CZECHOSLOVAK GROUP a.s. (the “Parent Company” or the “Company” or “CSG”) is a joint

stock company formed in compliance with the legal regulations of the Czech Republic on

13 October 2014. Its registered office is located at

U Rustonky 714/1, Karlín, 186 00 Prague 8.

The consolidated financial statements of the Company were prepared for the year ended

31 December 2023 and include the financial statements of the Parent Company, its subsidiaries

and associates or joint ventures (jointly referred to as the “Group” or the “CSG Group”).

The entities included in the Group are disclosed in Note 36

–

Entities in the Group and include

primarily entities operating in the Czech Republic, Slovakia, Italy, Spain and United States.

CZECHOSLOVAK GROUP’s strategy comprises the long

-term operation and expansion in

promising segments of the traditional Czech and Slovak industries having a strong potential for

export. The vast majority of these activities are focused on the B2B or B2G segments. Business

activities focusing on end consumers are marginal. The Group is primarily engaged in the arms,

engineering, automotive, aircraft and rail transport industries.

As of 31 December 2023 and 2022

, the Group’s

100 % ultimate owner was Michal Strnad.

Composition of the Board of Directors as of 31 December 2023:

•

Michal Strnad

(Chairperson of the Board of Directors)

•

David Chour

(Vice-Chairperson of the Board of Directors)

•

David Štěpán

(Member of the Board of Directors)

•

Petr Formánek

(Member of the Board of Directors)

•

Ladislav Štorek

(Member of the Board of Directors)

Composition of the Supervisory Board as of 31 December 2023:

•

Aleš Kvídera

(Chairperson of the Supervisory Board)

•

Michaela Katolická

(Member of the Supervisory Board)

•

Rudolf Bureš

(Member of the Supervisory Board)

The consolidated financial statements were authorised for issue by the Board of Directors on 4

April 2024.

The financial statements have been prepared in accordance with International Financial Reporting

Standards (IFRS

©

Accounting Standards) adopted by the European Union and to be included in

an Offering Memorandum.

Furthermore, the consolidated financial statements have been drawn up on a going concern basis

and using the conventional historical cost basis, except for in the event the measurement

of financial assets and liabilities that required the application of the of fair value criterion.

The consolidated financial statements are presented in euro

(“EUR”)

, which has been the

presentation currency set by the CSG Group since January 1, 2021.

The Company’s functional

currency is the Czech crown (“CZK”).

Each entity included to the consolidated financial

statements determine the functional currency in accordance with the requirements of IAS 21. All

amounts included in this document are presented in thousands of euros, unless otherwise

indicated. The reason for the presentation currency is that EUR suits the needs of the primary

users of the financial statements better than CZK.

The consolidated financial statements are prepared using consistent accounting policies over

the whole period covered by the financial statements (i.e. both the current and comparative

periods). These accounting policies are in line with the IFRS applicable at the end of the reporting

period i.e., 31 December 2023.

The detailed application of consolidation methods is described further in Note 5.

3.

BASIS OF MEASUREMENT

The consolidated financial statements have been prepared on a historical cost basis, except for the

following assets and liabilities stated at their fair value: financial instruments at fair value through

profit & loss (“FVTPL”) (incl. those designated upo

n initial recognition as at FVTPL). Financial

assets and liabilities as well as non-financial assets and liabilities measured at historical cost are

stated at amortised cost (“AC”) using the effective interest method or historical cost, as

appropriate, net of any relevant impairment and cumulative depreciation or cumulative

amortisation.

The Group accounts for business combinations using the acquisition method when control is

transferred to the Group (refer to note 7). In determining whether a particular set of activities and

assets is a business, the Group assesses whether the set of assets and activities acquired includes

at a minimum an input and substantive process and whether the acquired set has the ability to

produce outputs. The Group has the option to apply a

‘concentration test’ that permits a simplified

assessment of whether an acquired set of activities and assets meets the definition of a business.

The optional concentration test is met if substantially all fair value of the gross assets acquired is

concentrated in a single identifiable asset or group of similar identifiable assets.

The consideration transferred in the acquisition is generally measured at fair value, as are

the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment.

Any gain on bargain purchase is recognised in profit or loss immediately (refer to note 7).

Transaction costs are expensed as incurred, expect if related to the issue of debt or equity

securities.

The consideration transferred does not include amounts related to the settlement of pre-existing

relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation

to pay a contingent consideration that meets the definition of a financial instrument is classified

as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise,

other contingent considerations are re-measured at fair value at each reporting date and

subsequent changes in the fair value of the contingent considerations are recognised in profit or

loss.

4.

ADOPTION OF NEW AND REVISED IFRS ACCOUNTING STANDARDS

(a)

Change in accounting policy

Change in presentation currency

During the year 2023, the Group has elected to change the Group’s presentation currency from

the Czech crown (CZK) to the Euro (EUR) effective from 1 January 2021. The change in

presentation currency was a voluntary change which has been accounted for retrospectively.

The consolidated financial statements as of and for the year ended 31 December 2022 and 31

December 2021 have been restated to euros using the procedures outlined below:

•

Statement of profit or loss and other comprehensive income and statement of cash flows for

each group entity were consolidated into EUR using average foreign currency rates prevailing

for the relevant period.

•

Assets and liabilities in the consolidated statement of financial position were translated into

EUR at the closing foreign currency rates on the relevant balance sheet dates.

•

The equity section of the consolidated statement of financial position, including foreign

currency translation reserve, accumulated losses, share capital and the other reserves, were

translated into EUR using the historical rates, being the rate on the date of the transaction.

All resulting translation exchange differences have been recognised within other comprehensive

income in the foreign currency translation reserve. The effect of applying different exchange rates

for the change in presentation currency have been included as a reconciling item within the

statement of changes in shareholders’ equity as at 1 January 2021.

The presentation currency of EUR has been adopted to suit the needs of the primary users

of the financial statements.

Recognition of written put options over non-controlling interest

Furthermore, the Group has adopted its policy related to written put options following recent

guidance of IFRS. Where the Group writes a put option, which if exercised triggers the purchase

of non-controlling interests as part of its business acquisition, the put option is recognised

as a financial liability at the acquisition date. Where risks and rewards remain with

the non-controlling interests, a corresponding amount is deducted from equity. Any subsequent

changes to the carrying amount of the put option liability are also recognised within equity.

Measurement period adjustments

During 2023, the Group has finalised the acquisition accounting of C3F S.pA. that was acquired

in December 2022. The comparative balance sheet as of 31 December 2022 has been revised to

include the impact to the provisional amounts recognised.

The detail is disclosed in Note 7.

Recognition of own work capitalized

During 2023, the Group has changed recognition of Own work capitalized since 2023 Owned

work capitalized is recorded at appropriate line of incurred expenses. In previous years Own

work capitalizes was included in line “Other operating income”, since 2023

Owned work

capitalizes has been included in “Employee benefits cost”. The comparative as of 31 December

2022 and 31 December 2021 has been revised to include the impact of this change.

Corrected

Originally

Difference

Value as of

recognised value as

31 Dec 2022

of 31 Dec 2022

Other operating income

16,963

42,629

(25,666)

Employee benefits cost

(101,157)

(126,823)

25,666

Corrected

Originally

Difference

Value as of

recognised value as

31 Dec 2021

of 31 Dec 2021

Other operating income

12,674

30,638

(17,964)

Employee benefits cost

(88,405)

(106,369)

17,964

(b)

New and amended IFRS Accounting Standards that are effective for the current year

In the current year, the group has applied a number of new and amended IFRS Accounting

Standards issued by the International Accounting Standards Board (IASB) and adopted by

the EU that are mandatorily effective in the EU for an accounting period that begins on or after

1 January 2023. Their adoption has not had any material impact on the disclosures or on the

amounts reported in these financial statements.

IFRS 17 Insurance Contracts (including the June 2020 and December 2022 Amendments to

IFRS 17)

The Group does not have any contracts that meet the definition of an insurance contract under

IFRS 17.

Amendments to IAS 1 Presentation of financial statements and IFRS Practice Statement 2

Making Material Judgements

–

Disclosure of Accounting Policies.

The Group has adopted the amendments to IAS 1 for the first time in the current year.

The amendments change the requirements in IAS 1 with regard to disclosure of accounting

policies. The amendments replace all instances of the term ‘significant accounting policies’ with

‘material accounting policy information’. Accounting pol

icy information is material if, when

considered together with other information included in the entity’s financial statements, it can

reasonably be expected to influence decisions that the primary users of general purpose financial

statements make on the basis of those financial statements.

The supporting paragraphs in IAS 1 are also amended to clarify that accounting policy

information that relates to immaterial transactions, other events or conditions is immaterial and

need not be disclosed. Accounting policy information may be material because of the nature

of the related transactions, other events or conditions, even if the amounts are immaterial.

However, not all accounting policy information relating to material transactions, other events or

conditions is itself material.

Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

–

Definition of Accounting Estimates

The Group has adopted the amendments to IAS 8 for the first time in the current year.

The amendments replace the definition of a change in accounting estimates with a definition

of

accounting estimates. Under the new definition, accounting estimates are “monetary amounts

in financial statements that are subject to measurement uncertainty”. The definition of a change

in accounting estimates was deleted.

Amendments to IAS 12 Income Taxes

–

Deferred Tax related to Assets and Liabilities arising

from a Single transaction

The Group has adopted the amendments to IAS 12 for the first time in the current year.

The amendments introduce a further exception from the initial recognition exemption. Under

the amendments, an entity does not apply the initial recognition exemption for transactions that

give rise to equal taxable and deductible temporary differences. Depending on the applicable tax

law, equal taxable and deductible temporary differences may arise on initial recognition of an

asset and liability in a transaction that is not a business combination and affect neither accounting

profit nor taxable profit.

Amendments to IAS 12 Income Taxes

–

International Tax Reform

–

Pillar Two Model Rules

The Group has adopted the amendments to IAS 12 for the first time in the current year. The IASB

amends the scope of IAS 12 to clarify that the Standard applies to income taxes arising from tax

law enacted or substantively enacted to implement the Pillar Two model rules published by

the OECD.

The amendments introduce a temporary exception to the accounting requirements for deferred

taxes in IAS 12, so that an entity would neither recognise nor disclose Information about deferred

tax assets and liabilities related to Pillar Two income taxes.

Following the amendments, the Group is required to disclose that it has applied the exemption

and to disclose separately its current tax expense (income) related to Pillar Two income taxes

(see note 15).

(c)

New and revised IFRS Accounting Standards adopted by the EU in issue but not yet

effective

At the date of authorisation of these financial statements, the group has not applied the following

revised IFRS Accounting Standards that have been issued and adopted by the EU but are not yet

effective in the EU:

Amendments to IFRS 16

Leases

Lease Liability in a Sale and Leaseback

Effective from 1.1.2024

Amendments to IAS 1

Presentation

Classification of Liabilities as Current

of Financial Statements

or Non-Current

Effective from 1.1.2024

Amendments to IAS 1

Presentation

of Financial Statements

Non-current Liabilities with Covenants

Effective from 1.1.2024

The directors do not expect that the adoption of the amendments to the existing Standards listed

above will have a material impact on the consolidated financial statements of the group in future

periods, except if indicated below.

(d)

New and revised IFRS Accounting Standards issued by the IASB but not yet adopted by

the EU

The following amendments to the existing IFRS Accounting standards have not been endorsed

for use in the EU yet and could not therefore be adopted by the group:

(The effective dates stated below are for IFRS as issued by IASB. EU is expected to approve

the amendments with the same effective dates.)

Amendments to IFRS 10

Consolidated

Sale or Contribution of Assets

Effective date has been

Financial Statements

and IAS 28

Investments

between an Investor and its

removed temporarily by the

in Associates and Joint Ventures

Associate or Joint Venture

IASB.

Amendments to IAS 7

Statement of Cash

Flows

and IFRS 7

Financial Instruments:

Disclosures

Supplier Finance Arrangements

Effective from 1.1.2024

Amendments to IAS 21

The Effects of Changes

in Foreign Exchange Rates

Lack of Exchangeability

Effective from 1.1.2025

The directors do not expect that the adoption of the amendments to the existing standards listed

above will have a material impact on the consolidated financial statements of the group in future

periods, except if indicated below.

5.

BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL

STATEMENTS

(a)

Going concern

The directors have, at the time of approving the financial statements, a reasonable expectation

that the group have adequate resources to continue in operational existence for the foreseeable

future. Thus, they continue to adopt the going concern basis of accounting in preparing

the financial statements.

(b)

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the parent company

and entities controlled by the parent company (its subsidiaries) made up to 31 December each

year. Control is achieved when the parent company:

•

Has the power over the investee

•

Is exposed, or has rights, to variable returns from its involvement with the investee

•

Has the ability to use its power to affect its returns

The parent company reassesses 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 listed above.

Consolidation of a subsidiary begins when the parent company obtains control over the subsidiary

and ceases when the parent company loses control of the subsidiary. Specifically, the results

of subsidiaries acquired or disposed of during the year are included in profit or loss from the date

the parent company gains control until the date when the parent company ceases to control

the subsidiary.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring

the

accounting policies used into line with the group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to

transactions between the members of the group are eliminated on consolidation.

Non-

controlling interests in subsidiaries are identified separately from the group’s equity therein.

Those interests of non-controlling shareholders that are present ownership interests entitling their

holders to a proportionate share of net assets upon liquidation may initially be measured at fair

value or at the non-

controlling interests’ proportionate share of the fair value of the acquiree’s

identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis.

Other non-controlling interests are initially measured at fair value.

After acquisition, the carrying amount of non-controlling interests is the amount of those interests

at initial recognition plus the non-

controlling interests’ share of subsequent changes in equity.

Profit or loss and each component of other comprehensive income are attributed to the owners

of the parent company and to the non-controlling interests. Total comprehensive income

of the subsidiaries is attributed to the owners of the parent company and to the non-controlling

interests.

Changes in the group’s interests in subsidiaries that do not result in a loss of control are accounted

for as equity transactions. The carrying amount of the group’s interests and the non

-controlling

interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any

difference between the amount by which the non-controlling interests are adjusted and the fair

value of the consideration paid or received is recognised directly in equity and attributed to

the owners of the parent company.

When the group loses control of a subsidiary, the gain or loss on disposal recognised in profit or

loss is calculated as the difference between (i) the aggregate of the fair value of the consideration

received and the fair value of any retained interest and (ii) the previous carrying amount

of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling

interests. All amounts previously recognised in other comprehensive income in relation to that

subsidiary are accounted for as if the group had directly disposed of the related assets or liabilities

of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as

required/permitted by applicable IFRS Accounting Standards). The fair value of any investment

retained in the former subsidiary at the date when control is lost is regarded as the fair value on

initial recognition for subsequent accounting under IFRS 9 Financial Instruments when

applicable, or the cost on initial recognition of an investment in an associate or a joint venture.

(c)

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration

transferred in a business combination is measured at fair value, which is calculated as the sum

of the acquisition-date fair values of assets transferred by the group, liabilities incurred by the

group to the former owners of the acquiree and the equity interest issued by the group in exchange

for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised

at their fair value at the acquisition date, except that:

•

Deferred tax assets or liabilities and assets or liabilities related to employee benefit

arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS

19 Employee Benefits respectively;

•

Liabilities or equity instruments related to share-based payment arrangements of the acquiree

or share-based payment arrangements of the group entered into to replace share-based payment

arrangements of the acquiree are measured in accordance with IFRS 2 Share-Based Payments

at the acquisition date (see below); or

•

Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5

Non-current Assets Held for Sale and Discontinued Operations are measured in accordance

with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any

non-

controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity

interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable

assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date

amounts of the identifiable assets acquired and liabilities assumed exceeds the sum

of the consideration transferred, the amount of any non-controlling interests in the acquiree and

the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is

recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred by the group in a business combination includes a contingent

consideration arrangement, the contingent consideration is measured at its acquisition-date fair

value and included as part of the consideration transferred in a business combination. Changes in

fair value of the contingent consideration that qualify as measurement period adjustments are

adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period

adjustments are adjustments that arise from additional information obtained during

the

‘measurement period’ (which cannot exceed one year from the acquisition date) about facts

and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do

not qualify as measurement period adjustments depends on how the contingent consideration is

classified. Contingent consideration that is classified as equity is not remeasured at subsequent

reporting dates and its subsequent settlement is accounted for within equity. Other contingent

consideration is remeasured to fair value at subsequent reporting dates with changes in fair value

recognised in profit or loss.

When a business combination is achieved in stages, the group’s previously held interests

(including joint operations) in the acquired entity are remeasured to its acquisition-date fair value

and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests

in the acquiree prior to the acquisition date that have previously been recognised in other

comprehensive income are reclassified to profit or loss, where such treatment would be

appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting

period in which the combination occurs, the group reports provisional amounts for the items for

which the accounting is incomplete. Those provisional amounts are adjusted during

the measurement period (see above), or additional assets or liabilities are recognised, to reflect

new information obtained about facts and circumstances that existed as of the acquisition date

that, if known, would have affected the amounts recognised as of that date.

(d)

Goodwill

Goodwill is initially recognised and measured as set out above.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose

of

impairment testing, goodwill is allocated to each of the group’s cash

-generating units

(or groups of cash-generating units) expected to benefit from the synergies of the combination.

Cash-generating units to which goodwill has been allocated are tested for impairment annually,

or more frequently when there is an indication that the unit may be impaired. If the recoverable

amount of the cash-generating unit is less than the carrying amount of the unit, the impairment

loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then

to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a cash-generating unit, the attributable amount of goodwill is included in

the determination of the profit or loss on disposal.

The group’s policy for goodwill arising on the acquisition of an associate is described below.

(e)

Investments in associates and joint ventures

An associate is an entity over which the group has significant influence and that is neither

a subsidiary nor an interest in a joint venture. 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.

A joint venture is a joint arrangement whereby the parties that have joint control

of the arrangement have rights to the net assets of the joint arrangement. Joint control is

the contractually agreed sharing of control of an arrangement, which exists only when decisions

about the relevant activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of associates or joint ventures are incorporated in these

financial statements using the equity method of accounting, except when the investment is

classified as held for sale, in which case it is accounted for in accordance with IFRS 5.

Under the equity method, an investment in an associate or a joint venture is recognised initially

in the consolidated statement of financial position at cost and adjusted thereafter to recognise the

group’s share of the profit or loss and other comprehensi

ve income of the associate or joint

venture. When the group’s share of losses of an associate or a joint venture exceeds the group’s

interest in that associate or joint venture (which includes any long-term interests that, in substance,

form part of the gr

oup’s net investment in the associate or joint venture), the group discontinues

recognising its share of further losses. Additional losses are recognised only to the extent that

the group has incurred legal or constructive obligations or made payments on behalf

of the associate or joint venture.

An investment in an associate or a joint venture is accounted for using the equity method from

the date on which the investee becomes an associate or a joint venture. On acquisition

of the investment in an associate or a joint venture, any excess of the cost of the investment over

the group’s share of the net fair value of the identifiable assets and liabilities of the investee is

recognised as goodwill, which is included within the carrying amount of the investment. Any

excess of the group’s share of the n

et fair value of the identifiable assets and liabilities over

the cost of the investment, after reassessment, is recognised immediately in profit or loss in the

period in which the investment is acquired.

If there is objective evidence that the group’s net investment in an associate or joint venture is

impaired, the requirements of IAS 36 Impairment of Assets are applied to determine whether it is

necessary to recognise any impairment loss with respect to t

he group’s investment. When

necessary, the entire carrying amount of the investment (including goodwill) is tested for

impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount

(higher of value in use and fair value less costs of disposal) with its carrying amount. Any

impairment loss recognised is not allocated to any asset, including goodwill that forms part

of the carrying amount of the investment. Any reversal of that impairment loss is recognised in

accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently

increases.

The group discontinues the use of the equity method from the date when the investment ceases to

be an associate or a joint venture. When the group retains an interest in the former associate

or a joint venture and the retained interest is a financial asset, the group measures the retained

interest at fair value at that date and the fair value is regarded as it’s fair value on initial recognition

in accordance with IFRS 9. The difference between the carrying amount of the associate or a joint

venture at the date the equity method was discontinued, and the fair value of any retained interest

and any proceeds from disposing of a part interest in the associate or a joint venture is included

in the determination of the gain or loss on disposal of the associate or joint venture. In addition,

the group accounts for all amounts previously recognised in other comprehensive income in

relation to that associate on the same basis as would be required if that associate had directly

disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in

other comprehensive income by that associate or joint venture would be reclassified to profit or

loss on the disposal of the related assets or liabilities, the group reclassifies the gain or loss from

equity to profit or loss (as a reclassification adjustment) when the associate or joint venture is

disposed of.

When the group reduces its ownership interest in an associate or a joint venture but the group

continues to use the equity method, the group reclassifies to profit or loss the proportion

of the gain or loss that had previously been recognised in other comprehensive income relating to

that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on

the disposal of the related assets or liabilities.

When a group entity transacts with an associate or a joint venture of the group, profits and losses

resulting from the transactions with the associate or joint venture are recognised in the group’s

consolidated financial statements only to the extent of interests in the associate or joint venture

that are not related to the group.

The group applies IFRS 9, including the impairment requirements, to long-term interests in an

associate or joint venture to which the equity method is not applied and which form part of the net

investment in the investee. Furthermore, in applying IFRS 9 to long-term interests, the group does

not take into account adjustments to their carrying amount required by IAS 28 Investments in

Associates and Joint Ventures (i.e. adjustments to the carrying amount of long-term interests

arising from the allocation of losses of the investee or assessment of impairment in accordance

with IAS 28).

(f)

Revenue recognition

Revenue from contracts with customers

The Group applies a five-step model to determine when and to what extent revenue should be

recognised. Revenue is recognised when the Group transfers control of the goods and services to

its customers and in the amount of the expected consideration. Following the fulfilment of specific

requirements, revenue is reported either over time or at a point in time when control of goods or

services is transferred. The Group enters into contracts with customers for different supplies and

under different conditions, which is why it proceeded to assess the contracts individually.

Information on the method of accounting of revenues under IFRS 15 for individual types

of transactions is provided in Note 8 Revenues. The main areas considered by the Group in

applying IFRS 15 are the following:

a)

Identification of the contract, identification of the performance obligations

The Group assesses performance obligations for all contracts in detail. The Group’s contracts

often involve several performance obligations. If the Group provides customers with a service

of significant integration of these performance obligations, it considers these partial performance

obligations to be part of one main performance obligation.

b)

Significant financing component

For prepayments, the Group recognises interest expense on received prepayments, which are

reflected in the reported contract price if these prepayments are considered a significant financing

component in accordance with IFRS 15.

The Group used a practical expedient and does not account for the financing component

if the expected time between the delivery and payment at the time of origination of the contractual

relationship is less than 12 months.

c)

Revenue recognition period

In the case of contracts with customers, where the Group has a legally enforceable right to

payment, the Group recognises revenues from these contracts over time. For these contracts, sales

and expenses are recognised taking into account the progress of the contractual activity at

the balance sheet date using the percentage of completion method. The percentage of completion

is usually calculated as the ratio of the costs incurred under the contract to the total estimated

costs. Management believes that this input method is an appropriate indicator of progress towards

fully meeting these performance obligations. Only in exceptional cases is the percentage

of completion measured by the output method. If it is probable that total costs will exceed total

revenues, the loss is recognised immediately in the financial statements.

For contracts where none of the requirements for revenue recognition over time are met,

the Group recognises revenue at a point in time when control is transferred. Until the transfer

of control, the Group recognises contract costs as work in progress.

Contract assets and contract liabilities

Contract assets are recognised in connection with contracts with customers if, in the case

of contract manufacturing, the cumulative sales recognised over time exceed the sum

of the advance payments received and progress billings. As of the end of the reporting period, this

asset item is tested for impairment, and, if necessary, an impairment is recognised on the basis

of expected losses. If the recognised sales are lower than the sum of the advance payments

received and progress billings, a contract liability is recognised. A contract liability is also

recognised if advance payments are received and consideration has not yet been provided.

Provisions for loss-making contracts are reported under Provisions.

Contract costs

Contracts with customers concluded by the Group may lead to the recognition of incremental

costs incurred to obtain, or to perform, the contracts. In this situation, the Group will only

recognise the item costs to obtain or perform a contract if the costs are incremental and relate

directly to the obtaining and performing of the contract with a customer. The Group uses

the possibility of expedient, i.e. the costs are only capitalised in the statement of financial position

if their allocation is expected over a period exceeding 12 months, i.e. it is a non-current asset.

When an asset is recognised, its current and non-current portions are distinguished. The costs

capitalised are subsequently allocated to expenses concurrently with the progress of complete

satisfaction of the performance obligation. The costs capitalised are allocated to profit or loss to

the relevant nature of cost, e.g. the costs to obtain a contract in the form of a brokerage fee are

subsequently allocated to Services.

(g)

Leases

(a)

The group as lessee

The Group assesses whether a contract is or contains a lease, at inception of the contract.

The Group recognises a right-of-use asset and a corresponding lease liability with respect to all

lease arrangements in which it is the lessee, except for short-term leases (defined as leases with

a lease term of 12 months or less) and leases of low value assets (such as tablets and personal

computers, small items of office furniture and telephones). For these leases, the Group recognises

the lease payments as an operating expense on a straight-line basis over the term of the lease

unless another systematic basis is more representative of the time pattern in which economic

benefits from the leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid

at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot

be readily determined, the Group uses its incremental borrowing rate.

The incremental borrowing rate depends on the term, currency and start date of the lease and is

determined based on a series of inputs including: the risk-free rate based on government bond

rates; a country-specific risk adjustment; a credit risk adjustment based on bond yields; and an

entity-specific adjustment when the risk profile of the entity that enters into the lease is different

to that of the group and the lease does not benefit from a guarantee from the group.

Lease payments included in the measurement of the lease liability comprise:

•

Fixed lease payments (including in-substance fixed payments), less any lease incentives

receivable

•

Variable lease payments that depend on an index or rate, initially measured using the index

or rate at the commencement date

•

The amount expected to be payable by the lessee under residual value guarantees

•

The exercise price of purchase options, if the lessee is reasonably certain to exercise

the options

•

Payments of penalties for terminating the lease, if the lease term reflects the exercise of an

option to terminate the lease

The lease liability is subsequently measured by increasing the carrying amount to reflect interest

on the lease liability (using the effective interest method) and by reducing the carrying amount to

reflect the lease payments made.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related

right-of-use asset) whenever:

•

The lease term has changed or there is a significant event or change in circumstances resulting

in a change in the assessment of exercise of a purchase option, in which case the lease liability

is remeasured by discounting the revised lease payments using a revised discount rate

•

The lease payments change due to changes in an index or rate or a change in expected payment

under a guaranteed residual value, in which cases the lease liability is remeasured by

discounting the revised lease payments using an unchanged discount rate (unless the lease

payments change is due to a change in a floating interest rate, in which case a revised discount

rate is used)

•

A lease contract is modified and the lease modification is not accounted for as a separate lease,

in which case the lease liability is remeasured based on the lease term of the modified lease by

discounting the revised lease payments using a revised discount rate at the effective date of

the modification

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease

payments made at or before the commencement day, less any lease incentives received and any

initial direct costs. They are subsequently measured at cost less accumulated depreciation and

impairment losses.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore

the site on which it is located or restore the underlying asset to the condition required by the terms

and conditions of the lease, a provision is recognised and measured under IAS 37. To the extent

that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset,

unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life

of the right-of-use asset. If a lease transfers ownership of the underlying asset or the cost

of the right-of-use asset reflects that the group expects to exercise a purchase option, the related

right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts

at the commencement date of the lease.

The group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for

any identified impairment loss as described

in the ‘Property, Plant and Equipment’ policy.

Variable rents that do not depend on an index or rate are not included in the measurement the lease

liability and the right-of-use asset. The related payments are recognised as an expense in

the period in which the event or condition that triggers those payments occurs and are included in

the line “Other expenses” in profit or loss (see note 30).

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and

instead account for any lease and associated non-lease components as a single arrangement.

(h)

Foreign currencies

In preparing the financial statements of the Group entities, transactions in currencies other than

the entity’s functional currency (foreign currencies) are recognised at the rates of exchange

prevailing on the dates of the transactions. At each reporting date, monetary assets and

liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that

date. Non-monetary items carried at fair value that are denominated in foreign currencies are

translated at the rates prevailing at the date when the fair value was determined. Non-monetary

items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

•

Exchange differences on foreign currency borrowings relating to assets under construction for

future productive use, which are included in the cost of those assets when they are regarded as

an adjustment to interest costs on those foreign currency borrowings;

•

Exchange differences on transactions entered into to hedge certain foreign currency risks

(see below under financial instruments/hedge accounting); and

•

Exchange differences on monetary items receivable from or payable to a foreign operation for

which settlement is neither planned nor likely to occur in the foreseeable future (therefore

forming part of the net investment in the foreign operation), which are recognised initially in

other comprehensive income and reclassified from equity to profit or loss on disposal or partial

disposal of the net investment.

For the purpose of presenting consolidated financial statements, the assets and liabilities

of the G

roup’s foreign operations are translated at exchange rates prevailing on the reporting date.

Income and expense items are translated at the average exchange rates for the period, unless

exchange rates fluctuate significantly during that period, in which case the exchange rates

at the date of transactions are used. Exchange differences arising, if any, are recognised in other

comprehensive income and accumulated in a foreign exchange translation reserve (attributed to

non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the group’s entire interest in a foreign

operation, or a disposal involving loss of control over a subsidiary that includes a foreign

operation or a partial disposal of an interest in a joint arrangement or an associate that includes

a foreign operation of which the retained interest becomes a financial asset), all of the exchange

differences accumulated in a foreign exchange translation reserve in respect of that operation

attributable to the owners of the parent company are reclassified to profit or loss.

In addition, in relation to a partial disposal of a subsidiary that includes a foreign operation that

does not result in the Group losing control over the subsidiary, the proportionate share

of accumulated exchange differences is re-attributed to non-controlling interests and are not

recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or

joint arrangements that do not result in the group losing significant influence or joint control),

the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as

assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences

arising are recognised in other comprehensive income.

(i)

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will

comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which

the group recognises as expenses the related costs for which the grants are intended to compensate.

Specifically, government grants whose primary condition is that the group should purchase,

construct or otherwise acquire non-current assets (including property, plant and equipment) are

recognised as deferred income in the consolidated statement of financial position and transferred

to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred

or for the purpose of giving immediate financial support to the group with no future related costs

are recognised in profit or loss in the period in which they become receivable.

The benefit of a government loan at a below-market rate of interest is treated as a government

grant, measured as the difference between proceeds received and the fair value of the loan based

on prevailing market interest rates.

(j)

Taxation

The income tax expense represents the sum of current and deferred income tax expense.

a.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net

profit as reported in profit or loss because it excludes items of income or expense that are taxable

or deductible in other years and it further excludes items that are never taxable or deductible.

The

group’s liability for current tax is calculated using tax rates that have been enacted or

substantively enacted by the end of the reporting period.

In cases where the tax determination is uncertain but it is considered probable that there will be

a future outflow of funds to a tax authority, uncertain tax liabilities are presented as current tax

liabilities and are measured at the best estimate of the amount expected to become payable.

The assessment is based on the judgement of tax professionals within the parent company

supported by previous experience with similar transactions and their tax impact and in certain

cases based on specialist independent tax advice.

b.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying

amounts of assets and liabilities in the financial statements and the corresponding tax bases used

in the computation of taxable profit and is accounted for using the liability method. Deferred tax

liabilities are generally recognised for all taxable temporary differences and deferred tax assets

are recognised to the extent that it is probable that taxable profits will be available against which

deductible temporary differences can be utilised. Such assets and liabilities are not recognised if

the temporary difference arises from the initial recognition (other than in a business combination)

of other assets and liabilities in a transaction that affects neither the taxable profit nor

the accounting profit. In addition, a deferred tax liability is not recognised if the temporary

difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in

subsidiaries and associates, and interests in joint ventures, except where the group is able to

control the reversal of the temporary difference and it is probable that the temporary difference

will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary

differences associated with such investments and interests are only recognised to the extent that

it is probable that there will be sufficient taxable profits against which to utilise the benefits

of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to

the extent that it is no longer probable that sufficient taxable profits will be available to allow all

or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability

is settled or the asset is realised based on tax laws and rates that have been enacted or substantively

enacted at the reporting date.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would

follow from the manner in which the group expects, at the end of the reporting period, to recover

or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset

current tax assets against current tax liabilities and when they relate to income taxes levied by

the same taxation authority and the Group intends to settle its current tax assets and liabilities on

a net basis.

c.

Current tax and deferred tax for the year

Current and deferred tax are recognised in profit or loss, except when they relate to items that are

recognised in other comprehensive income or directly in equity, in which case the current and

deferred tax are also recognised in other comprehensive income or directly in equity respectively.

Where current tax or deferred tax arises from the initial accounting for a business combination,

the tax effect is included in the accounting for the business combination.

(k)

Property, plant and equipment

Properties in the course of construction for production, supply or administrative purposes, or for

purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost

includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance

with the Group’s accounting policy. Depreciation of these assets, determined on the same basis

as other property assets, commences when the assets are ready for their intended use.

Freehold land is not depreciated.

Plant, machinery, fixtures and fittings are stated at cost less accumulated depreciation and

accumulated impairment loss.

Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold

land and properties under construction) less their residual values over their useful lives, using

the straight-line method, on the following bases:

Buildings

1.6 per cent

–

5.0 per cent per annum

Plant and machinery

5.0 per cent

–

33.3 per cent per annum

Fixtures and fittings

5.0 per cent

–

50.0 per cent per annum

The estimated useful lives, residual values and depreciation method are reviewed at the end

of each reporting period, with the effect of any changes in estimate accounted for on a prospective

basis.

Right-of-use assets are depreciated over the shorter period of the lease term and the useful life

of the underlying asset. If a lease transfers ownership of the underlying asset or the cost

of the right-of-use asset reflects that the group expects to exercise a purchase option, the related

right-of-use asset is depreciated over the useful life of the underlying asset.

An item of property, plant and equipment is derecognised upon disposal or when no future

economic benefits are expected to arise from the continued use of the asset. The gain or loss

arising on the disposal or retirement of an asset is determined as the difference between the sales

proceeds and the carrying amount of the asset and is recognised in profit or loss.

(l)

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less

accumulated amortisation and accumulated impairment losses. Amortisation is recognised on

a straight-line basis over their estimated useful lives which are disclosed in note 16. The estimated

useful life and amortisation method are reviewed at the end of each reporting period, with

the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets

with indefinite useful lives that are acquired separately are carried at cost less accumulated

impairment losses.

(m)

Internally-generated intangible assets

–

research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development (or from the development

phase of an internal project) is recognised if, and only if, all of the following conditions have been

demonstrated:

•

The technical feasibility of completing the intangible asset so that it will be available for use

or sale

•

The intention to complete the intangible asset and use or sell it

•

The ability to use or sell the intangible asset

•

How the intangible asset will generate probable future economic benefits

•

The availability of adequate technical, financial and other resources to complete

the development and to use or sell the intangible asset

•

The ability to measure reliably the expenditure attributable to the intangible asset during its

development

The amount initially recognised for internally-generated intangible assets is the sum

of the expenditure incurred from the date when the intangible asset first meets the recognition

criteria listed above. Where no internally- intangible asset can be recognised, development

expenditure is recognised in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less

accumulated amortisation and accumulated impairment losses, on the same basis as intangible

assets that are acquired separately.

(n)

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognised separately from goodwill are

recognised initially at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are

reported at cost less accumulated amortisation and accumulated impairment losses, on the same

basis as intangible assets that are acquired separately.

(o)

Trademarks

Trademarks are measured initially at purchase cost and are amortised on a straight-line basis over

their estimated useful lives. In case of indefinite useful life, trademarks are tested for impairment

at least annually or whenever there is any indication that impairment occurred.

(p)

Impairment of property, plant and equipment and intangible assets excluding goodwill

At each reporting date, the Group reviews the carrying amounts of its property, plant and

equipment and intangible assets to determine whether there is any indication that those assets

have suffered an impairment loss. If any such indication exists, the recoverable amount

of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset

does not generate cash flows that are independent from other assets, the group estimates

the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable

and consistent basis of allocation can be identified, corporate assets are also allocated to individual

cash-generating units, or otherwise they are allocated to the smallest group of cash-generating

units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with an indefinite useful life are tested for impairment at least annually and

whenever there is an indication at the end of a reporting period that the asset may be impaired.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing

value in use, the estimated future cash flows are discounted to their present value using a pre-tax

discount rate that reflects current market assessments of the time value of money and the risks

specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its

carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its

recoverable amount. An impairment loss is recognised immediately in profit or loss, unless

the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as

a revaluation decrease and to the extent that the impairment loss is greater than the related

revaluation surplus, the excess impairment loss is recognised in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset

(or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that

the increased carrying amount does not exceed the carrying amount that would have been

determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior

years. A reversal of an impairment loss is recognised immediately in profit or loss to the extent

that it eliminates the impairment loss which has been recognised for the asset in prior years. Any

increase in excess of this amount is treated as a revaluation increase.

(q)

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials

and, where applicable, direct labour costs and those overheads that have been incurred in bringing

the inventories to their present location and condition. Cost is calculated using the weighted

average cost method. Net realisable value represents the estimated selling price less all estimated

costs of completion and costs to be incurred in marketing, selling and distribution.

(r)

Cash and cash equivalents

In the statement of financial position, cash and bank balances comprise cash (i.e. cash on hand

and demand deposits) and cash equivalents. Cash equivalents are current (generally with original

maturity of three months or less), highly liquid investments that are readily convertible to a known

amount of cash and which are subject to an insignificant risk of changes in value. Cash equivalents

are held for the purpose of meeting short-term cash commitments rather for investment or other

purposes.

Bank balances for which use by the group is subject to third party contractual restrictions are

included as part of cash unless the restrictions result in a bank balance no longer meeting

the definition of cash. If the contractual restrictions to use the cash extend beyond 12 months after

the end of the reporting period, the related amounts are classified as non-current in the statement

of financial position.

For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and

cash equivalents as defined above, net of outstanding bank overdrafts which are repayable on

demand and form an integral part of the group’s cash management. Suc

h overdrafts are presented

as current borrowings in the statement of financial position.

(s)

Financial instruments

Financial assets and financial liabilities are recognised in the G

roup’s statement of financial

position when the group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value, except for trade

receivables that do not have a significant financing component which are measured at transaction

price. Transaction costs that are directly attributable to the acquisition or issue of financial assets

and financial liabilities (other than financial assets and financial liabilities at fair value through

profit or loss) are added to or deducted from the fair value of the financial assets or financial

liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to

the acquisition of financial assets or financial liabilities at fair value through profit or loss are

recognised immediately in profit or loss.

a.

Financial assets

All regular way purchases or sales of financial assets are recognised and derecognised on a trade

date basis. Regular way purchases or sales are purchases or sales of financial assets that require

delivery of assets within the time frame established by regulation or convention in

the marketplace.

All recognised financial assets are measured subsequently in their entirety at either amortised cost

or fair value, depending on the classification of the financial assets.

i.

Classification of financial assets

Debt instruments that meet the following conditions are measured subsequently at amortised cost:

•

The financial asset is held within a business model whose objective is to hold financial assets

in order to collect contractual cash flows

•

The contractual terms of the financial asset give rise on specified dates to cash flows that are

solely payments of principal and interest on the principal amount outstanding

If these criteria are not met, all other financial assets are measured subsequently at fair value

through profit or loss (FVTPL).

Despite the foregoing, the group may make the following irrevocable election / designation at

initial recognition of a financial asset:

•

The group may irrevocably elect to present subsequent changes in fair value of an equity

investment in other comprehensive income if certain criteria are met (see (iii) below)

•

The group may irrevocably designate a debt investment that meets the amortised cost or

FVTOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an

accounting mismatch (see (iv) below)

1.

Amortised cost and effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument

and of allocating interest income over the relevant period.

For financial assets other than purchased or originated credit-impaired financial assets (i.e. assets

that are credit-impaired on initial recognition), the effective interest rate is the rate that exactly

discounts estimated future cash receipts (including all fees and points paid or received that form

an integral part of the effective interest rate, transaction costs and other premiums or discounts)

excluding expected credit losses, through the expected life of the debt instrument, or, where

appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial

recognition. For purchased or originated credit-impaired financial assets, a credit-adjusted

effective interest rate is calculated by discounting the estimated future cash flows, including

expected credit losses, to the amortised cost of the debt instrument on initial recognition.

The amortised cost of a financial asset is the amount at which the financial asset is measured at

initial recognition minus the principal repayments, plus the cumulative amortisation using

the effective interest method of any difference between that initial amount and the maturity

amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is

the amortised cost of a financial asset before adjusting for any loss allowance.

For purchased or originated credit-impaired financial assets, the Group recognises interest income

by applying the credit-adjusted effective interest rate to the amortised cost of the financial asset

from initial recognition. The calculation does not revert to the gross basis even if the credit risk

of the financial asset subsequently improves so that the financial asset is no longer credit-

impaired.

Interest income is recognised in profit or loss and is included in the "interest income" line item

(Note 14).

A financial asset is held for trading if:

•

It has been acquired principally for the purpose of selling it in the near term

•

On initial recognition it is part of a portfolio of identified financial instruments that the group

manages together and has evidence of a recent actual pattern of short-term profit-taking

•

It is a derivative (except for a derivative that is a financial guarantee contract or a designated

and effective hedging instrument)

2.

Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are

measured at FVTPL. Specifically:

•

Investments in equity instruments are classified as at FVTPL, unless the group designates an

equity investment that is neither held for trading nor a contingent consideration arising from a

business combination as at FVTOCI on initial recognition (see (iii) above)

•

Debt instruments that do not meet the amortised cost criteria or the FVTOCI criteria (see (i)

and (ii) above) are classified as at FVTPL. In addition, debt instruments that meet either

the amortised cost criteria or the FVTOCI criteria may be designated as at FVTPL upon initial

recognition if such designation eliminates or significantly reduces a measurement or

recognition inconsistency (so called ‘accounting mismatch’) that would arise from measuring

assets or liabilities or recognising the gains and losses on them on different bases. The group

has not designated any debt instruments as at FVTPL

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any

fair value gains or losses recognised in profit or loss to the extent they are not part of a designated

hedging relationship (see hedge accounting policy). The net gain or loss recognised in profit or

loss includes any dividend or interest earned on the financial asset and is included in the ‘other

gains and losses’ line item (Note 14). Fair value is determined in the manner described in note 32.

3.

Impairment of financial assets

The group recognises a loss allowance for expected credit losses on trade receivables and contract

assets, as well as on financial guarantee contracts. The amount of expected credit losses is updated

at each reporting date to reflect changes in credit risk since initial recognition of the respective

financial instrument.

The group always recognises lifetime expected credit losses (ECL) for trade receivables and

contract assets. The expected credit losses on these financial assets are estimated using a provision

matrix based on the group’s historical credit loss experience, adjusted for factors that are specific

to the debtors, general economic conditions and an assessment of both the current as well as

the forecast direction of conditions at the reporting date, including time value of money where

appropriate.

4.

Significant increase in credit risk

In assessing whether the credit risk on a financial instrument has increased significantly since

initial recognition, the Group compares the risk of a default occurring on the financial instrument

at the reporting date with the risk of a default occurring on the financial instrument at the date

of initial recognition. In making this assessment, the Group considers both quantitative and

qualitative information that is reasonable and supportable, including historical experience and

forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk

has increased significantly since initial recognition:

•

an actual or expected significant deterioration in the financial instrument’s external

(if available) or internal credit rating;

•

significant deterioration in external market indicators of credit risk for a particular financial

instrument, e.g. a significant increase in the credit spread, the credit default swap prices for

the debtor, or the extent to which the fair value of a financial asset has been less than its

amortised cost;

Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on

a financial asset has increased significantly since initial recognition when contractual payments

are more than 90 days past due, unless the Group has reasonable and supportable information that

demonstrates otherwise.

The Group regularly monitors the effectiveness of the criteria used to identify whether there has

been a significant increase in credit risk and revises them as appropriate to ensure that the criteria

are capable of identifying a significant increase in credit risk before the amount becomes past due.

5.

Definition of default

The Group considers the following as constituting an event of default for internal credit risk

management purposes as historical experience indicates that financial assets that meet either

of the following criteria are generally not recoverable:

•

when there is a breach of financial covenants by the debtor; or

•

information developed internally or obtained from external sources indicates that the debtor is

unlikely to pay its creditors, including the Group, in full (without taking into account any

collateral held by the Group).

Irrespective of the above analysis, the Group considers that default has occurred when a financial

asset is more than 90 days past due.

6.

Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on

the estimated future cash flows of that financial asset have occurred. Evidence that a financial

asset is credit-impaired includes observable data about the following events:

a)

a

significant financial difficulty of the issuer or the borrower;

b)

a breach of contract, such as a default or past due event (see (ii) above);

c)

the lender(s) of the borrower, for economic or contractual reasons relating to the

borrower’s

financial difficulty, having granted to the borrower a concession(s) that the lender(s) would

not otherwise consider;

d)

it is becoming probable that the borrower will enter bankruptcy or other financial

reorganisation; or

e)

the disappearance of an active market for that financial asset because of financial difficulties.

b.

Financial liabilities and equity

i.

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance

with the substance of the contractual arrangements and the definitions of a financial liability and

an equity instrument.

1.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity

after deducting all of its liabilities. Equity instruments issued by the Group are recognised at

the proceeds received, net of direct issue costs.

2.

Financial liabilities

All financial liabilities are measured subsequently at amortised cost using the effective interest

method or at FVTPL.

However, financial liabilities that arise when a transfer of a financial asset does not qualify for

derecognition or when the continuing involvement approach applies, and financial guarantee