Puregol Annual Report
Puregol Annual Report
Puregol Annual Report
North Luzon 93 3 3
South Luzon 101 2 6
Visayas 25 2 4
Mindanao 10 2 1
354 16 39
About
Us
Average
Our Vision, ticket price
Mission, and About Nationwide
Core Values Puregold Presence
2 3 4 6 p 612
2018 Financial Highl
puregold
542,459 sqm
(in billions PHP)
p 3,959
net selling area
Our
2018 NET SALES s&r GROSS P
up 13.2%
2018
140.92
124.49 21.4
Operational Financials 112.59 19.38
Highlights at-a-glance 2016 2017 2018 2016 201
20 21 22
NET INCOME GROSS PROF
up 11.6%
Our
6.52 17.2% 17.3
5.84
5.53 2016 201
Leaders
2016 2017 2018
Company
Values
CONSOLIDATED PUREGOLD
38 NET PROFIT MARGIN 39 NET MARGIN
4.9% 4.6%
4.7% 4.1%
2016 2017 2018
Our
Finances
Report of
Statement of Management's Independent
Responsibility Auditors
44 45 47
Chairman's
Message
16
History of President's
S&R S&R Pizza Puregold Message
8 11 12 18
CSR
30
Marketing DTI Bagwis
Operational Milestones Higlights awards Sustainability
24 26 28 36
Board of
Directors
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Puregold Annual Report 2018
VISION
To be the most
customer-oriented
hypermart offering
a one-stop shopping
convenience and best
value to our customers.
Sa Puregold,
Always Panalo!
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Puregold Annual Report 2018
MISSION
CORE VALUES
Sense of Customer
Belonging Service
Feeling that one has an Providing products and
essential role to play as part services that meet the
of the Puregold Family demands and expectations
of customers
Loyalty
Commitment and Integrity Dynamism
Dedicated and conscientious Honor, credibility, palabra Open, adaptive and
focus on work de honor, walking the talk responsive to the
changing environment
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Puregold Annual Report 2018
ABOUT US
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Puregold Annual Report 2018
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Puregold Annual Report 2018
Our Nationwide
Presence
Number of
Stores per
409
nationwide stores
Format
208 hypermarkets
Of all brands 104 supermarkets
42 extras
39 s&r QSR
16 S&rs
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Puregold Annual Report 2018
Average
ticket price
p 612
puregold
452,609 sqm p 3,959
net selling area
FOR PUREGOLD STORES s&r
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Puregold Annual Report 2018
S&R:
Better in Bulk
16 warehouses. One extraordinary brand.
S&R Membership Shopping is only 12 years old but is dominating the
local membership-shopping segment, with fiercely loyal customers
and a market share that is the envy of the industry. As 2019
rolls on, S&R continues to grow with no signs of slowing down.
Pampanga
Dau
Manila Cabanatuan
- BGC
- Congressional
- Alabang
Largest selection of
imported liquor and wine in Imported Australian and
- Aseana
- Shaw Cebu
the country New Zealand Beef - Commonwealth
- Parañaque
- Imus
- Nuvali
DELIVERY SERVICES
Iloilo
Cagayan de Oro
Davao
Premium chocolate from all
over the world
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Puregold Annual Report 2018
S
&R is one of the Philippines' best-loved and market relevance, and then bring back products for
aspirational shopping brands. Modelled on US aisle testing among customers. Items that get high
giants Costco and Sam’s Club membership- marks and initial uptake are then formally sourced
shopping models, S&R delivers significant value to its and added to S&R’s official inventory. This customer-
customers through an effective system anchored on centric feedback loop allows S&R to import products to
aggressive buying, low-cost distribution, streamlined match real consumer wants and needs.
operations, and bulk pricing.
Popular grocery items include fresh produce and
S&R began in 2006 with warehouses in 4 key locations: fruits, Australian/New Zealand beef, a bevy of Western
BGC, Alabang, Congressional, and ASEANA. With brands (from cereals to snacks, to soap and sundries),
highly organized, well-stocked, and distinct products and the biggest assortment of imported chocolate
housed in clean, wide-aisled warehouses, it was an among supermarkets. S&R also boasts the most
immediate hit with the AB market. comprehensive selection of imported wines and spirits
among supermarkets.
Its reputation for offering a unique, streamlined
shopping experience has only grown stronger; its S&R doesn’t stop at just groceries; consumer
warehouses, with their signature, hygienic white and electronics and appliances, along with health and
blue design, have become meccas for high-quality beauty products are also available for purchase. S&R
imported groceries, food, and lifestyle products. also aims to give back to its members, with our bi-
annual 5 Day Members’ Treat events, running in
This combination of quality, brand impact, and March and September. These member-only promos
convenience has propelled S&R to ever-greater offer huge discounts and buy 1 get 1 specials, and are
heights. Shopping memberships have skyrocketed, marked by massive turnouts.
and there are now 16 warehouses in the Philippines (2
added in 2018), a 3-fold increase since its inception. In 2018, S&R’s marketing campaign was “Discover the
Moving forward, S&R plans to build at least 4 new World at S&R”. It’s a fitting proposition that perfectly
warehouses a year, with its core focus on NCR and the captures the shopping-club’s commitment to diverse
provinces as its secondary market. offerings that joyfully connect consumers to the
wonderful world at large.
This is largely because S&R’s most active customers –
some 70% - are based in Metro Manila. The breakdown Dancing with Delivery
of warehouse locations is as follows:
S&R has always sought to provide a convenient
shopping experience. Now, in addition to being a one-
12 in Luzon, 2 in Visayas, and 2 in Mindanao.
stop shopping and bulk-buying destination, it offers
delivery to select areas. By teaming up with Metromart,
While Metro Manila still represents an incredibly loyal
S&R now delivers groceries right to your doorstep. We
and consistent membership community, with high
also partnered with Foodpanda and GrabFood. This
rates of member retention and big-spending habits,
service is currently available in 3 major urban centers,
S&R is committed to building its customer base outside
namely Manila, Cebu and Davao, with plans for further
of the capital region.
nationwide expansion. In keeping today’s retail trends,
delivery will serve as another growth opportunity for
Big World, Big Warehouse the company.
S&R prides itself on a very practical sourcing process.
Its team of “buyers” travel abroad, find new and
interesting products that score high on potential local
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Puregold Annual Report 2018
10
The thriving S&R Warehouse located in Lipa, Batangas.
Puregold Annual Report 2018
The Mood
for Food
O
ne of S&R’s strongest appeals is its dynamic in and of itself. S&R soon decided to spin off the service
food selection. Its chicken rotisseries roast and into a chain of standalone restaurants, open to the
sell hundreds of sumptuous chickens daily. Its general food-loving public.
bakery is known for its bread loaves (made with only
US ingredients) and wide range of apple and pumpkin It’s a move that has paid off handsomely. Starting in
pies, cinnamon buns, and carrot/chocolate/cheese and 2013 with two stores connected to Puregold Cubao
other cakes. S&R’s bakeries operate on an almost non- and Puregold Subic, the restaurant proved
stop basis, serving fresh and delicious pastries and to be so popular that several
desserts, day in and day out. others soon followed. Today,
there are 39 standalone
But perhaps S&R’s considerable achievement is its branches, with 7 opened
New York Style Pizza chain. Originally a warehouse- in 2018 alone. S&R aims
based restaurant available only to card-holding to open a minimum of
members, S&R New York Style Pizza offered fresh 10 new stores a year
pizza, calzones, fried chicken, and hot dogs to their as it continues to eat
hungry customers. As S&R’s membership swelled, into (pun intended)
so did the popularity of its fast-food. It wasn’t long this highly competitive
before S&R New York Style Pizza became a destination market.
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Puregold Annual Report 2018
Our
History
Twenty years ago, when we opened our first
grocery store in Mandaluyong, it seemed
like a longshot that Puregold would become
the supermarket chain it is today.
N
ot many people may know our story, that stores in operation. By 2011, Puregold broke into Retail
Puregold came out of the determination of Asia Pacific’s list of the Top 500 Retailers and also
founders Lucio and Susan Co to protect the took the second-largest market share in hypermarkets
welfare of their employees. In the mid-1990s, Puregold and supermarkets in the Philippines in terms of net
Price Club’s predecessor, Puregold Duty Free, was sales. In the same year, Puregold Price Club Inc. was
badly hit by the Asian Financial Crisis. officially listed on the Philippine Stock Exchange.
The foremost concern was not the merchandise sitting 2012 started a strategy of corporate growth through
on the shelves but what would happen to the employees company acquisitions, when we welcomed two retail
working in the store. Faced with the possibility of companies to the Puregold family: Kareila Management
people losing their jobs, they moved quickly to think Corporation (with 6 S&R Membership Shopping
of viable alternatives. That led them to venture into warehouses), and the Gant Group of Companies (with
mainstream retailing and in about a year, the very first 19 Parco Supermarkets). The following year 2013
Puregold Price Club was born. saw the biggest number of store openings with 68
new Puregold store locations, including 3 BHF and
In December 12, 1998, the very first Puregold 15 Company E acquired stores. That same year, S&R
supermarket opened along Shaw Boulevard. A humble Membership Shopping spun off its highly popular S&R
neighborhood supermarket, Puregold provided an New York Style Pizza into stand-alone quick service
alternate grocery for the Mandaluyong and San Juan restaurant operations, while also opening two new
communities, where they could shop in a comfortable stores in Davao and Mandaluyong.
environment without having to go to the big shopping
malls and bear with big crowds or weekend traffic. In 2015, NE Bodega and BudgetLane became part
Everybody was warmly welcomed, no dress code, and of the Puregold family with a combined total of 17
whether they came in to buy a single pack of noodles or stores, followed in 2017 by the acquisition of B&W
a cartload of groceries, customers were always assured Supermarket’s 5 store locations.
of the best value for their money.
With 409 branches all over the Philippines, Puregold
It didn’t take long for customers to discover Puregold remains as committed today as when we first opened
and through word-of-mouth, our business grew. our doors 20 years ago, to serve our customers and stay
From 2001 to 2007, Puregold opened an average of 3 true to our vision to be the most customer–oriented
stores each year. In 2008, we were recognized as the hypermarket offering one-stop shopping convenience
Most Trusted Brand in the supermarket category by and best value to our customers.
Readers’ Digest Asia. In 2010, we had a total of 62
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Puregold Annual Report 2018
Our
Achievements
Through
The Years
19 Flagship Puregold
98 store opened in
Mandaluyong
Loyalty program 20
launched
which was later on renamed
01
as Tindahan Ni Aling Puring
20 Recognized by Reader’s
Digest Asia as Most
08 Trusted Brand in
supermarket category
Gained second
largest market share 20
in hypermarkets
and supermarkets
in PH in net sales
09
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Puregold Annual Report 2018
20 Launched the
10 S&R New York
Style Pizza brand
20
Acquired Parco with 2 in-store
supermarkets
locations
12
with 19 stores and
S&R warehouses
with 6 stores
20 Opened a record 68
Acquired NE Bodega
20
and Budgetlane, for a
15
total of 17 new stores
20 Acquired B&W
Chairman's Message
As Puregold enters its
third decade serving
communities across the
country, this is perhaps
the most exciting time in
our company’s history.
W
ith a nationwide footprint and a diverse our infrastructure to the benefit of our stakeholders
array of retail channels, Puregold now and every person we serve. In 2019 alone, we have
has the capacity to serve Filipinos in allocated P5.2 billion for the construction of 39 total
more ways than ever before. While we continue to Puregold stores, S&R Warehouses, and S&R quick-
expand our primary goal of providing shoppers with service restaurants across the Philippines. At the same
convenient, affordable, and quality merchandise, time, we aim to grow same-store sales by three to five
we also are expanding our initiative of sharing in our percent and expand consolidated net sales by eight to
success with our customers. Whether it is continuously ten percent across the board.
strengthening our relationship with MSMEs through
our Tindahan ni Aling Puring (TNAP) Program or As a company we remain committed to the core values
graciously rewarding families and end consumers; that have brought us success thus far, and we are
we intend to give back to the communities that have excited to explore new opportunities in the mission to
supported us so well throughout the years. better serve every person we touch.
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President's Message
"The Puregold
model has
always been
about stable
inclusive
growth"
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Puregold Annual Report 2018
2
018 saw the Philippine economy post another through bulk purchasing. Furthermore, our S&R New
year of substantial growth, once again amongst York Style Pizza quick-service restaurants (QSRs)
the fastest growing markets in East Asia. This brand has seen a boom that exceeded even our own
growth has seen the rise of a robust consumer class in expectations. Consequently, in 2018 we opened 2 new
recent years, that is willing and able to indulge in a far S&R Warehouses, and 7 S&R QSRs, with a further 4
wider range of retail options than they once were. Warehouses and 10 QSRs earmarked for 2019. Posting
a net profit of 7.9% for 2018, the S&R brands have
The Puregold model has always been about stable become our fastest growing and most profitable
inclusive growth, and we have continued this by business segment.
expanding to every corner of this archipelago, while also
focusing on increasing same-store-sales by leaning As we look to exciting and flourishing new markets,
on our loyal and focused core market of customers. we’ll continue to invest in all our brands to ensure
That being said, Puregold has also capitalized on the sustainable and steady growth in revenue and profits.
unique macroeconomic conditions in the Philippines to Looking forward, we can’t help but be enthusiastic
capture an ever-widening middle class that demands about our prospects for the future, and we’re thrilled to
quality and convenient retail options. As a result, be able to share our journey with all of our shareholders
Puregold experienced solid progress in 2018 with net and partners that have made it all possible!
sales up 13.2% across the board for total net sales of
140.92 billion php. Puregold also posted gross profits
of 23.84 billion php, up 4.6% from 2017, in line with
our expectations for the year. The Puregold grocery
stores have continued to command loyalty from our Mr. Ferdinand Vincent P. Co
President
customer base, while increasing same-store-sales and
foot traffic nationwide.
While the Puregold brand has and will remain the firm
backbone of our business, we have made a concerted
effort to bring our increasingly popular and profitable
S&R brand nationwide. Our S&R warehouses have
capitalized on the membership-shopping craze,
while also bringing world-class retail items to the
Philippines that were previously unavailable, and
allowing shoppers a chance at better value-for-money
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Puregold Annual Report 2018
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Puregold Annual Report 2018
2018
Operational
Highlights
largest region
for growth
foot
traffic
North Luzon
2016 155m 6.3m
16
new stores
2016 486,722 sqm
2017 518,862 sqm
net selling area of stores 2018 537,965 sqm
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Puregold Annual Report 2018
up 13.2% up 11%
140.92 23.84
124.49 21.48
112.59 19.38
2016 2017 2018 2016 2017 2018
4.9% 4.6%
4.7% 4.1% 7.9%
2016 2017 2018
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Puregold Annual Report 2018
Puregold
Puregold Only S&R
S&R Only
REVENUE REVENUE
up 11%
up 21.6%
109.47 31.45
98.62 25.87
90.94 21.65
2016 2017 2018 2016 2017 2018
(in billions PHP) (in billions PHP)
up 7.8% up 19.8%
16,898 6,942
15,681 5,795
14,451 4,924
2016 2017 2018 2016 2017 2018
(in millions PHP) (in millions PHP)
up 8.9% up 14.3%
4,522 2,472
3,967 4,153 2,162
2,035
2016 2017 2018 2016 2017 2018
(in millions PHP) (in millions PHP)
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Puregold Annual Report 2018
2018
Operational
Milestones
INFORMATION TECHNOLOGY
To keep up with a rapidly evolving digital landscape, Namely Mother PO, a system that consolidates the
Puregold has made several notable moves and replenishment requirements from all Puregold
investments in terms of the technology we employ on branches into a single purchase order released to
a day-to-day basis. the supplier, and the Vendor Portal, an online data-
sharing gateway that informs Puregold vendors on
Perhaps our most notable technological achievement in-store availability, service levels, and reconciliation
in 2018 is the mass upgrade of our point-of-sale details.
systems into Anahaw, an open-source retail enterprise
system that allows us to customize applications and These milestones have resulted in a 30% increase on
streamline operations. With this new POS system, supply chain-driven year-on-year income.
Puregold can now accommodate seamless integrations
to different solutions. In the next five years, we plan to aggressively upgrade
and develop value-adding solutions, such as bundling
In a bid to acquire advanced IT infrastructure to run services and temperature-controlled distribution,
our support systems, we invested in servers and in order to help us reach our goal of having 500 fully
data storage with flash technology that can support operational stores.
a 700-store plan. We also invested in new scanners
that will make our receiving processes more efficient,
especially in handling high volumes of deliveries. HOME AND FASHION DEPARTMENTS
Finally, we implemented a new data loss prevention In 2018, we launched two new loan financing services
policy to further secure and safeguard all of Puregold’s for our home and fashion departments in select
confidential business files and information. Puregold branches: home credit (launched in March
2018) and AEON Credit Servicing (launched in August
2018). With these two financing options, our customers
SUPPLY CHAIN can now readily buy appliances, furniture, and gadgets
in installments without a credit card—instead, loan
To efficiently serve all of Puregold’s stores, in 2018 we borrowers can enjoy a convenient way to pay their
expanded our supply chain and cross-docking facilities monthly dues through our customer service bills
to a space of 40,000 sq. meters, in comparison to 2,500 payment facility. These two new financing services
sq. meters in 2013. The facility now serves 25% of our have increased the sales of furniture and appliances to
total business, with 350 enrolled suppliers. a 4% business share.
Aside from the physical expansion to ensure swift Additionally, in the fourth quarter of 2018 we launched
nationwide distribution, the supply chain has also an improved and expanded assortment of our gadgets
offered two solutions to streamline the flow of department. Thanks to this, we are expecting to
information between Puregold and our partners. increase the share from these partners to 6% in 2019.
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Puregold Annual Report 2018
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Puregold Annual Report 2018
2018
Marketing
Highlights
Always Panalo Promos
Promotions
We kicked off the year with the “Araw-AraWIN sa Puregold” raffle promo,
where we gave out aspirational prizes such as free trips, travel essentials,
And Raffles
and grocery shopping sprees. Then come June, we did a “Bag to School”
promo where we rewarded customers with a simple free bag with "baon,"
perfect for the back to school season.
Keeping in mind our sizeable moms & nanay clientele, we held the “Nanay
& Me - Alagang Always Panalo” raffle promo in August. Then arguably our
biggest promo of the year, the “Benterrific” promo celebrated Puregold’s
twentieth-year anniversary by giving twenty lucky winners a grand prize
of ONE MILLION PESOS each! To top it off, we also held a massive 3-day
sale featuring our best discounts and budget-friendly bundle packs.
Finally, we encouraged our customers during the shopping holidays 11.11
and 12.12 to take part in “hakot” culture with our 11+1 and 12+1 deals.
Tindahan Ni
Puregold’s Tindahan ni Aling Puring (TNAP) loyalty program continues
to bring opportunities and big savings to sari-sari store owners and other
Aling Puring
micro business owners.
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Puregold Annual Report 2018
To further reach more of our TNAP members across the country, we held
Negosyo Caravans in two key provincial cities—Davao City and Cauayan
City, Isabela. These caravans helped Puregold introduce its mission and
services in these provinces. It also allowed TNAP members in the province
to experience the “convention atmosphere” without having to travel all
the way to Metro Manila.
Perks
Our PERKS membership continues to grow, as current members are
already at 2 million and counting. Members enjoy discounts, free items,
family events and free points promotions that ran throughout the year.
Online
Puregold’s official Facebook page is now one of the most-followed social
media pages in the country with more than one million followers. With
Presence
its relevant lifestyle tips, reminders, promos, events and very relatable
content, our Facebook page has become a big part of our customers’ social
media lives.
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Puregold Annual Report 2018
2018 Awards
HR ASIA AWARDS
As Asia’s most authoritative publication for HR professionals, HR Asia
holds the annual HR Asia Awards. The first-ever HR Asia Awards for
the Philippines’ best companies to work for was held last 2018.
The companies are chosen based on the survey results conducted to employees of the nominees focusing on
high levels of employee engagement, workplace culture and advancement and development opportunities.
While the program is Asia-centric, the survey’s parameters are benchmarked against the best in the world.
Puregold was
honored and
proud to be named
One of the Best
Companies to Work
For In Asia 2018
DTI Bagwis
Awardees
The DTI-Bagwis Program
gives due recognition
to establishments that
Puregold was the proud
uphold the rights of
recipient of 51 Bagwis in 2018,
consumers while practicing
responsible business including 41 Gold Bagwis!
where consumers get the
best value for money.
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Puregold Annual Report 2018
GOLD BAGWIS
A. Province of Pangasinan C. Province of Rizal:
6 Gold Bagwis, awarded 10 Gold Bagwis awarded in October 5 and
in October 29, 2018 to: December 5, 2018 to:
Puregold Angono
Puregold Calasiao Puregold Angono Bayan
Puregold Mangatarem Puregold Angono Highway
Puregold Mayombo Puregold Binangonan
Puregold Bonuan Puregold Cainta Junction
Puregold Bayambang Puregold Cainta Parola
Puregold Villasis Puregold East Summit
Puregold Pag-asa Binangonan
B. Province of Cavite: Puregold Tanay
25 Gold Bagwis, awarded Puregold Sumulong
in October 23, 2018 to:
Puregold Bacoor Puregold Dasmariñas
Puregold Noveleta Puregold Dasma Bayan
Puregold Kawit Puregold Golden City
Puregold Rosario Puregold General Trias Prinza
Puregold Habay Puregold Buhay na Tubig
Puregold Molino Blvd. Puregold Trece San Agustin
Puregold Molino Road Puregold Trece Tower Mall
Puregold Marcos Alvarez Puregold GMA
Puregold Magdiwang Road Puregold Carmona
Puregold Imus Puregold Tagaytay Jr.
Puregold Tanzang Luma Puregold Tagaytay Extra
Puregold Bucandala Puregold Tanza
Puregold Imus Terminal Mall
SILVER BAGWIS
A. Province of Batangas B. Province of Albay
6 Silver Bagwis, awarded in January 24, 1 Silver Bagwis, awarded in March 22,
2018 to: 2018 to:
Puregold Calicanto Puregold Embarcadero
Puregold Lipa
Puregold Tanauan
Puregold Sto. Tomas
Puregold Rosario
Puregold San Juan
BRONZE BAGWIS
A. Province of Pampanga
3 Bronze Bagwis, awarded in October 12,
2018 to:
Puregold Balibago
Puregold Angeles
Puregold San Fernando 1
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Puregold Annual Report 2018
Supporting Our
Communities
Corporate Social Responsibility
Puregold touches the lives of countless people, every day, year after year. With
stores situated in major regions throughout the Philippines, the company’s wide
reach puts it in a unique position to work together with its host communities
towards a better future for the coming generations. Through this, Puregold
has developed a deeper connection with the people it serves—paving the
way for creating inclusive social programs for Filipinos nationwide.
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Puregold Annual Report 2018
Coastal Clean-up
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Puregold Annual Report 2018
Bloodletting Program
Puregold, in partnership with the
Philippine Red Cross, conducts an
annual blood donation program. Every
year, an average of 250 to 500 blood
bags are collected from both Puregold
customers and employees in blood
drives held in various Puregold store
locations.
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Puregold Annual Report 2018
Looking Ahead
For Puregold, every day is an opportunity to transform
the lives of the people it serves, beyond the confines of the
business. We hope that our humble efforts will positively
impact the communities we serve and our nation as
a whole. Whether it’s preserving resources for the
generations to come or paving the way for more livelihood
opportunities, Puregold will always champion a better life
for every Filipino.
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Puregold Annual Report 2018
LCCK
Foundation Inc.
Empowering Filipino Youth Through Education
L
uis Co Chi Kiat Foundation Inc. was founded and Furthermore, LCCKFI provides other scholarship
registered on March 28, 2003, by the children programs for the community. To date, it has 405
of the late Luis Co Chi Kiat. The foundation was scholars and 389 graduates from its 36 partner schools
established to realize Mr. Co’s concept of work and (DLSU, State Universities and Colleges, and public and
productivity. science high schools), where 67 are board-passers of
their respective field and 163 graduated with honors.
LCCKFI played a crucial role in the local community
by awarding scholarships to poor, but gifted and In 2018, LCCKFI launched its first health initiative
deserving students. The foundation’s core leaned called the “iHELP Program”, where it donated
towards providing educational programs for the youth kitchen equipment and quarterly supplies of food and
because they recognized the value of education – a medicine to the 270 residents of Golden Reception and
ticket to a better life and future. Action Center for the Elderly and other Special Cases
(GRACES). It is a way to strengthen the foundation’s
The foundation scholarship programs benefited not commitment in the area of “Health” as one of its
only the community but also its internal stakeholders. sustainability initiatives.
The foundation started Puregold’s Educational
Scholarship Program in 2012 by providing scholarship With its mission, commitment and exemplary
grants to the children of its employees. It was also partnerships, LCCKFI already received multiple
extended and offered last 2013 to the children of S&R recognitions from different institutions. LCCKFI
employees. LCCKFI’s Internal Scholarship Program continues to live the values and ideals of the late
has steadfastly provided educational aid to employees' Mr. Luis Co Chi Kiat and contributes in empowering
children. To date, it has 16 scholars and 7 graduates individuals and organizations.
from De La Salle network of schools and State
Universities.
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Puregold and S&R employees with their children - LCCKFI scholars
Puregold Annual Report 2018
Puregold’s
Sustainability
Programs
Here at Puregold, we firmly believe in exploring
and implementing sustainability programs—not
just as a principle of cost efficiency, but more
so in the spirit of reducing the carbon footprint
and environmental impact of our operations.
Reducing
Reducing energy Eliminating
water usage consumption waste
and emissions
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Puregold Annual Report 2018
Reducing
Around 90% of Puregold’s daily water usage comes from toilet facilities
and fresh food preparations. In an effort to conserve water, we have
Water Usage
installed waterless urinals in all stores and offices, implemented a water
management plan, and educated our team members on the significance of
water conservation via email and information campaigns.
Puregold is also pilot-testing a water recycling initiative in five stores: Laoag, Paso de Blas, Calicanto, Fairview
Terraces and Montalban. The process takes used water from general store operations, and treats it in our
Wastewater Treatment Plants. Treated water is then recycled for cleaning and flushing toilets.
For old stores with existing Wastewater Treatment Plants without a recycling system, an initial run was
implemented in Puregold Kalentong where a water pump was installed to draw out treated water for use in cleaning
store trucks, parking spaces and watering plants. This simple program is planned for execution in Puregold stores
with existing Wastewater Treatment Plants and is projected to conserve water consumption by as much as 15%.
For upcoming stores with expected large water usage/volume, a water recycling and rain catchment system will
be integrated. The first of these will be in Puregold Bayawan, opening in 2019.
We are also drafting a long-term water conservation program to effectively monitor and assess the water usage
of each Puregold store and office.
Energy And
Puregold recognizes the need to actively reduce the emissions that
negatively impacts the environment and contributes to climate change.
Both of these initiatives also translate to significantly lower energy usage and increased cost savings.
Solid Waste
Philippine environmental policy promotes effective integrated waste
management through waste minimization, reuse, recycling, source
Minimization
separation, and recovery of both materials and energy. Here at Puregold,
we practice the following measures in reducing our solid waste:
We also fully comply with local government ordinances in select municipalities and cities to help minimize our
solid waste output.
Additionally, in order to further understand the impact of our daily operations on our solid waste output, we
conducted an analysis of solid waste generation on select Puregold branches. This study not only helped us realize
just how much actual waste we generate, but also allowed us to generate savings and profits through the re-use,
selling, and recycling of solid waste.
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Puregold Annual Report 2018
How Puregold
Employees Are
Pure Gold
Puregold has always been a customer-focused,
people-centric supermarket chain.
B
eloved for its wide range of products – sourced A Puregold employee is someone who has integrity.
and sold at reasonable prices for everyday They are dedicated to upholding Puregold’s values.
people – Puregold uplifts thousands of They grow in the role they’ve been given, while
lives and small businesses, all over the Philippines. growing the company and the people around them.
Powering this complex, nationwide retail system is an
equally complex network of employees, each driven by Above all, a strong Puregold employee is someone who
a genuine love for the customer and each other. has “malasakit”, that sense of personal ownership and
responsibility that compels them to look out for the
This is no accident; Puregold actively seeks to inspire company’s interests.
and draw out the best in its people. From the Chairman
in Metro Manila, down to employees stocking shelves
in Mindanao, there is a common bond that drives each
employee and stakeholder – a passion for doing good The 5 Core Characteristics
work that improves the lives of their fellow Filipinos. of a Puregold Employee
A People-Centric Mindset
Puregold operates on a simple principle: great Malasakit
manpower elevates a company. This is why, for its
entire history, Puregold has maintained a “people- Loyalty
centric” mindset. Whether it is streamlining our
aisles for efficient customer navigation, guiding sari-
sari store owners with bulk purchases, or providing
Honesty
empowering work conditions for our thousands of
employees, Puregold is strongly committed to building
Results-driven
up people. The result – loyal customers and productive
employees – is the positive fruit of that mindset put
Customer-centric
into practice.
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Puregold Annual Report 2018
As people grow in their roles, we provide regular To better handle the workforce, Puregold automated
assistance and opportunities for self-improvement, HR processes and streamlined communication
employees are also encouraged to learn new things between the company and the workforce through a
and show initiative. When it comes to communication, digital Human Resource Information System.
we have an open-door policy. Our head office is home
to an Employee Relations Department, where positive This portal allows employees to log in from their
and negative feedback can be submitted in utmost company computer and manage and file their vacation
confidence. and sick leaves, access advisories, track their loans
and pay slips, and stay updated on company news.
In addition to these, we regularly hold team building It also lets HR catalogue performance evaluation,
activities. In 2018 we took our people to Sandbox in provide inspirational quotes, and access other critical
Pampanga, where we enjoyed wall climbing, high employee information.
ropes courses, rappelling, and the famed giant swing.
After that we let our hair down with a beach party in The system is a work-in-progress but has already had
Subic, a well-deserved celebration for everyone who significant positive impact on HR operations. It will
worked hard and made the previous year a success. continue to be developed to help further streamline
internal communications and administrative tasks.
This considerate empowerment of people, coupled
with opportunities for advancement and reward, Puregold has always been a company devoted to people.
has resulted in a motivated and dedicated workforce. Whether it’s greeting a customer with a big smile and a
In 2018, 90% of the employees got a performance- helping hand, or putting in extra hours to make sure a
based merit increase. Also last year, 7% of employees store is serving people properly, it’s the hard-working,
were promoted and over 500 employees are service passionate individuals that make Puregold the success
awardees, proving that advancement is highly it is. And because of this, Puregold will always remain
attainable. a people-first company.
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Puregold Annual Report 2018
Board of
Directors
MR. LUCIO MR. FERDINAND MRS. SUSAN
L. CO VINCENT P. CO P. CO
Chairman of the Board PRESIDENT Vice-Chairman
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Puregold Annual Report 2018
MR. LUCIO L. CO
Chairman of the Board
Lucio Co is the Chairman of Puregold, and He is also a Director of the following
has been at the company’s helm since it was companies: Catuiran Hydropower Corporation,
incorporated in September 1998. Karayan Hydropower Corporation, Kareila
Management Corp., LCCK & Sons Realty
He also holds the following positions in other Corporation, League One Finance and Leasing
publicly-listed companies: Chairman of Corporation, Meritus Prime Distributions,
Cosco Capital, Inc., Chairman and President of Inc., Montosco, Inc., Nation Realty, Inc.,
Da Vinci Capital Holdings, Inc., and Director Pamana Water Corporation, PPCI Subic, Inc.,
of the Philippine Bank of Communications. Patagonia Holdings Corp., Premier Wine &
Spirits, Inc., S&R Pizza (Harbor Point), Inc.,
Mr. Co is also the Chairman of the following S&R Pizza, Inc. and Tower 6789 Corporation
companies: Alcorn Petroleum & Minerals (formerly: Alphaland Makati Tower, Inc.)
Corporation, Bellagio Holdings, Inc., Canaria
Holdings Corporation, Ellimac Prime He is a member of the Board of Trustees of
Holdings, Inc., Entenso Equities Incorporated, Adamson University and Luis Co Chi Kiat
Invescap Incorporated, NE Pacific Shopping Foundation, Inc.
Centers Corporation, P.G. Holdings, Inc.,
Puregold Duty Free (Subic), Inc., Puregold Mr. Co has been an entrepreneur for the past
Duty Free, Inc., Puregold Finance, Inc., 40 years.
Puregold Properties, Inc., Puregold Realty
Leasing & Management, Inc., San Jose City I
Power Corp., Union Energy Corporation, and
Union Equities, Inc.
MRS. SUSAN P. CO
Vice-Chairman
Susan P. Co is the Vice-Chairman of Puregold Co Chi Kiat Foundation, Inc., Meritus Prime
Price Club, Inc. and has held the position since Distributions, Montosco, Inc., Nation Realty,
it was incorporated in September 1998. Inc., NE Pacific Shopping Center Corporation,
P.G. Holdings, Inc., Patagonia Holdings
Mrs. Co currently holds the following Corporation, PPCI Subic Inc., Premier Wines
positions in other publicly-listed companies: and Spirits, Inc. Puregold Duty Free (Subic),
Vice-Chairman and Treasurer of Cosco Inc., Puregold Duty Free, Inc., Puregold
Capital, Inc. and Director of Philippine Bank Properties, Inc., Puregold Realty Leasing &
of Communications. Management, Inc., S&R Pizza (Harbor Point),
Inc., S&R Pizza, Inc., San Jose City I Power
She is currently the Chairman of Tower Corporation, Union Energy Corporation and
6789 Corporation (Alphaland Makati Tower, Union Equities, Inc.
Inc.) and Director of the following private
companies: Bellagio Holdings, Inc., Blue Ocean Mrs. Co received a Bachelor of Science Degree
Holdings, Inc., Canaria Holdings Corporation, in Commerce from the University of Santo
Ellimac Prime Holdings, Kareila Management Tomas.
Corporation, KMC Realty Corporation, Luis
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Puregold Annual Report 2018
Mr. Huang started in Abacus in 1992. Prior Mr. Huang graduated from the Ateneo De
to this, he worked in Ayala Investment and Manila University in 1975 with a degree of
Development Corporation from 1975 to 1983. Bachelor of Arts in Economics.
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Puregold Annual Report 2018
He also used to be the President of Portman Mr. Dela Rosa graduated from the Far Eastern
Mining Philippines, Cabaluan Chromite Corp., University with a degree of Bachelor of
and Food Terminal, Inc.; the Head of Ayala Science, major in Accounting in 1964. He
Investment and Development Corporation finished the Program on Global Financial
and Philsec Investment Corporation for Systems in 2002 at the John F. Kennedy School
Visayas and Mindanao; and Assistant Vice- of Government, Harvard University.
President of Citibank.
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Puregold Annual Report 2018
44
PuregoldAnnual
Puregold Report2018
AnnualReport 2018
45
Puregold Annual Report 2018
Opinion
We have audited the consolidated financial statements of Puregold Price Club, Inc. and
its Subsidiaries (the “Group”), which comprise the consolidated statements of financial
position as at December 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
December 31, 2018, and notes, comprising significant accounting policies and other
explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Group as at
December 31, 2018 and 2017, and its consolidated financial performance and its
consolidated cash flows for each of the three years in the period ended
December 31, 2018, in accordance with Philippine Financial Reporting Standards
(PFRS).
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.
The risk
Revenue is an important measure used to evaluate the performance of the
Group and is generated from various sources. It is accounted for when sales
transactions are completed, when goods are delivered or services are rendered
to the customers and all economic risks of the Group are transferred. While
revenue recognition and measurement is not complex for the Group, revenues
may be inappropriately recognized in order to improve business results and
achieve revenue growth in line with the objectives of the Group, thus increasing
the risk of material misstatement.
Our response
We performed the following audit procedures, among others, on revenue
recognition:
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Puregold Annual Report 2018
The risk
The Group holds significant balances pertaining to goodwill, trademark and
customer relationships as a result of several business acquisitions. The annual
impairment test of these assets was significant to our audit since this is complex
and judgmental by nature as it is based on assumptions of future market and/or
economic conditions. The key assumptions used include growth rates, discount
rates and sensitivity analyses.
Our response
We performed the following audit procedures, among others, around impairment
testing of goodwill, trademark and customer relationships:
We obtained the Group’s discounted cash flow model that tests the carrying
value of goodwill.
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),
SEC Form 17-A and Annual Report for the year ended December 31, 2018, but does not
include the consolidated financial statements and our auditors’ report thereon. The
SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Report
for the year ended December 31, 2018 are expected to be made available to us after the
date of this auditors’ 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 audits 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 audits or otherwise
appears to be materially misstated.
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Puregold Annual Report 2018
Management is responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with PFRS, 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.
Those charged with governance are responsible for overseeing the Group’s financial
reporting process.
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 auditors’ 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 PSA 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.
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.
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Puregold Annual Report 2018
50
Puregold Annual Report 2018
December 31
Note 2018 2017
ASSETS
Current Assets
Cash and cash equivalents 4 P10,687,359,234 P8,065,646,235
Receivables - net 5, 22 4,789,798,078 4,569,341,716
Merchandise inventory 6 19,731,823,439 17,696,641,161
Financial assets at FVPL 7 36,502,592 46,887,876
Prepaid expenses and other current assets 8 1,192,910,954 964,129,471
Total Current Assets 36,438,394,297 31,342,646,459
Noncurrent Assets
Investments 9 611,053,713 801,616,101
Property and equipment - net 10 19,489,073,780 17,696,372,319
Intangibles and goodwill 11 19,736,251,070 19,737,396,240
Other noncurrent assets 12, 18 2,115,425,536 1,886,062,097
Total Noncurrent Assets 41,951,804,099 40,121,446,757
P78,390,198,396 P71,464,093,216
Noncurrent Liabilities
Noncurrent accrued rent 18 3,692,167,535 3,260,616,193
Long-term loan - net of current maturities 14 1,840,000,000 -
Deferred tax liabilities - net 24 135,128,978 242,677,396
Retirement benefits liability 23 478,495,654 538,173,177
Total Noncurrent Liabilities 6,145,792,167 4,041,466,766
Total Liabilities 23,752,194,238 23,502,237,065
Equity 25
Capital stock 2,799,914,086 2,785,362,877
Additional paid-in capital 20,830,391,081 20,830,391,081
Remeasurement of retirement benefits - net of tax 273,741,007 117,313,327
Treasury stock, at cost (71,253,489) (56,702,280)
Retained earnings 30,805,211,473 24,285,491,146
Total Equity 54,638,004,158 47,961,856,151
P78,390,198,396 P71,464,093,216
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Puregold Annual Report 2018
INCOME TAX
Current 2,803,076,753 2,695,668,770 2,550,889,317
Deferred (177,691,296) (151,756,477) (159,755,419)
24 2,625,385,457 2,543,912,293 2,391,133,898
NET INCOME 6,519,720,327 5,840,211,793 5,526,230,406
OTHER COMPREHENSIVE
INCOME
Item that will not be reclassified
subsequently to profit or loss
Remeasurements of defined benefits 23 223,258,703 78,103,072 90,219,876
Income tax relating to items that will
not be reclassified subsequently (66,831,023) (23,314,023) (27,044,752)
156,427,680 54,789,049 63,175,124
TOTAL COMPREHENSIVE
INCOME FOR THE YEAR P6,676,148,007 P5,895,000,842 P5,589,405,530
Basic and diluted earnings per share 27 P2.36 P2.11 P2.00
52
PUREGOLD PRICE CLUB, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
53
Net income for the year - - - - 5,840,211,793 5,840,211,793
Other comprehensive income - net of tax - - 54,789,049 - - 54,789,049
Total comprehensive income - - 54,789,049 - 5,840,211,793 5,895,000,842
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Puregold Annual Report 2018
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Puregold Annual Report 2018
1. Reporting Entity
Puregold Price Club, Inc. (the “Parent Company”) was incorporated and registered
with the Philippine Securities and Exchange Commission (SEC) on September 8,
1998. Its shares are listed in the Philippine Stock Exchange (PSE) since October 5,
2011 with stock symbol of PGOLD. Its immediate and ultimate parent company is
Cosco Capital, Inc. (Cosco) which is incorporated in the Philippines. Cosco is
formerly named Alcorn Gold Resources Corporation and is also listed with the PSE
since September 26, 1998.
The Parent Company is principally involved in the business of trading goods such as
consumer products (canned goods, housewares, toiletries, dry goods, food products,
pharmaceutical and medical goods, etc.) on a wholesale and retail basis. The Group
has three hundred seventy (370) operating stores and thirty-eight (38) food service
stalls. Thirty-two (32) stores and seven (7) food service stalls were newly opened in
2018. Its registered office is located at 900 Romualdez Street, Paco, Manila.
The consolidated financial statements include the accounts of the Parent Company
and the following subsidiaries (collectively referred to as “the Group”) which are all
incorporated in the Philippines:
Percentage of
Ownership
2018 2017
Kareila Management Corporation 100 100
S&R Pizza (Harbor Point), Inc. 100 100
S&R Pizza, Inc. 100 100
PPCI Subic, Inc. (PSI) 100 100
Entenso Equities Incorporated (Entenso) 100 100
Goldtempo Company Incorporated (Goldtempo) (b) - 100
Daily Commodities, Inc. (DCI) (b) - 100
First Lane Super Traders Co., Inc. (FLSTCI) (b) - 100
Pure Padala, Inc. (a) 100 -
(a) Newly incorporated and has not started operations yet
(b) Merged to the Company in 2018
All subsidiaries are engaged in the same business as the Parent Company except
for Entenso whose primary purpose is to invest in, purchase, subscribe for, or
otherwise acquire and own, hold, use, develop, sell, assign, transfer, mortgage,
pledge, exchange, or otherwise dispose real and personal property of every kind of
description.
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Puregold Annual Report 2018
2. Basis of Preparation
Statement of Compliance
The consolidated financial statements have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS). PFRS are based on International
Financial Reporting Standards (IFRS) issued by the International Accounting
Standards Board (IASB). PFRS which are issued by the Philippine Financial
Reporting Standards Council (FRSC), consist of PFRS, Philippine Accounting
Standards (PAS), and Philippine Interpretations.
Basis of Measurement
The Group’s consolidated financial statements have been prepared on the historical
cost basis of accounting, except for:
Judgments
In the process of applying the Group’s accounting policies, management has made
the following judgments, apart from those involving estimations, which have the most
significant effect on the amounts recognized in the consolidated financial statements:
The Group has determined that its investments in joint arrangements are classified
as investments in joint ventures.
-2-
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Puregold Annual Report 2018
As at December 31, 2018 and 2017, the carrying amount of its investments in joint
ventures amounted to P169.63 million and P360.19 million, respectively
(see Note 9).
The Group has determined that its properties are classified as owner-occupied
properties.
-3-
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Puregold Annual Report 2018
Estimates
The key estimates and assumptions used in the consolidated financial statements
are based on management’s evaluation of relevant facts and circumstances as at the
reporting date. Actual results could differ from such estimates.
Estimates of NRV are based on the most reliable evidence available at the time the
estimates are made on the amount the inventories are expected to be realized.
These estimates take into consideration fluctuations of prices or costs directly
relating to events occurring after reporting date to the extent that such events confirm
conditions existing at reporting date. The NRV is reviewed periodically to reflect the
accurate valuation in the financial records.
In addition, the estimation of the useful lives of property and equipment is based on
collective assessment of industry practice, internal technical evaluation and
experience with similar assets. It is possible, however, that future results of
operations could be materially affected by changes in estimates brought about by
changes in factors mentioned above. The amounts and timing of recorded expenses
for any period would be affected by changes in these factors and circumstances.
A reduction in the estimated useful lives of property and equipment would increase
recorded operating expenses and decrease noncurrent assets.
-4-
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Puregold Annual Report 2018
Estimating Useful Lives of Computer Software and Licenses and Leasehold Rights
The Group estimates the useful lives and amortization methods of computer software
and licenses and leasehold rights based on the period and pattern in which the
assets’ future economic benefits are expected to be consumed by the Group. The
estimated useful lives and amortization period of computer software and licenses
and leasehold rights are reviewed at each reporting date and are updated if there are
changes in the expected useful lives or the expected pattern of consumption of future
economic benefits embodied in the computer software and licenses and leasehold
rights. It is possible, however, that future results of operations could be materially
affected by changes in estimates brought about by changes in the assumptions
used.
The factors that the Group considers important which could trigger an impairment
review include the following:
significant changes in the manner of use of the acquired assets or the strategy
for overall business; and
-5-
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Puregold Annual Report 2018
Determining the net recoverable amount of assets requires the estimation of cash
flows expected to be generated from the continued use and ultimate disposition of
such assets. While it is believed that the assumptions used in the estimation of fair
values reflected in the separate financial statements are appropriate and reasonable,
significant changes in these assumptions may materially affect the assessment of
recoverable amount and any resulting impairment loss could have a material adverse
impact on the results of operations.
As at December 31, 2018 and 2017, the following are the carrying amounts of
nonfinancial assets:
Management assessed that there are no impairment losses on the Group’s non-
financial assets for the years ended December 31, 2018 and 2017.
As at December 31, 2018 and 2017, the Group recognized deferred tax assets
amounting to P1,328.70 million and P1,197.47 million, respectively (see Note 24).
The Group has not recognized any provision as at December 31, 2018 and 2017.
-6-
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Puregold Annual Report 2018
The accounting policies set out below have been applied consistently to all years
presented in these consolidated financial statements, except for the change in
accounting policy as explained below.
-7-
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Puregold Annual Report 2018
The Group has not designated any financial liabilities as FVTPL. There are no
changes in classification and measurement for the Group’s financial liabilities.
For assets in the scope of the PFRS 9 impairment model, impairment losses are
generally expected to increase and become more volatile.
The Group assessed that the impact of providing ECL in its financial assets is
immaterial (see Note 28).
Hedge Accounting
The Group has not entered into hedge accounting, thus this has no impact on the
Group’s financial statements.
-8-
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Puregold Annual Report 2018
Future adoption of the standards will result in the recognition of the right-of-use
(ROU) of asset, lease liability and additional disclosures. Management is still
evaluating the financial impact of the new standard on the Group’s consolidated
financial statements as of the reporting period including the transition approach
that will be adopted.
The following amended standards and interpretations are relevant but not expected
to have a significant impact on the Group’s consolidated financial statements.
-9-
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Puregold Annual Report 2018
- 10 -
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Puregold Annual Report 2018
c) clarifying that the users to which the definition refers are the primary users of
general purpose financial statements referred to in the Conceptual
Framework;
e) aligning the wording of the definition of material across PFRS Standards and
other publications.
The amendments are expected to help entities make better materiality judgments
without substantively changing existing requirements.
Financial Instruments
Initial Recognition and Subsequent Measurement. A financial instrument is any
contract that gives rise to a financial asset of one entity and financial liability or equity
instrument of another entity.
Financial Assets
Initial Recognition and measurement. Financial assets are classified, at initial
recognition, as financial assets at FVPL, loans and receivables, held-to-maturity
(HTM) investments or AFS financial assets. All financial assets are recognized
initially at fair value plus, in the case of financial assets not recorded at FVPL,
transactions costs that are attributable to the acquisition of the financial asset.
The Group has no financial assets at FVPL and HTM investments.
Purchases or sales of financial assets that require delivery of assets within a time
frame established by regulation or convention in the market place (regular way
trades) are recognized on the trade date, i.e., the date the Group commits to
purchase or sell the asset.
- 11 -
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Puregold Annual Report 2018
After initial recognition, AFS financial assets are measured at fair value with
unrealized gains or losses being recognized in other comprehensive income
and are reported as “Cumulative unrealized gain (loss) on AFS financial
assets” in equity. When the financial asset is disposed of, the cumulative
gain or loss previously recorded in other comprehensive income is
recognized in profit or loss. Interest earned on the investments is reported
as interest income using the effective interest method. Dividends earned on
financial assets are recognized in profit or loss as “Dividend income” when
the right of payment has been established. The Group considers several
factors in making a decision on the eventual disposal of the investments.
The major factor of this decision is whether or not the Group will experience
inevitable further losses on investments.
the rights to receive cash flows from the asset have expired;
the Group retains the rights 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 rights to receive cash flows from the asset and
either: (a) has transferred substantially all the risks and rewards of the asset,
or (b) has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
- 12 -
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Puregold Annual Report 2018
When the Group has transferred its rights to receive cash flows from an asset
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 the original carrying amount of the asset and the
maximum amount of consideration that the Group could be required to pay.
Financial Liabilities
Initial Recognition and Measurement. Financial liabilities are classified, at initial
recognition, as financial liabilities at FVPL or loans and borrowings.
All financial liabilities are recognized initially at fair value and in case of loans and
borrowings, net of directly attributable transaction costs.
Financial liabilities are classified as current, except for maturities greater than
twelve months after the reporting date. These are classified as noncurrent
liabilities.
The Group's financial liabilities include accounts payable and accrued expenses,
dividends payable and long-term debts, except payable to government agencies.
Financial Assets
Initial Recognition and measurement. Financial assets are classified as financial
assets measured at amortized cost, FVPL and FVOCI.
- 13 -
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Puregold Annual Report 2018
The Group’s business model for managing financial assets refers to how it
manages its financial assets in order to generate cash flows. The business
model determines whether cash flows will result from collecting contractual cash
flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time
frame established by regulation or convention in the market place (regular way
trades) are recognized on the trade date, i.e., the date that the Group commits to
purchase or sell the asset.
The Group has no financial assets at FVOCI with recycling of cumulative gains or
losses (debt instruments) as at December 31, 2018.
Financial assets at Amortized Cost. This category is the most relevant to the
Group. The Group measures financial assets at amortized cost if both of the
following conditions are met:
The financial asset is held within a business model with the objective to
hold financial assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise on specified dates
to cash flows that are SPPI on the principal amount outstanding.
Financial assets at amortized cost are subsequently measured using the EIR
method and are subject to impairment. Gains and losses are recognized in
the profit or loss when the asset is derecognized, modified or impaired.
Financial assets at amortized cost are classified as current assets when the
Group expects to realize the asset within 12 months from reporting date.
Otherwise, these are classified as noncurrent assets.
Gains and losses on these financial assets are never recycled to the
separate statement of comprehensive income. Dividends earned on financial
assets are recognized in profit or loss as “dividend income”, when the right of
payment has been established, except when the Group benefits from such
proceeds as a recovery of part of the cost of the financial asset, in which
case, such gains are recorded in OCI. Equity instruments designated at
FVOCI are not subject to impairment assessment.
- 14 -
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Puregold Annual Report 2018
the rights to receive cash flows from the asset have expired;
the Group retains the rights 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 rights to receive cash flows from the asset and
either: (a) has transferred substantially all the risks and rewards of the asset,
or (b) has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset
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 the original carrying amount of the asset and the
maximum amount of consideration that the Group could be required to pay.
Financial Liabilities
Initial Recognition and Measurement. Financial liabilities are classified, at initial
recognition, as financial liabilities at FVPL or loans and borrowings.
All financial liabilities are recognized initially at fair value and in case of loans and
borrowings, net of directly attributable transaction costs.
Financial liabilities are classified as held for trading if they are incurred for the
purpose of repurchasing in the near term.
Gains or losses on liabilities held for trading are recognized in the separate
statement of comprehensive income.
- 15 -
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Puregold Annual Report 2018
Loans and borrowings. This is the category most relevant to the Group. After
initial recognition, interest-bearing loans and borrowings are subsequently
measured at amortized cost using EIR method. Gains and losses are
recognized in the statement of income when the liabilities are derecognized
as well through the EIR amortization process.
A financial asset is credit impaired when one or more events that have a detrimental
impact on the estimated future cash flows of the financial asset have occurred.
When determining whether the risk of default on a financial instrument has increased
significantly since initial recognition, the Group considers reasonable and
supportable information that is relevant and available without undue cost or effort.
This includes both quantitative and qualitative information and analysis, based on the
Group’s historical experience, credit assessment and including forward-looking
information.
The information analyzed by the Group includes the following, among others:
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the debtor is unlikely to pay its credit obligation to the Group in full, without
recourse by the Group to actions such as realizing security (if any is held); or
the debtor is past due more than 90 days on any material credit obligation to the
Group.
Inputs into the assessment of whether a financial instrument is in default and their
significance may vary over time to reflect changes in circumstances.
Trade and other receivables are written off (either partially or in full) when there is no
realistic prospect of recovery. This is generally the case when the Group determines
that the borrower does not have assets or sources of income that could generate
sufficient cash flows to repay the amounts subject to the write-off. However, the
financial assets that are written off could still be subject to enforcement activities in
order to comply with the Group’s procedures for recovery of amounts due.
Business Combinations
Business combinations and acquisition of entities other than those under common
control are accounted for using the acquisition method as at the acquisition date -
i.e., when control is transferred to the Group.
if the business combination is achieved in stages, the fair value of the pre-
existing equity interest in the acquiree; less
the net recognized amount (generally fair value) of the identifiable assets
acquired and liabilities assumed.
Subsidiaries
Subsidiaries are entities controlled by the Group. In accordance with PFRS 10
Consolidated Financial Statements, the Group controls an entity when it is exposed
to, or has the rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity. The financial
statements of the subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control ceases.
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Loss of Control
On the loss of control, the Group derecognizes the assets and liabilities of the
subsidiary and any non-controlling interests and other components of equity related
to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in
profit or loss. If the Group retains any interest in the previous subsidiary, then such
interest is measured at fair value on the date that control is lost. Subsequently, that
retained interest is accounted for as an equity-accounted investee or as an AFS
financial asset depending on the level of influence retained.
The financial statements of the subsidiaries are prepared for the same reporting
period as the Parent Company, using consistent accounting policies for like
transactions and other events in similar circumstances.
The fair value of an asset or 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.
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 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly; and
Level 3: inputs for the asset or liability that are not based on observable market
data.
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 the categorization at the end of
each reporting period.
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‘Day 1’ Profit. Where the transaction price in a non-active market is different from 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 the fair value (a ‘Day 1’ profit) in profit or loss unless it qualifies for
recognition as some other type of asset. In cases where data used is not
observable, the difference between the transaction price and model value is only
recognized in 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 amount.
Merchandise Inventory
Merchandise inventory is stated at the lower of cost and NRV. Cost is determined
using the moving average method. Costs comprise of purchase price, including
duties, transport and handling costs, and other incidental expenses incurred in
bringing the merchandise inventory to its present location and condition.
NRV is the estimated selling price in the ordinary course of business, less the
estimated costs necessary to make the sale.
Initially, an item of property and equipment is measured at its cost, which comprises
its purchase price and any directly attributable costs of bringing the asset to the
location and condition for its intended use. Subsequent expenditures are added to
the carrying amount of the asset when it is probable that future economic benefits, in
excess of the originally assessed standard of performance, will flow to the Group. All
other subsequent expenditures are recognized in profit or loss.
Number of Years
Building 15 - 30
Furniture and fixtures 3 - 20
Office and store equipment 2 - 15
Leasehold improvements 15 - 20 or term of the lease,
whichever is shorter
The useful lives and depreciation and amortization method are reviewed at each
reporting date to ensure that they are consistent with the expected pattern of
economic benefits from those assets.
The useful lives and depreciation and amortization method are reviewed at each
reporting date to ensure that they are consistent with the expected pattern of
economic benefits from those assets.
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When an asset is disposed of, or is permanently withdrawn from use and no future
economic benefits are expected from its disposal, the cost and accumulated
depreciation, amortization and impairment losses, if any, are removed from the
accounts and any resulting gain or loss arising from the retirement or disposal is
recognized in profit or loss.
An associate is an enterprise in which the investor has significant influence but not
control, generally accompanying a shareholding between 20% and 50% of the voting
rights.
The Group’s investments in joint ventures and associates are accounted for under
the equity method of accounting. Under the equity method, investments in joint
ventures and associates are initially recognized at cost and the carrying amount is
increased or decreased to recognize the Group’s share of the profit or loss of the
investments in joint ventures and associates after the date of acquisition. The
Group’s share in profit or loss of the joint ventures and associates are recognized in
the Group’s profit or loss. Dividends received from the investments in joint ventures
and associates reduce the carrying amount of the investments.
The Group assessed the useful life of trademark and customer relationship to be
indefinite. Based on an analysis of all the relevant factors, there is no foreseeable
limit to the period over which the asset is expected to generate cash inflows for the
Group.
Trademark and customer relationship with indefinite useful lives are tested for
impairment annually either individually or at the cash-generating unit level. Such
intangibles are not amortized. The useful life of an intangible asset with an indefinite
life is reviewed annually to determine whether indefinite life assessment continues to
be supportable. If not, the change in the useful life assessment from indefinite to
finite is made on a prospective basis.
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Puregold Annual Report 2018
Computer software and licenses and leasehold rights separately acquired by the
Group that has finite useful life is measured at cost less accumulated amortization
and impairment losses, if any.
Subsequent costs are capitalized only when they increase the future economic
benefits embodied in the assets to which they relate. All other expenditures are
recognized in profit or loss when incurred.
The amortization is computed using the straight-line method over the estimated
useful life of the capitalized software from the date it is available for use and
amortized over five (5) years. Leasehold rights are amortized on a straight-line basis
over the lease period of twenty (20) years. The estimated useful life and the
amortization method of an intangible asset with finite useful life are reviewed at each
reporting date.
Gain or loss on disposal or retirement of an intangible asset with finite useful life is
recognized in profit or loss when the asset is disposed of or retired.
Goodwill
Goodwill that arises on the acquisition of subsidiaries is presented with intangible
assets. The Group measures goodwill at the acquisition date as:
If the business combination is achieved in stages, the fair value of the pre-
existing equity interest in the acquire; less
The net recognized amount (generally fair value) of the identifiable assets
acquired and liabilities assumed.
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The recoverable amount of an asset or CGU is the greater of its value in use and its
fair value less costs to sell. In assessing value in use, the estimated future cash
flows are discounted to their present value of money and the risks specific to the
asset or CGU. For impairment testing, assets are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGUs. Subject to an operating
segment ceiling test, CGUs to which goodwill has been allocated are aggregated so
that the level at which impairment testing is performed reflects the lowest level at
which goodwill is monitored for internal reporting purposes. Goodwill acquired in a
business combination is allocated to groups of CGUs that are expected to benefit
from the synergies of the combination.
Employee Benefits
Short-term Employee Benefits
Short-term employee benefits are expensed as the related service is provided. A
liability is recognized for the amount expected to be paid if the Group has a present
legal or constructive obligation to pay this amount as a result of past service provided
by the employee and the obligation can be estimated reliably.
Remeasurements of the net defined benefit liability, which comprise actuarial gains
and losses, the return on plan assets (excluding interest) and the effect of the asset
ceiling (if any, excluding interest), are recognized immediately in other
comprehensive income. The Group determines the net interest expense (income) on
the net defined benefit liability (asset) for the period by applying the discount rate
used to measure the defined benefit obligation at the beginning of the annual period
to the then net defined benefit liability (asset), taking into account any changes in the
net defined liability (asset) during the period as a result of contributions and benefit
payments. Net interest expense and other expenses related to the defined benefit
plan are recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting
change in benefit that relates to past service or the gain or loss on curtailment is
recognized immediately in profit or loss.
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Puregold Annual Report 2018
The Group recognizes gains and losses on the settlement of a defined benefit plan
when the settlement occurs.
Equity
Capital Stock
Capital stock is classified as equity. Incremental costs directly attributable to the
issuance of capital stock are recognized as a deduction from equity, net of any tax
effects.
Treasury Stock
Own equity instruments which are reacquired are carried at cost and are deducted
from equity. No gain or loss is recognized in profit or loss on the purchase, sale,
issue or cancellation of the Group’s own equity instruments. When the shares of
stock are retired, the capital stock account is reduced by its par value and the excess
of cost over par value upon retirement is charged to additional paid-in capital to the
extent of the specific or average additional paid-in capital when the shares of stock
were issued and to retained earnings for the remaining balance.
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Revenue Recognition
Revenue from Contracts with Customers
The Company is in the business of trading goods such as consumer products
(canned goods, housewares, toiletries, dry goods, food products, etc.) on a
wholesale and retail basis. Revenue from contracts with customers is recognized
when control of the goods or services are transferred to the customer at an amount
that reflects the consideration to which the Company expects to be entitled in
exchange for those goods or services. The Company is the principal in its revenue
arrangements except for concession income. The following specific recognition
criteria must also be met before revenue is recognized:
Sale of Goods is recognized at the point in time when control of the asset is
transferred to the customer, generally upon delivery. 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.
Accordingly, advances received prior to delivery of goods are recorded as
unearned revenues and are earned upon physical delivery and acceptance by
customer. Unearned revenues are classified as current liabilities.
Membership Income refers to fees from members wherein such fees permit only
membership, and all other services or products are paid for separately. The fee
is recognized as revenue when no uncertainty as to its collectability exists.
Dividends are recognized when the Group’s right as a shareholder to receive the
payment is established.
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 merchandise to its intended condition and
location. These costs include the cost of storing and transporting the products
(i.e., freight costs or trucking costs, cross-dock delivery fees, and other direct costs).
Vendor returns and allowances are generally deducted from cost of sales.
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Puregold Annual Report 2018
As Previously
Classified Adjustments As Reclassified
December 31, 2018:
Cost of Sales P117,944,366,898 (P866,691,542) P117,077,675,356
Other Income:
Display Allowance 635,015,006 (635,015,006) -
Merchandising Support 22,988,919 (22,988,919) -
Endcap/Pallet Income 95,245,536 (95,245,536) -
Listing Fee 113,442,081 (113,442,081) -
December 31, 2017:
Cost of Sales 103,836,274,555 (821,125,841) 103,015,148,714
Other Income:
Display Allowance 581,265,482 (581,265,482) -
Merchandising Support 98,362,240 (98,362,240) -
Endcap/Pallet Income 71,587,143 (71,587,143) -
Listing Fee 69,910,976 (69,910,976) -
December 31, 2016:
Cost of Sales 94,051,006,454 (837,342,205) 93,213,664,249
Other Income:
Display Allowance 550,447,640 (550,447,640) -
Merchandising Support 151,203,463 (151,203,463) -
Listing Fee 70,254,459 (70,254,459) -
Endcap/Pallet Income 65,436,643 (65,436,643) -
Before adoption of PFRS 15, display allowance and listing fee are classified under
other operating income. The classification was based on the Group’s assessment
that the other income are distinct and separately identifiable. With the
implementation of PFRS 15, management assessed that these other income would
not occur without the purchase of goods from the suppliers and they are highly
dependent on the purchase of the supplier products. Thus, these income are not
distinct and should be accounted for as a reduction of the purchase price.
Operating Expenses
Operating Expenses constitute costs of administering the business. These are
recognized as expenses as incurred.
Borrowing Costs
Borrowing costs are recognized as expenses when incurred, except to the extent
capitalized. Borrowing costs are capitalized if they are directly attributable to the
acquisition or construction of a qualifying asset. Capitalization of borrowing costs
commences when the activities to prepare the asset are in progress and
expenditures and borrowing costs are being incurred. Borrowing costs are
capitalized until the assets are substantially ready for their intended use. If the
carrying amount of the asset exceeds its recoverable amount, an impairment loss is
recognized.
Income Taxes
Current Tax
Current tax is the expected tax payable or receivable on the taxable income or loss
for the year, using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to tax payable in respect of previous years.
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Deferred Tax
Deferred tax is recognized in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Deferred tax liabilities are recognized for all taxable
temporary differences, except:
where the deferred tax liability arises from the initial recognition of goodwill or of
an asset or liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit nor taxable profit or
loss; and
Deferred tax assets are recognized for all deductible temporary differences,
carryforward benefits of unused tax credits - Minimum Corporate Income Tax (MCIT)
and unused tax losses - Net Operating Loss Carryover (NOLCO), to the extent that it
is probable that taxable profits will be available against which the deductible
temporary differences, and the carryforward benefits of MCIT and NOLCO can be
utilized, except:
where the deferred tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; and
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 profit will be
available to allow all or part of the deferred tax assets to be utilized. Unrecognized
deferred tax assets are reassessed at each reporting date and are recognized to the
extent that it has become probable that future taxable profits will allow the deferred
tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to
apply in the year 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 reporting
date.
Current tax and deferred tax are recognized in profit or loss except to the extent that
it relates to a business combination, or items recognized directly in equity or in other
comprehensive income.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right
exists to set off current tax assets against current tax liabilities and the deferred
taxes relate to the same taxable entity and the same taxation authority.
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Puregold Annual Report 2018
receivables and payables that are stated with the amount of tax included.
The net amount of tax recoverable from, or payable to, the taxation authority is
included as part of “Prepaid expenses and other current assets” or “Accounts
payable and accrued expenses” in the consolidated statements of financial position.
Leases
Group as Lessee
Leases in which a significant portion of the risks and rewards of ownership is
retained by the lessor are classified as operating leases. Payments made under
operating leases are recognized in profit or loss on a straight-line basis over the term
of the lease. Cumulative excess of rent expense over billing from lessors are
presented as noncurrent accrued rent in the consolidated statements of financial
position.
Group as Lessor
Leases where the Group does not transfer substantially all the risks and benefits of
ownership of the assets are classified as operating leases. Rent income from
operating leases is recognized as income on a straight-line basis over the lease
term. Initial direct costs incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognized as an expense over the lease
term on the same basis as rent income. Cumulative excess of rent income over
billing to tenants are presented as accrued rent income classified as part of
noncurrent assets.
Related Parties
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. Parties are also considered to be related if
they are subject to common control. Related parties may be individuals or corporate
entities.
Segment Reporting
An operating segment is a component of an entity that engages in business activities
from which it may earn revenues and incur expenses (including revenues and
expenses relating to transactions with other components of the same entity), whose
operating results are regularly reviewed by the entity's chief operating decision
maker to make decisions about resources to be allocated to the segment and assess
its performance, and for which discrete financial information is available.
The Group determines and presents operating segments based on the information
that is internally provided to the Chairman and the President, collectively as the
Group’s chief operating decision maker. The Group assessed that its retailing
business as a whole represents a single segment.
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Puregold Annual Report 2018
Provisions are revisited at each reporting date and adjusted to reflect the current
best estimate. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pretax rate that
reflects the current market assessment of the time value of money, and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognized as interest expense.
Cash in banks earns annual interest at the respective bank deposit rates. Money
market placements are highly liquid investments that are readily convertible into cash
and are subjected to insignificant risk of changes in value. These investments have
maturity dates of an average of 30 days with an annual interest rates ranging from
0.60% to 5.80% in 2018, 0.30% to 2.00% in 2017, and 0.50% to 2.00% in 2016.
Interest income earned from cash in banks and money market placements amounted
to P37.40 million, P21.66 million, and P12.69 million in 2018, 2017, and 2016,
respectively.
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Puregold Annual Report 2018
5. Receivables
Non-trade receivables represent the amounts due from suppliers with respect to
“demo” or “sampling” conducted by suppliers’ representatives and strategic locations
granted to suppliers with regard to the display of their products in the selling area of
the stores. This account also includes due from tenants in relation to rentals of store
spaces and advances to employees which are collected by the Company through
salary deduction.
6. Merchandise Inventory
This account consists of groceries and other consumer products (canned goods,
housewares, toiletries, dry goods, food products, etc.) held for sale in the ordinary
course of business on wholesale or retail basis.
The Group’s merchandise inventory at cost as at December 31, 2018 and 2017
amounted to P19,731.82 million and P17,696.64 million, respectively. Inventory cost
as at December 31, 2018 and 2017 is lower than NRV.
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Puregold Annual Report 2018
2018 2017
Prepaid expenses P835,455,304 P532,078,547
Input VAT 177,157,046 362,760,754
Deferred input VAT 180,298,604 69,290,170
P1,192,910,954 P964,129,471
Prepaid taxes and licenses pertain to payments made to government for the
unexpired portion of registration fees and other taxes.
Input VAT represents accumulated input taxes from purchases of goods and
services for business operation and purchases of materials and services for the
building and leasehold construction which can be applied against future output VAT.
Deferred input VAT represents accumulated input taxes for purchases of capital
assets more than P1.00 million and unbilled services for the building and leasehold
construction which can be applied against future output VAT.
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Puregold Annual Report 2018
9. Investments
a. Investment in Associate
On October 31, 2014, the Group through Entenso subscribed and paid additional
one hundred ninety thousand eight (190,008) common shares from the unissued
capital stock of the SRS for total cost of P19,000,800.
The carrying amount of its investment and its share in the net income of SRS
follow:
2018 2017
Carrying Amount
Balance at beginning of the year P433,542,657 P424,424,914
Share in net income 6,673,814* 9,117,743
P440,216,471 P433,542,657
*Unrecognized share in net income
The following table summarizes the financial information of SRS and the
reconciliation of the share of net assets to the carrying amount of the Group’s
interest in SRS:
2018 2017
Percentage of ownership 49.34% 49.34%
Current assets P3,955,182,333 P1,063,945,081
Noncurrent assets 221,748,333 205,634,823
Current liabilities (3,825,817,091) (933,892,391)
Noncurrent liabilities (18,405,154) (16,505,265)
Net assets 332,708,421 319,182,248
Group’s share of net assets 164,158,335 157,484,521
Goodwill 276,058,136 276,058,136
Carrying amount of interest in joint venture P440,216,471 P433,542,657
Gross income P483,357,637 P451,395,033
Operating expenses 469,831,463 432,915,619
Net income/Total comprehensive income 13,526,174 18,479,414
Group’s share of total comprehensive
income P6,673,814 P9,117,743
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Puregold Annual Report 2018
In 2017, the Parent Company subscribed and paid additional 1,400,000 common
shares at P100.00 par value for a total amount of P140.00 million while Lawson
subscribed and paid additional 600,000 common shares at P100.00 par value for
a total amount of P60.00 million.
In April 2018, the Parent Company sold all of its investment in PLCI for a total
consideration of P600 million which resulted in a gain on sale amounting to
P363 million.
The carrying amount of its investment and its share in the losses of PLCI follow:
2018 2017
Balance at beginning of the year P237,189,738 P256,995,907
Additions - 140,000,000
Share in net loss - (159,806,169)
Disposal (237,189,738) -
P - P237,189,738
The following table summarizes the financial information of PLCI and the
reconciliation of the share of net assets to the carrying amount of the Group’s
interest in PLCI as at December 31, 2017:
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Puregold Annual Report 2018
(b) Participating in dividends declaration for common shares and may be entitled
to such dividends as may be determined and approved by the Board of
Directors;
(c) Entitled to receive out of the assets of the joint venture available for
distribution to the parties, before any distribution of assets is made to holders
of common shares, distributions in the amount of the issue value per
outstanding redeemable preferred share, plus declared and unpaid dividends
to the date of distribution; and
The carrying amount of its investment and its share in the losses of AyaGold
follow:
2018 2017
Balance at beginning of the year P123,004,546 P110,350,626
Additions 32,500,000 -
Share in net income 14,127,350 12,653,920
P169,631,896 P123,004,546
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Puregold Annual Report 2018
The following table summarizes the financial information of Ayagold and the
reconciliation of the share of net assets to the carrying amount of the Group’s
interest in Ayagold:
2018 2017
Percentage of ownership 50% 50%
Current assets P267,156,027 P259,740,877
Noncurrent assets 199,643,384 155,517,973
Current liabilities (135,618,781) (173,016,250)
Net assets 331,180,630 242,242,600
Group’s share of net assets 165,590,315 121,121,300
Adjustments 4,041,581 1,883,246
Carrying amount of interest in joint venture P169,631,896 P123,004,546
Gross income P159,191,383 P120,857,719
Operating expenses 130,936,683 95,549,879
Net income (loss)/Total comprehensive
income (loss) 28,254,700 25,307,840
Group’s share of total comprehensive
income P14,127,350 P12,653,920
Acquisitions of Subsidiaries
The following are the developments relating to the Parent Company’s investments in
subsidiaries in 2018 and 2017:
Company E Corporation
On January 14, 2013, the Parent Company’s BOD approved the acquisition of
Company E Corporation (the company behind the Eunilaine Foodmart and Grocer E
Supermart chains). The Parent Company acquired 290,000 common shares of
Company E representing its total outstanding shares at P1,137.93 per share through
cash. Company E has seven supermarkets within Metro Manila, six in Rizal province
and two in the province of Cavite which will operate the same store as the Parent
Company. As at December 31, 2014, there are fourteen stores in operation and one
store in Rizal was closed in the same year.
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Puregold Annual Report 2018
On March 25, 2014, the BOD approved the merger of the Parent Company with
Company E Corporation. It was then ratified by at least two-thirds (2/3) votes of the
stockholders on May 13, 2014. In April 1, 2015, upon approval by the SEC of the
merger, the existence of Company E ceased and all its assets and liabilities were
merged with the Parent Company.
The Parent Company issued 766,406,250 new common shares, with P1 par value,
from its own authorized but unissued capital in exchange for 1,703,125 common
shares, with P100 par value per share, of Kareila representing 100% of its
outstanding capital stock. The fair market value of the Company’s shares based on
the observable market price as at the date of acquisition is P21.50 per share or
P16,477.73 million. The Company incurred acquisition-related cost of P3.83 million.
This cost has been included as part of operating expenses.
On December 21, 2012, the BOD of Kareila approved the declaration of stock
dividends amounting to P329.69 million from its unrestricted retained earnings as at
December 31, 2012. The date of record and date of payment are April 15, 2013 and
April 30, 2013, respectively.
On November 28, 2013, the BOD of Kareila resolved to increase its authorized
capital stock from P500 million divided into 5 million shares, with par value of P100
per share to P3,000 million pesos divided into 30 million shares with a par value of
P100 per share. Out of the increase in the authorized capital stock of P2,500 million,
25% of which or P625 million had been actually subscribed by the Parent company
out of the stock dividend declared by Kareila. On the same date, the Kareila
amended its articles of incorporation. Subsequently, on December 13, 2013, SEC
approved the Kareila’s application of its increase in authorized capital stock.
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10. Property and Equipment
Office and
Furniture and Store Leasehold Construction
Building Fixtures Equipment Improvements Land in Progress Total
Cost
Balance, December 31, 2016 P5,242,351,630 P2,287,626,748 P6,828,713,195 P7,561,407,341 P379,809,187 P602,029,363 P22,901,937,464
Additions 367,679,075 171,949,590 544,593,984 456,292,266 29,667,128 2,021,010,633 3,591,192,676
Reclassifications 282,481,436 46,373,964 337,014,145 905,680,602 26,751,530 (1,598,301,677) -
Disposals - (721,739) (13,563,437) (729,745) - - (15,014,921)
Balance, December 31, 2017 5,892,512,141 2,505,228,563 7,696,757,887 8,922,650,464 436,227,845 1,024,738,319 26,478,115,219
Additions 236,614,230 154,915,290 882,850,069 630,970,963 - 1,753,032,868 3,658,383,420
Reclassifications 246,162,042 27,649,427 326,540,912 1,053,420,820 - (1,653,773,201) -
Disposals - (4,273,738) (27,821,466) (11,374,253) - - (43,469,457)
Balance, December 31, 2018 6,375,288,413 2,683,519,542 8,878,327,402 10,595,667,994 436,227,845 1,123,997,986 30,093,029,182
Accumulated Depreciation and
91
Amortization
Balance, December 31, 2016 887,916,623 945,803,715 3,999,455,501 1,357,139,269 - - 7,190,315,108
Depreciation and amortization 187,950,914 181,796,799 824,051,506 406,005,100 - - 1,599,804,319
Reclassifications 6,235,334 - - (6,235,334) - - -
Disposals - (601,756) (7,483,305) (291,466) - - (8,376,527)
Puregold Annual Report 2018
December 31, 2018 P5,086,688,763 P1,355,817,734 P3,130,614,234 P8,355,727,218 P436,227,845 P1,123,997,986 P19,489,073,780
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Puregold Annual Report 2018
As at December 31, 2018 and 2017, the Parent Company has outstanding payable
for property additions amounting to P1.66 million and P2.56 million, respectively
(see Note 13). In addition, interest expense related to loans amounting to
P81.73 million, P76.40 million and P75.44 million was capitalized in 2018, 2017 and
2016, respectively (see Note 14).
a. Goodwill
The cost of goodwill is allocated to the CGUs as follows:
2018 2017
Kareila P12,079,473,835 P12,079,473,835
Budgetlane Supermarkets 837,974,199 837,974,199
DCI and FLSTCI 685,904,317 685,904,317
Gant 742,340,804 742,340,804
Company E 358,152,015 358,152,015
B&W 187,203,888 187,203,888
PJSI 11,370,121 11,370,121
Merger of PJSI and Gant to
Parent Company 4,142 4,142
P14,902,423,321 P14,902,423,321
2018 2017
Balance at beginning of the year P14,902,423,321 P14,715,769,906
Additions - 187,203,888
Fair value adjustments - (550,473)
P14,902,423,321 P14,902,423,321
On September 26, 2017, the Parent Company acquired substantially all the
assets and rights of B&W Supermart and took over the operations of five (5)
supermarkets located in Roxas City, Capiz for a total consideration of P270.00
million. The acquisition resulted in goodwill amounting to P187.20 million.
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Puregold Annual Report 2018
The Group’s consolidated revenue would have increased by P238.08 million and
its net income would have increased by of P17.68 million of the Group had this
acquisition taken on January 1, 2017.
The following are the key assumptions used by the management in the
estimation of the recoverable amount:
Net Sales. Growth rates and gross profit margins used to estimate future
performance are highly dependent on past performance and experience of
growth rates and operating gross profit margins achievable in the relevant
industry and in line with the economy or with the nominal Gross Domestic
Product. This assumes that the market share of the subsidiaries in their
respective territories will also grow at par with the economy.
The revenue growth rates used for the gross revenues are as follows:
Discount Rate. Discount rates are derived from the Group’s Weighted Average
Cost of Capital (WACC) which is used by the management to assess operating
performance and to evaluate future investment proposals. In determining
appropriate discount rates, regard has been given to various market information,
including, but not limited to, five-year government bond yield, bank lending rates
and market risk premium. The pre-tax discount rates used are as follows:
2018 2017
Kareila 13.30% 15.67%
Budgetlane Supermarkets 13.10% 11.94%
Gant 13.60% 15.77%
DCI and FLSTCI 13.60% 10.19%
Company E 13.50% 15.77%
B&W Supermart 13.00% 15.50%
PJSI 13.50% 15.77%
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Puregold Annual Report 2018
Terminal Growth Rate. The long-term rate used to extrapolate the cash flow
projections of the acquired investments beyond the period covered by the recent
budget excludes expansions and possible acquisitions in the future.
Management also recognizes the possibility of new entrants, which may have
significant impact on existing growth rate assumptions. Management however,
believes that new entrants will not have a significant adverse impact on the
forecast included in the cash flow projections. The terminal growth rates used in
the cash flow projections for all cash generating units are 5.00% and 3.00% in
2018 and 2017, respectively.
Revenue Discount
Growth Rate Rate
Budgetlane Supermarkets 12.00% 15.80%
B&W Supermart 19.00% 12.30%
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Puregold Annual Report 2018
The movements and balances of leasehold rights and computer software and
licenses as at and for the years ended December 31 consist of:
Computer
Software and Leasehold
Licenses Rights
Cost
Balance, January 1, 2017 P307,050,219 P75,355,005
Additions 29,475,602 -
Balance, December 31, 2017 336,525,821 75,355,005
Additions 39,660,637 -
Balance, December 31, 2018 376,186,458 75,355,005
Accumulated Amortization
Balance, January 1, 2017 123,764,631 12,937,959
Amortization 35,551,095 3,767,750
Balance, December 31, 2017 159,315,726 16,705,709
Amortization 37,038,056 3,767,751
Balance, December 31, 2018 196,353,782 20,473,460
Carrying Amount
December 31, 2017 P177,210,095 P58,649,296
December 31, 2018 P179,832,676 P54,881,545
Accrued rent income pertains to the excess of rent income over billing to tenants in
accordance with PAS 17, Leases.
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Puregold Annual Report 2018
The average credit terms on purchases of certain goods from suppliers is 30 days.
The Group entered into the following loan facilities for additional working capital:
2018 2017
Metrobank P2,447,500,000 P2,987,500,000
Cosco Capital 900,000,000 300,000,000
BDO 900,000,000 825,000,000
AUB 500,000,000 -
Puregold Finance 8,800,000 -
P4,756,300,000 P4,112,500,000
Short-term loans are payable from three to twelve months and bear interest from
4.75% to 5.75% and 2.13% to 2.88% in 2018 and 2017, respectively.
The loan proceeds were used for inventory financing and other short-term
working capital requirements.
In 2017, Kareila entered into unsecured short-term loans with Cosco at 2.50%
interest rate per annum. In 2018, the loan was renewed for another six months at
4.75% interest per annum. An additional loan of P600.00 million was obtained in
2018 at 5.00% interest rate per annum.
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Puregold Annual Report 2018
i. On June 13, 2013, the Parent Company issued a P2 billion promissory note
to a local bank, which is payable on May 21, 2018 and bears interest at
3.50% per annum. The interest is payable every month.
On May 2, 2018, the Parent Company partially paid the loan and the
remaining balance of P1.44 billion was rolled over which is payable after 7
years and bears interest at 6.40% per annum.
2018 2017
Balance at beginning of the year P795,346 P2,903,342
Amortizations (795,346) (2,107,996)
Balance at end of year P - P795,346
ii. On July 23, 2013, Kareila signed and executed a P500.00 million unsecured
loan agreement with a local bank. The loan shall be repaid in lump sum after
5 years. Its related interest is at 3.50% per annum. In 2015, P100.00 million
of the loan was repaid in advance by the Company. The remaining balance
of P400.00 million was renewed in 2018 for another 7 years at 6.40% interest
rate per annum.
The loans are unsecured and are not subject to any covenants.
2018
Carrying Contractual 1 Year Within More than
Amount Cash Flows or Less 1 - 5 Years 5 Years
Long-term loans
including current
portion P1,440,000,000 P1,523,273,143 P13,165,714 P52,662,857 P1,457,444,572
400,000,000 423,131,429 3,657,143 14,628,571 404,845,715
2017
Carrying Contractual 1 Year Within More than
Amount Cash Flow or Less 1 - 5 Years 5 Years
Long-term loans
including current
portion P1,999,204,654 P2,069,204,654 P13,976,705 P2,055,227,949 P -
There are no debt covenants for above unsecured loans entered into by the
Group.
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Puregold Annual Report 2018
Interest expense from these loans amounting to P81.73 million, P76.40 million
and P75.44 million were capitalized in 2018, 2017 and 2016, respectively and
recognized in building and leasehold improvements under property and
equipment account (see Note 10). Remaining interest expense that was charged
to profit and loss amounted to P174.60 million, P129.70 million and P101.47
million in 2018, 2017 and 2016, respectively.
Dividend
Short Term Long Term Payable
Loans Loans (Notes 13
Payable Payable and 25) Total
Balance at January 1, 2018 P4,112,500,000 P2,399,204,654 P1,106,152,562 P7,617,857,216
Changes from financing
cash flows
Availment of loans 2,058,800,000 - - 1,758,800,000
Payment of loans (1,415,000,000) (560,000,000) - (1,975,000,000)
Payment of dividends - - (1,106,152,562) (1,106,152,562)
Total changes from
financing cash flows 343,800,000 (560,000,000) (1,106,152,562) (1,322,352,562)
Other changes
Liability-related
Amortization of debt issue
costs - 795,346 - 795,346
Total liability-related
changes - 795,346 - 795,346
Balance at
December 31, 2018 P4,756,300,000 P1,840,000,000 P - P6,296,300,000
Deposits represent amounts paid by the store tenants for the lease of store spaces
which are refundable upon termination of the lease.
Unredeemed gift certificates represent issued yet unused gift certificates. These will
be closed to sales account upon redemption and are due and demandable.
Loyalty and rewards are provided for the point’s redemption of ‘‘Tindahan ni Aling
Puring” and PERKS members. Points are earned upon purchase of participating
items and may be used as payments of their purchases which make it due and
demandable.
Promotion fund is promotional discount granted for the Group’s promotion and
advertising activities in partnership with suppliers.
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Puregold Annual Report 2018
Others include trust receipts payable and cashier’s bond withheld from each cashier
to compensate for any possible cash shortages in the store.
The Group generates revenue primarily from trading goods such as consumer
products (canned goods, housewares, toiletries, dry goods, food products, etc.) on a
wholesale or retail basis. The revenue from contracts with customers is
disaggregated by revenue streams.
Sale of goods pertain to the net sales recognized in selling the Group’s inventories
and recognized at a point in time when control of the asset is transferred to the
customer, generally upon delivery.
There are other promises in the contracts that are separate performance obligations
to which a portion of the transaction price needs to be allocated.
The transaction involves the Group committing to two performance obligations: the
good purchased; and the rights related to the PERKS loyalty points. The Group
allocates customer payments between products sales and loyalty points, based on
their relative stand-alone selling prices.
Revenue from the PERKS loyalty points is recognized upon redemption. The Group
is unable to determine the number of points that will be used and assumes 100%
redemption to ensure that it is not highly probable that there will be a significant
reversal of revenue. In this case, management would recognize the revenue
allocated to the points on redemption and on expiration of the points.
Total amount of PERKS loyalty points earned amounted to P77.25 million and
P57.28 million in 2018 and 2017, respectively.
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Puregold Annual Report 2018
As Reclassified
Note 2018 2017 2016
Beginning inventory 6 P17,696,641,161 P16,487,824,308 P12,982,832,312
Add: Purchases 119,112,857,634 104,223,965,567 96,718,656,245
Total goods available for sale 136,809,498,795 120,711,789,875 109,701,488,557
Less ending inventory 6 19,731,823,439 17,696,641,161 16,487,824,308
P117,077,675,356 P103,015,148,714 P93,213,664,249
As Lessee
The Group leases warehouses, parking spaces and certain lands and buildings
where some of its stores are situated or constructed. The lease terms range from 5
to 42 years, renewable for the same period under the same terms and conditions.
The rent is subject to escalation on the average of 1% to 10%. Rental payments are
either fixed monthly or fixed per square meter based on the contracts.
The Group is required to pay advance rental payments and security deposits on the
above leases which are either fixed monthly rent or fixed per square meter. These
are shown under “Prepaid expenses and other current assets” account and “Other
noncurrent assets” account, respectively, in the consolidated statements of financial
position (see Notes 8 and 12).
As Lessor
The Group subleases portion of its store space to various lessees for an average
lease term of one to ten (1-10) years. The lease contracts may be renewed upon
mutual agreement by the parties. Rental payments are computed either based on
monthly sales or a certain fixed amount, whichever is higher. Upon inception of the
lease agreement, tenants are required to pay certain amounts of deposits. Tenants
likewise pay a fixed monthly rent which is shown under “Other current liabilities”
account in the consolidated statements of financial position (see Note 15).
Rent income recognized in profit or loss in 2018, 2017 and 2016 amounted
P407.25 million, P388.65 million and P377.28 million, respectively (see Note 19).
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Puregold Annual Report 2018
Membership income pertains to fees from members of Kareila, PPCI and Subic
wherein such fees permit only membership, and all other services or products are
paid for separately.
Rent income relates to the income earned for the store spaces occupied by the
tenants.
Demo/sampling income pertains to the fee paid by the suppliers for the privilege
granted by Kareila in allowing a representative of the supplier to conduct a demo or
give away samples of their products inside the selling area of the stores.
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Puregold Annual Report 2018
21. Others
Gain (loss) on insurance claim represents the excess of (short on) the insurance
proceeds received over the cost of the inventories and machineries damaged by
flood and fire.
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102
22. Related Party Transactions
Other than the items disclosed in Note 9, the Group’s significant transactions and balances with related parties are as follows:
Outstanding Balances
Amount of Trade Non Trade Trade Non Trade Due to
Transactions Receivable Receivable Payable Payable Loans Related
Related Party Year Note for the Year (see Note 5) (see Note 5) (see Note 13) (see Note 13) (see Note 14) Parties Terms Conditions
Parent
Dividends 2017 P564,137,807 P - P - P - P564,137,807 P - P - Due and Unsecured
demandable
Repairs and maintenance 2017 c 39,836 - 39,836 - - - - Due and Unsecured
Representation and 2018 c 47,827 - 47,827 - - - - demandable no impairment
entertainment
2018 e 600,000,000 - - - 900,000,000 - -
Loans 2017 e 300,000,000 - - - - 300,000,000 - Due and Unsecured;
demandable
Interest expense 2017 c 13,031,250 - - - - - - Due and Unsecured
Insurance 2018 c 13,156 - 13,156 - - - - demandable
Other Related Parties*
Rent 2018 a 808,482,339 - 3,088 - 25,747,668 - - Due and Unsecured;
103
2017 a 696,146,148 - 232,455 - 41,960,431 - - demandable no impairment
Concession expense 2018 b 522,618,432 - - - 92,395,254 - - Due and Unsecured
2017 b 503,476,012 - - - 172,790,277 - - demandable
Purchase of merchandise 2018 c 2,237,787,289 - - 504,052,460 - - - Due and Unsecured
2017 c 2,093,968,112 - - 589,760,330 - - - demandable
Sale of merchandise 2018 c 55,568,081 12,786,493 - - - - - Due and Unsecured;
Puregold Annual Report 2018
- 48 -
Outstanding Balances
Amount of Trade Non Trade Trade Non Trade Due to
Transactions Receivable Receivable Payable Payable Loans Related
Related Party Year Note for the Year (see Note 5) (see Note 5) (see Note 13) (see Note 13) (see Note 14) Parties Terms Conditions
Advances 2018 c P - P - P116,000,000 P - P - P - P - Due and Unsecured;
2017 c - - 116,000,000 - - - demandable no impairment
Communications 2018 c 370,597 - 2,793 - 14,251 - - Due and Unsecured
2017 c 324,274 - - - 6,570 - - demandable
Management fee 2018 c 13,962,618 - - - 2,072,162 - - Due and Unsecured
2017 c 11,064,691 - - - 1,581,800 - - demandable
Supplies 2018 c 21,431,727 - 57,933 - 3,307,349 - Due and Unsecured
2017 c 12,206,325 - 18,960 - 2,156,077 - - demandable
Insurance 2018 c 990,985 - 94,657 - 6,395 - - Due and Unsecured
2017 c 1,181,662 - 485 - 14,202 - demandable
Taxes and licenses 2018 c 225,981 - 30,376 - - - - Due and Unsecured
2017 c 228,358 - 3,029 - 70,336 - - demandable
Fixed asset 2018 c 359,048 - 359,048 - - - - Due and Unsecured
Puregold Annual Report 2018
- demandable
Employee benefits 2018 c 184,782 - 465 - - - - Due and Unsecured
2017 c 2,192,102 - 202,755 - 13,817 - - demandable
Representation and
entertainment 2018 c 2,695 - 2,695 - - - - Due and Unsecured
Other Income 2018 c 2,082 - 2,082 - - - - demandable
104
2017 c 224,051 - 224,051 - - - -
Loans 2018 8,800,000 - - - - - -
Key Management Personnel -
Royalty expense 2018 d 54,342,743 - - - - - 43,474,532 Due and Unsecured
2017 d 46,331,866 - - - - - 37,065,831 demandable
Rent expense 2018 a 23,208,327 - - - - - -
2017 a 22,532,356 - - - - - -
Short-term benefits 2018 34,208,308 - - - - - -
2017 121,742,192 - - - - - -
Total 2018 P12,786,493 P130,703,004 P504,052,460 P1,025,568,778 P - P43,474,532
Total 2017 P24,344,715 P122,555,475 P589,760,330 P803,055,627 P300,000,000 P37,065,831
*Other related parties pertain to entities under common control.
- 49 -
Puregold Annual Report 2018
a. Lease of Building
The Group leases the building from its related parties where some stores are
located. The Group pays its related parties a minimum fixed amount or is
calculated in reference to a fixed sum per square meter of area leased. The
terms of the lease are for the periods ranging from ten to thirty-five (10-35) years,
renewable for the same period under the same terms and conditions. The rent
shall escalate by the range from 1% to 7%. Rental payments are fixed amounts
based on the contracts.
Under the contract, the Consignor offered to consign goods at the aforesaid
four (4) stores and the Consignee accepted the offer subject but not limited to the
terms and conditions stated as follows:
The Consignee hereby grants to the Consignor the right to consign, display
and offer for sale, and sell goods and merchandise as normally offered for
sale by Consignee, at the selling areas at the four (4) stores.
The Consignor shall give the Consignee a trade or volume discount of its
gross sales.
The proceeds of sale of the Consignor shall remain the sole property of the
Consignor and shall be kept by the Consignee strictly as money in trust until
remitted to the Consignor after deducting the amounts due to the Consignee.
The term of the contract shall be for a period of five (5) years beginning on
the date/s of the signing of the agreement or of the opening of the four (4)
stores whichever is later, renewable upon mutual agreement of the parties.
On February 23, 2012, a new agreement was made between the Consignor and
Consignee. Under the new agreement, the Consignor offered to consign goods
at the aforesaid four (4) stores and the Consignee accepted the offer subject but
not limited to the terms and conditions stated as follows:
The Consignor shall pay the Consignee four percent (4%) monthly
consignment/concession fee based on the Consignor’s monthly gross sales.
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Puregold Annual Report 2018
Goods sold by the consignor shall be checked-out and paid at the check-out
counters of and be manned and operated by the Consignor and issued
receipts through the point-of-sale (POS) machines in the name of the
Consignor. The proceeds of the sale are and shall remain as the sole
property of the Consignor subject to its obligation to pay the consideration
stipulated.
Ownership of the goods delivered to the Consignor at the stores shall remain
with the Consignor. Except for the right of Consignee to the payment of the
consideration in the amount, manner and within the periods stipulated.
d. Royalty Agreement
On August 15, 2011, the Group (“licensee”) entered into a license agreement
with a stockholder (“licensor”) for its use of trademark and logo. The licensee will
pay the licensor royalties in an amount equivalent to 1/20 of 1% of net sales for
the period of thirty (30) years, renewable upon mutual written consent of the
parties. These royalty fees and payables are unsecured, non-interest bearing
and due and demandable.
e. Loans
As discussed in Note 14, Kareila entered into unsecured short - term loans with
Cosco amounting to P900.00 million and P300.00 million in 2018 and 2017,
respectively. These loans are to be settled in cash upon its maturity.
The Parent Company entered into unsecured short-term loan with Puregold
Finance amounting to P8.80 million for 2018.
f. A stockholder has granted the Parent Company the right to use the trademark
used in the stores of KMC as part of the sale of KMC to the Parent Company
(Note 11).
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Puregold Annual Report 2018
2018 2017
Sales P789,173 P6,632,929
2018 2017
Receivables P10,016,237 P11,260,418
Amount of
Transaction 2018 2017
KMC P475,000,000 P475,000,000 P475,000,000
Subic - - 200,000,000
P475,000,000 P675,000,000
The Parent Company and its subsidiaries has unfunded, noncontributory, defined
benefit plan covering all of its permanent employees. Contributions and costs are
determined in accordance with the actuarial studies made for the plan. Annual cost
is determined using the projected unit credit method. The Group’s latest actuarial
valuation date is December 31, 2018. Valuations are obtained on a periodic basis.
2018 2017
Present value of defined benefit obligation P504,207,438 P564,085,747
Fair value of plan assets (25,711,784) (25,912,570)
Retirement benefits liability P478,495,654 P538,173,177
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Puregold Annual Report 2018
The following table shows reconciliation from the opening balances to the closing
balances for present value of defined benefit obligation:
2018 2017
Balance at January 1 P564,085,747 P494,733,328
Included in Profit or Loss
Current service cost 132,931,025 121,772,174
Interest cost 32,152,888 26,616,653
165,083,913 148,388,827
Included in other Comprehensive Income
Remeasurements gain:
Actuarial gain arising from:
Financial assumptions (343,324,419) (39,549,415)
Experience adjustment 118,362,197 (39,486,993)
(224,962,222) (79,036,408)
Balance at December 31 504,207,438 P564,085,747
2018 2017
Beginning of the year P25,912,570 P25,475,333
Interest income 1,477,016 1,370,573
Remeasurement loss (1,677,802) (933,336)
End of the year P25,711,784 P25,912,570
2018 2017
Remeasurements of retirement liability at
beginning of year (P167,393,168) (P89,290,096)
Actuarial gain on defined benefit obligation (223,258,703) (78,103,072)
Remeasurements of retirement liability at
end of year (P390,651,871) (P167,393,168)
2018 2017
Cash in banks P1,810,041 P2,032,605
Debt instruments - government bonds 23,657,118 23,648,111
Trust fees payable (12,770) (13,059)
Other 257,395 244,913
P25,711,784 P25,912,570
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Puregold Annual Report 2018
The following were the principal actuarial assumptions at the reporting date:
2018 2017
Discount rate 7.53% 5.70%
Future salary increases 8.00% 8.00%
Assumptions regarding future mortality have been based on published statistics and
mortality tables.
The weighted average duration of the defined benefit obligation at the end of the
reporting period is 26.3 years.
Sensitivity Analysis
Reasonably possible changes at the reporting date to one of the relevant actuarial
assumptions, holding other assumptions constant, would have affected the defined
benefit obligation by the amounts shown below:
2018
Increase Decrease
Discount rate (1% movement) (P105,323,932) P83,525,380
Future salary increase rate (1% movement) 103,955,284 (84,070,916)
2017
Increase Decrease
Discount rate (1% movement) (P105,136,263) P134,997,650
Future salary increase rate (1% movement) 123,240,684 (99,204,506)
These defined benefit plans expose the Group to actuarial risks, such as longevity
risk, interest rate risk, and market (investment) risk.
Funding Arrangements
Since the Group does not have a formal retirement plan, funding to the plan are paid
by the Group when needed.
2018
Carrying Contractual Within Within Within
Amount Cash Flows 1 Year 1 - 5 Years 5 - 10 Years
Defined benefit
obligation P504,207,438 P167,249,749 P29,708,291 P26,241,559 P111,299,899
2017
Carrying Contractual Within Within Within
Amount Cash Flows 1 Year 1 - 5 Years 5 - 10 Years
Defined benefit
obligation P564,085,747 P123,425,704 P23,214,858 P19,300,587 P80,910,259
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Puregold Annual Report 2018
On February 17, 2014, the Parent Company entered into a multi-employer retirement
plan agreement with a trust Group. The Parent Company made an initial cash
contribution of P25 million pesos.
The reconciliation of the income tax expense computed at the statutory income tax
rate to the actual income tax expense as shown in profit or loss for the years ended
December 31 is as follows:
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Puregold Annual Report 2018
The components of the Group’s deferred tax liabilities (DTL) net of deferred tax
assets (DTA) in respect to the following temporary differences are shown below:
2018 2017
Amount DTA (DTL) Amount DTA (DTL)
Accrued rent expense* P3,667,726,623 P1,100,317,987 P3,239,251,146 P971,775,344
Retirement benefits
liability 893,142,763 267,942,829 730,176,907 218,704,955
NOLCO - - 15,367,497 4,610,249
Allowance for
impairment losses on
receivables 7,462,327 2,238,698 7,462,327 2,238,698
Recognition of DTA due
to Merger 389,731 116,919 389,731 116,919
DTA 4,568,721,444 1,370,616,433 3,992,647,608 1,197,446,165
Fair value of intangible
assets from business
combination (4,599,113,528) (1,379,734,058) (4,599,113,528) (1,379,734,058)
Actuarial gains (390,677,587) (117,203,276) (167,393,168) (50,079,841)
Accrued rent income (29,360,256) (8,808,077) (34,365,544) (10,309,662)
DTL (5,019,151,371) (1,505,745,411) (4,800,872,240) (1,440,123,561)
Net (P450,429,927) (P135,128,978) (P808,224,632) (P242,677,396)
*Excluding accrued rent expense of PPCI Subic which is subject to SBMA tax rules
The realization of these deferred tax assets is dependent upon future taxable income
that temporary differences and carry forward benefits are expected to be recovered
or applied.
25. Equity
On June 7, 2011, the BOD approved the issuance of 50,000,000 shares. These were
subscribed and paid in full on June 10, 2011.
The initial public offering of the Parent Company’s shares with an offer price of
P12.50 per share resulted to the issuance of 500,000,000 common shares in 2011.
The additional paid-in capital net of direct transaction costs amounted to P5,168.82
million.
The Parent Company acquired 100% equity interest of Kareila in exchange for the
766,406,250 common shares of the Parent Company’s authorized but unissued
capital stock on May 28, 2012. The fair value of shares as at the acquisition date is
P21.50 per share. The additional paid-in capital net of direct transaction costs
amounted to P15,661.57 million.
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As at December 31, 2018 and 2017, the Parent Company has 40 stockholders with
at least one board lot at the PSE, for a total of 2,799,914,086 and 2,785,362,877
(P1.00 per share par value) issued and outstanding common shares, respectively.
Treasury Stock
The Group’s treasury shares as at December 31 are as follows:
On February 26, 2013, the SEC approved the application for merger of the Parent
Company, PJSI and Gant. As a consideration for the said merger, the Parent
Company issued shares of stocks equivalent to 16,911,162 shares at P26.55 per
share. Considering that the ultimate owner of PJSI and Gant is the Parent Company,
the shares issued were recognized as treasury stock.
On December 18, 2014, the BOD approved to buy back the Parent Company’s
shares up to P1.00 billion or approximately 30.0 million shares within one year from
the approval or until November 4, 2015. As at December 31, 2018 and 2017, the
Parent Company already bought P34.53 million worth of shares as treasury stock.
On March 12, 2015, the SEC approved the application of merger of the Parent
Company and Company E. As a consideration for the said merger, the Parent
Company issued shares of stocks equivalent to 2,045,465 shares at par value.
Considering that the ultimate owner of Company E is the Parent Company, the stock
shares issued were recognized.
On November 22, 2017, SEC approved the application of the merger of Parent
Company, Goldtempo Group Incorporated, Daily Commodities, Inc., and First Lane
Super Traders Co., Inc. As a consideration for the merger, the Parent Company
issued shares of stocks equivalent to 14,551,209 shares at P39.00 per share.
Considering that the ultimate owner is the Parent Company, the shares issued were
recognized as treasury stock in the consolidated financial statements.
Retained Earnings
On December 22, 2016, the Group’s BOD approved the declaration of a regular
dividend of P0.20 per share and special dividend of P0.10 per share on record date
of January 12, 2017 and payment date of January 20, 2017. The total amount of
dividends is P829.61 million.
On December 15, 2017, the Group’s BOD approved the declaration of a regular
dividend of P0.20 per share and special dividend of P0.20 per share on record date
of January 2, 2018 and payment date of January 26, 2018. The total amount of
dividends is P1,106.15 million.
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The Group operates through stores in several locations. The combined financial
statements of all stores is reviewed by the Chief Operating Decision Maker on a
monthly basis and assesses the Group’s profitability and financial position of the
whole retail business. The nature of products, class of customers, and regulatory
environment is the same for all the stores.
As at December 31, 2018, 2017 and 2016, the Group has no dilutive debt or equity
instruments.
Credit Risk
Liquidity Risk
Interest Rate Risk
Other Market Price Risk
This note presents information about the Group’s exposure to each of the above
risks, the Group’s objectives, policies and processes for measuring and managing
risks, and the Group’s management of capital.
The Group’s principal financial instruments include cash and cash equivalents and
investments in trading securities. These financial instruments are used to fund the
Group’s operations and capital expenditures.
The BOD has overall responsibility for the establishment and oversight of the
Group’s risk management framework. They are responsible for developing and
monitoring the Group’s risk management policies.
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The Group’s risk management policies are established to identify and analyze the
risks faced by the Group, to set appropriate risk limits and controls, and to monitor
risks adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Group’s activities. All risks
faced by the Group are incorporated in the annual operating budget. Mitigating
strategies and procedures are also devised to address the risks that inevitably occur
so as not to affect the Group’s operations and detriment forecasted results. The
Group, through its training and management standards and procedures, aims to
develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
Credit Risk
Credit risk represents the risk of loss the Group would incur if credit customers and
counterparties fail to perform their contractual obligations.
The credit risk for due from related parties and security deposits was considered
negligible since these accounts have high probability of collection and there is no
current history of default.
The credit quality of the Group’s financial assets based on its historical experience is
as follows:
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The Group has assessed the credit quality of the following financial assets that are
neither past due nor impaired as high grade:
a. Cash in bank and cash equivalents were assessed as high grade since these are
deposited in reputable banks with good credit standing, which have a low
profitability of insolvency and can be withdrawn anytime. The credit quality of
these financial assets is considered to be high grade.
c. Due from related parties and security deposits were assessed as high grade
since these have a high profitability of collection and there is no history of default.
The Group applies the simplified approach using provision matrix in providing for
ECL which permits the use of the lifetime expected loss provision for trade and other
receivables. The expected loss rates are based on the Group’s historical observed
default rates. The historical rates are adjusted to reflect current and forward looking
macroeconomic factors affecting the customer’s ability to settle the amount
outstanding. However, given the short period exposed to credit risk, the impact of
this macroeconomic factor identified has not been considered significant within the
reporting period.
2018 2017
Gross Amount Impairment Gross Amount Impairment
Current P2,930,178,205 P - P3,175,206,725 P -
Past due 1-30 days 955,111,912 - 631,452,179 -
Past due 31-60 days 420,908,784 - 249,645,750 -
More than 60 days 491,061,504 7,462,327 513,037,062 7,462,327
P4,797,260,405 P7,462,327 P4,569,341,716 P7,462,327
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations
as they fall due. The Group manages liquidity risk by forecasting projected cash
flows and maintaining balance between continuity of funding and flexibility in
operations. Treasury controls and procedures are in place to ensure that sufficient
cash is maintained to cover daily operational working capital requirements.
Management closely monitors the Group’s future and contingent obligations and sets
up required cash reserves as necessary in accordance with internal requirements.
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The following are the contractual maturities of financial liabilities, including estimated
interest payments and excluding the impact of netting agreements:
As at December 31, 2018
More than
Carrying Contractual 1 Year 1 Year - More than
Amount Cash Flow or Less 5 Years 5 Years
Financial Liabilities
Accounts payable and
accrued expenses* P11,503,533,469 P11,503,533,469 P11,503,533,469 P - P -
Short-term loans payable 4,756,300,000 4,456,300,000 4,456,300,000 - -
Due to related parties 43,474,532 43,474,532 43,474,532 - -
Long-term debt including
current portion 1,840,000,000 1,946,404,572 16,822,857 67,291,428 1,862,290,287
Other current liabilities** 154,204,614 154,204,614 154,204,614 - -
Noncurrent accrued rent 3,692,167,535 3,692,335,478 128,329,117 456,123,294 3,107,883,067
*excluding statutory payables to the government
**excluding promotion fund, loyalty and rewards, unredeemed gift certificates VAT payable and other current liabilities
of Kareila
Sensitivity Analysis
A 2% increase in interest rates would have increased equity and net income by
P13.96 million, P10.02 million and P7.76 million, for the years ended December 31,
2018, 2017 and 2016, respectively. A 2% decrease in interest rates would have had
the equal but opposite effect. Assuming a 10% interest rate and on the basis that all
other variables remain constant.
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Capital Management
The Group’s objectives when managing capital are to increase the value of
shareholders’ investment and maintain steady growth by applying free cash flow to
selective investments. The Group set strategies with the objective of establishing a
versatile and resourceful financial management and capital structure.
There were no changes in the Group’s approach to capital management during the
year.
The carrying amounts of Group’s financial instruments approximate their fair values
as at December 31, 2018 and 2017.
The following methods and assumptions are used to estimate the fair values of each
class of financial instruments:
Accounts Payable and Accrued Expenses, Short-term Loans, Due to Related Parties
and Other Current Liabilities
The carrying amounts of accounts payable and accrued expenses, due to related
parties, short-term loans and other current liabilities approximate fair values due to
the relatively short-term maturities of these financial instruments. The difference
between the carrying amounts and fair values of noncurrent accrued rent and other
current liabilities is considered immaterial by management.
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Level 2: inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e., as prices) or
indirectly (i.e., derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market
data (unobservable inputs).
As at December 31, 2018 and 2017, the Group’s investment in financial assets
measured at FVPL and FVOCI were measured based on Level 1 and Level 3
classification, respectively.
As at December 31, 2018 and 2017, the Group has not introduced any movement
among Levels 1, 2 and 3 classifications.
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Puregold Annual Report 2018
For
AUDITED FINANCIAL STATEMENTS
SEC Registration Number
A 1 9 9 8 1 3 7 5 4
GROUP NAME
P U R E G O L D P R I C E C L U B , I N C .
A N D S U B S I D I A R I E S
9 0 0 R o m u a l d e z S t r e e t
P a c o , M a n i l a
Form Type Department requiring the report Secondary License Type, If Applicable
A A F S
GROUP INFORMATION
Group's email Address Group's Telephone Number/s Mobile Number
No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)
May 2 December 31
Note 1: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the
Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person
designated.
2: All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation's records with
the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from
liability for its deficiencies.
119