax credits from excess minimum corporate income tax
(MCIT) and unused net operating loss carry over (NOLCO), to the extent that it is
probable that taxable profit will be available against which the deductible
temporary differences and the carryforward of unused tax credits from MCIT and
unused NOLCO can be utilized.

The carrying amount of deferred tax assets is reviewed at each financial reporting
date and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are reassessed at each financial reporting date
and are recognized to the extent that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered.

57
February 2001
 Deferred tax relating to items recognized in OCI or directly in equity is recognized
in the consolidated statement of comprehensive income and consolidated
statement of changes in equity and not in profit or loss.

The Group does not recognize deferred tax on temporary differences which are
expected to reverse for periods where Income Tax Holiday (ITH) is in effect
(Notes 26 and 29).

Deferred tax assets and liabilities are measured at the tax rates that are expected
to apply to the period when the asset is realized or the liability is settled, based
on tax rates and tax laws that have been enacted or substantively enacted at the
financial reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable
right exists to offset current tax asset against current tax liability and the deferred
taxes relate to the same taxable entity and the same taxation authority.

Provisions
Provisions are recognized only when the Group has present obligation (legal or
constructive) 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 amount of obligation. Provisions are
reviewed at each financial reporting date and adjusted to reflect the current best
estimate.

Deposit for Future Stock Subscription

When obligations are payable in fixed number of shares, these are classified as
equity only if all of the following elements are present as of end of the reporting
period, otherwise, these are classified as liabilities:
(a) the unissued authorized capital stock of the entity is insufficient to cover the
amount of shares
indicated in the contract;
(b) there is BOD approval on the proposed increase in authorized capital stock
(for which a
deposit was received by the corporation);
(c) there is stockholders’ approval of said proposed increase; and
(d) the application for the approval of the proposed increase has been filed with
the SEC.

Pension Liability
Defined benefit plan
The defined benefit liability is the aggregate of the present value of the defined
benefit obligation less the fair value of plan assets (if any) out of which the
obligations are to be settled directly. If such aggregate is negative, the asset is
measured at the lower of such aggregate and the present value of any economic
benefits available in the form of refunds from the plan or reductions in the future
contributions to the plan.

58
February 2001
 Defined benefit costs on the Group’s defined benefit retirement plan are
actuarially computed using the projected unit credit (PUC) valuation method.
Under this method, the current service cost is the present value of retirement
benefits payable in the future with respect to the services rendered in the current
period.

Defined benefit costs comprise the following:

(a) current service cost;
(b) interest on the defined benefit liability and
(c) remeasurements of defined benefit liability.

Service costs which include current service costs and gains or losses on non-
routine settlements are recognized as expense in profit or loss. Past service
costs are recognized when plan amendment or curtailment occurs. These
amounts are calculated periodically by independent qualified actuary.

Interest on the defined benefit liability or asset is the change during the period in
the defined benefit liability or asset that arises from the passage of time which is
determined by applying the discount rate based on the risk-free interest rates of
government issued bonds to the defined benefit liability or asset. Interest on the
net defined benefit liability or asset is recognized as expense in profit or loss.

Remeasurements comprising actuarial gains and losses are recognized

immediately in “Remeasurement gains (losses) on pension liability” account
presented in OCI in the period in which they arise. Remeasurements are not
reclassified to profit or loss in subsequent periods.

Termination Benefit
Termination benefits are employee benefits provided in exchange for the
termination of an employee’s employment as a result of either an entity’s decision
to terminate an employee’s employment before the normal retirement date or an
employee’s decision to accept an offer of benefits in exchange for the termination
of employment.

A liability and expense for a termination benefit is recognized at the earlier of

when the entity can no longer withdraw the offer of those benefits and when the
entity recognized related restructuring costs. Initial recognition and subsequent
changes to termination benefits are measured in accordance with the nature of
the employee benefit, as either post-employment benefits, short-term employee
benefits, or other long-term benefits.

Employee Leave Entitlement

Employee entitlements to annual leave are recognized as a liability when they are
accrued to the employees. The undiscounted liability for leave expected to be
settled wholly before twelve months after the end of the annual reporting period is
recognized for services rendered by employees up to the end of the reporting
period.

Leases

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February 2001
 The determination of whether an arrangement is (or contains) a lease is based on
the substance of the arrangement at the inception of the lease. The arrangement
is, or contains, a lease if fulfilment of the arrangement is dependent on the use of
a specific asset (or assets) and the arrangement conveys a right to use the asset
(or assets), even if that asset is (or those assets are) not explicitly specified in an
arrangement.

Group as a lessee
A lease is classified at the inception date as a finance lease or an operating
lease. A lease that transfers substantially all the risks and rewards incidental to
ownership to the Group is classified as a finance lease.

Finance leases are capitalized at the commencement of the lease at the

inception date fair value of the leased property or, if lower, at the present value of
the minimum lease payments. Lease payments are apportioned between finance
charges and reduction of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are recognized
in finance costs in the consolidated statement of comprehensive income.

A leased asset is depreciated over the useful life of the asset. However, if there
is no reasonable certainty that the Group will obtain ownership by the end of the
lease term, the asset is depreciated over the shorter of the estimated useful life of
the asset and the lease term.

An operating lease is a lease other than a finance lease. Operating lease

payments are recognized as an operating expense in the consolidated statement
of profit or loss on a straight-line basis over the lease term.
Basic/Diluted Earnings Per Share
Basic Earnings Per Share (EPS)
Basic EPS is calculated by dividing net income for the year attributable to
common shareholders of the Group by the weighted average number of common
shares outstanding during the year, with the retroactive adjustments for any stock
dividends declared.

Diluted EPS
Diluted EPS amounts are calculated by dividing the net income attributable to
ordinary shareholders of the Group by the weighted average number of ordinary
shares outstanding adjusted for any stock dividends declared during the year
plus weighted average number of ordinary shares that would be issued on the
conversion of all dilutive ordinary shares into ordinary shares.

Equity
Capital stock is measured at par value for all shares issued. When the Group
issues shares in excess of par, the excess is recognized as additional paid-in
capital (APIC). Incremental costs incurred directly attributable to the issuance of
new shares are treated as deduction from APIC.

Retained earnings represent accumulated earnings of the Group less dividends

declared.

60
February 2001
 Revenue and Income Recognition
Revenue is recognized to the extent that it is probable that the future economic
benefits will flow to the Group and the amount of revenue can be measured
reliably. Revenue is measured at the fair value of the consideration received or
receivable, excluding discounts, returns, rebates and other sales taxes.

The Group assesses its revenue arrangements against specific criteria in order to
determine if it is acting as principal or agent. The Group has concluded that it is
acting as principal in all of its revenue agreements since the Group is the primary
obligor in all of its revenue arrangements, has pricing latitude and is also exposed
to inventory and credit risks. The following specific recognition criteria must also
be met before revenue is recognized:

Revenue from sale of products

Revenue from sales of hybrid seeds and rice in the ordinary course of activities is
measured at the fair value of the consideration received or receivable, net of
returns and allowances, trade discounts and volume rebates. Revenue is
recognized when the significant risks and rewards of ownership of the goods
have passed to the buyer, recovery of the consideration is probable, the
associated costs and possible return of goods can be estimated reliably, there is
no continuing management involvement with the goods, and the amount of
revenue can be measured reliably. If it is probable that discounts will be granted
and the amount can be measured reliably, then the discount is recognized as a
reduction of revenue as the sales are recognized.

Finance income
Finance income is recognized as it accrues taking into account the effective yield
of the assets.

Other Comprehensive Income (OCI)

OCI are items of income and expense that are not recognized in profit or loss for
the year in accordance with PFRS. The Group has recognized OCI for the years
ended May 31, 2018, 2017 and 2016 pertaining to remeasurement gains and
losses arising on defined benefit obligation adjustment which cannot be recycled
to profit or loss in future periods. During the current year, the Group has
recognized OCI item on cumulative translation adjustment of the Subsidiary’s
account balances which can be recycled to profit or loss in future periods.

Cost of Sales
Cost of sales includes the purchase price of the products sold, as well as costs
that are directly attributable in bringing the products to their present location and
condition. These costs include the costs of direct material, labor and overhead
costs. Cost of sales is recognized as expense when the related goods are sold
and delivered.

Operating Expenses

61
February 2001
 Operating expenses constitute costs of administering the business. These are
recognized as expenses as incurred.

Operating Segment
The Group’s operating businesses are organized and managed separately
according to the type of the products provided, with each segment representing a
strategic business unit that offers different products and serves different markets.
Financial information on business segments is presented in Note 6 to the Group’s
consolidated financial statements.

Contingencies
Contingent liabilities are not recognized in the consolidated financial statements.
These are disclosed unless the possibility of an outflow of resources embodying
economic benefits is remote. Contingent assets are not recognized in the
consolidated financial statements but disclosed when an inflow of economic
benefits is probable.

Events after the Reporting Date

Post year-end events that provide additional information about the Group’s
position at the financial reporting date (adjusting events) are reflected in the
consolidated financial statements. Post year-end events that are non-adjusting
events are disclosed in the notes to the consolidated financial statements, when
material.

EXTERNAL AUDIT FEES AND SERVICES

The financial statements of the Company for the periods ended May 31, 2018, 2017
and 2016 appearing in this Report have been audited by SyCip Gorres Velayo & Co.,
independent auditor, as set forth in their report thereon appearing elsewhere herein.
The partner-in-charge for the periods ended May 31, 2018, 2017 and 2016 is Ms.
Jennifer D. Ticlao, CPA. There has been no resignation, dismissal or otherwise
cessation of services of and by the independent auditor and there has yet been no
rotation or change in the handling partner in compliance with SEC Memorandum
Circular No. 8, series of 2003 and Rule 68(3)(b)(iv) of the Amended Implementing
Rules and Regulations of the Securities Regulation Code.

The aggregate professional fees for the independent auditor in the last two fiscal
years amounted to Php 4,435,200 inclusive of taxes.

Type of Service Aggregate Nature of

2018 2017 Service
Audit and Audit Php2,217,600 Php2,217,600 Audit of the
Related Fees financial
statements
Tax Fees None None None
All Other Fees None None None
Total External Audit Php2,217,600 Php2,217,600
62
February 2001
 Fees

The Board of Directors in consultation with Management review and approve the
audit plan and scope of work for the above services and ensure that the rates are
competitive as compared to the fees charged by other equally competent external
auditors performing similar nature ad volume of activities.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING

AND FINANCIAL DISCLOSURE

The Company and SyCip Gorres Velayo & Co. have not had any disagreements with
regard to any matter relating to accounting principles or practices, financial
statement disclosures or auditing scope or procedures.

MATERIAL CONTRACTS & AGREEMENTS

The Company’s principal contracts generally consist of Memorandum of Agreements

with government agencies and different Corporations. The Company also has
existing financing agreements. Save for the contracts mentioned below, the
Company is not a party to any contract of material importance and outside the usual
course of business, and the Directors do not know of any such contract involving the
Company.

Expiry
Date/
Consideratio
Date Name of Contract Parties Term of
n
the
contract

March 3, 2015 Collaboration Agreement - This Bangladesh Royalties If within 3

is a renewal contract for the Agricultural shall be paid consecutiv
supply of good genetically pure Developmen by BADC to e years,
parental lines to be used for F1 t Corporation SLAC in the the total
seed production (AXR) at amount of seed
US$7.50/kg, and joint hybrid US$0.40/kg, production
seed production. computed on is less
the basis of than 1200
the amount of ha., the
actual Parties
harvest of may agree
seed yield, to to
be paid by 31 terminate
December of the
every year Agreement
after the .
amount of
royalty is Renewabl
63
February 2001
 finalized by e upon
both Parties. mutual
agreement
of the
Parties.

Dec. 8, 2014 Memorandum of Agreement on Calmwind SLAC will

the Hybrid Rice Production in Pty Ltd. provide its
South Pacific Nations such as (CPL) high-yielding
Papua New Guinea, Fiji, hybrid rice
Samoa and Solomon Islands. seeds to be
planted in
CPL’s rice
fields in
South Pacific
nations. CPL
in turn will
provide
exclusivity in
favor of
SLAC in the
supply, sale
and
production of
such high-
yielding
hybrid rice
within CPL’s
territorial and
operational
jurisdiction in
said South
Pacific
nations.

Item 7. Financial Statements

Financial Statements and, if applicable, Pro forma Financial Statements

meeting the requirements of SRC Rule 68, as amended, Form and Content of
Financial Statements, shall be furnished as specified therein.

Item 8. Changes in and Disagreements With Accountants on Accounting and

Financial Disclosure

64
February 2001
The Company and SyCip Gorres Velayo & Co. have not had any disagreements with
regard to any matter relating to accounting principles or practices, financial
statement disclosures or auditing scope or procedures.

PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer

DIRECTORS AND SENIOR MANAGEMENT

The Company’s Board of Directors is responsible for over-all management and

direction of the Company. The Board meets to review and monitor the Company’s
future plans. The Company has nine (9) directors.

The table below sets forth each member of the Company’s Board elected during the
most recent annual stockholder’s meeting and are to serve until the next annual
stockholders’ meeting or until their successors have been duly elected and qualified.

Name Designation
Henry Lim Bon Liong Chairman/President and CEO
Joseph Lim Bon Huan Director
Gerry Lim Bon Hiong Director/Executive Vice President and CFO
Ruben Lim Bon Siong Director
Evelyn Lim Director
Diosdado C. Salvador, Jr. Independent Director
Gregorio Pio P. Catapang Jr. Independent Director
Christine P. Base Corporate Secretary

Henry Lim Bon Liong, 67, Filipino, is the Chairman, President and Chief Executive
Officer of the Company since its inception. He is currently the Chairman and Chief
Executive Officer of Sterling Paper Products Enterprises, Inc., Central Book Store,
Inc., Expressions Stationery Shop Inc., S.P. Properties, Inc., and Straight Lines
International, Inc. He is also a Director of the Philippine Stationers Association, Inc.
and of the Philippine School Pad & Notebook Manufacturers Association, Chairman
of the Agriculture Committee of the Philippine Chamber of Commerce &Industry,
Inc., and a Vice President and Board Member of the Federation of Filipino-Chinese
Chamber of Commerce & Industry. He was formerly the President of the Philippine
Stationers Association, Inc. in 1995 and of the Philippine School Pad & Notebook
Manufacturers Association in 2000, the Chairman of the Food Security Committee of
the Philippine Chamber of Commerce & Industry, Inc. in 2006, and the executive
Director & Vice Chairman of the External Affairs Committee of the Federation of
Filipino-Chinese Chamber of Commerce & Industry in 1999. Mr. Lim graduated from
the University of the Philippines with a Bachelor of Science degree in Mechanical
Engineering in 1972. He attended the Strategic Business Economics Program at the
University of Asia and the Pacific in 1992 and the Executive Education Program –
Owner/President Management Program at the Harvard Business School from 2003 -
2005.

65
February 2001
Joseph Lim Bon Huan, 65, Filipino, is a Director of the Company since its
inception. He is currently the President and Chief Operating Officer of Sterling Paper
Products Enterprises, Inc., SP Properties, Inc., Central Bookstore Inc., and Straight
Lines International, Inc, President of Expressions Stationery Shop, and Vice
President of QCABI. He is also in the Board of Trustees of Ai-Hu Foundation
Incorporated and is a Board Member in the Federation of Filipino-Chinese Chamber
of Commerce & Industry, Inc. He was formerly the Executive Director of the
Federation of Filipino-Chinese Chamber of Commerce & Industry, Inc. from 2005 to
2009, the President of Ai Hu Foundation Incorporated from 2003 to 2010 and of
Bulacan Commercial & Industrial Association, Inc from 2004 to 2004. He completed
subjects leading to a Bachelor of Science degree in Electrical Engineering from the
University of the Philippines.

Gerry Lim Bon Hiong, 58, Filipino, has been a Director since the Company’s
inception and is currently the Executive Vice President and CFO of the Company. He
is currently the President of Sterling Global Call Center Inc., the Executive Vice
President of Sterling Paper Products Enterprises, Inc., Treasurer of SP Properties,
Inc. and Vice President for Marketing of Straight Lines International, Inc. Mr. Lim
graduated from the University of Santo Tomas with a Bachelor of Science degree in
Business Administration, Major in Marketing in 1981.

Ruben Lim Bon Siong, 55, Filipino, is a Director of the Company since its inception.
By profession, Mr. Ruben Lim Bon Siong is a Doctor of Medicine, specializing in
Opthalmology. He is currently serving as a Director in the International Eye Institute
of St. Luke’s Medical Center, as Chair of St. Luke’s College of Medicine of the
Deparment of Opthalmology, as a Board Memberof the Philippine Board of
Opthalmology, as a Senior Consultant in the Allied Opthalmic Consultants, as Vice
President in the Philippine Academy of Opthalmology and and as a Trustee in the
Eye Bank Foundation of the Philippines and the Hope in Sight Foundation. Mr.
Ruben Lim Bon Siong is also concurrently a part time Clinical Associate Professor in
the College of Medicine of the University of the Philippines and a Medical Specialist
III in the Philippine General Hospital. Mr. Ruben Lim Bon Siong graduated cum
laude with a degree in Biology in 1984 and as a Doctor of Medicine in 1989 from the
University of the Philippines. He then studied Cornea, External Disease and
Refractive Surgery from the Barnes-Jewish Hospital Washington University School
of Medicine in St. Louis, Missouri, USA and Dacryology in the Centro Especial
Hospital Ramon y Cajal, Unibersidad de Alcala de Heneras in Madrid, Spain in 1994.
This was followed by studies in Cornea and External Diseases in the University of
the Philippines in 1995.

Evelyn Co Lim, 47, Filipino, is a Director of the Company since its inception. She is
currently the Assistant Vice President for Purchasing of Sterling Paper Products
Enterprises, Inc. and of Central Bookstore, Inc. She was previously the AVP of
Purchasing of SL Agritech Corporation from 2008 to 2010 and the AVP of
Purchasing of Central Bookstore, Inc. from 1996 to 2006. Ms. Evelyn Lim graduated
from the College of the Holy Spirit with a Bachelor of Science degree in Marketing in
1993.

66
February 2001
Diosdado C. Salvador, Jr., 70, Filipino, Mr. Salvador is an independent director for
SL Agritech Corporation since 2016 and was a lead consultant for RGC Group of
Companies (Uratex) from August 2009 up to June 2016. He was also previously the
Owner and Chairman of FoneNet International from April 2004 to May 2013. Mr.
Salvador likewise served as Managing Director and Adviser of Lamoiyan Corporation
from May 2004 up to May 2010. Mr. Salvador obtained his Bachelor of Science
Degree in Marketing Management and Bachelor of Arts Degree in History & Political
Science from the De La Salle University where he attended from 1964 up to 1969. In
the year 1976, Mr. Salvador attended the Advance Management Program
administered by the Asian Institute of Management. In 1991, Mr. Salvador likewise
attended and participated in the World Class Competitors’ Program administered by
the Duke University. In 1993, he also attended an Advance Management Program
by the Harvard Business School.
.

Gregorio Pio P. Catapang Jr., 59, Filipino, is an Independent Director of the

Company. He is a member of the board of directors of Bases Conversion and
Development Authority. Previously, he served as the 45th Chief of Staff of the Armed
Forces of the Philippines, Chairman of the Board of Armed Forces and Police
Savings and Loan Association, Armed Forces and Police Mutual Benefit Association,
Inc., and Armed Forces of the Philippines Retirement and Separation Benefit
System.

Christine P. Base, 48, Filipino, is the Corporate Secretary of the Company since
July 2010. She is currently a Corporate and Tax Lawyer at Pacis and Reyes,
Attorneys and the Managing Director of Legisforum, Inc. She is a director and/or
corporate secretary of several private corporations. She was an Auditor and then
Tax Lawyer of Sycip, Gorres, Velayo & Co. She is a graduate of Ateneo De Manila
University School of Law with a degree of Juris Doctor. Ms. Base is also a Certified
Public Accountant. She graduated from De La Salle University with a Bachelor of
Science degree of Commerce major in Accounting.

Key Officers

Name Position
Zhang Zhao Dong Executive Vice President - Research and
Development
Catalina B.Galura Senior Vice President
Dr. Weijin Xu Vice President- International Business
Development
Michelle Lim Gankee SVP -Sales and Marketing
Christopher Brian C. Lim Vice President-Rice Operations
Dr. Frisco Malabanan, PhD Technical and Promotion Support-
Consultant
Zhang Zhicheng General Manager – Seed Production

Zhang Zhao Dong, 66, Chinese, is the Executive Vice President of Research and
Development of the Company since its inception, .Mr Zhang graduated from Hunan
Agricultural University with a Bachelor of Science degree in Agriculture in 1978.
67
February 2001
Before joining SLAC, he was the Vice Director and Senior Scientist of China National
Hybrid Rice Research and Development Center. He was a lecturer of Lingling
Agricultural School,Vice President of Hunan Rice Research Institute andPresident of
Rice Foundation Seed Farm of Hunan Rice Research Institute.

Catalina B. Galura, 64, Filipino, is a Senior Vice President of the Company since
June 16, 2005. Prior to joining SLAC, she was the Regional Finance Manager and
Business Analyst, Asia of PPG Coatings, (Malaysia) Sdn Berhad / PPG Industries
(Singapore) Pte ., Ltd from 1999 to 2002 and the Regional Finance Manager for Asia
of ICI Paints (Asia Pacific) Pte. Ltd. From 1998 to 1999. Ms. Galura graduated with
a Bachelor’s degree in Commerce major in Accounting from La Consolacion College
in 1976 and a Master’s degree in Business Management from the University of the
Philippines in 1995. She is a Certified Public Accountant since 1977.

Dr. Weijin Xu, 53, Chinese, has been the Vice President of International Sales of the
Company since 2003. Dr. Xu was previously the Chief Consultant of BISI Indonesia
until 2002 and a Project Scientist in the International Rice Research Institute until
2001. He has received training from the Department of Agriculture, Philippines on
Plant seed testing and quality control in 2004.He graduated with a Bachelor of
Science degree in Agronomy from the Wannan Agricultural College in Anhui, China
in 1986, and a Master of Science in Plant Breeding and Genetics from the Kunnan
Agricultural University in Kunming, China in in 1989, and a Doctor of Philosophy in
Plant Breeding and Bio Chemistry from the University of the Philippines in 1999.

Zhang Zhicheng, 39, Chinese, is the General Manager of the Seed Production of
the Company has been with the Company since 2004. His father is Zhang
Zhaodong. He was previously a Research & development Manager in the China
National Hybrid Rice R&D Center in 2003.Mr. Zhang graduated from Hunan
Agriculture University with a Bachelor of Science degree in Agriculture Science in
2002. He trained directly under Yuan Longping, the Father of Hybrid Rice from 2001
to 2002.

Michelle Lim Gankee, 41, Filipino, Ms. Gankee is serving as Sterling Paper Group
of Companies’ SAP Consultant from 2000 to present. She is likewise the SVP for
Sales and Marketing of Sterling Paper Prod Ent. Inc. since 2000, and is the Vice
President of the Philippine Stationers’ Association for the year 2016. She is also the
current President of the International House of Laverne and the Corporate Secretary
of Laverne Luxe Group Corp. where she has been as such since 2014. In the year
2012 and 2013, respectively, she served as the President of the Rotary Club of
Metro Araneta, and the Vice President of the Inner Wheel Club Chinatown. Ms.
Gankee obtained her degree in BS Business Administration from the Dela Salle
University in 1997. In 1998, she attended training in Entrepreneurship conducted by
the Asian Institute of Management, and in 1999 she likewise attended training in PR
& Corporate Social Responsibility conducted by the DLSU Graduate School.

Christopher Brian Lim, 39, Filipino, Mr. Lim is SL Agritech Corporation’s VP for
Rice Operations since 2010. He has also been a past President of the Quan Zhou
Youth Association, where has served as such for four years. He was also a member
of the Federation Youth Association for three years, and was also a member of the

68
February 2001
Anvil Business Group for eight years. Mr. Lim obtained his degree in BS Computer
Science from the Dela Salle University in 2002, and his Master’s in Business
Administration (MBA) from the Ateneo Graduate School in 2015. In 2009, Mr. Lim
attended training in Accounting for Non-Accountants conducted by the University of
the Philippines Diliman. In 2008, he attended a Manager Course conducted by the
Asian Institute of Management. Mr Lim likewise underwent training in Hybrid Rice
Seed Training in 2004 which was conducted by Yuan Long Ping High Tech. In 2003,
he also had training in Language Studies in the Beijing Language Cultural University.

Frisco M. Malabanan, Ph.D., 64, Filipino, Dr. Malabanan is SL Agritech

Corporation’s Technical and Promotion Support/Consultant since 2010 up to
present. In 2004, he served as the Technical Consultant of Village Garden Limited.
In the government service, Dr. Malabanan was the National Rice Program Director of
the Department of Agriculture from 2001-2010. Dr. Malabanan obtained his
Bachelor’s Degree in Agriculture from the University of the Philippines Los Baños in
1976. Subsequently, he obtained his Master’s Degree and Doctorate Degree in
Agronomy in 1987 and 1993, respectively also from the same University. His spouse
is the Chief Administrative Officer of PhilRice.

Significant Employee

The business of the Company is not highly dependent on the services of any
particular employee.

The Company has a group of select researchers and scientists which have trained
under Dr. Yuan Longping in China. This group of researchers and scientists heads
the Company’s research and development on hybrid rice seeds. The researchers
and scientists work as a team, thus the Company is not dependent on one specific
researcher and/or scientistto develop its products. In the future, the Company also
intends to expand the number of its researchers and scientists to ensure the
continuous development of products.

Family Relationships

Directors Henry Lim Bon Liong, Joseph Lim Bon Huan, Gerry Lim Bon Hiong, Ruben
Lim Bon Siong, and Evelyn Lim are siblings.

Other than the foregoing, there are no family relationships either by consanguinity or
affinity up to the 4th civil degree among the executive officers.

Compensation of directors and executive officers

Under the By-Laws of the Company, by resolution of the Board, each director, shall
receive a reasonable per diem allowance for his attendance at each meeting of the
Board. As compensation, the Board shall receive and allocate an amount of not
more than ten percent (10%) of the net income before income tax of the Company
during the preceding year. Such compensation shall be determined and apportioned
among the directors in such manner as the Board may deem proper, subject to the
approval of stockholders representing at least majority of the outstanding capital

69
February 2001
stock at a regular or special meeting of the stockholders. As of date, the directors
have yet to pass a resolution fixing their per diem.

There are no other arrangements for compensation either by way of payments for
committee participation or special assignments. There are also no outstanding
warrants or options held by the Company’s Chief Executive Officer, other officers
and/or directors.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

The Company is not aware of the occurrence during the past five (5) years of any of
the following events that are material to an evaluation of the ability or integrity of any
director or executive officer:

1. Any bankruptcy petition filed by or against any business of a director, nominee

for election as director, or executive officer who was a general partner or
executive officer either at the time of the bankruptcy or within two years prior
to that time;

2. Any director, nominee for election as director, or executive officer being

convicted by final judgment in a criminal proceeding, domestic or foreign, or
being subject to a pending criminal proceeding, domestic or foreign, excluding
traffic violations and other minor offenses;

3. Any director, nominee for election as director, or executive officer being

subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, domestic or
foreign, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities,
commodities or banking activities; and

4. Any director, nominee for election as director, or executive officer being found
by a domestic or foreign court of competent jurisdiction (in a civil action), the
Commission or comparable foreign body, or a domestic or foreign exchange
or other organized trading market or self-regulatory organization, to have
violated a securities or commodities law or regulation, and the judgment has
not been reversed, suspended, or vacated.

There are no material pending litigations or arbitration proceedings where the

Company or any of its affiliates is a party and/or of which any of their property or the
property used by them is the subject matter and no litigation or claim of material
importance is known to the Directors pending or threatened against the Company
wherein property used by the latter is the subject matter.

Item 10. Executive Compensation

EXECUTIVE COMPENSATION

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February 2001
 Information as to the aggregate compensation during the last two (2) fiscal years
paid to the Company’s four (4) other most highly compensated executive officers, all
other officers and the directors as a group are as follows:

Key Management Personnel Compensation

Key management personnel of the Company include all officers with rank of Vice-
President for Quality Assurance and Senior Vice-President for Operations.

The summary of compensation of key management personnel included under

operating expenses account in the statements of comprehensive income follows:

The summary of compensation of key management personnel included under

operating expenses account in the statements of comprehensive income follows:

2018 2017 2016

Salaries and other short P
= 5,861,216 P
= 5,638,131 P 5,471,843
term employee benefits
Pension expense 2,789,017 1,235,924 1,373,884
P 8,650,233 P 6,874,055 P 6,845,727

Compensation

SUMMARY COMPENSATION TABLE

Annual Compensation
(In thousands)
Compensation of Executive Officers and Directors (in thousand
Pesos)
Name and Principal Year (s) Salaries Bonus Other Annual Total in Php
Position (in Php) Compensation
Mr. Henry Lim Bon
Liong

Chairman, President,
& Chief Executive
Officer
Mr. Gerry Lim Bon
Hiong

Executive Vice
President & Chief
Finance Officer
Mr. Zhang Zhao
Dong

Senior Vice President

Ms. Cathy Galura

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February 2001
Executive Vice
President
Mr. Emmanuel
Cendana

Vice President-
Marketing
Aggregate 2017 Php 6,685,250
Compensation of the
Officers and directors
named
2016 Php 6,077,500

2015 Php 5,525,000

All other officers and 2017
directors unnamed Php 1,887,600
2016 Php 1,716,000
2015 Php1,560,000

Estimates in 2017 Php 9,430,135

The estimated executive compensation of Officers and directors named for fiscal
year 2018 is about Php 6,685,250.

Currently, employees of the Company do not receive supplemental benefits or

incentive arrangements.

Pursuant to the Company’s Manual on Corpora te Governance, the Company will

establish a formal and transparent procedure for developing a policy on executive
remuneration and for fixing the remuneration packages of corporate officers and
directors wherein no officer or director will be allowed to decide his own
remuneration. A Compensation Committee will be created to provide oversight over
remuneration of senior management and other key personnel to ensure that
compensation is consistent with the Company’s culture, strategy and control
environment, commensurate with corporate and individual performance. It shall also
ensure consistency of the Corporation’s policies and practices on the determination
of the remuneration package.
In addition, the Company may regularly undertake an internal audit of its policies and
procedures to determine compliance with its Manual on Corporate Governance and
adopted leading practices on good corporate governance, and necessity of
improving the corporate governance of the company. The Directors of the Company
also plan to attend corporate governance seminars.

Compensation of Directors

Under the By-Laws of the Company, by resolution of the Board, each director, shall
receive a reasonable per diem allowance for his attendance at each meeting of the
Board. As compensation, the Board shall receive and allocate an amount of not
more than ten percent (10%) of the net income before income tax of the corporation
72
February 2001
during the preceding year. Such compensation shall be determined and apportioned
among directors in such manner as the Board may proper, subject to the approval of
stockholders representing at least majority of the outstanding capital stock at a
regular or special meeting of the stockholders. As of date, the directors have yet to
pass a resolution fixing their per diem. However, each director receives a per diem
of P60,000 per meeting.

There are no other arrangements for compensation either by way of payments for
committee participation or special assignments. There are also no outstanding
warrants or options held by the Company’s Chief Executive Officer, other officers
and/or directors.

Employee Contracts and termination of Employment and Charge-In-Control

Assignments

All key officers of the Company have employment contracts. The employment
contracts can be terminated due to any of the following reasons: unsatisfactory
performance or failure to meet reasonable standards set by the management, failure
to comply with terms and conditions of the contract, and for any cause or causes
allowed under Philippine laws after complying with the statutory requirements for
such termination.

Warrants and Options

There are no outstanding warrants and options held by any of the Company’s
directors and executive officers.

None of the Company’s common shares are subject to outstanding warrants or

options.

Voting Trust Holders of 5% or More

There is no voting trust arrangement executed among the holders of five percent
(5%) or more of the issued and outstanding shares of common stock of the
Company.

Change in Control

The Company’s Articles and By-laws do not contain any provision that will delay,
deter or prevent a change in control of the Company.

No change in control of the Company has occurred since incorporation. The Company has
no knowledge of any existing arrangements that may result in a change in control of the
Company

Item 11. Security Ownership of Certain Beneficial Owners and Management

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February 2001
 Listed below are the top twenty (20) shareholders of common shares and the
number of shares held and the percentage of total shares outstanding held by each
as of May 31, 2018:

Title of Class Name of Beneficial Owner No. of Shares Percent

Common Henry Lim Bon Liong 469,799,993 40.50%
Common Joseph Lim Bon Huan 423,336,200 36.49%
Common Gerry Lim Bon Hiong 185,600,000 16.00%
Common Ruben Lim Bon Siong 81,200,000 7.00%
Common Evelyn Lim 63,800 0.01%
Common Pete Nicomedres Prado 3 0.00%
Common Jesus Tanchanco 3 0.00%
Common Gregorio Pio P. Catapang Jr. 1 0.00%
Common Diosdado D. Salvador Jr. 1 0.00%
-----------
TOTAL 1,160,000,001 100.00%

Listed below are the top twenty (20) shareholders of preferred shares and the
number of shares held and the percentage of total shares outstanding held by each
as of May 31, 2018:

Title of Class Name of Beneficial Owner No. of Shares Percent

Preferred Henry Lim Bon Liong 7,087,500 40.50%
Preferred Joseph Lim Bon Huan 6,385,750 36.49%
Preferred Gerry Lim Bon Hiong 2,800,000 16.00%
Preferred Ruben Lim Bon Siong 1,225,000 7.00%
Preferred Evelyn Lim 1,750 0.01%
-----------
TOTAL 17,500,000 100.00%

The issuance of the STCPs shall have no effect on the amount and percentage of
the present holdings of the Company’s common equity shareholders and will not
result in foreign ownership of the common equity of the Company.

Listed below are the persons known to the Company to be directly or indirectly the
record or beneficial owner of more than five percent (5%) of the Company’s voting
securities as of May 31, 2018:

Title of Name, Address of Name of Citizen- No. of Shares Percentage

Class Record Owner & Beneficial Owner ship
Relationship with the and Relationship
Company with the Record
Owner

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February 2001
Common Henry Lim Bon Liong Same as the Filipino 469,799,993 40.50%
Chairman and record owner
President
9 Bautista St.
Corinthian Gardens,
Quezon City
Chairman, President
& CEO

Preferred 7,087,500
Common Joseph Lim Bon Same as the Filipino 423,336,200 36.49%
Huan record owner
Director
220 Swallow Drive,
Greenmeadows
Subd., Quezon City
Director

Preferred 6,385,750
Common Gerry Lim Bon Hiong Same as the Filipino 185,600,000 16.00%
Director and record owner
Treasurer
30 Bettle St., Valle
Verde IV, Pasig City
Director and
Treasurer
Preferred 2,800,000
Common Ruben Lim Bon Same as the Filipino 81,200,000 7.00%
Siong record owner
Director
127 Lapu-Lapu St.,
Caloocan City
Director
Preferred 1,225,000
TOTAL 1,159,936,193 99.99%
COMMON

TOTAL
PREFER 17,500,000
RED

Security Ownership of Directors and Management

As of May 31, 2018, the Company’s directors and key officers own one hundred
percent (100%) of the Company’s issued and outstanding shares of common stock
as follows:

75
February 2001
 Amount and
Title of Class Name of Beneficial Owner Nature of Citizen- Percent of Class
Beneficial ship
Ownership
Henry Lim Bon Liong
Chairman and President 469,799,993
Common 9 Bautista St. Corinthian Same as Filipino 40.50%
Gardens, Quezon City Record Owner

Joseph Lim Bon Huan

Director 423,336,200
Common 220 Swallow Drive, Same as Filipino 36.49%
Greenmeadows Subd., Quezon Record Owner
City

Gerry Lim Bon Hiong 185,600,000

Common Director and Treasurer Same as Filipino 16.00%
30 Bettle St., Valle Verde IV, Record Owner
Pasig City
Ruben Lim Bon Siong 81,200,000
Common Director Same as Filipino 7.00%
127 Lapu-Lapu St., Caloocan Record Owner
City
Evelyn Lim 63,800
Common Director Same as Filipino 0.01%
111 Lapu-Lapu St., Caloocan Record Owner
City
Pete Nicomedes Prado
Shareholders 3
Common Suite 1003, Medical Plaza, san Same as Filipino 0.00%
Miguel Ave., Record
Ortigas, Pasig City
Owner
Gregorio Pio P. Catapang Jr.
Independent Director 1
Common 1863 A Gumain St. Redwood Same as Filipino 0.00%
Village,Clark Air Base Angeles, Record Owner
Pampanga
3
Common Jesus T. Tanchanco Same as Filipino 0.00%
Shareholders Record Owner

Diosdado D. Salvador Jr.

Independent Director 1
Common 97 Tanauan St. Ayala Alabang Same as Filipino 0.00%
Village, Muntinlupa City Record Owner
---------------------
TOTAL 1,160,000,001 100%

76
February 2001
There are no arrangements that will result in a change in control of the Company.

Item 12. Certain Relationships and Related Transactions

TRANSACTIONS WITH OR DEPENDENCE ON RELATED PARTIES

Related party transactions are made under the normal course of business. Parties
are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making
financial and operating decisions and the parties are subject to common control or
common significant influence. Related parties are corporate entities that are owned
and controlled by the same owner of the Company (e.g. Sterling Paper Products
Enterprises Inc. (SPPEI) and Mart One Supermarket), and neither a subsidiary or
affiliate of the Company.
In the regular course of business, the Company’s significant transactions with related
parties include the following:

a. As of May 31, 2018, 2017 and 2016, the Company, in its normal course of
business, has outstanding operational non-interest bearing advances to
SPPEI which aggregated to P = 232,802,162, P243,305,988 and P2,534,171,
respectively, and is payable within one (1) year.
b. At fiscal year ending May 31, 2018, the Company has outstanding receivables
arising from sale of seeds and rice products with Central Bookstore
P3,069,440. The foregoing entities have common shareholders with the
Company.
c. At fiscal year ending May 31, 2018, the Company has outstanding payables
arising from purchase of chemicals with SL Biotech amounting to
P1,544,900 and SP Properties Inc. amounting to 53,968. The foregoing
entities have common shareholders with the Company.

Terms and conditions of transactions with related parties

Outstanding balances at year-end are unsecured, interest-free and settlement

occurs in cash. There have been no guarantees provided or received for any related
party receivables or payables.

The Company has not recognized any impairment losses on amounts due from
related parties for the years ended May 31, 2018, 2017 and 2016. This assessment
is undertaken each financial year through a review of the financial position of the
related party and the market in which the related party operates.

PART IV – CORPORATE GOVERNANCE

Item 13. Corporate Governance

77
February 2001
The Company has promulgated a Manual on Corporate Governance that took effect
in 2015. The Manual continues to guide the activities of the Company and
compliance therewith has been consistently observed.

There has been no deviation from the Company’s Manual on Corporate Governance.
The Company believes that its Manual on Corporate Governance is in line with the
leading practices and principles on good governance, and such, is in full compliance.
The Company will improve its Manual Corporate Governance when appropriate and
warranted, in the Board of Directors’ best judgment. In addition, it will be improved
when a regulatory agency such as the SEC requires the inclusion of a specific
provision.

The Board

There is an effective and appropriately constituted Board who received relevant

information required to properly accomplish their duties.
The Nomination Committee is mandated to ensure that there is a formal and transparent
procedure for the appointment of new Directors of the Board. When appropriate, every
director shall receive training, taking into account his individual qualifications and
experience. Training is also available on an ongoing basis to meet individual needs.

The term of office of all directors, including independent directors and officers shall be one
(1) year and until the successors are duly elected and qualified.

Board Process
Members of the Board shall meet when necessary throughout the year to adopt and review
its key strategic and operational matters; approve and review major investments and funding
decision; adopt and monitor appropriate internal control; and ensure that the principal risks
of the Company are identified and properly managed.

The Board shall work on an agreed agenda as it reviews the key activities of the business.

The Corporate Secretary is responsible to the Board and is available to individual Directors
in respect of Board procedures. Atty. Christine P. Base holds the post.

Committees

The Board has established a number of committees with specific mandates to deal with
certain aspects of its business. All of the Committees have defined terms of reference.

Audit Committee

The Audit Committee functions under the terms of reference approved by the Board. It
meets at least twice a year and its roles include the review of the financial and internal
reporting process, the system of internal control and management of risks and the external
and internal audit process. The Audit Committee reviews the scope and results of the audit
with external auditors and obtains external legal or other independent professional advice
where necessary.

Other functions of the Audit Committee include the recommendation of the appointment or
re-appointment of external auditors and the review of audit fees.

Nomination Committee
78
February 2001
The Committee assesses and recommends to the Board candidates for appointment of
executive and non-executive directors positions. The Committee also makes
recommendations to the Board on its composition. The Committee meets as required.
Remuneration Committee

The Remuneration Committee is responsible in determining the Company’s policy on

executive remuneration and in specifying the remuneration and compensation packages on
the employment or early termination from office of each of the executive directors of the
Company. All decisions of the Remuneration Committee are only recommendatory and they
are referred to the Board for final approval. The Remuneration Committee also monitors the
compensation packages of other senior executives in the group below the Board level. The
Committee meets as required.

Compliance Officer
The Compliance Officer (CO) is responsible for ensuring that the Company’s
corporate principles are consistently adhered to throughout the organization. The
CO acts independently and her role is to supply the top management with the
necessary information on whether the organization’s decisions comply with
professional rules and regulations, internal directives, regulatory authorities, and the
statutory law. The Company designated Atty. Christine P. Base as its Compliance
Officer.
PART V - EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C

(a) Exhibits

Furnish the exhibits required by Part VII of “Annex C, as amended”. Where

any financial statement or exhibit is incorporated by reference, the incorporation by
reference shall be set forth in the list required by this item. Identify in the list each
management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Form.

(b) Reports on SEC Form 17-C

State whether any reports on SEC Form 17-C, as amended were filed during
the last six month period covered by this report, listing the items reported, any
financial statements filed and the dates of such.

79
February 2001
SL Agritech Corporation and
Subsidiary

Consolidated Financial Statements

May 31, 2018 and 2017
and Years Ended May 31, 2018, 2017
and 2016

and

Independent Auditor’s Report

 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 December 14, 2015, valid until December 31, 2018
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-4 (Group A),
Philippines November 10, 2015, valid until November 9, 2018

INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of Directors

SL Agritech Corporation

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of SL Agritech Corporation and its Subsidiary
(the Group), which comprise the consolidated statements of financial position as at May 31, 2018 and
2017, and the consolidated statements of comprehensive income, consolidated statements of changes in
equity and consolidated statements of cash flows for each of the three years in the period ended
May 31, 2018, and notes to the consolidated financial statements, including a summary of significant
accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Group as at May 31, 2018 and 2017, and its consolidated
financial performance and its consolidated cash flows for each of the three years in the period ended
May 31, 2018 in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audit in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report. We are independent of the Group in
accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics)
together with the ethical requirements that are relevant to our audit of the consolidated financial
statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

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

*SGVFS031870*
A member firm of Ernst & Young Global Limited
 -2-

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our assessment of
the risks of material misstatement of the consolidated financial statements. The results of our audit
procedures, including the procedures performed to address the matters below, provide the basis for our
audit opinion on the accompanying consolidated financial statements.

Adequacy of Allowance for Impairment Losses on Trade Receivables

As of May 31, 2018, the Group has outstanding trade receivables with carrying amount of P =3.41 billion.
The Group’s assessment of the recoverability of the trade receivables is significant to our audit because
the carrying amount is material to the consolidated financial statements, comprising 31% of the
consolidated total assets as at May 31, 2018. Management’s process for determining the recoverable
amount involves significant judgment and estimates of various assumptions and factors, including among
others, timing of expected future cash flows, ability of the counterparty to repay its obligations, aging of
accounts, endorsement of claims to the legal department for collection, and peer group experience for
comparable groups of receivables.

The disclosures in relation to trade receivables are included in Notes 5, 8 and 30 to the consolidated
financial statements.

Audit Response
We have reviewed the factors considered by the Group in assessing the recoverability of its receivables.
For allowance for impairment calculated on an individual basis, on a sample basis, we evaluated
management’s judgment and estimates of various assumptions underlying the impairment identification
and quantification by checking the timing of expected future cash flows (i.e., subsequent collections and
historical experience on cashing post-dated checks), evaluating the ability of the counterparty to repay its
obligations through review of available financial information, checking the aging of accounts receivables,
and review of endorsement of claims to the legal department for collection. For allowance for impairment
calculated on a collective basis, we compared the loss rate used by the Group against historical experience
and against its peer group experience.

Impairment Testing of Development Costs

As of May 31, 2018, the Group has capitalized costs for the ongoing development of hybrid seeds variety
amounting to = P982.89 million, which represents 9% of the Group’s total assets. Under Philippine
Accounting Standards (PAS) 36, Impairment of Assets, the Group is required to perform annual
impairment test on intangible assets that are not yet available for use. The impairment test for
development costs is a key audit matter because of the significant management judgment and estimations
involved in determining the recoverable amount and complexity of the estimation process, sensitivity of
the key estimations to assumptions such as probability of success, discount rate, estimated volume of
sales, selling price and population growth rate.

The disclosures in relation to development costs are included in Notes 5 and 12 to the consolidated
financial statements.

Audit Response
We involved our internal specialist in evaluating the methodology used by the Group and in assessing the
key assumptions used in the estimated cash flows for each seed variety undergoing development. We
compared key assumptions such as the probability of success, selling price and estimated volume of sales
against historical experience of the Group. We tested the parameters used in the determination of the

*SGVFS031870*
A member firm of Ernst & Young Global Limited
 -3-

discount rate against market data. We also tested the sensitivity of the present value of discounted cash
flows to changes in assumptions used such as probability of success, discount rate, estimated volume of
sales and population growth rate.

Fair Value Measurement of Biological Assets

As of May 31, 2018, the fair value of the Group’s biological assets amounted to = P332.40 million. The
fair value measurement of biological assets is significant to our audit because of the significant
management judgment involved, complexity of the estimation process and sensitivity of the estimations
to assumptions that can be affected by natural phenomena. The key assumptions for the fair value of
produce prior to harvest include future selling prices, estimated volume of harvests and future growing
costs.

The disclosures in relation to biological assets are included in Notes 5 and 14 to the consolidated financial
statements.

Audit Response
We involved our internal specialist in evaluating the methodology used by the Group and in assessing the
key assumptions used for its fair valuation. We compared the key assumptions used such as future selling
prices, estimated volume of harvests and future growing costs against historical experience of the Group.

Other Information

Management is responsible for the other information. The other information comprises the information
included in the SEC Form 20-IS (Definitive Information Statement) and SEC Form 17-A for the fiscal
year ended May 31, 2018, but does not include the consolidated financial statements and our auditor’s
report thereon. The SEC Form 20-IS and SEC Form 17-A for the fiscal year ended May 31, 2018 are
expected to be made available to us after the date of this auditor’s report.

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

In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above when it becomes available and, in doing so, consider whether the other
information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with PFRSs, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

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

*SGVFS031870*
A member firm of Ernst & Young Global Limited
 -4-

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

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

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

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

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

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

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

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

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

∂ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the audit. We
remain solely responsible for our audit opinion.

*SGVFS031870*
A member firm of Ernst & Young Global Limited
 -5-

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

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

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

The engagement partner on the audit resulting in this independent auditor’s report is Jennifer D. Ticlao.

SYCIP GORRES VELAYO & CO.

Jennifer D. Ticlao
Partner
CPA Certificate No. 109616
SEC Accreditation No. 1507-A (Group A),
September 24, 2015, valid until September 23, 2018
Tax Identification No. 245-571-753
BIR Accreditation No. 08-001998-110-2018,
February 14, 2018, valid until February 13, 2021
PTR No. 6621335, January 9, 2018, Makati City

August 30, 2018

*SGVFS031870*
A member firm of Ernst & Young Global Limited
SL AGRITECH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

May 31
2018 2017
ASSETS
Current Assets
Cash (Note 7) =593,935,603
P =241,765,185
P
Receivables - net (Note 8) 3,561,540,866 2,868,450,804
Inventories (Note 9) 3,511,456,330 2,572,852,779
Biological assets (Note 14) 332,399,849 48,533,184
Prepayments and other current assets (Note 10) 103,714,698 65,128,302
Total Current Assets 8,103,047,346 5,796,730,254
Noncurrent Assets
Property and equipment - net (Note 11) 1,201,999,085 1,089,420,608
Development costs - net (Note 12) 1,350,405,745 1,300,478,026
Security deposits (Note 30) 15,762,430 8,620,959
Investment and advances in an associate (Note 13) 9,397,839 ‒
Deferred tax asset (Note 26) − 971,196
Other noncurrent assets (Notes 10 and 32) 206,041,610 224,781,294
Total Noncurrent Assets 2,783,606,709 2,624,272,083
=10,886,654,055
P =8,421,002,337
P

LIABILITIES AND EQUITY

Current Liabilities
Short-term debt (Notes 9, 11 and 17) =6,297,852,388
P =5,084,714,022
P
Current portion of long-term debt (Note 18) 100,000,000 ‒
Trust receipts payable (Notes 9 and 16) 714,614,905 573,592,825
Accounts and other payables (Note 15) 369,279,669 267,899,294
Deposit for future stocks subscription (Note 19) − 17,500,000
Total Current Liabilities 7,481,746,962 5,943,706,141
Noncurrent Liabilities
Long-term debt - net of current portion (Note 18) 396,297,916 ‒
Pension liability (Note 28) 17,237,711 20,250,887
Total Noncurrent Liabilities 413,535,627 20,250,887
Total Liabilities 7,895,282,589 5,963,957,028
Equity (Note 19)
Equity Attributable to Equity Holders of the Parent Company
Capital stock 1,160,000,001 1,160,000,001
Stock dividends distributable 625,000,000 625,000,000
Deposit for future stocks subscription 17,500,000 −
Retained earnings
Appropriated 450,000,000 ‒
Unappropriated 737,908,623 677,830,059
Remeasurement gains (losses) on pension liability (Note 28) 358,727 (5,784,751)
Cumulative translation adjustment 103,738 ‒
2,990,871,089 2,457,045,309
Noncontrolling interest 500,377 ‒
Total Equity 2,991,371,466 2,457,045,309
=10,886,654,055
P =8,421,002,337
P

See accompanying Notes to Consolidated Financial Statements.

*SGVFS031870*
SL AGRITECH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended May 31

2018 2017 2016
NET SALES (Note 20) =3,498,791,361 P
P =3,336,750,855 =
P2,552,208,495
COST OF SALES (Notes 9 and 21) 2,259,820,541 2,179,021,887 1,528,159,216
GROSS PROFIT 1,238,970,820 1,157,728,968 1,024,049,279
FAIR VALUE GAIN ON AGRICULTURAL PRODUCE
AND BIOLOGICAL ASSETS (Notes 9 and 14) 300,386,518 155,929,466 69,712,034
FOREIGN EXCHANGE GAINS 4,546,221 6,489,659 4,627,046
FINANCE INCOME (Note 7) 1,429,245 1,345,465 541,911
GAIN ON DISPOSAL OF PROPERTY AND
EQUIPMENT (Note 11) 1,258,043 200,373 825,000
OPERATING EXPENSES (Note 22) (712,240,634) (527,965,593) (458,075,254)
FINANCE COST (Note 25) (324,041,833) (283,522,929) (182,580,810)
EQUITY SHARE IN NET LOSSES OF AN ASSOCIATE
(Note 13) (1,019,151) − −
INCOME BEFORE TAX 509,289,229 510,205,409 459,099,206
PROVISION FOR INCOME TAX (Note 26) 627,378 979,749 108,383
NET INCOME 508,661,851 509,225,660 458,990,823
OTHER COMPREHENSIVE INCOME
Other comprehensive income (losses) not to be reclassified to
profit or loss in subsequent periods:
Remeasurement gains (losses) on pension liability
(Note 28) – net of tax 6,143,478 (5,445,546) 3,179,420
Other comprehensive income to be reclassified to profit or
loss in subsequent periods:
Cumulative translation adjustment 122,045 ‒ ‒
TOTAL COMPREHENSIVE INCOME =514,927,374
P =503,780,114
P =462,170,243
P

Net income (loss) attributable to:

Equity holders of the Parent =510,078,564
P =509,225,660
P =458,990,823
P
Noncontrolling interest (1,416,713) ‒ ‒
=508,661,851
P =509,225,660
P =458,990,823
P

Total comprehensive income (loss) attributable to:

Equity holders of the Parent =516,325,780
P =503,780,114
P =462,170,243
P
Noncontrolling interest (1,398,406) ‒ ‒
=514,927,374
P =503,780,114
P =462,170,243
P

BASIC/DILUTED EARNINGS PER SHARE (Note 27) =0.44

P =0.44
P =
P0.40

See accompanying Notes to Consolidated Financial Statements.

*SGVFS031870*
SL AGRITECH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Year Ended May 31, 2018

Remeasurement
Stock Deposit for Gain (Loss) on Cumulative
Dividends Future Stocks Pension translation Noncontrolling
Capital Stock Distributable Subscription Retained Earnings (Note 19) Liability adjustment interest
(Note 19) (Note 19) (Note 19) Appropriated Unappropriated (Note 28) (Note 19) (Note 2) Total
Balances at June 1, 2017 P
=1,160,000,001 P
=625,000,000 P
=– P
=– P=677,830,059 (P
= 5,784,751) P
=‒ P
=‒ P=2,457,045,309
Incorporation of a subsidiary – – – – – – – 1,898,783 1,898,783
Net income – – – – 510,078,564 – – (1,416,713) 508,661,851
Other comprehensive income – – – – – 6,143,478 103,738 18,307 6,265,523
Total comprehensive income – – – – 510,078,564 6,143,478 103,738 (1,398,406) 514,927,374
Appropriation during the year – – – 450,000,000 (450,000,000) – – – –
Deposit for future stocks subscription – – 17,500,000 – – – – – 17,500,000
Balances at the end of the year P
=1,160,000,001 P
=625,000,000 P
=17,500,000 P
=450,000,000 P=737,908,623 P
=358,727 P
=103,738 P
=500,377 P =2,991,371,466

For the Year Ended May 31, 2017

Remeasurement
Stock Deposit for Gain (Loss) on Cumulative
Dividends Future Stocks Pension translation Noncontrolling
Capital Stock Distributable Subscription Retained Earnings (Note 19) Liability adjustment interest
(Note 19) (Note 19) (Note 19) Appropriated Unappropriated (Note 28) (Note 19) (Note 2) Total
Balances at June 1, 2016 =810,000,001
P =
P‒ P
=– =‒ P
P =1,143,604,399 (P
=339,205) =
P− =− =
P P1,953,265,195
Net income – – – – 509,225,660 – − − 509,225,660
Other comprehensive income – – – – – (5,445,546) − − (5,445,546)
Total comprehensive income – – – – 509,225,660 (5,445,546) − − 503,780,114
Issuance of stock dividends 350,000,000 – – – (350,000,000) – − − –
Stock dividend distributable – 625,000,000 – ‒ (625,000,000) – − − –
Balances at the end of the year =1,160,000,001
P =625,000,000
P P
=– – =677,830,059
P (P
=5,784,751) =
P− =− P
P =2,457,045,309

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 -2-

For the Year Ended May 31, 2016

Remeasurement
Stock Deposit for Gain (Loss) on Cumulative
Dividends Future Stocks Pension translation Noncontrolling
Capital Stock Distributable Subscription Retained Earnings (Note 19) Liability adjustment interest
(Note 19) (Note 19) (Note 19) Appropriated Unappropriated (Note 28) (Note 19) (Note 2) Total
Balances at June 1, 2015 =710,000,000
P =
P‒ =
P‒ =784,613,576
P (P
=3,518,625) =
P− =− =
P P1,491,094,951
Net income – – – 458,990,823 – − − 458,990,823
Other comprehensive income – – – – 3,179,420 − − 3,179,420
Total comprehensive income – – – 458,990,823 3,179,420 − − 462,170,243
Issuance of stock dividends 100,000,000 – – (100,000,000) – − − –
Issuance of shares of stock 1 – – – – − − 1
Balances at the end of the year =810,000,001
P =
P‒ =
P‒ =‒ P
P =1,143,604,399 (P
=339,205) =
P− =− P
P =1,953,265,195

See accompanying Notes to Consolidated Financial Statements.

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SL AGRITECH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended May 31

2018 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P
=509,289,229 =510,205,409
P =459,099,206
P
Adjustments to reconcile income before tax to net cash flows:
Finance cost (Note 25) 324,041,833 283,522,929 182,580,810
Depreciation and amortization (Notes 11, 12 and 24) 215,685,947 183,548,132 137,958,502
Pension expense (Note 28) 4,101,498 1,796,755 2,000,304
Gain on disposal of property and equipment (Note 11) (1,258,043) (200,373) (825,000)
Finance income (Note 7) (1,429,245) (1,345,465) (541,911)
Unrealized foreign exchange gains - net (4,546,221) (6,489,659) (4,627,046)
Fair value gain on agricultural produce and
biological assets (Notes 9 and 14) (300,386,518) (155,929,466) (69,712,034)
Working capital adjustments:
Decrease (increase) in:
Receivables (688,767,966) (812,860,333) (575,396,377)
Inventories (761,043,089) 170,549,701 (824,883,729)
Biological assets (161,040,609) (24,633,115) (12,950,147)
Prepayments and other current assets (29,244,551) (253,021,527) (4,624,582)
Increase in accounts and other payables 104,111,463 77,541,458 52,215,609
Cash used in operations (790,486,272) (27,315,554) (659,706,395)
Interest paid (326,725,005) (274,516,260) (188,201,651)
Interest received 1,429,245 1,345,465 541,911
Income taxes paid (627,378) (706,076) (108,383)
Net cash flows used in operating activities (1,116,409,410) (301,192,425) (847,474,518)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (Note 11) (301,765,399) (579,756,737) (238,625,925)
Payments for capitalized development costs (Note 12) (77,102,701) (42,970,405) (409,417,910)
Increase (decrease) in security deposits (5,242,688) 1,362,677 (2,894,288)
Proceeds from disposal of property and equipment (Note 11) 1,934,000 200,373 825,000
Deposit for future investment − (5,514,370) (7,334,436)
Net cash flows used in investing activities (382,176,788) (626,678,462) (657,447,559)
CASH FLOWS FROM FINANCING ACTIVITIES
Trust receipts payable
Availments 1,693,249,410 2,129,321,186 1,542,612,030
Payments (1,552,227,330) (2,224,854,567) (1,665,087,468)
Short-term notes payable
Availments 12,619,384,807 18,927,594,655 6,167,606,457
Payments (11,406,246,441) (18,021,843,351) (4,482,170,315)
Proceeds from:
Availment of long-term debt 496,250,000 − −
Issuance of shares of stocks − − 1
Deposit for future stocks subscription − 17,500,000 −
Net cash flows provided by financing activities (Note 33) 1,850,410,446 827,717,923 1,562,960,705
NET INCREASE (DECREASE) IN CASH 351,824,248 (100,152,964) 58,038,628
EFFECT OF EXCHANGE RATE CHANGES ON CASH HELD
IN FOREIGN CURRENCY 346,170 (4,088,485) (3,238,932)
CASH AT BEGINNING OF YEAR 241,765,185 346,006,634 291,206,938
CASH AT END OF YEAR (Note 7) P
=593,935,603 =241,765,185
P =346,006,634
P

See accompanying Notes to Consolidated Financial Statements.

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SL AGRITECH CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

SL Agritech Corporation (the Parent Company) and its subsidiary, Sterling SL Agritech Company
Limited (the Subsidiary) (collectively referred to as “the Group”) are incorporated in the Philippines
and the Union of Myanmar, respectively. The Parent Company’s registered office address is at
Sterling Place Building, 2302 Chino Roces Avenue Extension, Makati City.

The Parent Company was incorporated and organized in the Republic of the Philippines on
September 11, 2000 with a corporate life of 50 years to cultivate, grow, mill and/or process palay to
rice grains, and/or to outsource the cultivation of rice, corn, grains, etc. through independent
landowners and/or farmers by supplying seeds, farm implements, and other resources under
acceptable offsetting and payback arrangements and/or otherwise engage in buy and sell either in
retail or wholesale, export or import of rice, corn, grains of all kinds and other agricultural farm
products, seeds, vegetables, horticultural growths, fertilizers, chemicals or organic livestock of all
kind and farm implement and machineries, and to conduct research and development for the
production of aromatic super hybrid rice and cereals to sell the technology and intellectual property
rights of the product developed through own research and development.

The Subsidiary was incorporated and organized in the Union of Myanmar on August 23, 2017 with
registered office address at Room 105, First Floor, Pearl Condo F. Bahan Township, Yangon, Union
of Myanmar to engage into business of producing, promoting and transferring hybrid seed
technology, specifically SL-8H hybrid seed variety and other varieties to sell to the domestic and
international export markets and perform trading activities. The Subsidiary was incorporated to train
and transfer knowledge of utilizing hybrid seeds technology to paddy farmers in the Union of
Myanmar, to provide lending facilities to farmers and to provide agriculture logistics and equipment
leasing, management and operations, maintenance, repair services and advisory services.

The Subsidiary’s authorized capital is USD3,000,000 divided into 3,000,000 ordinary shares having a
par value of USD1 each.

On September 21, 2017, the management also executed an Investment Trust Agreement between the
Parent Company (Company-Trustor) and Mr. Henry Lim Bon Liong (Chairman-Trustee) to enable
HBL to manage, supervise and administer the Subsidiary on behalf of the Parent Company.

The Parent Company, as authorized by the Securities and Exchange Commission, has issued
=2,000,000,000 and =
P P1,500,000,000 worth of short-term commercial papers (STCPs) on
March 15, 2018 and December 14, 2016, respectively. The STCPs are listed at the Philippine
Dealing & Exchange Corp. (Note 17).

The accompanying consolidated financial statements of the Group were authorized for issue by the
Board of Directors (BOD) on August 30, 2018.

2. Basis of Preparation

Basis of Preparation
The consolidated financial statements of the Group have been prepared under the historical cost
basis except for agricultural produce which have been measured at fair value less estimated point-of-
sale cost at point of harvest and biological assets measured at fair value. The consolidated financial

*SGVFS031870*
 -2-

statements are presented in Philippine Peso (P

=), which is the Group’s functional currency. Amounts
are rounded to the nearest Peso unless otherwise indicated.

Statement of Compliance
The Group’s consolidated financial statements have been prepared in compliance with Philippine
Financial Reporting Standards (PFRSs).

Basis of Consolidation
The accompanying consolidated financial statements comprise the financial statements of the Parent
Company and the Subsidiary.

The consolidated financial statements are prepared based on the control principles involving a newly
incorporated entity. The investee is fully consolidated from the date of incorporation, being the date
on which the incorporator obtains control, and continues to be consolidated until the date that such
control ceases.

All intra-group balances, transactions and unrealized gains and losses resulting from intra-group
transactions are eliminated in full.

Noncontrolling interest (NCI) represent the portion of profit or loss and the net assets not held by the
Group and are presented separately in the consolidated statements of comprehensive income and
within equity in the consolidated statements of financial position and consolidated statements of
changes in equity.

Acquisitions of NCI are accounted for using the acquisition method, whereby the Group considers
the acquisition of NCI as an equity transaction. Any premium or discount on subsequent purchases
from NCI shareholders is recognized directly in equity and attributed to the equity holders of the
Parent Company.

Assessment of control
Control is achieved when the Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect that return through its power over the
investee. Specifically, the Group controls an investee if and only if the Group has:

∂ Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee);
∂ Exposure, or rights, to variable returns from its involvement with the investee; and
∂ The ability to use its power over the investee to affect its returns.

The investor re-assesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control. Consolidation begins when
the investor obtains control over the investee and ceases when the investor loses control of the
investee. Assets, liabilities, income and expenses of the investee are included in the consolidated
statements of financial position and consolidated statements of comprehensive income from the date
the investor gains control at the investee until the date the investor losses the control.

*SGVFS031870*
 -3-

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity
holders of the Parent Company and to the NCI, even if this results in the NCI having a deficit
balance. When necessary, adjustments are made to the financial statements of the investee to bring
its accounting policies in line with the accounting policies of the investor.

There are no significant restrictions on the Group’s ability to use assets or settle liabilities within the
Group. There is no difference on the voting rights of non-controlling interests as compared to
majority stockholders.

3. Changes in Accounting Policies

Adoption of New and Amended Accounting Standards and Interpretations

The accounting policies adopted are consistent with those of the previous financial year except for the
adoption of the following amended PFRS, which became effective on June 1, 2017. Except as
otherwise indicated, the adoption of these new accounting standards and amendments have no
material impact on the consolidated financial statements.

∂ Amendments to PFRS 12, Disclosure of Interests in Other Entities, Clarification of the Scope of
the Standard (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)

The amendments clarify that the disclosure requirements in PFRS 12, other than those relating to
summarized financial information, apply to an entity’s interest in a subsidiary, a joint venture or
an associate (or a portion of its interest in a joint venture or an associate) that is classified (or
included in a disposal group that is classified) as held for sale.

Adoption of these amendments did not have significant impact on the Group’s consolidated
financial statements.

∂ Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative

The amendments require entities to provide disclosure of changes in their liabilities arising from
financing activities, including both changes arising from cash flows and non-cash changes (such
as foreign exchange gains or losses).

The Group has provided the required information in Note 33 to the consolidated financial
statements. As allowed under the transition provisions of the standard, the Group did not present
comparative information for the year ended May 31, 2017.

∂ Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized
Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of
taxable profits against which it may make deductions upon the reversal of the deductible
temporary difference related to unrealized losses. Furthermore, the amendments provide
guidance on how an entity should determine future taxable profits and explain the circumstances
in which taxable profit may include the recovery of some assets for more than their carrying
amount.

*SGVFS031870*
 -4-

The Group applied the amendments retrospectively. However, their application has no effect on
the Group’s financial position and performance as the Group has no deductible temporary
differences or assets that are in the scope of the amendments.

Standards issued but not yet effective

Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Group
does not expect that the future adoption of the said pronouncements to have a significant impact on its
consolidated financial statements. The Group intends to adopt the following pronouncements when
they become effective.

Effective beginning on or after FY2019

∂ Amendment to PFRS 2, Share-based Payment, Classification and Measurement of Share-based
Payment Transactions

The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the classification of a share-
based payment transaction with net settlement features for withholding tax obligations; and the
accounting where a modification to the terms and conditions of a share-based payment
transaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, but
retrospective application is permitted if elected for all three amendments and if other criteria are
met. Early application of the amendments is permitted.

The Group has assessed that the adoption of these amendments will not have any impact on the
2019 consolidated financial statements.

∂ PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial
Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard
introduces new requirements for classification and measurement, impairment, and hedge
accounting. Retrospective application is required but providing comparative information is not
compulsory. For hedge accounting, the requirements are generally applied prospectively, with
some limited exceptions.

The adoption of PFRS 9 will have an effect on the impairment methodology for financial assets,
but will have no impact on the classification and measurement of the Group’s financial assets and
liabilities. PFRS 9 requires the Group to record expected losses on all of its debt financial assets.
The Group plans to apply the simplified approach and to record lifetime expected losses on all
loans and receivables that do not contain significant financing component. The Group is
currently quantifying the impact of the change in measuring credit losses.

∂ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with

PFRS 4

The amendments address concerns arising from implementing PFRS 9, the new financial
instruments standard before implementing the new insurance contracts standard. The
amendments introduce two options for entities issuing insurance contracts: a temporary
exemption from applying PFRS 9 and an overlay approach. The temporary exemption is first
applied for reporting periods beginning on or after January 1, 2018. An entity may elect the
overlay approach when it first applies PFRS 9 and apply that approach retrospectively to financial

*SGVFS031870*
 -5-

assets designated on transition to PFRS 9. The entity restates comparative information reflecting
the overlay approach if, and only if, the entity restates comparative information when applying
PFRS 9.

The amendments are not applicable to the Group since the Group does not have activities that are
predominantly connected with insurance or issue insurance contracts.

∂ PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with
customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a
customer. The principles in PFRS 15 provide a more structured approach to measuring and
recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under PFRSs. Either a full or modified retrospective application is
required for annual periods beginning on or after January 1, 2018.

Early adoption is permitted. The Group is currently assessing the impact of adopting this
standard.

∂ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual
Improvements to PFRSs 2014 - 2016 Cycle)

The amendments clarify that an entity that is a venture capital organization, or other qualifying
entity, may elect, at initial recognition on an investment-by-investment basis, to measure its
investments in associates and joint ventures at fair value through profit or loss. They also clarify
that if an entity that is not itself an investment entity has an interest in an associate or joint
venture that is an investment entity, the entity may, when applying the equity method, elect to
retain the fair value measurement applied by that investment entity associate or joint venture to
the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made
separately for each investment entity associate or joint venture, at the later of the date on which
(a) the investment entity associate or joint venture is initially recognized; (b) the associate or joint
venture becomes an investment entity; and (c) the investment entity associate or joint venture first
becomes a parent.

The amendments should be applied retrospectively, with earlier application permitted.

∂ Amendments to PAS 40, Investment Property, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property under
construction or development into, or out of investment property. The amendments state that a
change in use occurs when the property meets, or ceases to meet, the definition of investment
property and there is evidence of the change in use. A mere change in management’s intentions
for the use of a property does not provide evidence of a change in use. The amendments should
be applied prospectively to changes in use that occur on or after the beginning of the annual
reporting period in which the entity first applies the amendments. Retrospective application is
only permitted if this is possible without the use of hindsight.

The Group has assessed that the adoption of these amendments will not have any impact on the
2019 consolidated financial statements.

*SGVFS031870*
 -6-

∂ Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration

The interpretation clarifies that, in determining the spot exchange rate to use on initial recognition
of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset
or non-monetary liability relating to advance consideration, the date of the transaction is the date
on which an entity initially recognizes the nonmonetary asset or non-monetary liability arising
from the advance consideration. If there are multiple payments or receipts in advance, then the
entity must determine a date of the transactions for each payment or receipt of advance
consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively,
an entity may apply the interpretation prospectively to all assets, expenses and income in its
scope that are initially recognized on or after the beginning of the reporting period in which the
entity first applies the interpretation or the beginning of a prior reporting period presented as
comparative information in the consolidated financial statements of the reporting period in which
the entity first applies the interpretation.

The Group is currently assessing the impact of adopting this interpretation.

Effective beginning on or after FY2020

∂ Amendments to PFRS 9, Prepayment Features with Negative Compensation

The amendments to PFRS 9 allow debt instruments with negative compensation prepayment
features to be measured at amortized cost or fair value through other comprehensive income. An
entity shall apply these amendments for annual reporting periods beginning on or after
January 1, 2019. Earlier application is permitted.

∂ PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of
leases and requires lessees to account for all leases under a single on-balance sheet model similar
to the accounting for finance leases under PAS 17, Leases. The standard includes two
recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and
short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date
of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and
an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-
use asset). Lessees will be required to separately recognize the interest expense on the lease
liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events
(e.g., a change in the lease term, a change in future lease payments resulting from a change in an
index or rate used to determine those payments). The lessee will generally recognize the amount
of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting under
PAS 17. Lessors will continue to classify all leases using the same classification principle as in
PAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under
PAS 17.

*SGVFS031870*
 -7-

Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose to
apply the standard using either a full retrospective or a modified retrospective approach. The
standard’s transition provisions permit certain reliefs. The Group is currently assessing the
impact of adopting this standard.

∂ Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments to PAS 28 clarify that entities should account for long-term interests in an
associate or joint venture to which the equity method is not applied using PFRS 9. An entity shall
apply these amendments for annual reporting periods beginning on or after January 1, 2019.
Earlier application is permitted.

∂ Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involve
uncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside the
scope of PAS 12, nor does it specifically include requirements relating to interest and penalties
associated with uncertain tax treatments.

The interpretation specifically addresses the following:

• Whether an entity considers uncertain tax treatments separately

• The assumptions an entity makes about the examination of tax treatments by taxation
authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates
• How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or together
with one or more other uncertain tax treatments. The approach that better predicts the resolution
of the uncertainty should be followed.

Deferred effectivity
∂ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The
amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint
venture involves a business as defined in PFRS 3, Business Combinations. Any gain or loss
resulting from the sale or contribution of assets that does not constitute a business, however, is
recognized only to the extent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council deferred the original effective
date of January 1, 2016 of the said amendments until the International Accounting Standards
Board (IASB) completes its broader review of the research project on equity accounting that may
result in the simplification of accounting for such transactions and of other aspects of accounting
for associates and joint ventures.

*SGVFS031870*
 -8-

4. Summary of Significant Accounting Policies

Current versus Non-current Classification

The Group presents assets and liabilities in consolidated statement of financial position based on
current/non-current classification. An asset is current when it is:

∂ Expected to be realized or intended to be sold or consumed within normal operating cycle

∂ Held primarily for the purpose of trading
∂ Expected to be realized 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:

κ It is expected to be settled within normal operating cycle

κ It is held primarily for the purpose of trading
κ It is due to be settled within twelve months after the reporting period, or
κ There is no unconditional right to defer the settlement of the liability for at least twelve months
after the reporting period

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

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 Group.

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.

The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.

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 -9-

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized 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:

κ Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
κ Level 2 – Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable
κ Level 3 – Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statements on a recurring
basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-
assessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group 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 as explained above.

Cash
Cash includes cash on hand and in banks and are stated at face amount in the consolidated statement
of financial position.

Financial Instruments
Date of recognition
The Group recognizes a financial asset or a financial liability in the consolidated statement of
financial position when it becomes a party to the contractual provisions of the instrument. Purchases
or sales of financial assets that require delivery of assets within the time frame established by
regulation or convention in the marketplace are recognized on the settlement date.

Initial recognition
All financial instruments are initially recognized at fair value. Except for financial assets and
financial liabilities at fair value through profit or loss (FVPL), the initial measurement of financial
assets and financial liabilities include transaction costs. Financial assets are classified as either
financial assets at FVPL, held-to-maturity investments, available for sale (AFS) financial assets, or
loans and receivables. Financial liabilities are classified as either financial liabilities at FVPL or
other financial liabilities. The classification depends on the purpose for which the financial assets
were acquired and financial liabilities incurred and whether these are quoted in an active market.
The Group determines the classification of its financial instruments at initial recognition and, where
allowed and appropriate, re-evaluates such designation at every reporting date.

Financial instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a
component that is a financial liability, are reported as expense or income. Distributions to holders of
financial instruments classified as equity are charged directly to equity net of any related income tax
benefits.

As of May 31, 2018 and 2017, the financial assets of the Group are of the nature of loans and
receivables, while its financial liabilities are of the nature of other financial liabilities.

*SGVFS031870*
 - 10 -

‘Day 1’ difference
Where the transaction price in a non-active market is different to the fair value from other observable
current market transactions in the same instrument or based on a valuation technique whose
variables include only data from observable market, the Group recognizes the difference between the
transaction price and fair value (a ‘Day 1’ difference) in the profit or loss unless it qualifies for
recognition as some other type of asset. In cases where the valuation technique used is made of data
which is not observable, the difference between the transaction price and model value is only
recognized in the profit or loss when the inputs become observable or when the instrument is
derecognized. For each transaction, the Group determines the appropriate method of recognizing the
‘Day 1’ profit or loss amount.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. These are not entered into with intention of immediate or short-
term resale and are not designated as AFS financial assets or financial assets at FVPL.

After initial measurement, loans and receivables are subsequently carried at amortized cost using the
effective interest rate method (EIR) less allowance for impairment. Amortized cost is calculated by
taking into account any discount or premium on acquisition and includes fees that are an integral part
of the EIR. The amortization is included in the “Finance income” caption in the consolidated
statement of comprehensive income. The losses arising from impairment of such loans and
receivables are charged to “Provision for bad debts” account under operating expenses caption in the
consolidated statement of comprehensive income. This accounting policy applies primarily to the
Group’s “Receivables” and “Security deposits”.

Other financial liabilities at amortized cost

All loans and borrowings are initially recognized at fair value of the consideration received less
directly attributable transaction costs. After initial measurement, other financial liabilities are
subsequently measured at IER method. Amortized cost is calculated by taking into account any
discount or premium on acquisition and fees that are an integral part of the EIR. Any effects of
restatement of foreign currency-denominated assets or liabilities are recognized in profit or loss.

This accounting policy applies primarily to the Group’s “Accounts and other payables”, “Trust
receipts payable”, “Short-term debt” and “Long-term debt”.

Derecognition of Financial Assets and Financial Liabilities

Financial asset
A financial asset (or, where applicable a part of a financial asset or part of a group of similar
financial assets) is derecognized when:

κ the right to receive cash flows from the asset has expired;
κ the Group retains the right to receive cash flows from the asset, but has assumed an obligation to
pay them in full without material delay to a third party under a “pass-through” arrangement; or
κ the Group has transferred its right to receive cash flows from the asset and either: (i) has
transferred substantially all the risks and rewards of the asset, or (ii) has neither transferred nor
retained the risk and rewards of the asset but has transferred the control of the asset.

When the Group has transferred its right to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
Group’s continuing involvement in the asset. Continuing involvement that takes the form of a

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guarantee over the transferred asset is measured at the lower of original carrying amount of the asset
and the maximum amount of consideration that the Group could be required to repay.

Financial liability
A financial liability is derecognized when the obligation under the liability is discharged or cancelled
or has expired.

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 a derecognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts is recognized in the consolidated
statement of comprehensive income.

Impairment of Financial Assets

The Group assesses at each financial reporting date 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 deemed to be impaired if, and only if, there is objective evidence of impairment as a result
of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss
event’) and that loss event (or events) has an impact on the estimated future cash flows of the
financial asset or the group of financial assets that can be reliably estimated. Objective evidence of
impairment may include indications that the borrower or a group of borrowers is experiencing
significant financial difficulty, default or delinquency in interest or principal payments, the
probability that they will enter bankruptcy or other financial reorganization and where observable
data indicate that there is measurable decrease in the estimated future cash flows, such as changes in
arrears or economic conditions that correlate with defaults. For the Group’s receivables from
customers, evidence of impairment may also include non-collection of the Group’s trade receivables,
which remain unpaid after series of follow ups upon lapse of credit terms.

Loans and receivables

For loans and receivables carried at amortized cost, the Group first assesses whether objective
evidence of impairment exists individually for financial assets that are individually significant, or
collectively for financial assets that are not individually significant. If the Group determines that no
objective evidence of impairment exists for individually assessed financial asset, whether significant
or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses for impairment.

Those characteristics are relevant to the estimation of future cash flows for groups of such assets by
being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of
the assets being evaluated. Assets that are individually assessed for impairment and for which an
impairment loss is, or continues to be, recognized are not included in a collective assessment for
impairment.

If there is objective evidence that an impairment loss on financial asset carried at amortized cost
(e.g., loans and receivables) has been incurred, the amount of the loss is measured as the difference
between the assets’ carrying amount and the present value of the estimated future cash flows
discounted at the asset’s original EIR. The carrying amount of the asset is reduced through use of an
allowance account and the amount of loss is charged to the consolidated statement of comprehensive
income. Interest income continues to be recognized based on the original EIR of the asset.
Receivables, together with the associated allowance accounts, are written off when there is no
realistic prospect of future recovery and all collateral has been realized.

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If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event
occurring after the impairment was recognized, the previously recognized impairment loss is
reversed.

Any subsequent reversal of an impairment loss is recognized in consolidated statement of

comprehensive income, to the extent that the carrying value of the asset does not exceed its
amortized cost at the reversal date.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of historical loss experience for assets with credit risk characteristics similar
to those in the group. Historical loss experience is adjusted on the basis of current observable data to
reflect the effects of current conditions that did not affect the period on which the historical loss
experience is based and to remove the effects of conditions in the historical period that do not exist
currently.

The methodology and assumptions used for estimating future cash flows are reviewed regularly by
the Group to reduce any differences between loss estimates and actual loss experience.

Offsetting of Financial Instruments

Financial instruments are offset and the net amount reported in the consolidated statement of
financial position if, and only if, there is currently enforceable legal right to offset the recognized
amounts and the Group intends to either settle on a net basis, or to realize the asset and settle the
liability simultaneously. The Group assesses that it has currently enforceable right of offset if the
right is not contingent on a future event, and is legally enforceable in the normal course of business,
event of default, and event of insolvency or bankruptcy of the Group and all of the counterparties.

Inventories
Milled rice
The Group uses a standard costing method to account for milled rice inventories. The cost of
processed milled rice inventories comprises all costs of purchase cost of conversion and other costs
incurred in bringing the inventories to their present location and condition. The costs of conversion
include raw materials, direct labor, certain freight and warehousing cost, indirect production and
overhead cost.

Agricultural produce
Agricultural produce (i.e. hybrid rice seeds) are carried at fair value less estimated point-of-sale costs
at point of harvest. Agricultural produce are the harvested product from the Group’s biological
assets. A harvest occurs when the biological asset’s life processes cease.

The fair value is determined by reference to current market transaction price. The fair value
resulting from initial measurement is subsequently used as cost if the product is subsequently sold.
Other costs such as drying and chemical treatment are included but only to the extent that these are
incurred in bringing the agricultural produce to its present location and condition. Point-of-sale
costs exclude transport and other costs necessary to get the agricultural produce to a market. Gains
and losses arising from changes in fair values are included in the consolidated statement of
comprehensive income for the period in which they arise.

Agricultural and supplies inventories

Agricultural and supplies inventories (i.e. packaging materials) are valued at the lower of cost or
NRV. Costs are determined using the moving average method.

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Dried palay
Dried palay are valued at the lower of cost or NRV. Cost is determined using the moving average
method. Cost includes purchase price and other cost attributable in bringing the dried palay to its
intended condition and location such as cost for labor and freight in

Biological Assets
The biological assets of the Group consist of parental line and hybrid seeds growing crops. The cost
of biological assets such as labor cost, seeds, fertilizers and chemicals are based on the actual cost.

The Group’s biological assets are measured at their fair value. The Group uses the future selling
price and gross margin of finished goods less future growing costs applied to the estimated volume
of harvest as the basis of fair value.

Property and Equipment

Land is stated at cost less impairment in value. Property and equipment, other than land, is stated at
cost less accumulated depreciation and accumulated impairment in value. The initial costs of
property and equipment consist of its construction cost or purchase price including non-refundable
taxes, import duties and taxes, and any directly attributable costs of bringing the property and
equipment to working condition and location for its intended use.

Depreciation commences once the property and equipment are put into operational use and is
computed on a straight-line basis over the estimated useful lives of the property and equipment as
follows:

Years
Machinery and equipment 5
Buildings and warehouse 5
Office equipment 5
Transportation equipment 5
Tools and equipment 5
Furniture and fixtures 2

Subsequent costs are capitalized as part of property and equipment only when it is probable that
economic benefits associated with the item will flow to the Group and the cost of the property and
equipment can be measured reliably. All other repairs and maintenance costs are charged to current
operations as incurred.

The assets’ residual values, useful lives and depreciation method are reviewed at each financial
reporting date and adjusted if appropriate. Impairment reviews take place when events or changes in
circumstances indicate that the carrying values may not be recoverable. Impairment losses are
recognized in the consolidated statement of comprehensive income.

An item of property and equipment is derecognized upon disposal or when no further future
economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net disposal proceeds and the original cost of the
asset) is included in the consolidated statements of comprehensive income in the year the asset is
derecognized. This is not applicable to items that still have a useful life but are currently classified as
idle, depreciation continues for those items.

Assets under construction are stated at cost. These include costs of construction of property and
equipment and other direct costs. Assets under construction are not depreciated until such time as the
relevant assets are completed and put into operational use.

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Investment and Advances in an Associate

Associates are entities in which the Group has significant influence and which are neither subsidiaries
nor joint ventures of the Group. Significant influence is the power to participate in the financial and
operating policy decisions of the investee, but is not control or joint control over those policies. The
considerations made in determining significant influence are similar to those necessary to determine
control over subsidiaries.

Investments in an associate is accounted for under the equity method of accounting in the
consolidated financial statements.

Under the equity method, the investments in associate is carried in the consolidated statements of
financial position at cost plus post-acquisition changes in the Group’s share of net assets of the
associate, less dividends declared and impairment in value. If the Group’s share of losses of an
associate equals or exceeds its interest in the associate, the Group discontinues recognizing its share
of further losses. The interest in an associate is the carrying amount of the investment in the associate
under the equity method together with any long-term interests that, in substance, form part of the
investor’s net investment in the associate. After application of the equity method, the Group
determines whether it is necessary to recognize any impairment loss with respect to the Group’s net
investments in the associate.

The consolidated statements of comprehensive income reflects the Group’s share in the results of
operations of its associate. This is included in the “Equity share in net losses of an associate” account
in the consolidated statements of comprehensive income. After the Group’s interest is reduced to
zero, additional losses are provided to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the associate.
When there has been a change recognized directly in the equity of the associate, the Group recognizes
its share of any change and discloses this, when applicable, in the consolidated statements of changes
in equity.

The end of the reporting period of the Parent Company is different from that of the associate, hence,
the associate prepares, for the use of the Parent Company, financial statements as of the same date as
the financial statements of the Parent Company. Moreover, the accounting policies of the associate
conform to those used by the Parent Company for like transactions and events in similar
circumstances.

Unrealized gains arising from intercompany transactions with its associate are eliminated to the
extent of the Group’s interest in the associate. Unrealized losses are eliminated similarly but only to
the extent that there is no evidence of impairment of the asset transferred.

Upon loss of significant influence over the associate, the Group measures and recognizes any
remaining investment at fair value and will subsequently be measured using the policy on financial
assets. Any difference between the carrying amount of the associate upon loss of significant
influence and the fair value of the remaining investment and proceeds from disposal is recognized in
profit or loss.

Development Cost
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical
knowledge and understanding, is recognized in the consolidated statement of comprehensive income.

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Development expenditures refer to hybrid seeds development cost. Development expenditures on an

individual project are recognized as an intangible asset when the Group can demonstrate:

κ the technical feasibility of completing the intangible asset so that it will be available for use or
sale;
κ its intention to complete and its ability to use or sell the asset;
κ how the asset will generate future economic benefits;
κ the availability of resources to complete the asset; and
κ the ability to measure reliably the expenditure during development.

The Group capitalizes hybrid seed development costs once management deems a hybrid seed is
probable of being commercially viable. This occurs in tandem with management’s determination that
a seed will provide high-yield crops and crops that are tolerant to adverse tropical conditions.

Following initial recognition of the development expenditure as an asset, the asset is carried at cost
less any accumulated amortization and accumulated impairment losses. Amortization of the asset
begins when development is complete and the asset is available for use. It is amortized over the
period of expected future benefit. If upon reassessment, the period of expected future benefit has
changed from original estimations, then related amortization is being accelerated or adjusted
prospectively.

Subsequent expenditures is capitalized only when it increases the future economic benefits embodied
in the specific asses to which it relates.

Development costs are amortized on a straight-line basis over the EUL of twenty (20) years.
Amortization of “Development costs” is recorded in consolidated statement of comprehensive income
under “Cost of sales” account in profit or loss and “Inventories” in the consolidated statements of
financial position. During the period of development, the hybrid seeds development cost is tested for
impairment annually.

Prepaid Expenses
Prepaid expenses are being reduced on a monthly basis by the amount already expensed for the
period.

Deposit for Future Investment

The Group’s share in an undivided interests on unincorporated joint ventures are classified by the
management as outside the scope of PFRS 11, Joint Arrangements.

Impairment of Nonfinancial Assets

The Group assesses at each financial reporting date whether there is an indication that and an asset
may be impaired. If any such indication exists, the Group makes an estimate of the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating
unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless
the asset does not generate cash inflows that is largely independent of those from other assets or
groups of assets.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount. 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.

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Impairment losses are recognized in the consolidated statement of comprehensive income in those
expense categories consistent with the function of the impaired asset.

An assessment is made at each financial reporting date as to whether there is an indication that
previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated.

A previously recognized impairment loss is reversed only if there has been a change in the estimates
used to determine the asset’s recoverable amount since the last impairment loss was recognized. If
that is the case, the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined, net of
depreciation and amortization, had no impairment loss been recognized for the asset in prior years.

Such reversal is recognized in the consolidated statement of comprehensive income unless the asset is
carried at revalued amount, in which case, the reversal is treated as a revaluation increase. After such
reversal, the depreciation and amortization are adjusted in future periods to allocate the asset’s
revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

This accounting policy applies primarily to the Group’s property and equipment and development
costs.

Foreign Currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group
entities at the exchange rate at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are retranslated to the functional currency at
the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference
between amortized cost in the functional currency at the beginning of the year, adjusted for effective
interest and payments during the year, and the amortized cost in foreign currency translated at the
exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value
are retranslated to the functional currency at the exchange rate at the date that the fair value was
determined. Non-monetary items in a foreign currency that are measured in terms of historical cost
are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on translation are recognized in the income statement, except for
differences which are recognized in OCI arising on the retranslation of qualifying cash flow hedges to
the extent the hedge is effective.

Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising
on acquisition, are translated to Philippine Peso at exchange rates at the reporting date. The income
and expenses of foreign operations are translated to Philippine Peso using monthly average exchange
rates.

Foreign currency differences are recognized in other comprehensive income and presented in the
foreign currency translation adjustment in equity. However, if the operation is a non-wholly-owned
subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-
controlling interests. When a foreign operation is disposed of such that control, or joint control is
lost, the cumulative amount in the translation adjustment related to that foreign operation is
reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only

*SGVFS031870*
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part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant
proportion of the cumulative amount is reattributed to non-controlling interests. When the Group
disposes of only part of its investment in joint venture that includes a foreign operation while
retaining significant influence or joint control, the relevant proportion of the cumulative amount is
reclassified to the income statement.

When the settlement of a monetary item that is a receivable from or payable to a foreign operation is
neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from
such a monetary item are considered to form part of a net investment in a foreign operation and are
recognized in other comprehensive income, and presented in the translation adjustment in equity.

Taxes
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected
to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted at the financial reporting date.

Deferred tax
Deferred tax is provided, using the balance sheet liability method, on all temporary differences, with
certain exceptions, at financial reporting date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are
recognized for all deductible temporary differences, carryforward of unused tax credits from excess
minimum corporate income tax (MCIT) and unused net operating loss carry over (NOLCO), to the
extent that it is probable that taxable profit will be available against which the deductible temporary
differences and the carryforward of unused tax credits from MCIT and unused NOLCO can be
utilized.

The carrying amount of deferred tax assets is reviewed at each financial reporting date and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each
financial reporting date and are recognized to the extent that it has become probable that future
taxable profit will allow the deferred tax asset to be recovered.

Deferred tax relating to items recognized in OCI or directly in equity is recognized in the
consolidated statement of comprehensive income and consolidated statement of changes in equity and
not in profit or loss.

The Group does not recognize deferred tax on temporary differences which are expected to reverse
for periods where Income Tax Holiday (ITH) is in effect (Notes 26 and 29).

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period
when the asset is realized or the liability is settled, based on tax rates and tax laws that have been
enacted or substantively enacted at the financial reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset
current tax asset against current tax liability and the deferred taxes relate to the same taxable entity
and the same taxation authority.

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Provisions
Provisions are recognized only when the Group has present obligation (legal or constructive) 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 amount of obligation.
Provisions are reviewed at each financial reporting date and adjusted to reflect the current best
estimate.

Deposit for Future Stock Subscription

Deposits for future stock subscriptions (DFFS) represent the amount paid by the stockholders for
future stock issuances of the Parent Company. When obligations are payable in fixed number of
shares, these are classified as equity only if all of the following elements are present as of end of the
reporting period, otherwise, these are classified as liabilities:
(a) the unissued authorized capital stock of the entity is insufficient to cover the amount of shares
indicated in the contract;
(b) there is BOD approval on the proposed increase in authorized capital stock (for which a
deposit was received by the corporation);
(c) there is stockholders’ approval of said proposed increase; and
(d) the application for the approval of the proposed increase has been filed with the SEC.

DFFS is transferred to equity upon the SEC’s approval of the Parent Company’s application for
increase in authorized capital stock.

Pension Liability
Defined benefit plan
The defined benefit liability is the aggregate of the present value of the defined benefit obligation less
the fair value of plan assets (if any) out of which the obligations are to be settled directly. If such
aggregate is negative, the asset is measured at the lower of such aggregate and the present value of
any economic benefits available in the form of refunds from the plan or reductions in the future
contributions to the plan.

Defined benefit costs on the Group’s defined benefit retirement plan are actuarially computed using
the projected unit credit (PUC) valuation method. Under this method, the current service cost is the
present value of retirement benefits payable in the future with respect to the services rendered in the
current period.

Defined benefit costs comprise the following:

(a) current service cost;
(b) interest on the defined benefit liability; and
(c) remeasurements of defined benefit liability.

Service costs which include current service costs and gains or losses on non- routine settlements are
recognized as expense in profit or loss. Past service costs are recognized when plan amendment or
curtailment occurs. These amounts are calculated periodically by independent qualified actuary.

Interest on the defined benefit liability or asset is the change during the period in the defined benefit
liability or asset that arises from the passage of time which is determined by applying the discount
rate based on the risk-free interest rates of government issued bonds to the defined benefit liability or
asset. Interest on the net defined benefit liability or asset is recognized as expense in profit or loss.

Remeasurements comprising actuarial gains and losses are recognized immediately in

“Remeasurement gains (losses) on pension liability” account presented in OCI in the period in which
they arise. Remeasurements are not reclassified to profit or loss in subsequent periods.

*SGVFS031870*
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Termination Benefit
Termination benefits are employee benefits provided in exchange for the termination of an
employee’s employment as a result of either an entity’s decision to terminate an employee’s
employment before the normal retirement date or an employee’s decision to accept an offer of
benefits in exchange for the termination of employment.

A liability and expense for a termination benefit is recognized at the earlier of when the entity can no
longer withdraw the offer of those benefits and when the entity recognized related restructuring costs.
Initial recognition and subsequent changes to termination benefits are measured in accordance with
the nature of the employee benefit, as either post-employment benefits, short-term employee benefits,
or other long-term benefits.

Employee Leave Entitlement

Employee entitlements to annual leave are recognized as a liability when they are accrued to the
employees. The undiscounted liability for leave expected to be settled wholly before twelve months
after the end of the annual reporting period is recognized for services rendered by employees up to
the end of the reporting period.

Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the
arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset (or assets) and the arrangement conveys a
right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an
arrangement.

Group as a lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that
transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a
finance lease.

Finance leases are capitalized at the commencement of the lease at the inception date fair value of the
leased property or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are recognized in finance
costs in the consolidated statement of comprehensive income.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated
over the shorter of the estimated useful life of the asset and the lease term.

An operating lease is a lease other than a finance lease. Operating lease payments are recognized as
an operating expense in the consolidated statement of profit or loss on a straight-line basis over the
lease term.

Basic/Diluted Earnings Per Share

Basic Earnings Per Share (EPS)
Basic EPS is calculated by dividing net income for the year attributable to common shareholders of
the Group by the weighted average number of common shares outstanding during the year, with the
retroactive adjustments for any stock dividends declared.

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Diluted EPS
Diluted EPS amounts are calculated by dividing the net income attributable to ordinary shareholders
of the Group by the weighted average number of ordinary shares outstanding adjusted for any stock
dividends declared during the year plus weighted average number of ordinary shares that would be
issued on the conversion of all dilutive ordinary shares into ordinary shares.

Equity
Capital stock is measured at par value for all shares issued. When the Group issues shares in excess
of par, the excess is recognized as additional paid-in capital (APIC). Incremental costs incurred
directly attributable to the issuance of new shares are treated as deduction from APIC.

Retained earnings represent accumulated earnings of the Group less dividends declared.

Revenue and Income Recognition

Revenue is recognized to the extent that it is probable that the future economic benefits will flow to
the Group and the amount of revenue can be measured reliably. Revenue is measured at the fair
value of the consideration received or receivable, excluding discounts, returns, rebates and other sales
taxes.

The Group assesses its revenue arrangements against specific criteria in order to determine if it is
acting as principal or agent. The Group has concluded that it is acting as principal in all of its
revenue agreements since the Group is the primary obligor in all of its revenue arrangements, has
pricing latitude and is also exposed to inventory and credit risks. The following specific recognition
criteria must also be met before revenue is recognized:

Revenue from sale of products

Revenue from sales of hybrid seeds and rice in the ordinary course of activities is measured at the fair
value of the consideration received or receivable, net of returns and allowances, trade discounts and
volume rebates. Revenue is recognized when the significant risks and rewards of ownership of the
goods have passed to the buyer, recovery of the consideration is probable, the associated costs and
possible return of goods can be estimated reliably, there is no continuing management involvement
with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts
will be granted and the amount can be measured reliably, then the discount is recognized as a
reduction of revenue as the sales are recognized.

Finance income
Finance income is recognized as it accrues taking into account the effective yield of the assets.

Other Comprehensive Income (OCI)

OCI are items of income and expense that are not recognized in profit or loss for the year in
accordance with PFRS. The Group has recognized OCI for the years ended May 31, 2018, 2017 and
2016 pertaining to remeasurement gains and losses arising on defined benefit obligation adjustment
which cannot be recycled to profit or loss in future periods. During the current year, the Group has
recognized OCI item on cumulative translation adjustment of the Subsidiary’s account balances
which can be recycled to profit or loss in future periods.

Cost of Sales
Cost of sales includes the purchase price of the products sold, as well as costs that are directly
attributable in bringing the products to their present location and condition. These costs include the
costs of direct material, labor and overhead costs. Cost of sales is recognized as expense when the
related goods are sold and delivered.

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Operating Expenses
Operating expenses constitute costs of administering the business. These are recognized as expenses
as incurred.

Operating Segment
The Group’s operating businesses are organized and managed separately according to the type of the
products provided, with each segment representing a strategic business unit that offers different
products and serves different markets. Financial information on business segments is presented in
Note 6 to the Group’s consolidated financial statements.

Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed
unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent
assets are not recognized in the consolidated financial statements but disclosed when an inflow of
economic benefits is probable.

Events after the Reporting Date

Post year-end events that provide additional information about the Group’s position at the financial
reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end
events that are non-adjusting events are disclosed in the notes to the consolidated financial
statements, when material.

5. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the consolidated financial statements in conformity with PFRS requires the
Management to make judgments, estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The estimates and assumptions used in
the accompanying consolidated financial statements were based upon management evaluation of
relevant facts and circumstances as of date of the consolidated financial statements. Actual results
could differ from such estimates.

Judgments and estimates are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.

Judgments
In the process of applying the Group’s accounting policies, management has made the following
judgment, apart from those involving estimations, which have the most significant effect on the
amounts recognized in the consolidated financial statements:

Assessment of control
The Parent Company classifies its investee companies as subsidiary if the Parent Company achieves
control over the companies. Control is presumed to exist if the Parent Company has the following
characteristics:

∂ power over the investee;

∂ exposure, or rights, to variable returns from its involvement with the investee; and
∂ the ability to use its power over the investee to affect the amount of the investor's returns.

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Control is achieved when the Parent Company is exposed, or has rights to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the
investee. In the event the Parent Company loses this power, the Parent Company will have to change
the classification of its investment in investee companies.

The Parent Company has de facto control over its investee company, the Subsidiary, having nil direct
and 85% effective ownership through his Trustee (Note 1). The Parent Company is the combining
entity whose owners as a group is effectively entitled to receive the largest portion of the voting rights
and exposure to variable rights in the Group based on the Trust Agreement; thus, the Parent Company
is being regarded as the controlling entity.

Assessment of significant influence

The Group classifies its investee company as an associate if the Group has significant influence in the
investee company. Significant influence is presumed to exist if the Group has a holding of 20% or
more of the voting power of the investee. Holding of less than 20% of the voting power is presumed
not to give rise to significant influence, unless it can be clearly demonstrated that there is in fact
significant influence.

As of May 31, 2018, the Group holds 49% interest in PT Sterling Agritech Indonesia (SAI), which is
accounted as investment in an associate. The Group exercises significant influence in SAI due to (a)
the representation of the Parent Company in the Board of Directors of SAI; and (b) provision of
essential technical information of the Parent Company to SAI. Hence, the Parent Company
significantly influences the policy-making processes of SAI.

Classification of lease
Generally, lease of land and warehouse is classified as operating lease since land has an indefinite
economic life, unless title was expected to pass to the lessee by the end of the lease term. The Group
classifies its lease on land as finance lease if, at inception, the present value of the minimum lease
payments is more than or equal to 90% of the fair value of the leased asset.

Lease commitments – Group as lessee

The Group has determined, based on an evaluation of the terms and conditions of the arrangement,
such as the lease term does not constitute a major part of the economic life of the commercial
property and that the lessor still retains all the significant risk and rewards of ownership of the
property and accounts for the contract as an operating lease.

Land lease
The Group entered into various farm management agreements which cover the lease of agricultural
lands for the production of hybrid rice palay and seeds in Laguna, Davao Oriental, Davao del Norte,
Davao del Sur and Nueva Ecija. The Group has determined, based on an evaluation of the terms and
conditions of the arrangements that the risks and rewards related to those properties are retained by
the lessor. As such, these lease agreements are accounted for as operating leases.

Warehouse lease
The Group entered into lease agreements which cover the lease of warehouses for the storage of
hybrid rice palay/seeds in Bulacan, Laguna, Davao Oriental and Nueva Ecija. The Group has
determined, based on an evaluation of the terms and conditions of the arrangements that the risks and
rewards related to those properties are retained by the lessor. As such, these lease agreements are
accounted for as operating leases.

*SGVFS031870*
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Biological assets
Consumable biological assets are those that are to be harvested as agricultural produce or sold as
biological assets. Bearer biological assets are those other than consumable biological assets.
Management considers its biological assets as consumable biological assets. These consist of living
plant such as parental line and growing crops. PAS 41, Agriculture, requires that biological assets
shall be measured on initial recognition and at the end of each reporting period at its fair value less
costs to sell, except for the case where the fair value cannot be measured reliably. The Group has
determined that biological assets must be valued at its fair value less costs to sell.

The management believes that the biological assets as of May 31, 2018 and 2017 qualifies as
consumable biological assets since the parental line and hybrid seeds growing crops are not self-
generating and life ceases upon harvest.

Development costs
Development costs are capitalized only when the asset can demonstrate that it will generate probable
future economic benefits to the Group. This generally occurs in tandem with management’s
determination that a seed is viable and it will provide high-yield crops and crops that are tolerant to
adverse tropical conditions. Costs incurred during the research phase are expensed outright.

The related balances follow (Note 12):

2018 2017
Development costs - cost P
=1,610,635,311 =1,533,532,610
P
Accumulated amortization 260,229,566 233,054,584
Amortization for the year 27,174,982 50,010,426

Estimates and Assumptions

The key assumptions concerning the future and other sources of estimation uncertainty at the financial
reporting date that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.

Estimating allowance for impairment losses on loans and receivables

The Group maintains an allowance for impairment losses based on the results of individual and
collective assessments. The level of this allowance is evaluated by management on the basis of
factors that affect the collectability of the accounts. These factors include, but are not limited to age
of balances, financial status of counterparties, payment behavior and known market factors. The
Group reviews the age and status of receivables, and identifies accounts that are to be provided with
allowance on a regular basis (Notes 8 and 30).

Under specific/individual assessment, the Group assesses each individually significant credit
exposure for any objective evidence of impairment, and where such evidence exists, accordingly
calculates the required impairment. Among the items and factors considered by the Group when
assessing and measuring specific impairment allowances are: (a) the timing of expected future cash
flows; (b) the ability of the counterparty to repay its obligations; (c) aging of accounts receivables;
and (d) endorsement of claims to the legal department for collection. The impairment allowances, if
any, are evaluated as the need arises, in view of favorable or unfavorable developments.

With regard to the collective assessment of impairment, allowances are assessed collectively for
losses on receivables that are not individually significant and for individually significant receivables
when there is no apparent evidence or not yet objective of individual impairment. Future cash flows
in this group of receivables that are collectively evaluated for impairment are estimated on the basis
of historical loss experience for assets with credit risk characteristics similar to those in the group.

*SGVFS031870*
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When insufficient or no entity-specific loss experience is available, the Group uses peer group
experience for comparable groups of receivables. Historical loss experience is adjusted on the basis
of current observable data to reflect the effects of current conditions that did not affect the period on
which the historical loss experience is based and to remove the effects of conditions in the historical
period that do not exist currently.

The amount and timing of recorded expenses for any period would differ if the Group made different
judgments or utilized different estimates. An increase in allowance for impairment losses would
increase recorded expenses and decrease net income.

The related balances follow (Note 8):

2018 2017
Receivables – net P
=3,561,540,866 =2,868,450,804
P
Allowance for impairment losses 170,508,073 36,000,0000

Fair value of agricultural produce

The Group determined the fair value of agricultural produce based on the total actual selling prices
approximating those at year-end, less estimated cost to sell at point of harvest. Costs to sell at the
point of harvest are the incremental costs directly attributable to the disposal of an asset, excluding
finance costs and income taxes. The fair values of these produce are reviewed and updated if
expectations differ from previous estimates due to changes brought by both physical change and price
changes in the market. It is possible that future results of operations could be materially affected by
changes in these estimates brought about by the changes in factors mentioned above. As of May 31,
2018 and 2017, the fair value of agricultural produce amounted to = P2,546,005,108 and
=1,501,854,633, respectively (Note 9).
P

Estimating NRV of inventories

Inventories carried at the lower of cost or NRV include dried palay, agricultural and supplies
inventories and milled rice. The Group computes NRV using estimated selling price in the ordinary
course of business less costs necessary to make a sale. This requires the Group to make an estimate
of the inventories’ estimated selling price in the ordinary course of business, costs of completion and
costs necessary to make a sale to determine the NRV. In the event that NRV is lower than cost, the
decline is recognized as an expense. Inventories carried at cost amounted to = P965,451,222 and
=1,070,998,146 as of May 31, 2018 and 2017, respectively (Note 9). No allowance for inventory
P
obsolescence was recognized as of May 31, 2018 and 2017.

Fair value of biological assets

The Group’s biological assets are measured at their fair value. The key assumptions for the fair value
of produce prior to harvest include future selling prices, estimated volume of harvests and future
growing costs.

As of May 31, 2018 and 2017, the fair value of the Group’s biological asset amounted to
=332,399,849 and =
P P48,533,184, respectively (Note 14).

Key assumptions used in determining the cash flow projection include (a) = P4,450 to P=5,400 future
selling price per 15 to 18 kilogram bag based on the actual selling prices of current seed varieties with
consideration for discounts and logistic costs; (b) estimated volume of harvest for current seed
varieties ranging from 11,352 to 96,733 bags; and (c) P =1.46 million to =
P232.28 million estimated
costs to complete of current seed varieties. The management opted not to discount the cash flow
projections as the cash flows are expected within one year.

*SGVFS031870*
 - 25 -

Estimating useful lives of property and equipment

The Group estimates the useful lives of property and equipment, based on the period over which the
assets are expected to be available for use. The estimated useful lives of property and equipment are
reviewed at least annually and are updated if expectations differ from previous estimates due to
physical wear and tear and technical or commercial obsolescence on the use of these property and
equipment. It is possible that future results of operations could be materially affected by changes in
these estimates. A reduction in the estimated useful lives of property and equipment would increase
recorded depreciation and decrease the related asset accounts.

The related balances follow (Note 11):

2018 2017
Property and equipment – cost P
=2,141,699,733 =1,846,470,888
P
Accumulated depreciation 939,700,648 757,050,280
Depreciation 188,510,965 133,537,706

Estimating amortization period of development cost

The Group estimates the amortization period of intangible asset over the EUL of twenty (20) years,
based on the copyright registration and trademark approval granted by relevant government agency.
As of May 31, 2018 and 2017, the amortizable balance of development costs amounted to
=618,329,038. Development costs for developed hybrid rice seeds amounted to P
P =367,516,230 and
=394,691,212 as of May 31, 2018 and 2017, respectively (Note 12).
P

Impairment of nonfinancial assets

The Group assesses impairment on property and equipment and development costs whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The factors that the Group considers important which could trigger an impairment review include the
following:

∂ significant underperformance relative to expected historical or projected future operating results;

∂ significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
∂ significant negative industry or economic trends.

If such indications are present, and where the carrying amount of the asset exceeds its recoverable
amount, the assets are considered impaired and are written down to recoverable amount.

Assets that are subject to impairment testing when impairment indicators are present are as follows:

2018 2017
Investment and advances in an associate (Note 13) P
=9,397,839 =−
P
Property and equipment (Note 11) 1,201,999,085 1,089,420,608
Other noncurrent assets (Notes 10 and 32) 206,041,610 224,781,294

In 2018, 2017 and 2016, no impairment loss was recognized on these nonfinancial assets since the
Group assessed that there are no indicators of impairment.

Impairment of development costs for seed varieties undergoing development

The recoverability of capitalized development costs for seed varieties undergoing development
require estimation of future cash flows which is affected by the probability of success, discount rate,
and market price. The probability of success refers to the ratio or percentage of likelihood that the

*SGVFS031870*
 - 26 -

management’s cash flow projections will actually be realized. The recoverable amount will differ
from these estimates as a result of differences between the assumptions used and future actual results.
While the Group believes that the key assumptions are reasonable and appropriate, significant
differences in the future actual result or significant changes in the key assumptions may materially
affect the recoverability of capitalized development costs for seed varieties undergoing development.

As of May 31, 2018 and 2017, the Group’s capitalized development costs for seed varieties
undergoing development amounted to P=982,889,515 and P =905,786,814, respectively (Note 12).

Key assumptions used in determining the discounted cash flow projection include (a) 100%
probability of success and volume of sales based on the projected level for SL8H variety, adjusted
by actual levels realized for SL12H and SL18H varieties; (b) 12% discount rate; (c) estimated
selling price throughout the period of 20 years which ranges from =P5,000 to =
P7,320 per 18
kilogram bag; and (d) varying population growth rate that ranges from 0.65% to 1.59% from years
2018 to 2045.

Estimating pension cost obligation

The determination of the present value of pension obligation is determined using actuarial valuation.
The actuarial valuation involves making various assumptions. These assumptions include, among
others, discount rates and salary increase rates. While the Group believes that the assumptions are
reasonable and appropriate, significant differences in the actual experience or significant changes in
the assumptions may materially affect the pension obligation.

As of May 31, 2018 and 2017, the Group’s pension liability amounted to =
P17,237,711 and
=20,250,887, respectively (Note 28).
P

Deferred tax assets

The Group reviews the carrying amounts of deferred tax assets at each reporting date and reduces
deferred tax assets to the extent that it is no longer probable that sufficient future taxable income will
be available to allow all or part of the deferred tax assets to be utilized.

As of May 31, 2018, the Group has no recognized DTA in profit or loss on any other temporary tax
differences as the Group believes that it is not probable that future taxable income will be available in
the period of reversal due to the ITH incentive benefit of the Group (Notes 26 and 29). As of
May 31, 2017 the Group recognized DTA in OCI arising on pension obligation which amounted to
=971,196 (Note 26).
P

6. Segment Reporting

For management purposes, the Group’s operating segments are organized and managed separately
according to the type of the products provided, with each segment representing a strategic business
unit that offers different products and serves different markets as follows:

∂ Seeds Division – cultivates, harvest and sell hybrid rice seeds to farmers
∂ Rice Division – purchases dried palay, mills and sells finished good rice grains to consumers
∂ Foreign Operations – results of activities conducted by the Parent Company’s Subsidiary

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Management monitors the operating results of its operating segments separately for the purpose of
making decision about resource allocation and performance assessment. The Group’s financing
(including finance income and finance cost) and income tax are managed on a group basis and are not
allocated to operating segments.
The Group evaluates performance based on earnings before income tax (EBIT). The Group does not
report its results based on geographical segments because the Group has minimal operations outside
the Philippines.
The amounts of segment assets and liabilities are based on the measurement principles that are similar
with those used in measuring the assets and liabilities in the consolidated statement of financial
position which is in accordance with PFRS.

Financial information about the operating segments is summarized as follows:

2018
Seeds Rice Foreign
Division Division Operations Total
Net sales (Note 20) P
=2,062,277,416 P=1,434,081,970 P
=2,431,975 P =3,498,791,361
Cost of sales (Note 21) (1,227,226,365) (1,029,450,435) (3,143,741) (2,259,820,541)
Gross profit 835,051,051 404,631,535 (711,766) 1,238,970,820
Operating expenses (536,444,894) (167,105,498) (8,690,242) (712,240,634)
EBIT 298,606,209 237,526,037 (9,402,059) 526,730,187
Depreciation and amortization expenses (Note 24) 15,766,167 12,209,241 53,950 28,029,358
Earnings before income tax and depreciation and
amortization expenses (EBITDA) P
=314,372,376 P
=249,735,278 (P
= 9,348,109) P
=554,759,545
Fair value gain on agricultural produce and
biological assets (Notes 9 and 14) 300,386,518
Finance income (Note 7) 1,429,245
Finance cost (Note 25) (324,041,833)
Equity share in net losses of an associate (Note 13) (1,019,151)
Depreciation and amortization expense (Note 24) (28,029,358)
Unrealized foreign exchange gains- net 4,546,221
Gain on disposal of property and equipment
(Note 11) 1,258,043
Income before tax 509,289,229
Provision for tax (Note 26) (627,378)
Net income P
=508,661,851

2017
Seeds Rice
Division Division Total
Net sales (Note 20) =2,017,101,543
P =1,319,649,312
P P3,336,750,855
=
Cost of sales (Note 21) (1,197,581,244) (981,440,643) (2,179,021,887)
Gross profit 819,520,299 338,208,669 1,157,728,968
Operating expenses (400,824,841) (127,140,752) (527,965,593)
EBIT 418,695,458 211,067,917 629,763,375
Depreciation and amortization expenses (Note 24) 27,717,040 6,188,854 33,905,894
Earnings before income tax and depreciation and
amortization expenses (EBITDA) =446,412,498
P =217,256,771
P =663,669,269
P
Fair value gain on agricultural produce and biological
assets (Notes 9 and 14) 155,929,466
Finance income (Note 7) 1,345,465
Finance cost (Note 25) (283,522,929)
Depreciation and amortization expense (Note 24) (33,905,894)
(Forward)

*SGVFS031870*
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Seeds Rice
Division Division Total
Foreign exchange gains - net =6,489,659
P
Gain on disposal of property and equipment (Note 11) 200,373
Income before tax 510,205,409
Provision for tax (Note 26) (979,749)
Net income =509,225,660
P

2016
Seeds Rice
Division Division Total
Net sales (Note 20) =1,653,276,163
P =898,932,332
P P2,552,208,495
=
Cost of sales (Note 21) (994,095,861) (534,063,355) (1,528,159,216)
Gross profit 659,180,302 364,868,977 1,024,049,279
Operating expenses (311,750,427) (146,324,827) (458,075,254)
EBIT 347,429,875 218,544,150 565,974,025
Depreciation and amortization expenses (Note 24) 21,659,076 17,721,061 39,380,137
Earnings before income tax and depreciation and
amortization expenses (EBITDA) =369,088,951
P =236,265,211
P =605,354,162
P
Fair value gain on agricultural produce (Note 9) 69,712,034
Finance income (Note 7) 541,911
Finance cost (Note 25) (182,580,810)
Depreciation and amortization expense (Note 24) (39,380,137)
Foreign exchange gains – net 4,627,046
Gain on disposal of property and equipment
(Note 11) 825,000
Income before tax 459,099,206
Provision for tax (Note 26) (108,383)
Net income =458,990,823
P

Other information on the operating segments, to the extent possible, follows:

2018
Seeds Rice Foreign
Division Division Operations Others Total
Receivables (Note 8) P
=3,026,259,112 P
=383,006,398 P
=5,938,658 P
=146,336,698 P
=3,561,540,866
Inventories (Note 9) 2,532,535,393 878,729,578 13,469,715 86,721,644 3,511,456,330
Segment assets P
=5,558,794,505 P
=1,261,735,976 P
=19,408,373 P
=233,058,342 P
=7,072,997,196

2017
Seeds Rice
Division Division Others Total
Receivables (Note 8) =2,376,298,336
P =331,012,972
P =161,139,496
P P2,868,450,804
=
Inventories (Note 9) 1,501,854,633 1,000,868,746 70,129,400 2,572,852,779
Segment assets =3,878,152,969
P =
P1,331,881,718 =231,268,896
P =5,441,303,583
P

Intersegment Revenues
There are no intersegment revenues.

Segment Results
Significant results pertain to the net income of each the operating segments adjusted by the
subsequent take up of significant transactions of operating segments with fiscal year end. The chief
decision maker uses the ‘EBIT’ and ‘EBITDA’ in measuring the performance of each of the Group’s
operating segment. The Group defines each of the operating segment’s ‘EBIT’ as the net income
attributable to equity holders of the Group added by the provision for income tax. ‘EBITDA’ is
computed by adding back to the EBIT the depreciation and amortization expenses charged to
operating expenses during the period.

*SGVFS031870*
 - 29 -

Segment Receivables and Inventories

Segment assets receivables and inventories are the resources owned by each of the operating
segments.

Segment Liabilities
The amounts of segment liabilities are not distinguished between the divisions as both fairly share in
the liabilities and both divisions are closely related.

Capital Expenditures
The components of capital expenditures reported to the chief decision maker are the acquisitions of
property and equipment during the period.

Geographical Segments
The Group distributes hybrid seeds and milled rice in the Philippines, Bangladesh, Myanmar,
Vietnam, Indonesia, Pakistan, Oman, Malaysia, United Arab Emirates and United States of America.

The following table shows the distribution of the Group’s revenues to external customers by
geographical market, regardless of where the goods were produced:

2018 2017 2016

Domestic P
=3,432,962,013 =3,295,287,953
P =2,476,013,957
P
International 65,829,348 41,462,902 76,194,538
P
=3,498,791,361 =3,336,750,855
P =2,552,208,495
P

The Group’s major customers are its top three distributors which contribute revenues of =
P1,022,628,000,
=708,745,000, and =
P P111,309,104 in 2018, 2017 and 2016, respectively, and the Department of
Agriculture, including Municipal Agricultural Offices (MAO), which contribute revenues of
=456,558,097, =
P P987,837,903 and P=1,288,228,147 in 2018, 2017 and 2016, respectively, both arising from
the Group’s seeds segment.

7. Cash

2018 2017
Cash on hand P
=5,775,129 =4,826,500
P
Cash in banks 588,160,474 236,938,685
P
=593,935,603 =241,765,185
P

Cash in banks earns interest at the prevailing bank deposit rates ranging from 0.0025% to 1.50% and
0.0025% to 0.5% in 2018 and 2017, respectively. Interest income earned from savings amounted to
=1,429,245, =
P P1,345,465 and = P541,911 in 2018, 2017 and 2016, respectively.

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8. Receivables

2018 2017
Trade receivables:
Third party P
=3,563,412,950 =2,735,023,683
P
Related party (Note 31) 8,010,632 8,287,625
Advances to suppliers 116,688,383 118,447,147
Non-trade receivables 27,772,175 21,352,313
Receivables from employees 16,164,799 21,340,036
3,732,048,939 2,904,450,804
Less allowance for impairment losses 170,508,073 36,000,000
P
=3,561,540,866 2,868,450,804

Receivables are noninterest-bearing and are generally collectible within the Group’s normal operating
cycle.

Trade receivables arise from sale of seeds and rice to customers. Seeds and rice receivables are
usually on a six (6)-months’, and sixty (60) to ninety (90) days’ credit term, respectively. Also, trade
receivables include advances to contract growers that arise when contract growers receive cash
advances. The advances are short-term and are expected to be collected within the crop year of no
more than six (6) months. The advances are liquidated against proceeds from sale of dried palay to
the Group.

Advances to suppliers pertain to initial payment to contractors to be applied against future progress
billing.

Non-trade receivables consist primarily of creditable withholding tax that are collectible from
customers.

Receivables from employees are collected through salary deductions or expense liquidation.

Changes in allowance for impairment losses follow:

2018 2017
Trade
Balance at the beginning of the year P
=27,650,000 =16,000,000
P
Provision during the year (Note 22) 134,508,073 11,650,000
At end of year P
=162,158,073 =27,650,000
P

Non-trade
Balance at the beginning of the year P
=8,350,000 =‒
P
Provision during the year (Note 22) ‒ 8,350,000
At end of year P
=8,350,000 =8,350,000
P

Collective assessment P
=32,506,171 =25,299,900
P
Individual assessment 138,001,902 10,700,100
P
=170,508,073 =36,000,000
P

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The table below shows the analysis of the Group’s receivables as of May 31, 2018 and 2017.
2018
Neither past due Past due but not impaired
Total nor impaired <120 days 121-365 days 1- 2 years With provision
Trade receivables = 3,571,423,582
P = 3,400,951,545
P = 6,731,452
P = 1,582,512
P =− P
P = 162,158,073
Advances to suppliers 116,688,383 116,688,383 ‒ ‒ ‒ ‒
Non-trade receivables 27,772,175 19,422,175 ‒ ‒ ‒ 8,350,000
Receivables from employees 16,164,799 16,164,799 ‒ ‒ ‒ ‒
= 3,732,048,939
P = 3,553,226,902
P = 6,731,452
P = 1,582,512
P =− P
P = 170,508,073

2017
Neither past due Past due but not impaired
Total nor impaired <120 days 121-365 days 1- 2 years With provision
Trade receivables P
=2,743,311,308 P
=2,714,835,472 P
=825,836 =
P‒ P
=‒ P
=27,650,000
Advances to suppliers 118,447,147 118,447,147 ‒ ‒ ‒ ‒
Non-trade receivables 21,352,313 13,002,313 ‒ ‒ ‒ 8,350,000
Receivables from employees 21,340,036 21,340,036 ‒ ‒ ‒ ‒
P
=2,904,450,804 P
=2,867,624,968 P
=825,836 =
P- P
=- P
=36,000,000

9. Inventories

2018 2017
At cost:
Dried palay P
=815,047,900 =966,242,074
P
Agricultural and supplies inventories 86,721,644 70,129,400
Milled rice 63,681,678 34,626,672
965,451,222 1,070,998,146
Hybrid rice seeds - at fair value less estimated
point-of-sale costs at point of harvest 2,546,005,108 1,501,854,633
P
=3,511,456,330 =2,572,852,779
P

The Group is accountable to the banks for the trusted merchandise or its sales proceeds under the
terms of agreements covering liabilities under trust receipts which amounted to =
P714,614,905 and
=573,592,825 as of May 31, 2018 and 2017, respectively (Note 16).
P

The movement in total inventory follows:

2018 2017
At cost - beginning = 2,179,970,679 =
P P2,350,520,380
Additions 3,020,863,630 2,008,472,186
Sales (Note 21) (2,259,820,541) (2,179,021,887)
At cost - end 2,941,013,768 2,179,970,679
Fair value gains net of point-of-sale cost at point
of harvest of hybrid rice seeds 570,442,562 392,882,100
= 3,511,456,330
P =
P2,572,852,779

The cost of inventories pertaining to fertilizers, seeds and agrichemicals recognized as cost of sales in
the consolidated statements of comprehensive income amounted to P =1,843,942,829; = P1,758,962,632;
and =P1,041,371,322 in 2018, 2017 and 2016, respectively (Note 21).

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The movement in hybrid rice seed inventory carried at fair value less estimated point-of-sale cost at
point of harvest follows:

2018 2017
At cost – beginning P
=1,108,972,533 P805,566,380
=
Additions 2,096,960,118 1,500,987,397
Sales (Note 6) (1,230,370,105) (1,197,581,244)
At cost – end 1,975,562,546 1,108,972,533
Fair value gains net of point-of-sale cost at point
of harvest of hybrid rice seeds 570,442,562 392,882,100
P
=2,546,005,108 =1,501,854,633
P

The fair value gain on agricultural produce recognized in the consolidated statements of
comprehensive income amounted to P =177,560,462, =
P144,979,544; and = P69,712,034 in 2018, 2017
and 2016, respectively.

The Group has 369,007 bags and 249,185 bags of hybrid seeds in 2018 and 2017, respectively.

Cost of inventories that are pledged by the Group as security to short-term notes payable amounted to
=500,000,000 in 2018 and 2017 (Note 17).
P

Sensitivity analysis
The Group’s fair value of hybrid rice seeds is determined using the market approach (Level 3). The
significant unobservable input include the estimated selling price per bag of hybrid rice seed. The
Group also considers the significant changes in the estimated future selling price as most sensitive in
computing for the fair value of hybrid rice seeds.

10. Prepayments and other current assets

2018 2017
Prepayments for:
Rent P
=225,257,439 =245,889,892
P
Interest 65,911,390 22,760,476
Insurance 6,275,103 12,802,555
Land lease − 7,888,070
Others 9,577,258 192,163
Total 307,021,190 289,533,156
Less noncurrent portion of prepaid rent 203,306,492 224,404,854
P
=103,714,698 =65,128,302
P

In 2017, the Group entered into an agreement with SP Properties Inc., an affiliate, for the lease of
office and warehouse building, including open and parking spaces for a term of 20 years
commencing on March 1, 2017 and expiring on February 28, 2037 (Notes 31 and 32). Monthly
rental amounts to =P1,790,420 and total rentals shall be paid at the commencement of the lease.
Prepaid rental included under “Other noncurrent assets” pertaining to this lease agreement amounted
to =
P203,306,492 and = P224,404,854 as of May 31, 2018 and 2017, respectively.

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In addition, the Group has entered into contracts of operating leases of agricultural lands located in
Lupon, Davao Oriental and Nueva Ecija for the production of hybrid seeds ranging from three (3)
months to one (1) year or two (2) cropping seasons. Under these agreements, the lessor pays for real
property taxes and shall not dispose of, sell, encumber, transfer, mortgage or alienate the agricultural
land or do such acts that dispose or disallow the Group’s use of land during the term of the lease
contracts. Farm land lease expense charged to cost of sales related to the lease of agricultural lands
amounted to = P8,467,173, =P12,444,613 and = P54,350,374 in 2018, 2017 and 2016 respectively
(Note 21). Farm land lease expense amounting = P20,734,130, P=27,084,420, P=24,726,761 in 2018,
2017 and 2016, respectively, were included in the cost of inventories (Note 9).

Prepaid interest refers to interest expense deducted in advance on loan proceeds.

Prepaid insurance pertains to insurance premiums paid in advance for the Group’s vehicles.

11. Property and Equipment

2018
Machinery Buildings Furniture
and and Office Transportation Tools and and Assets under
Land Equipment Warehouse Equipment Equipment Equipment Fixtures Construction Total
Cost
At June 1, 2017 P190,595,786
= = 417,185,721
P = 788,412,873
P = 17,030,562
P =125,772,603
P =636,926
P P18,695,801
= P288,140,616 =
= P1,846,470,888
Additions 103,633,580 33,157,926 4,513,800 2,045,347 15,188,019 93,500 10,687,730 132,445,497 301,765,399
Disposal – – – – (6,536,554) – – – (6,536,554)
At May 31, 2018 =294,229,366
P = 450,343,647
P = 792,926,673
P = 19,075,909
P =134,424,068
P =730,426
P = 29,383,531
P = 420,586,113 P
P =2,141,699,733
Accumulated
Depreciation
At June 1, 2017 – (272,360,185) (393,099,520) (15,484,850) (69,466,404) (636,926) (6,002,395) – (757,050,280)
Depreciation
(Notes 21 and 22) – (61,106,405) (100,372,513) (1,730,975) (17,834,975) (1,016) (7,465,081) – (188,510,965)
Disposal – – – – 5,860,597 – – – 5,860,597
At May 31, 2018 – (333,466,590) (493,472,033) (17,215,825) (81,440,782) (637,942) (13,467,476) – (939,700,648)
Net Book Value as of
May 31, 2018 =294,229,366
P =116,877,057
P =299,454,640
P =1,860,084
P =52,983,286
P =92,484
P =15,916,055
P =420,586,113 P
P =1,201,999,085

2017
Machinery Buildings Furniture
and and Office Transportation Tools and and Assets under
Land Equipment Warehouse Equipment Equipment Equipment Fixtures Construction Total
Cost
At June 1, 2016 =163,860,786
P =362,975,086
P =405,360,711
P =15,014,481
P =98,052,628
P =636,926
P =11,298,122
P =210,739,410 =
P P1,267,938,150
Additions 26,735,000 19,145,617 8,958,832 2,016,081 28,926,974 – 7,397,679 486,576,554 579,756,737
Disposal – – – – (1,223,999) – – – (1,223,999)
Transfer – 35,065,018 374,093,330 – 17,000 – – (409,175,348) ‒
At May 31, 2017 190,595,786 417,185,721 788,412,873 17,030,562 125,772,603 636,926 18,695,801 288,140,616 1,846,470,888
Accumulated
Depreciation
At June 1, 2016 – (229,732,288) (322,371,196) (11,175,971) (55,948,873) (636,926) (4,871,319) – (624,736,573)
Depreciation (Notes 21
and 22) – (42,627,897) (70,728,324) (4,308,879) (14,741,530) – (1,131,076) – (133,537,706)
Disposal – – – – 1,223,999 – – – 1,223,999
At May 31, 2017 – (272,360,185) (393,099,520) (15,484,850) (69,466,404) (636,926) (6,002,395) – (757,050,280)
Net Book Value as of
May 31, 2017 =190,595,786
P =144,825,536
P =395,313,353
P =1,545,712
P =56,306,199
P =–
P =12,693,406
P =288,140,616 P
P =1,089,420,608

Depreciation charged to cost of sales, operating expenses and ending inventories follows:

2018 2017 2016

Cost of sales (Note 21) =133,199,259
P =120,641,810
P P70,998,745
=
Operating expense (Note 22) 28,029,358 33,905,894 39,380,137
Ending inventories (Note 9) 63,935,807 36,653,459 57,663,457
Total 225,164,424 191,201,163 168,042,339
Beginning inventories (36,653,459) (57,663,457) (52,127,364)
Depreciation =188,510,965
P =133,537,706
P =115,914,975
P

*SGVFS031870*
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Assets under construction as of May 31, 2018 and 2017 is mainly composed of warehouses and
machineries to be used for the Group’s operations.

Fully depreciated assets, amounting = P674,817,304 and =

P503,372,778 as of May 31, 2018 and 2017,
respectively, are still in active use.

No borrowing costs were capitalized to property and equipment items as construction was financed
by internally generated funds.

Carrying value of property and equipment items that are pledged by the Group as security to short-
term debt amounted to =
P469,168,573 and =P365,367,337 in 2018 and 2017, respectively (Note 17).

In 2018 and 2017, the Group sold transportation equipment with net book value amounting to
=675,957 and nil, respectively. Proceeds on the sale amounted to P
P =1,934,000 and =
P200,373 in 2018
and 2017, respectively. Gain arising from sale amounted to =
P1,258,043 and = P200,373 in 2018 and
2017, respectively, which is recorded under “Gain on disposal of property and equipment” in the
Group’s consolidated statements of comprehensive income.

There are no temporarily idle property and equipment as of May 31, 2018 and 2017.

12. Development Costs

Development costs pertain to costs incurred for the development and further enhancement of the
Group’s existing and commercially viable hybrid rice seeds and hybrid corn.

2018 2017
Cost
At beginning of year P
=1,533,532,610 =1,490,562,205
P
Additions 77,102,701 42,970,405
At end of year 1,610,635,311 1,533,532,610
Accumulated Amortization
At beginning of year 233,054,584 183,044,158
Amortization 27,174,982 50,010,426
At end of year 260,229,566 233,054,584
Net Book Value at End of Year P
=1,350,405,745 =1,300,478,026
P

Amortization expense charged to cost of sales and ending inventories follows:

2018 2017 2016

Cost of sales (Note 21) =34,780,024
P =29,886,712
P =22,258,242
P
Ending inventories (Note 9) 20,974,013 28,579,055 8,455,341
Total 55,754,037 58,465,767 30,713,583
Beginning inventories (28,579,055) (8,455,341) (8,670,056)
Amortization =27,174,982
P =50,010,426
P =22,043,527
P

*SGVFS031870*
 - 35 -

The details of the development costs on a per hybrid seed follow:

2018
Developed Hybrid Rice
Hybrid Seeds Under
Rice Seeds Development SLs
SLs 7, 8, 9, 16, 19, 20, 21, 24,
11, 12 and 18 25,26, 28 and 30 Hybrid Corn Total
Cost
At beginning of year P
= 618,329,038 P
= 905,786,814 P
= 9,416,758 P
= 1,533,532,610
Additions ‒ 77,102,701 ‒ 77,102,701
At end of year 618,329,038 982,889,515 9,416,758 1,610,635,311
Accumulated Amortization
At beginning of year 223,637,826 – 9,416,758 233,054,584
Amortization 27,174,982 – – 27,174,982
At end of year 250,812,808 – 9,416,758 260,229,566
Net Book Value at End of Year P
= 367,516,230 P
= 982,889,515 P
=‒ P
= 1,350,405,745

2017
Hybrid Rice
Developed Seeds Under
Hybrid Development
Rice Seeds SLs 12, 16, 18, 19,
SLs 7, 8, 9 and 11 20, 21, 24, 26 Hybrid Corn Total
Cost
At beginning of year P
=238,412,315 P
=1,242,733,132 P
=9,416,758 P
=1,490,562,205
Additions – 42,970,405 – 42,970,405
Reclassification (SL12 and SL18) 379,916,723 (379,916,723) ‒ ‒
At end of year 618,329,038 905,786,814 9,416,758 1,533,532,610
Accumulated Amortization
At beginning of year 173,627,400 – 9,416,758 183,044,158
Amortization 50,010,426 – – 50,010,426
At end of year 223,637,826 – 9,416,758 233,054,584
Net Book Value at End of Year P
=394,691,212 P
=905,786,814 =
P– P
=1,300,478,026

SLs 16, 19, 20, 21, 24, 25, 26, 28 and 30 are the additional hybrid rice seeds that are under
development following the success in breeding SLs 7, 8, 9, 11, 12 and 18. These are all hybrid rice
seeds that have been initially determined as viable having gone through several testing and
experimentation stages that stabilized the parental lines. Currently, the Group is preparing for bigger
volume of production of parental lines for further enhancement prior to commercial production to
make the hybrid seeds tolerant to tropical conditions and it followed the same processes involved in
the development and production of SLs 7, 8, 9, 11 , 12 and 18.

The more popular commercial rice brands produced from SLs 9 and 7 are Doña Maria Miponica and
Doña Maria Jasponica, respectively. Total ending inventory of Doña Maria Miponica amounted to
=12,072,930 and =
P P6,102,714 as of May 31, 2018 and 2017, respectively. Total ending inventory of
Doña Maria Jasponica amounted to = P22,906,816 and =P12,694,422 as of May 31, 2018 and 2017,
respectively.

Details of the remaining life in years of the hybrid seeds are as follows:

Hybrid Seed Variety Remaining life

SL-12H 18
SL-18H 18
SL-7H 8
SL-9H 8
SL-8H 2
SL-11H ‒

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13. Investment and Advances in an Associate

As of May 31, 2018, this account consists of:

Investment in an associate - at equity =4,402,119

P
Advances to an associate 4,995,720
=9,397,839
P

Investment in an associate
The Parent Company’s investment in an associate is recognized using the equity method. Carrying
amount of the investment as at May 31, 2018 is as follow:

Investment in an associate - cost =5,421,270

P
Equity share in net loss during the period (1,019,151)
=4,402,119
P

PT Sterling Agritech Indonesia (SAI) is a private limited liability company in Jakarta, Indonesia
incorporated on October 6, 2017. Its principal place of business is at Grand Slipi Tower Lantai 9,
Unit G, Jl, Letjen S.Parman, Palmerah Jakarta Barat 11480, Indonesia. SAI was organized primarily
for the production of hybrid rice seeds. It started commercial operations in February 2018.

As at May 31, 2018, the Parent Company directly owns 49% of SAI.

Significant influence of the Parent Company to SAI is evidenced by the following:

(a) representation in the BOD of the investee; and (b) provision of essential technical information.

The financial information of SAI as at and for the year ended May 31, 2018 follows:

Current assets =7,828,341

P
Noncurrent assets 795,880
Total assets =8,624,221
P

Total liabilities =10,722,830

P

Gross revenue =−
P
Cost and expenses – net (2,084,311)
Finance income 4,410
Net loss before income tax (P
=2,079,901)

Net loss =2,079,901

P
Other comprehensive income −
Total comprehensive loss =2,079,901
P
The conversion rates used were =
P 52.52 to USD1 as closing rate and
=
P 52.05 to USD1 as average rate as at May 31, 2018.

Advances to an associate
In 2018, the Parent Company made advances to SAI amounting to = P4,995,720 for the payment of
land lease and production of hybrid seeds to be used in SAI’s operations.

*SGVFS031870*
 - 37 -

14. Biological Assets

The biological assets which amounted to P =332,399,849 and P =48,533,184 as of May 31, 2018 and
2017, respectively, pertain to parental line and hybrid seed growing crops. These biological assets are
determined to qualify as consumable biological assets since these assets are to be harvested as
agricultural produce or sold as biological assets.

The fair value gain recognized in the consolidated statements of comprehensive income amounted to
=122,826,056, P
P =10,949,922 and nil in 2018, 2017 and 2016, respectively.

Sensitivity analysis
The Group’s fair value of biological assets is determined using the market approach (Level 3). The
significant unobservable inputs include the estimated selling prices of standing crops at point of
harvest, estimated volume of harvest and future growing costs. The Group also considers the
significant changes in the estimated future selling price, estimated volume of harvest and future
growing costs as most sensitive in computing for fair value.

15. Accounts and Other Payables

2018 2017
Trade payables P
=224,072,250 =110,694,323
P
Non-trade payables 120,236,247 132,896,200
Accrued expenses 20,370,935 20,320,524
Others 4,600,237 3,988,247
P
=369,279,669 =267,899,294
P

Trade payables are payable to suppliers and are noninterest-bearing. The normal trade credit terms of
trade payables of the Group are expected to be settled within the next twelve (12) months.

Non-trade payables pertain mainly to financing companies for the lease of vehicles intended to
support the Group’s operations. Interest rates ranges from 6.00% to 7.50% in 2018 and 5.00% to
6.00% in 2017 and 2016 which is payable monthly. Interest expense incurred amounted to
=5,498,993, =
P P9,096,587 and =P5,408,392 in 2018, 2017 and 2016, respectively (Note 25).

Accrued expenses consist of accrual of interest, professional fees, bonus and employee welfare benefits.

16. Trust Receipts Payable

2018 2017
Land Bank of the Philippines P
=500,000,000 =510,217,975
P
Maybank Philippines 201,102,391 10,840,625
Chinatrust (Philippines) Commercial Bank
Corporation 12,791,520 ‒
Banco de Oro 720,994 11,668,945
China Banking Corporation ‒ 40,865,280
P
=714,614,905 =573,592,825
P

Proceeds from the availment of trust receipts payable were utilized to procure imported and local raw
materials used in production (Note 9).

*SGVFS031870*
 - 38 -

Interest rates range from 4.00% to 5.00% in 2018, 3.75% to 4.75% in 2017, and 4.75% to 5.25% in
2016. Interest expense incurred amounted to P=28,866,849, =
P31,034,106 and =
P34,286,320 in 2018,
2017 and 2016, respectively (Note 25).

17. Short-term Debt

2018 2017
Local banks P
=4,297,852,388 =3,584,714,022
P
Short-term commercial papers 2,000,000,000 1,500,000,000
P
=6,297,852,388 =5,084,714,022
P

Loans from local banks represent secured and unsecured short-term borrowings with prevailing
annual market rates ranging from 3.75% to 5.75%, 3.63% to 5.25%, and 4.00% to 5.00% in 2018,
2017 and 2016, respectively, with maturity dates ranging from three (3) months to one (1) year.

Short-term commercial papers (STCPs) amounting to =

P2,000,000,000 and = P1,500,000,000 were
issued by the Group on March 15, 2018 and December 14, 2016, respectively, as authorized by the
Securities and Exchange Commission. The STCPs are listed at the Philippine Dealing & Exchange
Corp.

The proceeds from availment of short-term debt were used to finance the working capital
requirements of the Group.

Total interest expense recognized on these short-term debt amounted to P

=288,737,664, =
P243,392,236,
and =
P142,886,098 in 2018, 2017 and 2016, respectively (Note 25).

18. Long-term Debt

On May 18, 2018, the Group obtained a loan from Land Bank of the Philippines amounting to
=500,000,000 for working capital requirements. The principal amount shall be payable in 20 equal
P
quarterly payments until May 20, 2023. The loan is unsecured and with interest rate of 5% per
annum, subject to monthly repricing.

As of May 31, 2018, the carrying amount of long-term debt is as follows:

Principal amount =500,000,000

P
Unamortized discount (3,702,084)
Total long-term debt 496,297,916
Less: current portion of long-term debt (100,000,000)
=396,297,916
P

Total interest expense recognized from this loan amounted to P

=938,327 in 2018 (nil in 2017
and 2016) (Note 25).

*SGVFS031870*
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19. Equity

Capital Stock

2018 2017
Common Preferred Common Preferred
Authorized number of shares 2,000,000,000 70,000,000 2,000,000,000 −
Par value per share =1
P =1
P =1
P =−
P
Authorized capital stock =2,000,000,000
P 70,000,000 =
P2,000,000,000 =−
P
At beginning of year 1,160,000,001 − 810,000,001 −
Stock dividends declared and issued ‒ − 350,000,000 −
Issued and outstanding =1,160,000,001
P =− P
P =1,160,000,001 =−
P

On August 15, 2016, the BOD approved the increase in authorized capital stock from =
P2,000,000,000
to =
P2,070,000,000 divided into 2,000,000,000 common shares and 70,000,000 preferred shares both
with the par value of P
=1.00 each. On September 4, 2017, the SEC has approved the increase in
authorized capital stock.

On April 11, 2017, the Parent Company received = P17,500,000 from existing shareholders as deposit
for future stocks subscription for =P70,000,000 preferred shares. The preferred shares were unissued
and the proceeds was recorded under “Deposit for future stocks subscription” in the equity and
current liabilities section of the consolidated statements of financial position as of May 31, 2018 and
2017, respectively. The preferred shares are redeemable and have the following features, rights and
privileges:

∂ Preferred shares shall enjoy the preference over the holders of common shares as to distribution
of net assets in the event of dissolution or liquidation and in the payment of dividend.
∂ The declaration and the determination of the dividend rate shall be subject to board approval;
∂ The dividend payment of the preferred shares shall be cumulative;
∂ Preferred shares shall be non-voting, except as specified by law;
∂ Preferred shares shall be non-participating in further dividends;
∂ Preferred shares shall be not be convertible into common shares;
∂ Preferred shares shall be redeemable at the option of the Parent Company at such times and
price(s) as may be determined by the BOD at the time of issue. Any shares redeemed by the
Parent Company shall be recorded as treasury stock and may be re-issued in the future; and
∂ The stockholders of the Parent Company shall have no pre-emptive right to subscribe to any
issues or dispositions of shares of any class.

Retained Earnings
On July 27, 2016, the Parent Company’s Board of Directors (BOD) approved the declaration of stock
dividends amounting to =P350,000,000 to the Parent Company’s shareholders of record as of July 15,
2016. The stock dividends were subsequently issued on August 31, 2016.

On May 12, 2017, the BOD of the Parent Company authorized the declaration of stock dividends
amounting to P =625,000,000 to the Parent Company’s shareholders wherein the record date of the
stock dividends shall be fixed and approved by the Securities and Exchange Commission (SEC) after
the increase in authorized capital stock shall have been approved by the SEC and wherein the
payment date shall be determined after the SEC has fixed the record date. On the same date, the
BOD approved the increase in authorized capital stock from P =2,070,000,000 to P
=4,570,000,000
divided into 4,500,000,000 common shares and 70,000,000 preferred shares both with the par value
of P
=1.00 each.

*SGVFS031870*
 - 40 -

On June 29, 2018, the Parent Company’s BOD amended its previous resolution dated May 12, 2017
and approved the increase in authorized capital stock from P
=2,070,000,000 divided into
2,000,000,000 common shares and 70,000,000 preferred shares both with the par value of P
=1.00 each
to =
P6,370,000,000 divided into 6,300,000,000 common shares and 70,000,000 preferred shares both
with the par value of =
P1.00 each.

On May 31, 2018, the BOD authorized the appropriation of retained earnings amounting to
=450,000,000 which was subsequently declared as stock dividends on June 29, 2018.
P

Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit
rating and healthy capital ratios in order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the shareholders may infuse additional capital
or the Group may adjust the dividend payment to shareholders. The capital comes mainly from
contributions of shareholders.

The Group considers its capital as follows:

2018 2017
Capital stock P
=1,160,000,001 =1,160,000,001
P
Stock dividends distributable 625,000,000 625,000,000
Deposit for future stocks subscription 17,500,000 −
Retained earnings:
Appropriated 450,000,000 ‒
Unappropriated 737,908,623 677,830,059
Remeasurement gains (losses) on pension
liability (Note 28) 358,727 (5,784,751)
Cumulative translation adjustment 103,738 ‒
P
=2,990,871,089 =2,457,045,309
P

The Group is not subject to externally imposed capital requirements.

20. Revenue

2018 2017 2016

Hybrid seeds P2,241,938,567
= P2,575,835,788
= =2,288,996,574
P
Rice 1,563,669,626 1,428,929,197 966,940,203
3,805,608,193 4,004,764,985 3,255,936,777
Less:Sales discounts 197,553,799 195,416,006 156,578,930
Sales returns 109,263,033 472,598,124 547,149,352
306,816,832 668,014,130 703,728,282
Net sales =3,498,791,361
P =3,336,750,855
P =2,552,208,495
P

The Group delivers or positions to drop-off in the MAO the municipal requirements of hybrid rice
seeds based from the seed matching made with the Municipal/City agriculturist in consultation with
the Department of Agriculture - Regional Fields Unit (DA-RFU) and Provincial Local Government
Units. The balance of seed cost is collected from the farmer beneficiaries through the MAO.

*SGVFS031870*
 - 41 -

In 2018, 2017 and 2016, total hybrid seeds sold to DA amounted to P

=421,634,547, =
P605,620,469 and
=615,971,670, respectively.
P

21. Cost of Sales

2018 2017 2016

Fertilizers, seeds and agrichemicals
(Note 9) =1,843,942,829
P =1,758,962,632
P =
P1,041,371,322
Depreciation and amortization
(Notes 11, 12 and 24) 167,979,283 150,528,522 93,256,987
Personnel expenses
(Notes 23 and 28) 101,861,637 135,899,480 158,211,532
Transportation 76,572,345 68,661,962 63,567,777
Light, water and utilities 28,161,602 15,821,914 23,506,376
Rent (Notes 10 and 32) 8,467,173 12,444,613 54,350,374
Taxes and licenses 7,862,860 3,908,478 2,397,496
Security services 7,689,031 7,040,732 8,132,636
Repairs and maintenance 7,663,146 9,099,263 17,665,175
Others 9,620,635 16,654,291 65,699,541
=2,259,820,541
P =2,179,021,887
P =1,528,159,216
P

22. Operating Expenses

2018 2017 2016

Personnel expenses
(Notes 23 and 28) P151,028,842
= =130,497,229
P =102,610,262
P
Provision for bad debts (Note 8) 134,508,073 20,000,000 −
Advertising and promotion 83,639,940 53,426,713 60,004,696
Freight and other selling expenses 57,620,951 56,403,595 86,688,922
Taxes and licenses 56,737,014 31,820,314 26,753,798
Rent (Notes 10 and 32) 56,021,379 34,420,835 10,495,053
Depreciation (Notes 11 and 24) 28,029,358 33,905,894 39,380,137
Transportation and travel 28,017,657 30,993,231 23,449,126
Legal and professional fees 24,657,259 20,265,253 4,341,859
Entertainment, amusement and
recreation (EAR) 20,284,000 21,634,324 15,302,713
Gas, oil and lubricant 14,239,686 12,017,580 10,992,301
Bank charges 10,299,052 8,944,098 10,096,428
Insurance 8,965,160 9,464,042 10,412,261
Contributions and donations 7,085,646 8,401,532 4,685,687
Repairs and maintenance 6,321,722 6,563,982 5,109,686
Communication 6,257,302 4,616,467 4,508,391
Supplies 3,544,469 4,840,623 20,497,030
Training and recruitment 3,216,252 12,373,170 1,066,534
Light, water and utilities 2,051,408 1,171,691 989,379
Membership dues 2,035,556 1,829,953 742,004
Security services 1,943,223 1,490,249 836,535
Loss on inventory returns 711,617 496,270 5,349,276
Commission 5,000 ‒ 3,632,406
(Forward)

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2018 2017 2016

Provision for losses on other assets
(Note 30) P
=− =12,472,336
P =
P−
Provision for losses on security
deposit (Note 30) ‒ 3,560,000 −
Miscellaneous 5,020,068 6,356,212 10,130,770
=712,240,634
P =527,965,593
P =458,075,254
P

Miscellaneous pertains to various expenses incurred by the Group such as showroom, corporate
giveaways and other operating expenses.

23. Personnel Expenses

2018 2017 2016

Salaries, wages and other benefits =288,007,440
P =195,431,914
P =299,195,391
P
Employee welfare 15,630,115 15,508,812 14,997,334
Pension expense (Note 28) 4,101,498 1,796,755 2,000,304
=307,739,053
P =212,737,481
P =316,193,029
P

Personnel expense are allocated as follows:

2018 2017 2016

Cost of sales (Note 21) P101,861,637
= P135,899,480
= P158,211,532
=
Operating expenses (Note 22) 151,028,842 130,497,229 102,610,262
Ending inventories (Note 9) 126,541,987 71,693,413 125,352,641
Total 379,432,466 338,090,122 386,174,435
Less: Beginning inventories (71,693,413) (125,352,641) (69,981,406)
=307,739,053
P =212,737,481
P =316,193,029
P

24. Depreciation and Amortization

2018 2017 2016

Cost of sales (Note 21) =167,979,283
P =150,528,522
P P93,256,987
=
Operating expenses (Note 22) 28,029,358 33,905,894 39,380,137
Ending inventories (Note 9) 84,909,820 65,232,514 66,118,798
Total 280,918,461 249,666,930 198,755,922
Less: Beginning inventories (65,232,514) (66,118,798) (60,797,420)
=215,685,947
P =183,548,132
P =137,958,502
P

25. Finance Cost

2018 2017 2016

Short-term debt (Note 17) =288,737,664
P =243,392,236
P =142,886,098
P
Trust receipts payable (Note 16) 28,866,849 31,034,106 34,286,320
Finance lease liability (Note 15) 5,498,993 9,096,587 5,408,392
Long-term debt (Note 18) 938,327 ‒ ‒
=324,041,833
P =283,522,929
P =182,580,810
P

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26. Income Tax

Provision for income tax consists of:

2018 2017 2016

Current - MCIT P346,738
= P710,656
= =‒
P
Final tax 280,640 269,093 108,383
=627,378
P =979,749
P =108,383
P

In 2017, final taxes are paid at the rate of 20.00% and 7.50% on peso and dollar denominated cash in
banks, respectively, which are final withholding taxes on gross interest income. Starting in 2018,
final taxes are paid at the rate of 20.00% and 15.00% on peso and dollar denominated cash in banks,
respectively, due to enactment of the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

The Group availed of the tax incentives under its Board of Investment (BOI) registration where it
enjoyed ITH status. Accordingly, the Group did not recognize any DTA in profit or loss in 2018,
2017 and 2016 on temporary differences that will not reverse within the ITH period (Note 29).

Details of unrecognized NOLCO, MCIT and temporary differences follow:

2018 2017 2016

Pension liability =17,237,711
P P20,250,887
= P10,674,781
=
Allowance for impairment 174,068,073 52,032,366 16,000,000
NOLCO 208,304,686 159,859,438 6,465,323
MCIT 1,057,394 710,656 515,290

The Group’s NOLCO and excess MCIT can be claimed as additional deductions against future
taxable income over a period of three years. Details are as follows:
Year of
Year Incurred MCIT NOLCO Expiration
2018 =346,738
P =48,445,248
P 2021
2017 710,656 159,859,438 2020
=1,057,394
P =208,304,686
P

The Group has excess MCIT over RCIT and NOLCO amounting to ₱515,290 and ₱6,465,323,
respectively, which were incurred in 2014 and expired in 2017.

Deferred tax asset as of May 31, 2017 relates to the tax effect of pension liability that was recognized
in other comprehensive income amounting to P =971,196.

The reconciliation of the provision for income tax computed at the statutory income tax rate to the
provision for income tax shown in the consolidated statements of comprehensive income follows:

2018 2017 2016

Statutory income tax rate 30.00% 30.00% 30.00%
Tax effects of:
Nondeductible expenses 3.02 7.06 0.87
Interest income subject to
final tax rate (0.03) (7.86) (0.01)
Nontaxable fair value gain (17.38) (9.17) (15.18)
ITH (Note 29) (15.49) (19.84) (15.66)
Effective income tax rate 0.12% 0.19% 0.02%

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Current tax regulations define expenses to be classified as EAR expenses and set a limit for the
amount that is deductible for tax purposes. EAR expenses are limited to 0.5% of net sales for sellers
of goods or properties or 1% of net revenue for sellers of services. For sellers of both goods or
properties and services, an apportionment formula is used in determining the ceiling of such
expenses.

Republic Act (RA) No.10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) was
signed into law on December 19, 2017 and took effect January 1, 2018, making the new tax law
enacted as of the reporting date. Although the TRAIN changes existing tax law and includes several
provisions that will generally affect businesses on a prospective basis, the management assessed that
the same did not have any significant impact on the consolidated financial statement balances as of
the reporting date.

27. Earnings Per Share

Basic/diluted earnings per share amounts were computed as follows:

2018 2017 2016

a. Net income attributable to equity
holders of the Parent Company =510,078,564
P =509,225,660
P =458,990,823
P
b. Weighted average number of
common shares outstanding* 1,160,000,001 1,160,000,001 1,160,000,001
c. Basic earnings per share (a/b) =0.44
P =0.44
P =0.40
P
*Retrospectively adjusted for the issuance of stock dividend in 2017.

28. Retirement Plan

The Group has an unfunded, noncontributory defined benefit type of retirement plan covering
substantially all of its employees based on the minimum contribution required by law. The latest
retirement valuation report was as of May 31, 2018.

The following tables summarize the components of the pension expense recognized in the
consolidated statements of comprehensive income and amounts recognized in the Group’s statements
of financial position.

Based on the actuarial valuation as of May 31, 2018 computed using the PUC method, the Group’s
pension liability and expenses are summarized as follows:

May 31
2018 2017 2016
Pension expense (Note 22) P
=4,101,498 =1,796,755
P =2,000,304
P
Pension liability 17,237,711 20,250,887 10,674,781

Components of pension expense in profit or loss follow:

2018 2017 2016

Current service cost P
=3,085,360 =1,263,498
P =1,375,163
P
Interest cost on defined benefit
liability 1,016,138 533,257 625,141
Total pension expense P
=4,101,498 =1,796,755
P =2,000,304
P

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The movements in the pension liability follow:

May 31
2018 2017 2016
At beginning of year =20,250,887
P =10,674,781
P =13,216,506
P
Pension expense 4,101,498 1,796,755 2,000,304
Amount to be recognized in OCI (7,114,674) 7,779,351 (4,542,029)
At end of the year =17,237,711
P =20,250,887
P =10,674,781
P

Movement of cumulative remeasurement effect recognized in OCI:

May 31
2018 2017 2016
Balance at beginning of year (P
=5,784,751) (P
=339,205) (P
=3,518,625)
Additional actuarial gains (losses)
from plan obligation 7,114,674 (5,445,546) 3,179,420
Balance at end of year P1,329,923
= (P
=5,784,751) (P
=339,205)

The reconciliation of the present value of the defined benefit obligation follows:

May 31
2018 2017 2016
Balance at beginning of year =20,250,887
P =10,674,781
P =13,216,506
P
Current service cost 3,085,360 1,263,498 1,375,163
Interest cost 1,016,138 533,257 625,141
Actuarial loss (gain) due to:
Experience adjustments (447,537) 9,053,746 (2,898,999)
Changes in demographic
assumptions (2,518,856) (136,860) (939,486)
Changes in financial assumptions (4,148,281) (1,137,535) (703,544)
Balance at end of year =17,237,711
P =20,250,887
P =10,674,781
P

The assumptions used to determine pension benefits of the Group follow:

2018 2017 2016

Discount rates 7.66% 5.69% 5.27%
Salary rate increase 5.00% 5.00% 5.00%

The sensitivity analysis that follows has been determined based on reasonably possible changes of
each significant assumption on the retirement benefit obligation as of the end of reporting period,
assuming all other assumptions were held constant.

2018
Amount of
Present value
of obligation
Discount rate 8.66% P
=15,628,721
6.66% 19,156,041
Salary rate 6.00% 19,270,493
4.00% 15,509,294

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2017
Amount of
Present value
of obligation
Discount rate 6.69% =17,863,717
P
4.69% 23,164,229
Salary rate 6.00% 23,250,909
4.00% 17,753,887

29. Registration with the Board of Investment (BOI)

On July 11, 2018, the BOI approved the Parent Company’s application for extension of its income tax
holiday incentive as a new producer of milled (hybrid) rice and by-products (broken rice and rice
bran) in Talavera, Nueva Ecija on a non-pioneer status. The Parent Company’s BOI Certificate of
registration (COR) No. 2014-038, for this activity was approved on February 21, 2014 and has a four-
year term from March 1, 2014 and ended on February 28, 2018. The extension for the Group’s
income tax holiday entitlement was granted for additional one year from March 1, 2018 to
February 28, 2019.

On May 4, 2017, the BOI approved the Parent Company’s registration (COR No. 2017-109) as new
producer of hybrid rice seeds and by-products (palay) in its plant facility at Matanao, Davao del Sur
from May 4, 2017 to May 4, 2021 on a non-pioneer status.

On February 6, 2009, the Parent Company was registered with the BOI as a new producer of hybrid
rice seeds and by-product in Lupon, Davao Oriental on a pioneer status from February 6, 2009 to
February 5, 2017. Upon expiry of the registration, the Parent Company did not apply for further
extension of registrations.

Under the terms of the registration and subject to certain requirements, the Parent Company is entitled
to the following fiscal and non-fiscal incentives: (a) ITH for a period of six (6) years from February
2009 for Davao Oriental, or actual start of commercial operations, whichever is earlier; (b) for the
first five (5) years from the date of registration, the Parent Company shall be allowed an additional
deduction from taxable income of fifty percent (50%) of the wages corresponding to the increment
labor expense; (c) tax credit on taxes and duties paid on raw materials and supplies and semi-
manufactured products used in producing its export product and forming part thereof for a period of
ten (10) years from date of registration; (d) importation of consigned equipment for a period of ten
(10) years from date of registration; (e) employment of foreign nationals;
(f) exemption from wharf age dues, any export tax, duties, imposts and fees for a ten (10)-year period
from date of registration; (g) access to Customs Bonded Manufacturing Warehouse (CBMW) subject
to customs rules and regulations provided that the Company exports at least 70% of production; (h)
exemption from taxes and duties on imported spare parts and supplies for export producers with
CBMW exporting at least 70% of production; and (i) simplification of customs procedures for the
importation of equipment, spare parts, raw materials and supplies.

For non-pioneer registration, ITH is 4 years plus 2 bonus years.

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30. Financial Risk Management Objectives and Policies

The BOD approves the Group’s risk management policies and meets regularly to approve any
commercial, regulatory and organizational requirements of such policies. These policies define the
Group’s identification of risk and its interpretation, limit structure to ensure the appropriate quality
and diversification of assets and to specify reporting requirements.

Governance Framework
The primary objective of the Group’s risk and financial management framework is to protect the
Group’s shareholders from events that hinder the sustainable achievement of financial performance
objectives, including failing to exploit opportunities. Key management recognizes the critical
importance of having efficient and effective risk management systems in place.

The Group’s principal financial instruments consist of cash, receivables, security deposits, accounts
and other payables, trust receipts payable, short-term debt and long-term debt. The main purpose of
these financial instruments is to fund the Group’s operations. The Group has various other financial
assets and liabilities such as trade receivables and trade payables, which arise directly from its
operations.

The main risks arising from the Group’s financial instruments are liquidity risk and credit risk. The
BOD reviews and agrees policies for managing each of these risks and they are summarized below:

Liquidity risk
Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet
commitments associated with financial instruments. Liquidity risk exposure arises from inability of
the Group to sell financial assets quickly at their fair values; or counterparty failing on repayment of a
contractual obligation; or inability to generate cash inflows as anticipated.

The Group maintains a level of cash deemed sufficient to finance operations. As part of its liquidity
risk management, the Group regularly evaluates its projected and actual cash flows. To cover
financing requirements, the Group intends to use internally generated funds and credit facilities with
local banks.

The Group also manages liquidity through an assessment of the minimum amount of funds needed to
meet operating and investment requirements; specifying the sources of funding; and periodic
reporting and review of the credit facilities made available to the Group.

The Group’s policy is to maintain a level of cash that is sufficient to fund its monthly cash
requirements, at least for the next four (4) to six (6) months. Capital expenditures are funded through
a mix of suppliers’ credit, letters of credit and long-term debt, while operating expenses and working
capital requirements are sufficiently funded through cash collections and short-term debt.

Surplus funds are placed with reputable banks.

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The table below summarizes the maturity profile of financial instruments based on contractual
undiscounted payments as of May 31, 2018 and 2017.

2018
Less than 3 to
On demand 3 months 12 months 1 to 2 years 2 to 5 years Total
Loans and receivables
Cash P
= 593,935,603 P
=– P
=– P
=– P
=– P
= 593,935,603
Receivables1
Trade receivables 3,550,502,216 20,921,366 – – − 3,571,423,582
Receivables from employees2 11,837,106 – – – – 11,837,106
Non-trade receivable3 25,962,760 – – – – 25,962,760
Security deposits – – – – 15,762,430 15,762,430
P
= 4,182,237,685 P
= 20,921,366 P
=– P
=– P
= 15,762,430 P
= 4,218,921,481
Other financial liabilities
Accounts and other payables4 P
= 365,530,842 P
=– P
=– P
=– P
=– P
= 365,530,842
Trust receipts payable – − 714,614,905 – − 714,614,905
Short-term debt − − 6,297,852,388 − − 6,297,852,388
Long-term debt5 − − 123,379,990 120,194,738 332,734,390 576,309,118
P
= 365,530,842 P
=− P
= 7,135,847,283 P
= 120,194,738 P
= 332,734,390 P
= 7,954,307,253
1
Excluding advances to suppliers amounting to = P 116,688,383.
2
Excluding receivables collectible through salary deduction and subject to employee liquidation totaling to P
=4,327,693.
3
Excluding non-financial receivables amounting to = P 1,809,415.
4
Excluding statutory liabilities amounting to P
=3,748,827.
5
Including future interest payable amounting to P=76,309,118

2017
Less than 3 to
On demand 3 months 12 months 1 to 2 years 2 to 5 years Total
Loans and receivables
Cash P
=241,765,185 =
P– =
P– =
P– P
=– =
P241,765,185
Receivables1
Trade receivables 2,735,735,701 7,575,607 − – – 2,743,311,308
Receivables from employees2 8,157,134 – – – – 8,157,134
Non-trade receivable3 20,915,330 – – – – 20,915,330
Security deposits – – – – 8,620,959 8,620,959
P
=3,006,573,350 P
=7,575,607 =
P− =
P− P
=8,620,959 P=3,022,769,916
Other financial liabilities
Accounts and other payables4 P
=264,984,941 =
P– =
P– =
P– P
=– =
P264,984,941
Trust receipts payable – 513,991,919 59,600,906 – – 573,592,825
Short-term notes payable – 2,459,714,022 2,625,000,000 – – 5,084,714,022
P
=264,984,941 P
=2,973,705,941 P
=2,684,600,906 =
P– P
=– =P5,923,291,788
1
Excluding advances to suppliers amounting to = P 118,447,147.
2
Excluding receivables collectible through salary deduction and subject to employee liquidation totaling to =
P 13,182,902.
3
Excluding non-financial receivables amounting to = P 436,983.
4
Excluding statutory liabilities amounting to P
=2,914,353.

Credit Lines
The Group has various open credit lines with different financial institutions as of May 31, 2018 and
2017 (Notes 16, 17, and 18). These credit lines are short-term and available upon withdrawal.

Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and
cause the other party to incur a financial loss. The Group’s credit risk arises from the possibility of
asset impairment occurring because counter parties cannot meet their obligation in transactions
involving financial assets.

To manage credit risk, the Group trades only with recognized and creditworthy third parties. The
Group has a well-defined credit policy and established credit procedures. All customers who wish to
trade on credit terms are subject to credit verification procedures. In addition, receivable balances are
monitored on an ongoing basis. The Group sets the maximum amounts and limits that may be
advanced and placed with individual or corporate counterparties which are set by reference to their
long-term ratings.

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The credit risk is concentrated to the following counterparties:

2018 2017
Distributors and Retail Stores 65.00% 48.00%
DA-Regional Field Unit 20.00 30.00
MAO 10.00 19.00
Others 5.00 3.00
Total 100.00% 100.00%

The table below shows the gross maximum exposure of the Group to credit risk for the components
of its consolidated statements of financial position as of May 31, 2018 and 2017.

2018 2017
Loans and receivables
Cash1
Cash in banks P
=588,160,474 =236,938,685
P
Receivables2
Trade receivables 3 3,409,265,509 2,715,661,308
Non-trade receivables 4 19,422,175 13,002,313
Receivables from employees5 11,837,105 8,157,134
Security deposits6 15,762,430 8,620,959
Total P
=4,044,447,693 =2,982,380,399
P
1
Excluding cash on hand amounting to = P5,775,129 and =
P4,826,500 on May 31, 2018 and 2017, respectively.
2
Excluding advances to suppliers amounting to = P116,688,383 and =P118,447,147
3
Excluding allowance for doubtful accounts amounting to = P162,158,073 and = P27,650,000 on May 31, 2018 and 2017, respectively.
4
Excluding non-financial asset amounting to ₱8,350,000 with allowance for doubtful accounts of ₱8,350,000 as of May 31, 2018 and
2017.
5
Excluding receivables collectible through salary deduction and subject to employee liquidation totaling to =
P4,327,694 and
=
P13,182,902 on May 31, 2018 and 2017, respectively.
6
Excluding allowance for impairment loss of ₱3,560,000 as of May 31, 2018 and 2017.

The table below summarizes the credit quality of the Group’s financial assets as of May 31, 2018 and
2017:

2018
Neither past due nor impaired
Low Risk Average Risk High Risk With Provision Total
Cash (excluding cash on hand amounting
P
= 5,775,129) P
= 588,160,474 P
=– P
=– P
=– P
= 588,160,474
Receivables
Trade receivables 3,409,265,509 − – 162,158,073 3,571,423,582
Non-trade receivables 19,422,175 – – 8,350,000 27,772,175
Receivables from employees 16,164,799 – – – 16,164,799
Security deposits 15,762,430 – – 3,560,000 19,322,430
P
= 4,048,775,387 P
=− P
=− P
= 174,068,073 P
= 4,222,843,460

2017
Neither past due nor impaired
Low Risk Average Risk High Risk With Provision Total
Cash (excluding cash on hand amounting
P
=4,826,500) P
=236,938,685 =
P− =
P− =
P− P
=236,938,685
Receivables −
Trade receivables 2,715,661,308 − − 27,650,000 2,743,311,308
Non-trade receivables 13,002,313 − − 8,350,000 21,352,313
Receivables from employees 21,340,036 − − − 21,340,036
Security deposits 8,620,959 − − 3,560,000 12,180,959
P
=2,995,563,301 =
P− =
P− P
=39,560,000 P=3,035,123,301

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The Group classifies credit quality as follows:

Low risk - credit can proceed with normal credit terms and counterparty possesses strong to very
strong capacity to meet its obligation.

Average risk - credit can proceed with extended credit terms and counterparty possesses strong
capacity to meet its obligation, however, adverse economic conditions or changing circumstances are
more likely to lead a weakened capacity of the obligor to meet its financial commitment on the
obligation.

High risk - transaction should be under advance payment or confirmed and irrevocable stand-by
letters of credit and subject to quarterly review for possible upgrade after one year. Counterparty will
likely impair the capacity or willingness to meet financial commitment on the obligation on adverse
economic conditions or changing circumstances.

The Group recognizes impairment losses based on the results of the specific/individual and collective
assessment of its credit exposures. Impairment has taken place when there is a presence of known
difficulties in the servicing of cash flows by counterparties, infringement of the original terms of the
contract has happened, or when there is an inability to pay principal or interest overdue beyond a
certain threshold. These and the other factors, either singly or in tandem with other factors, constitute
observable events and/or data that meet the definition of an objective evidence of impairment.

Credit Terms
Hybrid rice subsidies are paid upon presentation of Municipal Transfer Receipt and farmer master list
to DA. Hybrid seed equities and subsidies are generally payable in one cropping season or six (6)
months while rice produce is paid within sixty (60) to ninety (90) days.

Price risk on biological assets and agricultural produce

The Group is exposed to risks arising from changes in prices of hybrid rice seeds and milled rice.
The Group does not anticipate that hybrid rice seeds and milled rice will decline significantly in the
foreseeable future and, therefore, has not entered into derivative or other contracts to manage the risk
of a decline in market prices. The Group reviews its outlook for market prices regularly in
considering the need for active financial risk management.

Risk management related to agricultural activity

The Group is exposed to farming risk arising from climatic changes, diseases and other natural risks
such as fire, flooding and storms and human-induced losses arising from strike and malicious
damage.

The Group does not anticipate that agricultural products will decline significantly in the foreseeable
future and therefore, has not entered into derivative or other contracts to manage the risk of decline in
market prices. The Group reviews its outlook for market prices regularly in considering the need for
active financial risk management.

Agricultural activity covers wet and dry cropping seasons from months of June to November and
December to May, respectively.

Fair Values
Financial instruments
Financial instruments are recognized initially at cost which is the fair value of the consideration given
(in case of the asset) or received in (in case of liability). Subsequent to initial recognition, assets and
liabilities are either valued at amortized cost using effective interest rate method or at fair value

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depending on their classification. The following methods and assumptions were used to estimate the
fair value of each class of financial instrument for which it is practicable to estimate such value.

Due to the short-term nature of the transactions, the carrying amounts of cash, receivables, accounts
and other payables, trust receipt payable and short-term notes payable approximate their fair values.

Other non-financial assets

Fair value of harvested crops are based on the most reliable estimate of market prices in the local
market. The market price is derived from the Group’s current selling price adjusted for logistic cost
and cost to sell (Level 3).

Fair value of standing crops are measured at fair value. Management used future selling prices of
harvested crops less future growing cost applied to the estimated volume of harvest less the
reasonable profit allowance as the basis for the fair value.

Fair Value Hierarchy

As of May 31, 2018 and 2017, the Group has no financial asset and liability measured at fair value.
During the reporting periods ended, May 31, 2018 and 2017, there were no transfer between Level 1
and Level 2 measurements, and no transfers into and out of Level 3 fair value measurements.

Determination of fair values

Other nonfinancial assets

Valuation Significant
Sensitivity of the input to fair value
Technique Unobservable Input
Fair value of Income Approach Estimated selling price Significant increase (decrease) in the
harvested crops per bag of hybrid rice selling price of hybrid seeds would result
seeds in higher (lower) fair value.
Fair value of Income Approach Estimated selling prices Significant increase (decrease) in the
standing crops of standing crops; estimated future selling price and
estimated volume of estimated volume of harvest would result
harvest and future in higher (lower) fair value of biological
growing costs. asset, while significant increase
(decrease) in the future growing costs
would result in lower (higher) fair value.

31. Related Party Transactions

Related party transactions are made under the normal course of business. Parties are considered to be
related if one party has the ability, directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and operating decisions; and the parties
are subject to common control. Related parties may be individuals or corporate entities (referred
herein as affiliates).

The Group has noninterest-bearing receivables from (payable to) affiliates arising from the normal
course of operations.

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Amounts receivable from related parties as of May 31 follow:

2018
Outstanding
Relationship Transaction Amount Balance Terms Conditions
Trade Receivables
Sterling Paper Products Entity under common Sales P
= 2,728,400 P
= 4,941,192 On demand Unsecured;
Enterprise control noninterest-bearing
Central Bookstore Entity under common Sales 390,662 3,069,440 On demand Unsecured;
control noninterest-bearing
Mica-Genero Abundans Entity under common Sales 201,500 ‒ On demand Unsecured;
Foundation, Inc. control noninterest-bearing
(MGAFI)
DM Rice Surprise Entity under common Sales 1,133,866 – On demand Unsecured;
control noninterest- bearing
Mart One Entity under common Sales 229,279 – On demand Unsecured;noninterest
control - bearing
P
= 4,683,707 P
= 8,010,632

Outstanding
Relationship Transaction Amount Balance Terms Conditions
Advances to an Associate
PT Sterling Agritech Secured;
Indonesia (SAI) Associate Advances P
= 4,995,720 P
= 4,995,720 On demand noninterest-bearing

Outstanding
Relationship Transaction Amount Balance Terms Conditions
Prepayments and Other Current Assets
Entity under common Unsecured;
SP Properties, Inc. control Lease =
P21,485,040 P
= 224,791,530 On demand noninterest-bearing

2017
Outstanding
Relationship Transaction Amount Balance Terms Conditions
Trade Receivables
Sterling Paper Products Entity under common Sales P
=4,977,942 P
=4,977,942 On demand Unsecured;
Enterprise control noninterest- bearing
Central Bookstore Entity under common Sales 3,108,183 3,108,183 On demand Unsecured;
control noninterest- bearing
Mica-Genero Abundans Entity under common Sales 201,500 201,500 On demand Unsecured;
Foundation, Inc. control noninterest-bearing
(MGAFI)
DM Rice Surprise Entity under common Sales 1,421,805 ‒ On demand Unsecured;
control noninterest-bearing
Mart One Entity under common Sales 101,966 – On demand Unsecured;
control noninterest-bearing
P
=9,811,396 P
=8,287,625

Prepayments and Other Current Assets

SP Properties, Inc. Entity under common Unsecured;
control Lease P
=21,485,040 P
=233,494,592 On demand noninterest-bearing

Compensation of key management personnel

Key management personnel of the Group include all officers with rank of Vice-Presidents, and Senior
Vice-Presidents.

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The summary of compensation of key management personnel included under Operating expenses
account in the consolidated statements of comprehensive income follows:

2018 2017 2016

Salaries and other short-term
employee benefits P5,861,216
= P5,638,131
= P5,471,843
=
Pension expense 2,789,017 1,235,924 1,373,884
=8,650,233
P =6,874,055
P =6,845,727
P

Terms and conditions of transactions with related parties

The Group has not recognized any impairment losses on amounts due from related parties for the
years ended May 31, 2018, 2017 and 2016. This assessment is undertaken each financial year
through a review of the financial position of the related party and the market in which the related
party operates.

The Group act as surety for obligations arising from or in connection with the credit accommodations
extended to the Group’s affiliates by various financial institutions. In return, the affiliates authorized
the Group to mortgage, pledge and assign the affiliates’ assets as collateral/security to the loans the
Group borrowed from financial institutions.

32. Commitments

Land lease agreements

In 2018 and 2017, the Group entered into various farm management agreements which cover the
lease of approximately 200 hectares of agricultural lands for the production of hybrid rice palay/seeds
in Laguna, Davao Oriental, Nueva Ecija. The lease term ranges from three (3) months to one (1)
year. The monthly rent payment on these operating lease ranges from = P40,000 to P=65,000 per hectare
per cropping season.

The minimum aggregate rental commitments within one year amounts to P

=7,888,070 and
=14,284,905 in 2018 and 2017, respectively.
P

Warehouse agreements
The Group entered into lease agreements which cover the lease of warehouses for the storage of
hybrid rice palay/seeds in Bulacan, Laguna, Davao Oriental and Nueva Ecija. The monthly rent
payment on these operating leases except Bulacan warehouse ranges from =P35,000 to P=70,000.
Monthly rent payment for Bulacan warehouse is =P1,790,420.

The minimum aggregate rental commitments under these operating leases follow:

2018 2017
Within one (1) year P
=267,408,240 =209,206,208
P
After one (1) year but not more than five (5) years 6,600,000 6,600,000
P
=274,008,240 =215,806,208
P

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Contract growing agreements

The Group has various contractual commitments with contract growers to buyback all hybrid rice
palay and hybrid rice seeds produced by the latter. Contract terms range from six (6) months to three
(3) years or one (1) cropping season to six (6) cropping seasons. Under the MOA, the Group is
obliged and has the sole and exclusive right to:

a. Provide 15 kilos of first filial (F1) seeds per hectare, agricultural chemical, and needed number of
sacks, free of charge;
b. Provide technical assistance and supports, free of charge, to contract growers; and
c. Buyback all the SL-8H, SL-7H and SL-9H palay produced by contract grower at the contracted
area(s) at the prevailing market price plus an agreed premium.

Under the MOA, the Group shall pay the contract buyer within 30 days after the release of moisture
content seed analysis results for seeds.

Memorandum of Agreement for Hybrid Seed Production in Myanmar

In 2016, the Group entered into a Memorandum of Agreement (MOA) with two other Myanmar-
based companies and one company from the Philippines and invested P =7.30 million in the form of
cash and seeds. Parties have agreed to pursue a Joint Venture (JV) whereby hybrid rice will be
planted and/or processed, and hybrid seeds will be multiplied, cultivated and/or processed in
Myanmar using technology developed by the Group.

In 2017, the Group’s investment in Myanmar increased by = P5.51 million. This includes shares
pooled out from one of the parties to the agreement. The Group also recognized its share in net loss
in its undivided interest in the unincorporated joint venture amounting to =
P12.47 million and nil in
2017 and 2016, respectively. As of May 31, 2017 and 2016, deposits made for future investment by
the Company to the unincorporated joint venture presented under “ Other noncurrent assets” in the
consolidated statement of financial position amounted to P =0.38 million and =
P7.33 million, net of the
shares in losses, respectively.

In 2017, a separate vehicle in the Union of Myanmar was incorporated under the name “Sterling SL
Agritech Company Limited”. Sterling SL Agritech Company Limited is a private company that has
an authorized capital of USD3,000,000 divided into 3,000,000 shares of USD1 each. On August 23,
2017, the Sterling SL Agritech Company Limited obtained Temporary Certificate of Incorporation
and Temporary Form of Permit with Registration and Permit No. 466 FC 2017-2018 (YGN) with a
validity period of six months. On September 21, 2017, the management also executed an Investment
Trust Agreement between the Parent Company (Company-Trustor) and Henry Lim Bon Liong (HBL)
(Chairman-Trustee) to enable HBL to manage, supervise and administer Sterling SL Agritech
Company Limited on behalf of the Parent Company, effectively making Sterling SL Agritech
Company Limited its Subsidiary (Note 1).

On February 26, 2018, the Subsidiary applied for the necessary extension to the Directorate of
Investment and Company Administration (DICA) and the latter extended the Certificate of
Incorporation and Form of Permit (Temporary) validity period for another six months (from February
23, 2018 to August 22, 2018). The Subsidiary is currently in the process of obtaining the Myanmar
Investment Commission (MIC) permit. To obtain the permit, the Subsidiary must attain the
requirement of having a long-term land lease for a minimum period of at least 20 years. The
Subsidiary is currently negotiating and meeting with prospective landlords.

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Collaboration Agreement for Hybrid Seed Production in Bangladesh

The Group entered into Collaboration agreement with EnP Solution Limited (ESL) on SL-18H seeds
production, marketing and development in Bangladesh. The significant commitments of the Group
under its agreement with ESL are as follows:

a. Contract period of the agreement shall be three years from June 1, 2017 to May 30, 2020.
b. This three years period is considered as trial production and F1 seeds promotion period for SL-
18H in Bangladesh.
c. By the end of the current contract period, a new contract agreement may be signed for another
business period of five (5) years to replace the initial contract.
d. The Group will provide subsidized price for importing F1 hybrid rice seeds SL-18H. The
minimum target are as follows:

Minimum quantity of SL-18H

Year F1 seeds exported
2017-2018 20,000 Kg
2018-2019 30,000 Kg
2019-2020 40,000 Kg

The Group’s trial production, marketing and development of SL-18H hybrid rice seed variety in
Bangladesh is ongoing as of May 31, 2018.

33. Notes to Consolidated Statements of Cash Flows

Rollforward of liabilities under financing activities as of May 31, 2018 follows:

Non-cash May 31,

June 1, 2017 Cash flows change 2018
Short-term debt =5,084,714,022 =
P P1,213,138,366 =− =
P P6,297,852,388
Long-term debt − 496,250,000 47,916 496,297,916
Trust receipts payable 573,592,825 141,022,080 − 714,614,905
=5,658,306,847 P
P =1,850,410,446 =47,916 P
P =7,508,765,209

The non-cash change in long-term notes payable pertains to amortization of discount on long-term
notes payable amounting to P
=47,916 in 2018.

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