Fy 2016 Audited

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COVER SHEET

4 4 8 5 2

D & L I N D U S T R I E S I N C

(Company's Full Name)

6 5 I N D U S T R I A S T B A G U M B A Y A N

Q U E Z O N C I T Y
(Business Address: No. Street City/ Town/ Province)

ALVIN D. LAO 635-0680


Contact Person Company Telephone Number

1 2 3 1 SEC Form 17-A as of December 31, 2016 0 6 0 6


Month Day FORM TYPE Month Day
Fiscal Year Annual Meeting

Secondary License Type, if Applicable

C F D
Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings


48 P 4,850,481,200 -
Total No. of Domestic Foreign
Stockholders

To be accomplished by SEC personel concerned

File Number LCU

Document I.D. Cashier

Stamps
SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A, AS AMENDED


ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended: December 31, 2016

2. Commission identification number: 44852

3. BIR Tax Identification No. : 000-421-957-000

4. Exact name of issuer as specified in its charter: D&L Industries, Inc.

5. Province, country or other jurisdiction of incorporation or organization: Metro


Manila

6. Industry Classification Code: (SEC Use Only)

7. Address of issuer's principal office: 65 Industria St., Bagumbayan, Quezon City


Postal Code: 1110

8. Issuer's telephone number, including area code: (02) 635 0680

9. Former name, former address and former fiscal year: not applicable

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

Title of Each Class: Common Stock, P1 par value


No. of Shares of Common Stock Issued and Outstanding: 7,142,857,990 Shares*

*Reported by stock transfer agent as of December 31, 2016

Amount of Debt Outstanding: 4,179,039,800 (as of December 31, 2016)

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

Yes [  ] No [ ]

If yes, state the name of such Stock Exchange and the class/es of securities listed therein:

Philippine Stock Exchange; A total of 7,142,857,990 shares of common stock with par value
of P1.00 each.

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12. Check whether the issuer:

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

Yes [ ] No [ ]

(b) Has been subject to such filing requirements for the past one hundred eighty (90) days.

Yes [ ] No [ ]

13. Aggregate market value of the voting stock held by non‐affiliates of the registrant:

The aggregate market value of the 2,223,241,503 voting stock held by non-affiliates (public
shares) as of December 31, 2016, computed based on the closing share price of P11.40 on
the last trading day on December 29, 2016, is P25,458,953,134.

2
TABLE OF CONTENTS

PART I - BUSINESS AND GENERAL INFORMATION .................................................................................................. 4

Item 1. Business ................................................................................................................................................................................ 4

Item 2. Properties ........................................................................................................................................................................ 11

Item 3. Legal Proceedings ........................................................................................................................................................ 11

Item 4. Submission of Matters to a Vote of Security Holders ..................................................................................... 12

PART II - OPERATIONAL AND FINANCIAL INFORMATION..................................................................................12

Item 5. Market for Issuer's Common Equity and Related Stockholder Matters ................................................. 12

Item 6. Management’s Discussion and Analysis............................................................................................................... 13

Item 7. Financial Statements .................................................................................................................................................... 21

Item 8. Information on Independent Public Accountant and Other Related Matters...................................... 21

PART III - CONTROL AND COMPENSATION INFORMATION ...............................................................................23

Item 9. Directors and Executive Officers of the Issuer .............................................................................................. 23

Item 10. Executive Compensation ....................................................................................................................................... 27

Item 11. Security Ownership of Certain Beneficial Owners and Management ............................................. 28

Item 12. Certain Relationships and Related Transactions ....................................................................................... 29

PART IV – CORPORATE GOVERNANCE ....................................................................................................................... 30

Item 13. Compliance with Leading Practice on Corporate Governance ........................................................... 30

PART V – EXHIBITS AND SCHEDULES ......................................................................................................................30

Item 14. Exhibits and Reports on SEC Form 17-C .......................................................................................................... 30

INDEX TO FINANCIAL STATEMENTS ........................................................................................................................33

Signature ..............................................................................................................................................................................34

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PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

The Company

D&L Industries, Inc. (the “Company” or “D&L”) was incorporated on July 27, 1971. The Company is a
publicly listed company, which is 69% beneficially owned by the Lao family, the rest by the public.
The Company’s registered office address and principal place of business is 65 Industria St., Bagumbayan,
Quezon City.

The Company is the holding company for a group of companies with interests in the customization,
development, and manufacturing of food ingredients (Oleo-Fats, Incorporated), colorants, additives, and
engineered polymers for plastics (D&L Polymer and Colours, Inc., and First in Colours, Inc.), aerosol
products (Aero-Pack Industries, Inc.), as well as manufacturing of oleochemicals, resins, and powder
coating (Chemrez Technologies, Inc., and Natura Nutricare Corporation). It also renders management and
other services to subsidiaries and affiliate companies. It was officially listed on the Philippine Stock
Exchange (PSE) on December 12, 2012.

On October 7, 2014, the Company, through the conduct of a tender offer, acquired 65% of the
outstanding shares of Chemrez Technologies that it did not own. D&L Industries now owns 99.7% of
Chemrez Technologies.

The following diagram shows the corporate structure of the Company subsequent to the listing and
acquisition of Chemrez Technologies, excluding beneficial ownership of securities held by the Lao
family members. As of December 31, 2016, the Company is 58% owned by Jadel Holdings Co., Inc. (JHI)
and 11% owned by the Lao Family. The remaining 31% of the shares outstanding are publicly held.

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Lao Family JHI Public

11% 58% 31%

D&L Industries, Inc.

100% 100% 99.7% 100%

First in Colours, Oleo-Fats Chemrez Aero-Pak


Incorporated Incorporated Technologies, Inc. Industries, Inc.

55.5% 44.5%
100% 100%

Natura Nutricare
D&L Polymer & Colours Inc. Chemrez Inc.
Corporation

D&L’s major subsidiaries and their corresponding dates of incorporation with the SEC are as
follows:

Subsidiary / Affiliate Date of incorporation


Oleo-Fats, Incorporated (OFI) May 04, 1987
First in Colours, Incorporated (FIC) November 17, 1988
D&L Polymer and Colours, Inc. (DLPC) March 30, 2006
Aero-Pack Industries, Inc. (Aero-Pack) September 29, 1989
Chemrez Technologies, Inc. (Chemrez) June 01, 1989
Natura Nutricare Corporation July 20, 2016

Overview of the Business

The Company today is principally a holding company, which derives the majority of its income from
subsidiaries engaged in four principal business lines, as set out below:

 Food ingredients – The Company, operating through its subsidiary OFI, manufactures a line of bulk
and specialty fats and oils, culinary and other specialty food ingredients. The Company contract
manufactures and provides food ingredient products to most of the leading food manufacturers
and quick-service restaurant chains in the Philippines, and also produces food safety solutions
such as cleaning and sanitation agents for various customers;

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 Colorants and plastics additives – The Company, operating through its subsidiaries FIC and DLPC,
manufactures a line of pigment blends, color and additive masterbatches and engineered polymers
for a wide range of applications, introducing a number of products into the Philippine market and
expanding into the export of certain products overseas. The Company’s products add properties
such as precise coloring, reduced friction, increased resistance to degradation, as well as
biodegradability for plastics used in consumer goods, appliances and outdoor furniture;

 Aerosols – The Company, operating through its subsidiary Aero-Pack, manufactures three-piece
aerosol cans and components and provides aerosol contract filling and compounding services. The
Company also toll manufactures a range of related products, including insect control, industrial
maintenance chemicals, and home and personal care products, among others.

 Oleochemicals, resins and powder coatings – The Company, operating through Chemrez
Technologies, and its subsidiary Chemrez, Inc., manufactures CME, also known as coco-biodiesel,
using the Philippines’ first continuous-process methyl ester plant. The Company also manufactures
other oleochemicals or chemicals derived from vegetable oils, resins such as polystyrene, acrylic
emulsions and polyester, and a line of powder coatings.

Principal Products, Markets and Revenue Contribution

Food Ingredients

The Company, through OFI, markets and distributes a line of bulk edible oils and specialty food
ingredients. The Company believes that it is the leading manufacturer of bulk and specialty fats and
oils and other food ingredients in the Philippines. It serves customers across the food and beverage
industry, including manufacturers of instant noodles and snack food, dairy and culinary, food service,
biscuits and confectionery and bakeries, as well as domestic and international quick-service restaurant
chains. The Company also contract manufactures food ingredient products for certain customers. The
Company’s product line has expanded to over 800 varieties of food ingredients, including specialty fats,
dry and liquid mixes, and specialty condiments, driven by its ability to create customized products
according to its customers’ requirements. As a result, the Company derives more than half of its food
ingredients revenue from the manufacture and sale of customized products, which generally provide
higher profit margins than bulk items such as refined vegetable oils.

In addition to food ingredients and oils, the Company provides food safety solutions and services such
as customized cleaning and sanitation systems, designed and manufactured to meet the needs of
customers. All of the Company’s food safety solutions are supported by professional and technical
services.

Colorants and Plastics Additives

The Company, through its subsidiaries FIC and DLPC, manufactures custom designed and formulated
pigment blends, color and additive masterbatches and engineered polymers for a wide range of
applications in the plastics industry. FIC focuses on the domestic market, while DLPC focuses primarily
on the export market.

The Company believes it has the longest history in the Philippine plastics color and compound industries,
and its brand has been trusted by customers for over 50 years for their color concentrate requirements
for films, tapes, moldings, wires and cables, high-end fibers and other engineered polymers. The Company
at various times has entered into technical assistance agreements with select international partners to
increase its expertise in terms of research and development. Also, the Company works with customers
to create color products and solutions that best represent the customer’s products in the market, with
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research showing that a product’s color and appearance are key factors in a consumer’s buying decision
and a critical element in the successful marketing of product. The state-of-the-art technology used by
the Company has given end-user customers a broad range of color choices and forms.

The Company also provides additives for plastics processed by customers that enable reduced
production costs or add desirable features and properties to plastics. Appropriate filler additives can
reduce production costs by substituting polymers with relatively inert and inexpensive materials that
make the end product cheaper by weight. Filler additives may also increase the performance of a
plastic by modifying its properties, as additives contribute a wide range of properties to plastic products.
For example, additives can make plastic products biodegradable and compostable. Additives can also
lower the flammability of plastics used in household items, reduce friction between plastic parts, or
increase a plastic’s resistance to degradation caused by light sources for items such as outdoor furniture.

In addition to providing colorants or additives to customers for their own processing, the Company
also provides custom engineered polymers, or engineered polymers, designed to have the precise color
and properties required by the customer. Custom compounded products are delivered as plastic pellets
to the customer’s production plant for conversion into end-use products.

The Company also offers its customers toll compounding services. Toll compounding services enable
customers to offer specialty compounds branded with their own label. Customers may take advantage
of the Company’s extensive engineering and manufacturing experience to handle production and
logistics, increasing their effective manufacturing capacity without incurring expansion costs.

Oleochemicals, Resins, and Powder Coatings

Chemrez Technologies (and its subsidiary Chemrez, Inc.) manufactures and markets an extensive line
of oleochemicals (such as biodiesel), resins, and powder coatings for both domestic and export
markets. Exports comprised approximately 20%, 22% and 22% and 21% of Chemrez’s revenues in 2016,
2015 and 2014 respectively. Oleochemicals and other specialty chemical products represented 69%
and 31%, respectively, of Chemrez’s consolidated revenues for 2016.

As of December 31, 2014, the Company owned approximately 100% of Chemrez, after a successful
tender offer for the remaining 65% of Chemrez from the public, as well as individual family members
and companies held by the Lao Family. Chemrez Technologies was delisted from the Philippine Stock
Exchange on January 10, 2015

Oleochemicals – CME/biodiesel

Biodiesel accounts for bulk of the oleochemical business of the Company. Its IMS‐certified, pioneering
continuous process methyl ester (CME) facility and coco‐biodiesel products are accredited with the
Department of Energy and registered with the Board of Investments with pioneer status. Chemrez also
serves as a major contributor to the National Biofuels Program under RA 9367, otherwise known as
the Biofuels Act of 2006. The Biofuels Act provides for national mandates for increased use of biofuels
and, in February 2009, the biodiesel mandate was increased from a 1% (B1) to a 2% (B2) blend.
While this required a significant step‐up in production commitment to satisfactorily meet higher local
demand, there are sufficient indigenous sources of coconut oil (CNO) feedstock in the country.

Presently, the local biodiesel industry is composed of 15 DOE-accredited producers including the
Company. The Company believes that its commitment to excellence in quality, delivery, and cost
competitiveness would allow it to be a primary domestic supplier of choice by oil companies and
institutional buyers. The extensive quality management systems of the Company and its investments in
logistics infrastructure and supply chain management were designed to help assure the continuous
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bulk supply of compliant biodiesel to local oil companies and generate cost efficiencies that are passed
on to its customers.

Other oleochemical products of the Company include glycerin and other methyl ester (CME)
derivatives, which are used mainly as surfactants or foaming agents for soaps and detergents, and
are sold principally in the export markets. Part of the strategy to grow the CME export markets, the
Company continues to develop new applications of CMEs to expand its product and market base. Through
the use of pioneering process technology, products that have high export potential have been recently
developed.

Other Specialty Chemicals

The Company has a solid record of experience and expertise in the manufacture and marketing of
powder coating, resins, and other specialty resin‐based chemicals.

▪ Powder coatings are protective materials applied to metal and other surfaces through an
electrostatic coating process to provide resistance against heat, weather and UV light, and certain
chemicals. It is used in home appliances, metal furniture, fixtures and fittings, mechanical parts, tools
and equipment and also in the construction industry.

▪ Resins are polymerized or chemically modified substances, which are manufactured in a variety
of technical specifications to suit specific industry uses, end-user applications, and customer
requirements. It includes polystyrene resins for the plastics industry, polymer emulsions for the
paint industry, and polyester resins for the construction, shipping, and furniture industries.

▪ Other specialty resin-based chemicals comprise of additives, colorants, and solvents.

The Company has maintained its market leadership in powder coatings and resins through competitive
pricing, consistent quality, and the ability to offer product customization and provide on-site after-sales
technical support to customers. The Company also continues to invest in research and development to
develop new powder coating and resin products with improved and innovative features. It competes
mainly against importers and traders.

The Company attributes its strong market position to several factors. Its operating scale allows it to
manufacture products at highly competitive costs. Beyond price competition, the Company has
established long-standing relationships with its customers. These partnerships allow the Company to
respond quickly to customer requirements and offer newer and better products out of its extensive
efforts and achievements in research and development.

Aerosols

The Company, through Aero-Pack, is the first and only company in the Philippines to design and
develop customized aerosol products focusing on maintenance chemicals and home and personal care
products. Aero-Pack also supplies three-piece aerosol cans and components, which comprise the
majority of aerosol product requirements in the Philippines and globally. Aero-Pack also provides
customized contract filling and formulation services.

The Company offers products with a wide range of applications, including insect control, industrial
maintenance chemicals, home and personal care products. The Company also produces, on a toll
manufacturing basis, non-aerosol products such as insecticides, liquid and gel disinfectants, cleaners,
polishers and liquid soaps.

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Management and administration

D&L maintains significant operational control of OFI, FIC (including DLPC), Chemrez, and Aero-Pack, as
well as of several affiliate companies that provide goods and services complimentary to those provided
by the Company, including FIC Marketing Co. Inc., FIC Tankers, Inc., Consumer Care Products Inc. and
LBL Prime Properties, Inc., among others, through a contractual “shared services” model. In particular,
D&L Industries provides the following services to its subsidiaries and affiliate companies:

 Executive Management - including supervision of all business operations;

 Administrative Support - including finance, treasury, accounting, internal audit, human resources,
information technology and legal services;

 Logistics Support - which includes warehousing, distribution and delivery, transportation fleet
management, tank farm management, port clearing and procurement; and

 Technical Services - which includes research and development, quality control and assurance and use
of trademarks. The technical services for all business operations are concentrated in D&L’s research
and development department, which the Company believes has been a critical driver for the success
of each of its business lines.

D&L maintains its own analytical laboratory that provides technical services and is located in its
headquarters in Quezon City, Metro Manila. While D&L continues to provide management services
for this facility, specific research, development and application activities are conducted, and expenses are
incurred, by OFI, FIC (including DLPC), Chemrez Technologies, and Aero-Pack independently. D&L’s and
its subsidiaries’ research laboratories employ highly qualified chemical engineers, chemists, consultants,
technicians and support staff who service the customers of the Company in the following industries:
plastics and rubber, aerosol, paint and ink, soap and detergent, paper, adhesive, textile, cosmetics and
food and beverage.

General Operations

▪ Additional discussion on other business risks are also provided in Note 23 of the 2016
Consolidated Audited Financial Statement of the Company attached herein.

▪ The Company, in the ordinary course of business, transacts with related parties. These transactions
include the purchase/sale of goods and services. Details of the Related Party Transaction are
discussed under Notes 1 (General Information) and 18 (Related Party Transaction) of the Notes
to the Consolidated Financial Statements of the Company.

▪ As of December 31, 2016, the Company and its subsidiaries have a total of 673 employees. The
workforce is complemented by 1,152 people from different service providers. None of the employees
have collective bargaining agreements with the Company. Also, the Company does not expect any
significant change in its existing workforce level in 2017.

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Management of Key Risks related to the Company

Risks relating to the Philippines

As of end 2016, 82% of the Company’s consolidated revenues are domestic. With a substantial portion
of its business conducted and all of its assets located in the Philippines, the Company is exposed to risks
associated with the Philippines, including political instability, exchange rate fluctuations, and occurrence
of natural disasters such as typhoons and earthquakes.

The Company has contingency plans in place in cases of incidents – natural and man-made. These
include centralized fire protection and disaster prevention systems. The Company also self-insures by
maintaining a relatively high level of asset liquidity in the form of cash and cash equivalents and
receivables, to protect its businesses against other potential risks. As of end-2016, cash and cash
equivalents were 14% of the Company’s total assets.

Risk relating to failure to keep up with technological innovation

The Company derives 61% of its consolidated revenues from high margin specialties. These are
innovation-driven products, mostly tailor-made to the customer’s needs. The higher the level of
customization involved, the higher the profitability. Failure to anticipate and meet the requirements
of our customers, as well as keep pace with evolving technological innovations in its markets might
adversely impact business activities and profitability.

To make sure that the Company can respond effectively and efficiently to market needs, about 14%
of its workforce is in the technical department. These employees pursue various research and
development activities, including product development and application, as well as quality assurance.

Risk from volatility in raw material prices

As a manufacturing company, 85% of total costs and expenses are raw materials, primarily palm oil,
coconut oil, and other types of vegetable oils, as well as monomers, polymers, and other chemicals.
Prices of these raw materials tend to be volatile and the Company’s ability to pass on significant changes
in the cost of raw materials to customers is largely dependent upon contractual relationships and
market condition.

The Company does not fix the selling price for most of its contracts with customers. Prices for the
contracts are re-set every month on average, enabling the Company to pass on relevant price changes
in raw material costs.

Risk from customer concentration

The Company’s largest customers account for a sizeable portion of the business. The top three largest
customers, mostly food ingredients customers, accounted for 26% of consolidated revenues in 2016.
These customers are large multinational and local corporations. Significant changes in any of these
customers’ purchases might have material impact on the Company’s businesses and profitability.

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The products sold to these customers are mostly customized for which the Company is almost the
sole supplier, in turn generating a stable base of sales volume for the Company. Nonetheless, cognizant
of the risk of customer concentration, the Company continues to work closely with customers in order
to get good demand visibility. Part of managing risks associated with customer concentration is
assessing such risks against operational and strategic factors including economies of scale and
knowledge accumulation.

Item 2. Properties

Real Properties

The Company does not own any land and operates an asset-light business model. It leases real property,
barges, and storage tanks used in its businesses from related parties LBL Prime Properties, Inc, FIC
Tankers, Inc., and FIC Marketing, as well as from other third party lessors. The Company’s lease
agreements are typically for a period of one to five years and are renewable unless terminated by
either party. Rentals are generally subject to an escalation of five percent annually starting on the
second year of the lease term. None of the Company’s properties used in its operations are subject to
any material liens, encumbrances or restrictions of use.

To support the Company’s centralized distribution and motor pool functions, the Company owns 53
delivery trucks, with a total capacity of 1,394 MT. The Company also operates 6 cargo barges owned
by affiliates with an aggregate capacity of approximately 10,400 MT.

The Company’s production and warehouse/storage facilities are ISO 9001 (quality), ISO 14001
(environmental), OHSAS 18001 (safety) and CIP/39051/07/03/519 (Stage 2 certification) certified
and committed to excellence in quality, delivery, and cost competitiveness to its customers.

In August 2009, the Company’s laboratory facility was awarded a Certificate of Accreditation as an
ISO 17025 Chemical Testing Lab by the Department of Trade and Industry’s Philippine Accreditation
Office, attesting to its high-quality facilities and employees. The Company has continuously upgraded
this and its other application laboratories to allow it to continuously seek and implement innovations
across the Company’s entire product design and development cycle.

Intellectual Properties

The Company believes that all proprietary product names, devices and logos used by the Company
and its subsidiaries are registered with or are covered by a pending Application for Registration with
the Intellectual Property Office of the Philippines, and have been filed or are owned by the Company.

As of December 31, 2016, the Company and its affiliates had over 271 registered trademarks covering
a wider range of products such as resins, colorants, foam concentrates, fats and oils, powder coating
and biofuel compounds, among others.

Item 3. Legal Proceedings

As of date of this report, the Company is not a party to any litigation or arbitration proceedings of
material importance, which could be expected to have a material adverse effect on the Company or
on the results of its operations. No litigation or claim of material importance is known to be pending
or threatened against the Company or any of its properties.

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

There were no matters submitted during the fourth quarter of the fiscal year covered by this report to a
vote of security holders, through the solicitation of proxies or otherwise.

PART II - OPERATIONAL AND FINANCIAL INFORMATION

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

(1) The Company’s common shares are traded on the First Board of the Philippine Stock Exchange.
The common shares were listed on December 12, 2012. The following table shows the high and low
prices (in pesos) of the Company’s shares in the Philippines Stock Exchange for the year 2016:

High Low
Full Year 2016 (January 01 - December 31) P12.10 P7.02
Source: Daily Quotation Reports of the Philippine Stock Exchange

The market capitalization of the Company’s common shares as of end-2016, based on the closing
price of P11.40 per share was P81, 428,581,086.

The last traded price of the Company’s shares as of April 10, 2017 was P12.70.

(2) Total shares outstanding as of December 31, 2016 was 7,142,857,990 with a par value of P1.00.
The top 20 shareholders(1) as of the same date are:
Name No. of shares held % to total outstanding
1 Jadel Holdings Co., Inc. 3,930,114,072 55.02
2 PCD Nominee Corporation (Non-Filipino) 1,332,121,670 18.65
3 PCD Nominee Corporation (Filipino) 1,128,539,621 15.80
4 Allvee United, Inc. 95,524,564 1.34
5 Smartworks Trading Co., Inc. 91,523,402 1.28
6 Jadana Inc. 80,973,722 1.13
7 CEE Industries, Inc. 80,146,296 1.12
8 Prime Spin Inc. 80,146,296 1.12
9 Yin Yong L. Lao 65,987,202 0.92
10 John L. Lao 65,987,202 0.92
11 Alex L. Lao 65,159,776 0.91
12 Leon L. Lao 60,608,934 0.85
13 Dean L. Lao 54,610,096 0.76
14 Yvonne Keh 1,946,500 0.03
15 Emily Chua 1,649,400 0.02
16 Vincent D. Lao ITF Lorenzo Vince Tan Lao 1,000,000 0.01
17 Alvin D. Lao 1,000,000 0.01
Yvette Ann Dim Lao ITF Kyle Zachary Lao Chua-
18 1,000,000 0.01
Unsu
Yvette Ann Dim Lao ITF Stella Kathlyn Lao Chua-
19 1,000,000 0.01
Unsu
20 Ivie Mae D. Lao ITF Matthew Sean Lao Sy 501,000 0.01
Total 7,139,539,753 99.95

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Note: (1) Figures are based on the report rendered by the stock transfer agent and exclude shares
under the PCD accounts.

Dividends

On October 27, 2015, the Company announced an increase in the dividend policy’s payout ratio from
25% to 50% of the previous year’s consolidated recurring net income. Under the new dividend
policy, at least 50% of its prior year’s consolidated recurring net income shall be declared as
dividends in favor of the stockholders of record date to be determined by the Board.

The dividends to be received by the stockholders shall be based on the recommendation of the Board
after considering factors such as the Company’s operating expenses, implementation of business
plans, working capital requirements, cash flow position and capital expenditure requirements, as
among other factors. The Company’s Board of Directors may change the dividend policy at any time,
as well as declare special dividends on top of the 50% commitment.

Dividend rate per


Declaration date Payment Date share Amount
June 06, 2016 July 08, 2016 P0.20 per share P1,428,571,598
June 08, 2015 July 08, 2015 P0.15 per share P535,714,350
June 02, 2014 June 30, 2014 P0.20 per share P714,285,799
June 24, 2013 August 19, 2013 P0.15 per share P535,714,350
August 28, 2012 September 06, 2012 P0.85 per share P863,434,640

Item 6. Management’s Discussion and Analysis of Financial Condition, Changes of Financial


Conditions and Result of Operations

As at December 31, 2016 and 2015, the consolidated financial statements include the Company and 100% of
its subsidiaries, namely: FIC, DLPC, OFI, Aero-Pack, and Chemrez Technologies, Inc.

As at December 31, 2014, the consolidated financial statements include the Company and 100% of its
subsidiaries, namely: FIC, DLPC, OFI, Aero-Pack, and partial consolidation of Chemrez Technologies, Inc.

FY2016 versus FY2015

I. Results of Operations

 Reported net income available to common shareholders increased by 15% to P2.6 billion in 2016 from
P2.3 billion in 2015, or earnings per share of P0.37 versus 2015’s P0.32.

 Consolidated revenues of P22.2 billion in 2016 were 14% higher than P19.6 billion in 2015. The growth
in consolidated revenues was mainly driven by the broad-based increase in sales volume and higher
prices of raw materials.

 Gross profit for the year increased by 12% to P4 billion from P3.6 billion in 2015, driven by higher
revenues and improved product mix. Gross profit margin was maintained at over 18% while net profit
margin was steady at 12%.

 Selling and marketing expenses increased by 16% to P564 million from P486 million in 2015 as delivery
charges and employee costs increased by 18% and 13%, respectively.

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 Administrative expenses declined by 4% to Php268 million coming off from a high base in 2015 due to
the one-time tax and filing costs for the increase in the Company’s authorized capital.

 Other income (net), which include foreign exchange gains and losses, interest income, dividend income,
rental income, and other miscellaneous income, declined by 27% to P85 million. The Company booked
a higher foreign exchange gain in 2016 at P69 million versus just 11 million in 2015. This partially offset
the absence of P83 million in one-off gains from the land and building in 2015.

 Finance costs was lower by 42% at P91 million as the Company booked forex gains from borrowing
amounting to P22 million this year compared to a P53 million loss last year.

 Income tax expense grew 13% to P581 million from P513 million in 2015 which was just in-line with
the overall revenue and profit growth.

II. Segment Operations

 The Food Ingredients group posted a 13% increase in net income to P937 million in 2016 from P826
million in 2015. This was largely driven by a 13% increase in volume backed by strong domestic
business and as agreements with foreign principals such as Ventura and Bunge start to bear fruits.
Segment gross profit margin compressed by 1.2 ppts to 14% due to higher commodity prices and the
30-45-day lag in price adjustment. However, margins should recover in the succeeding quarters
following the price adjustments.

 In line with the expected recovery this year, Specialty Plastics group posted a net income growth of 20%
to Php629 million. This was largely attributable to the 8% increase in volume coupled with a 4.4 ppts
improvement in overall gross profit margin. Specialty plastics benefited from the continued growth in
disposable income, as per capita consumption continues to increase. Moreover, wire harness-related
exports posted strong results as port congestion-affected businesses started to recover.

 Oleochemicals group net income increased by 5% to Php858 million in 2015. This was fueled by a 1%
increase in sales volume and a +0.7 ppt improvement in overall gross profit margin. Ongoing efforts to
strengthen commercial and operational execution improved the performance of
the Other Specialty Chemicals segment, which saw a 2% volume growth in 2016 after several years of
volume decline. Revenue mix within the group is also becoming more favorable, as it shifts
towards higher margin specialty chemicals that cater to faster growing and less volatile end markets.

 The Aero-Pack group posted the highest net income growth for the period, at 44%. This was led by the
24% growth in volume and 4.4 pts improvement in gross profit margin. Within the group, Personal Care
is the fastest growing segment, posting a 32% increase in revenues and 42% increase in volume. The
Company expects the segment’s strong growth momentum to continue as aerosol penetration in the
Philippines remains low. Moreover, the segment should benefit from the increasing consumer demand
across all categories, due to rising levels of disposable income in the country.

III. Key Financial Performance Indicators

Key Financial Performance Indicators


2016 2015
Gross Profit margin a 18% 18%
Net profit margin b 12% 12%
Return on Equity c 19% 18%
Current ratio d 2.68x 2.94x
Invest cover e 29x 28x
14
Net debt to equity ratio f 0.15x 0.08x
Asset-to-Equity ratio g 1.45x 1.39x
Book Value per share h P1.96 P1.79

a Gross Profit/ Revenues


b Net Income available to common shareholders/ Revenues
c Net Income available to common shareholders/ Shareholders’ Equity
d Current Assets/ Current Liabilities
e Earnings before interest and taxes/ Interest Expense
f (Borrowings – Cash)/ Shareholders’ Equity
g Total Assets/Total Equity
h Shareholders’ Equity (available to owners of the Parent) / weighted average outstanding number of common

shares

IV. Financial Condition

 The Company’s current ratio remained healthy in 2016. It stood at 2.68x, marginally lower than 2.94x
in 2015 as higher commodity prices resulted in an increase in accounts payable and other short-term
debt.

 Cash level at the end of 2016 stood at P2.8 billion which was lower by P346 million year-on-year mainly
attributable to the increase in working capital requirement due to higher commodity prices.

 Cash conversion cycle was kept at 121 days with Accounts Receivable days, Inventory days, and
Accounts Payable days maintained at 61, 82, and 22, respectively.

 Prepayments and other current assets increased by 22% to Php2.1 billion in 2016 from Php1.7 billion
mainly due to higher input VAT which went up by 38%.

 The Company remained lightly geared in 2016 with net debt to equity ratio manageable at 0.15x.
Interest cover stood at 29x. Total borrowings as of end-2016 amounted to P4.9 billion, with only P1
billion in long-term debt.

 Retained earnings increased by 55% in 2016 to P3.3 billion mainly as a result of higher net income for
the year. Total dividends paid amounted to Php1.4 billion which translated to a 63% payout ratio based
on previous year’s net income.

 Total equity increased by 10% to P14 billion on the back of higher retained earnings.

 The Company remained operating cash flow and free cash flow positive in 2016 despite the volatility in
foreign exchange and commodity prices.
- Net cash generated from operating activities stood at P0.9 billion, a significant drop from P3.8
billion generated in 2015. This was mainly accounted for by the increase in working capital
requirement amounting to Php2.4 billion given higher commodity prices.
- Net cash used in investing activities amounted to P0.4 billion which was mainly spent on
acquisition of property and equipment. This was a reversal from the P28 million cash generated
from investing activities in 2015 when the Company realized a one-time gain from the sale of land
owned by subsidiary Chemrez.
- Net cash used in financing activities amounted to P871 million. The company paid a total of P1.4
billion in dividends while net proceeds from debt availment amounted to P558 million.

15
FY2015 versus FY2014

I. Results of Operations

 The difference in the business and financial conditions of the Company in 2015 was the result of the full
consolidation of Chemrez Technologies, Inc. beginning October 2014. This followed the Company’s
acquisition of the 65% of Chemrez’s outstanding shares. Prior to the transaction, Chemrez was only
34%-owned and was thus considered an associate.

 Reported net income available to common shareholders decreased by 16% to P2.3 billion in 2015 from
P2.7 billion in 2014, or earnings per share of P0.32 versus 2014’s P0.38. The decline stemmed from the
one-time re-measurement gain in 2014 on previously held interest in Chemrez.

 Consolidated revenues of P19.6 billion in 2015 were 21% higher than P16.1 billion in 2014 due to full
consolidation of Chemrez in 2015.

 Gross profit for the year increased by 40% to P3.6 billion from P2.6 billion in 2014, driven by higher
revenues and improved product mix.

 Selling and marketing expenses increased by 13% to P486 million from P430 million as delivery charges
and employee costs increased by 12% and 22%, respectively.

 Administrative expenses were higher by 77% to P280 million from P158 million in 2014. This was
mostly from the one-time tax and filing costs incurred in 2015 amounting to P46 million for the increase
in the Company’s authorized capital stock.

 Other income (net), which included foreign exchange gains and losses, interest income, dividend
income, rental income, and other miscellaneous income, grew 231% to P117 million. This was mostly
from the one-off gain on sale of Chemrez property in 2015 amounting to P83 million. The Company also
booked a foreign exchange gain of P11 million in 2015 versus a P4 million foreign exchange loss in 2014.

 Finance costs were higher by 248% to P158 million from P45 million due to the P53 million in
unrealized foreign exchange loss booked in 2015 compared to P96 thousand in 2014.

 Income tax expense grew 36% to P513 million from P377 million in 2014 due to higher taxable income
following the full consolidation of Chemrez in 2015.

II. Segment Operations

 For food ingredients, healthy margin expansion in both specialties and commodities drove record-high
gross profit margin. This offset the 10% decline in revenues to P10.2 billion as commodity prices
continued to weaken in 2015. Specialties outgrowing commodities in volume drove mix improvement
and resulted in the 19% increase in net income to P826 million.
 Specialty plastics continued to face port congestion-related supply chain constraints in the first half of
2015. Difficulties in raw material importations and exports resulted in volume losses in our wire
harness business. Revenues and net income were down overall by 7% to P2.6 billion and by 4% to P526
million respectively. The rate of decrease in volume and net income however, has decelerated,
indicating a gradual rebound as the situation at the port improved.

 Strong volume for oleochemicals was sustained in 2015 driven by increased demand for biodiesel, as
well as new export markets for the oleochemical specialties. This offset the underperformance of other
specialty chemicals. Overall revenues were 2% higher at P6.4 billion. Margin expansion across the board
led to a 30% increase in recurring net income to P768 million.

16
 Chemrez became fully consolidated starting October 2014 after it became a 99.7%-‐owned subsidiary.

 Despite lower margin for aerosols after some non-recurring sales in 2014, as well as logistical issues in
the fourth quarter of 2015, net income was up 5% year on year at P100 million. Sales were boosted by
15% to P514 million, with volume remaining flat.

III. Key Financial Performance Indicators

2015 2014
Gross Profit margin a 18% 16%
Net profit margin b 12% 17%
Return on Equity c 18% 25%
Current ratio d 2.94x 1.55x
Invest cover e 28x 66x
Net debt to equity ratio f 0.08x 0.38x
Asset-to-Equity ratio g 1.39x 1.66x
Book Value per share h P1.79 P1.54

a Gross Profit/ Revenues


b Net Income available to common shareholders/ Revenues
c Net Income available to common shareholders/ Shareholders’ Equity
d Current Assets/ Current Liabilities
e Earnings before interest and taxes/ Interest Expense
f (Borrowings – Cash)/ Shareholders’ Equity
g Total Assets/Total Equity
h Shareholders’ Equity (available to owners of the Parent) / weighted average outstanding number of common

shares

IV. Financial Condition

 The Company has continued to pay down its borrowings with its higher cash levels, resulting in a
current ratio of 2.94x in 2015 versus 1.55x in 2014.

 The Company continues to improve collection efficiency, with average receivable days at 61 days in
2015 compared to 63 days in 2014.

 Decreased working capital requirements from the lower commodity prices, as well as monetization of
a tax credit from the biodiesel business benefited the Company cash level, which increased by P1.3
billion to P3.1 billion.
 Owing to lower commodity prices, trade and other receivables fell by 17% from P3.9 billion in 2014 to
P3.3 billion in 2015. Likewise, inventories decreased by 5% from P3.8 billion in 2014 to P3.6 billion.

 Prepayments and other current assets increased by 7% in 2015 to P1.7 billion from P1.6 billion in 2014,
mainly due to higher levels of prepaid and creditable withholding taxes related to the biodiesel business.

 The Company’s debt to equity ratio improved to 33% from 55% in 2014, after the Company paid down
some of the debt that financed the acquisition of Chemrez. Borrowings decreased by P1.7 billion, or
31%, to P4.2 billion. The Company currently has P1.0 billion in long-term debt, with the remainder being
short-term.

17
 Retained earnings in 2015 amounted to P2.1 billion, decreasing by 46% from P4.0 billion in 2014 as the
Company declared dividends in stock and cash amounting to P3.6 billion and P536 million,
respectively, in 2015. Based on the 2014 recurring net income of P2.0 billion, total cash dividend payout
ratio was 26%.

 Total equity increased by 16% in 2015, or from P11.0 billion to P12.8 billion, after a 100% stock
dividend was declared. The stock dividends were issued out of the P14.0 billion increase in the
Company’s authorized capital stock.

 During the year, the Company generated significantly higher cash level as working capital requirements
decreased, with a portion of the cash going to debt and dividend payments.

- Net Cash generated from operating activities in 2015 was P3.8 billion compared to P60 million in
2014 as lower commodity prices decreased working capital requirements. Further, tax credits
amounting to P749 million were monetized during the year.
- Net Cash provided by investing activities in 2015 amounted to P28 million. This compares to the
P4.8 billion used in 2014, most of which was for the acquisition of Chemrez.
- Net cash used in financing activities was lower at P2.5 billion compared to P3.1 billion that was
provided by in 2014, following higher debt and interest payments.

FY2014 versus FY2013

I. Results of Operations

 The difference in the business and financial conditions of the Company in 2014 was the result of the
partial consolidation of Chemrez Technologies, Inc. beginning October 2014. This followed the
completion of the acquisition of the 65% of its outstanding shares through a public tender offer. Prior
to October 2014, Chemrez was considered an associate.

 Reported net income available to common shareholders increased by 94% to P2.7 billion in 2014 from
P1.4 billion in 2013, or earnings per share of P0.38 versus 2013’s P0.20. In 2014, the Company booked
P960 million gain on re-measurement of previously held equity interest in Chemrez.

 Consolidated revenues of P16.1 billion in 2014 were 50% higher than P10.8 billion in 2013, driven by
strong volume growth in food ingredients, as well as partial consolidation of Chemrez Technologies.

 Gross profit for the year increased by 29% to P2.6 billion from P2.0 billion, driven by higher sales.

 Equity share from net income of associate, Chemrez Technologies, Inc., increased by 39% to P147
million in 2014 from P105 million in 2013 due to higher revenues and improved margins. Prior to
October 2014, D&L owned 34% of Chemrez Technologies.

 Selling and marketing expenses grew 39% to P430 million from P310 million. This was driven by the
43% increase in delivery charges on higher sales volume.

 Administrative expenses increased 40% to P141 million in 2014 from P101 million the prior year. This
was driven by the 56% increase in taxes and licenses costs.

 Other income (net), which included foreign exchange gains and losses, interest income, dividend
income, rental income, and other miscellaneous income, declined 32% to P35 million. Lower interest
income earned during the period mostly accounted for the decrease.

18
 Finance costs were lower by 42% to P45 million from P78 million due to P96 thousand in unrealized
foreign exchange loss booked in 2014 versus P34 million in unrealized foreign exchange loss booked in
2013.

 Income tax expense grew 40% to P377 million from P270 million, reflecting the higher taxable income
during the period.

II. Segment Operations

 Good volume growth across all categories, coupled by relatively higher commodity prices year-on-year,
drove a 45% increase in revenues of food ingredients business to P11.3 billion in 2014. Though
commodities outpaced growth in specialties, and compressed overall margins, net income was
higher by 22% to P695 million during the year.

 Group sales of the plastics business were higher by 13% at P2.8 billion in 2014 on the back of double--
digit increase in volume. Challenges posed by the port congestion affected margins, particularly in the
latter part of 2014. Overall, the plastics group net income was 2% higher at P549 million.

 Volume growth of aerosols was positive during the year. Margins likewise were better on improvements
in personal care and maintenance chemicals and other segments. As a result, aerosols grew revenues
by 3% to P446 million. Net income increased 8% in 2014 to P95 million.

 Equity share from net income of associate, Chemrez Technologies, Inc., increased by 39% to P147
million in 2014 as its net income increased 92% year-on-year to P591 million. Sales of P6.3 billion were
45% higher year-on-year, largely driven by higher sales volume and improving margins in the
oleochemicals segment.

 Chemrez Technologies ceased to be an associate and became a 100%-‐owned subsidiary beginning


October 2014.

III. Key Financial Performance Indicators

2014 2013
Gross Profit margin a 16% 19%
Net profit margin b 17% 13%
Return on Equity c 25% 16%
Current ratio d 1.55x 3.20x
Invest cover e 66x 39x
Net debt to equity ratio f 0.38x -0.20x
Asset-to-Equity ratio g 1.66x 1.29x
Book Value per share h P1.54 P1.24
a Gross Profit/ Revenues
b Net Income available to common shareholders/ Revenues
c Net Income available to common shareholders/ Shareholders’ Equity
d Current Assets/ Current Liabilities
e Earnings before interest and taxes/ Interest Expense
f (Borrowings – Cash)/ Shareholders’ Equity
g Total Assets/Total Equity
h Shareholders’ Equity (available to owners of the Parent) / weighted average outstanding number of common

shares

19
IV. Financial Condition

 Lower cash level and higher borrowings, following the acquisition of Chemrez Technologies, resulted in
current ratio of 1.55x in 2014 versus 3.20x in 2013.
 A portion of the Chemrez acquisition was funded by cash and resulted in a P1.6 billion decrease in the
Company’s cash level from P3.4 billion in 2013 to P1.8 billion in 2014.

 Trade and other receivables increased by 100% from P2 billion in 2013 to P3.9 billion in 2014 as sales
across segments increased.

 Inventories increased by 77% from P2.1 billion in 2013 to P3.8 billion in 2014 primarily due to higher
levels of raw materials and finished goods.

 Prepayments and other current assets increased by 267% from P432 million to P1.6 billion in 2014.
These are mostly in form of creditable withholding taxes and input value added tax (VAT). The increase
was largely a result of the partial consolidation of Chemrez in 2014.

 Debt (borrowings) to equity ratio of 55% was up from 19% in 2013 as the Company took on debt to
finance the acquisition of Chemrez. Borrowings increased by P4.4 billion to P6.0 billion at end 2014. All
of the Company’s borrowings are short-‐term.

 Retained earnings increased by 92% to P4.1 billion due to P2.7 billion net income earned in 2014.

 The Company paid P714 million in cash dividends during the year. This was equivalent to P0.20
dividend per share, composed of P0.10 in regular dividend and P0.10 in special dividend. Based on
2013 recurring net income of P1.4 billion, total payout ratio was 51%.

 Total equity increased by 24% to P11.0 billion from P8.9 billion, reflecting higher net income earned
during the year partially offset by dividends paid.

 During the year, the Company’s cash generally went to the payment for the acquisition of Chemrez, as
well as working capital requirements.

- Net Cash generated from operating activities in 2014 was P60 million on higher working capital
requirements. This compares to P264 million generated in 2013.
- Net cash used in investing activities in 2014 mounted to P4.8 billion, mostly to fund the acquisition
of Chemrez Technologies.
- Net cash provided by financing activities amounted to P3.1 billion, with P7.5 billion proceeds from
borrowings offset by payments of borrowings and dividends totaling P4.4 billion.

D&L’s Plan of Operation for 2017

For 2017, resilient Philippine economy and robust consumer spending should continue to support
growth across all the Company’s business segment. The Company will continue to focus on margin
expansion and volume growth going forward in order to sustain profitability and earnings growth.
Moreover, the Company will continue to invest in research and innovation initiatives that will further
strengthen its reputation as a market leader in customized specialty products.

High margin specialties are expected to comprise a bigger portion of overall sales, allowing the Company
to lessen its revenue dependence on volatile commodity prices. Moreover, exports should continue to
grow as partnership with foreign principals such as Ventura and Bunge start to bear fruit.

20
Item 7. Financial Statements

The Financial Statements of the Company are incorporated herein by reference and attached as an
integral part of this SEC Form-17A.

Item 8. Information on Independent Public Accountant and Other Related Matters

1. Independent Public Accountant

(a) Audit and Audit-Related Fees

The Company’s independent public accountant is the accounting firm of Isla Lipana & Co. The Company’s
Audit Committee recommended for approval of the Board the appointment of external auditor for the
ensuing year. The stockholders then approved and ratified the appointment of external auditor at the
annual stockholder’s meeting held on June 6, 2016. Isla Lipana has not expressed any intention to
resign as the Company’s principal auditor nor has it indicated any hesitance to accept re-election
after the completion of their last audit.

Pursuant to the General Requirements of the SRC Rule 68, paragraph 3 (Qualifications and Reports of
Independent Auditors), the Company has engaged Isla Lipana & Co. as external auditor. Ms. Gina S.
Detera was the audit engagement partner-in-charge for the Company’s financial statement audit in 2016.
Ms. Imelda Dela Vega-Mangundaya was the audit engagement partner-in-charge for the Company’s
financial statement audit from 2010 to 2015.

The aggregate fees billed for each of the last three (3) fiscal years for professional services that are
normally rendered by Isla Lipana & Co (formerly Joaquin Cunanan & Co.) for the audit of the company’s
Annual Financial Statements are the following:

Year Audit Fees


2014 P5,959,740
2015 P5,410,650
2016 P5,644,100

There are no other assurance and related services by Isla Lipana & Co. that are related to the
performance of the audit or review of the Company’s Financial Statements.

(b) Tax Fees

Tax consultancy services are secured from entities other than the appointed external auditor.

(c) All Other Fees

There are no aggregate fees billed in each of the last three (3) fiscal years for products and services
provided by Isla Lipana & Co., other than the services reported under items (a) & (b) above.

(d) Audit Committee’s Approval Policies and Procedures

The Audit Committee is comprised of the following members: Atty. Mercedita S. Nolledo, as
Chairman (Independent Director), Mr. Filemon T. Berba Jr. (Independent Director) and Mr. Yin
Yong L. Lao.

21
The Audit Committee meets on a regular basis to:

a) Assist the Board in the performance of its oversight responsibility for the financial reporting
process, system of internal control, audit process, and monitoring of compliance with
applicable laws, rules and regulations;

b) Provide oversight over Management’s activities in managing credit, market, liquidity,


operational, legal and other risks of the corporation. This function shall include regular
receipt from Management of information on risk exposures and risk management activities;

c) Perform oversight functions over the corporation’s internal and external auditors. It should
ensure that the internal and external auditors act independently from each other, and that
both auditors are given unrestricted access to all records, properties and personnel to
enable them to perform their respective audit functions;

d) Review the annual internal audit plan to ensure its conformity with the objectives of the
corporation. The plan shall include the audit scope, resources and budget necessary to
implement it;

e) Prior to the commencement of the external audit, discuss with the external auditor the
nature, scope and expenses of the audit, and ensure proper coordination if more than one
audit firm is involved in the activity to secure proper coverage and minimize duplication of
efforts;

f) Establish an internal audit function, and consider the appointment of an independent internal
auditor and the terms and conditions of its engagement and removal;

g) Monitor and evaluate the adequacy and effectiveness of the corporation’s internal control
system, including financial reporting control and information technology security;

h) Review the reports submitted by the internal and external auditors;

i) Review the quarterly, half-‐‐year and annual financial statements before their submission to
the Board, with particular focus on the following matters:

▪ Any change/s in accounting policies and practices


▪ Major judgmental areas
▪ Significant adjustments resulting from the audit
▪ Going concern assumptions
▪ Compliance with accounting standards
▪ Compliance with tax, legal and regulatory requirements

j) Coordinate, monitor and facilitate compliance with laws, rules and regulations;

k) Evaluate and determine the non-audit work, if any, of the external auditor, and review
periodically the non-audit fees paid to the external auditor in relation to their significance to
the total annual income of the external auditor and to the corporation’s overall consultancy
expenses. The committee shall disallow any non-audit work that will conflict with his duties
as an external auditor or may pose a threat to his independence. The non-audit work, if
allowed, should be disclosed in the corporation’s annual report; and

22
l) Establish and identify the reporting line of the Internal Auditor to enable him to properly
fulfill his duties and responsibilities. He shall functionally report directly to the Audit
Committee. The Audit Committee shall ensure that, in the performance of the work of the
Internal Auditor, he shall be free from interference by outside parties.

2. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Changes in Accounting Policies

Refer to Note 24 – Summary of Significant Accounting Policies under Changes in Accounting Policies
and Disclosures discussion on the Consolidated Financial Statement as of the year ended December
31, 2016 included in this report.

PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer

The Articles of Incorporation provide for the election of seven (7) directors to the Board to serve
for a term of one year. The Board is responsible for the overall management and direction of the
Company. It meets on a regular basis to review and monitor the Company’s financial position and
operations.

The following sets forth certain information as to the Directors and executive officers of the
Company and key officers of the Company’s wholly-owned subsidiaries:

Name Age Nationality Position


Dean L. Lao 78 Filipino Chairman Emeritus
Leon L. Lao 74 Filipino Chairman
Yin Yong L. Lao 64 Filipino Director and Vice-Chairman
Alex L. Lao 71 Filipino Director
John L. Lao 62 Filipino Director
Director, President and Chief
Alvin D. Lao 45 Filipino
Executive Officer
Mercedita S. Nolledo 76 Filipino Independent Director
Filemon T. Berba, Jr. 78 Filipino Independent Director
Amorsolo M. Rosario 56 Filipino CFO, Treasurer, Compliance Officer
Managing Director, Chemrez
Dean A. Lao, Jr. 49 Filipino
Technologies
Lester A. Lao 48 Filipino Managing Director, FIC and DLPC
Vincent D. Lao 43 Filipino Managing Director, Oleo-Fats, Inc.
Kristine Ann C. Catindig-Ong 35 Filipino Corporate Secretary
Ainslee Anne T. Lao 26 Filipino Assistant Corporate Secretary

The business experience for the past five years of each of the directors and executive officers is
set forth below.

Dean L. Lao is the Chairman Emeritus of the Company, having previously served as Chairman and
President of the Company since 1971. He was the founder of the various companies belonging to the

23
Lao Family which include FIC Marketing Co., Inc. (1986), Oleo-‐‐Fats, Inc. (1988), Corro-Coat, Inc (1990),
Aero-Pack Industries, Inc. (1990), First in Colors, Inc. (1991), and Chemrez, Inc. (1991). He currently
serves as Director of the following companies: Aero-Pack Industries, Inc., Chemrez, Inc., First in
Colours, Incorporated, Oleo-Fats Incorporated, Malay Resources, Incorporated, FIC Marketing Co., Inc.,
FIC Tankers Corporation, LBL Prime Properties, Inc., Ecozone Properties, Inc., First Batangas Industrial
Park, Inc. and Jadel Holdings Co., Inc. Mr. Lao obtained his B.S. in Chemical Engineering from the
Polytechnic Colleges of the Philippines.

Leon L. Lao is the Chairman of the Company, having been a Director since 1971. He has been the
President and Chief Executive Officer since 2006. He is a co-founder of D&L Industries, Inc. where he
currently serves as Director. He is also President of First in Colors, Inc. and D&L Polymer and Colours,
Incorporated, and Director of Aero-Pack Industries, Inc., Chemrez, Inc., First in Colours, Incorporated, FIC
Marketing Co., Inc., Oleo-Fats Incorporated, Malay Resources, Incorporated, LBL Prime Properties, Inc.,
Ecozone Properties, Inc., First Batangas Industrial Park, Inc., Color-Chem Corp. and Jadel Holdings Co.,
Inc. Mr. Lao obtained his B.S. in Chemical Engineering from the Polytechnic Colleges of the Philippines.

Alex L. Lao has been a Director of the Company since 1971. He has also been a Director of other
subsidiaries and affiliates of D&L Industries. He previously served as Alternate Director of Axis REIT a
real estate investment trust listed in Malaysia. Mr. Lao is also a Director of the following: Aero-Pack
Industries, Inc., Chemrez, Inc., First in Colours, Incorporated, Oleo-Fats Incorporated, Malay Resources,
Incorporated, FIC Marketing Co., Inc., LBL Prime Properties, Inc., First Batangas Industrial Park, Inc.,
Anonas LRT Property and Dev’t Corp., Hotel Acropolis, Inc., and Jadel Holdings Co., Inc. Mr. Lao obtained
his B.S. in Chemical Engineering from the Polytechnic Colleges of the Philippines.

Yin Yong L. Lao is the Vice Chairman of the Company, having been a Director since 1971 and having
previously served as President. He is a Director as well as President and Chief Executive Officer of
LBL Prime Properties, Inc. Mr. Lao is also a Trustee of the Association of Petrochemical Manufacturers
of the Philippines. He also serves as a director of the following: Aero-Pack Industries, Inc., Chemrez, Inc.,
First in Colours, Incorporated, Oleo-Fats Incorporated, Malay Resources, Incorporated, FIC Marketing Co.,
Inc., Ecozone Properties, Inc., First Batangas Industrial Park, Inc., Anonas LRT Property and Dev’t Corp.,
Hotel Acropolis, Inc., and Jadel Holdings Co., Inc. He graduated from the Ateneo de Manila University
with a Bachelor of Arts degree in General Studies.

John L. Lao served a s President of the Company until August 2016. He remains to be a Director of the
Company. He is likewise the President of Aero-Pack Industries, Inc. He has also been the Executive
Vice President of Chemrez Technologies Inc. since 2006. He is currently the Executive Vice President of
Color-Chem Corporation. His other directorships include North Mactan Industrial Corporation, Aero-Pack
Industries, Inc., Chemrez, Inc., First in Colours, Incorporated, D&L Polymer and Colours, Incorporated,
D&L Powder Coating, Inc., Oleo-Fats Incorporated, Malay Resources, Incorporated, FIC Marketing Co.,
Inc., LBL Prime Properties, Inc., Ecozone Properties, Inc., Anonas LRT Property and Dev’t Corp., Hotel
Acropolis, Inc., First Batangas Industrial Park, Inc. and Jadel Holdings Co., Inc. Mr. Lao obtained his B.S.
in Business Administration from the University of the East.

Mercedita S. Nolledo is an independent director of the Company. She also serves currently as a Director
and/or officer in various capacities for Bank of the Philippine Islands, BPI Capital Corporation, BPI Family
Savings Bank, BPI Foundation, Inc., BPI Investment Management, Inc., Asset Management and Trust
Corporation, Xurpas, Inc., Ayala Foundation, Inc., Ayalaland Commercial REIT, Inc., Anvaya Cove Beach &
Nature Club, Michigan Holdings, Inc., and Sonoma Properties, Inc.. Mrs. Nolledo obtained a B.S. in Business
Administration and Accountancy (Magna Cum Laude and class valedictorian) and a Bachelor of Laws (LI.B
degree – cum laude and class valedictorian) from the University of the Philippines. She placed 2nd in both
the Certified Public Accountant exams and bar exams in 1960 and 1965, respectively.

24
Filemon T. Berba, Jr. is an independent director of the Company. He is the President of the Philippine
Foundation for Science & Technology, President Emeritus of the Philippine Quality Award Foundation
and serves as independent director of EEI Corporation. He also previously served as Senior Managing
Director of Ayala Corporation from 1991 to 2003, seconded as Vice Chairman and President of Manila
Water Company from 1997 to 2003, President of Globe Telecom from 1995 to 1997, Vice Chairman
and President of Integrated Microelectronics, Inc. from 1991 to 2003, President and Chief Executive
Officer of Philippine Electric Corporation from 1987 to 1990, President of Westinghouse Asia Controls
Corporation from 1979-1987, Group President of various companies under the Herdis Group from
1975-1979, Vice President for Manufacturing and Logistics Services for United Laboratories from 1973
to 1975, as well as other senior management positions in the First Philippine Holdings Group. Mr. Berba
obtained a B.S. in Electrical Engineering (Magna Cum Laude) from the University of the Philippines
and obtained his Masters of Business Administration degree (with distinction) from the Wharton School
of the University of Pennsylvania.

Alvin D. Lao became a Director and President and Chief Executive Officer of the Company in August 2016.
He also serves as an Independent Director of Xurpas and as a Director of Axis REIT, a real estate
investment trust listed in Malaysia. He is a Vice President of the Technology Club of the Philippines
(Philippine alumni of the Massachusetts Institute of Technology) and past president of the
Entrepreneurs Organization (EO, Philippine Chapter). He is a current member of the Financial
Executives Institute of the Philippines (FINEX) and the Wallace Business Forum. He was recently
appointed as a member of the Advisory Board of Urban Land Institute – Philippine Branch. He is also
the Executive Vice President and Treasurer of LBL Prime Properties, Inc. His other directorships include:
Enderun Colleges, Gurango Software Corporation, First in Colours, Incorporated, D&L Polymer and
Colours, Incorporated, FIC Tankers Corporation, Ecozone Properties, Inc., Anonas LRT Property and Dev’t
Corp., and Hotel Acropolis, Inc. He was previously a faculty member of the De La Salle University Graduate
School of Business. He graduated from the University of Western Australia with a Bachelor of Science in
Information Technology (Honours) and Statistics. He also holds a Master’s degree in Business
Administration from the MIT Sloan School of Management.

Amorsolo M. Rosario was appointed as the Chief Financial Officer, Treasurer and Chief Compliance Officer
of the Company in August 2016. He has been with D&L group since 2010, initially as Chief Financial Officer
of Oleo-Fats, Inc. before moving to the parent company as Finance and Accounting Consultant in 2012. Prior
to joining D&L, he was Senior Vice President of Finance at Nestle Philippines. He held a number of
Controllership, Finance, Management Information System, and Internal Audit roles of increasing
responsibility in the Philippines, Australia, the UK and Switzerland for 27 years. Mr. Rosario holds a
Bachelor of Science in Business Administration and Accountancy from the University of the Philippines and
an MBA from the Pamantasan ng Lungsod ng Maynila. He also completed the Program for Executive
Development of the International Institute for Management Development in Switzerland and is an SBEP
alumnus of the University of Asia & the Pacific. He placed 5th in the Certified Public Accountant Exams in
1982.

Dean A. Lao, Jr. is the Managing Director of Chemrez and a member of the Management Committee of
D&L Industries. He is currently the Chairman of the United Coconut Association of the Philippines,
Director of the ASEAN Oleochemical Manufacturing Group, President of the Philippine Oleochemical
Manufacturers Association, President of The Philippine Biodiesel Association and member of the Wallace
Business Forum, Chemical Industries Association of the Philippines, Philippine Association of Paint
Manufacturers and the Entrepreneurial Organization, Philippine Chapter. He graduated from Curtin
University in Western Australia with a Bachelor of Business in Information Processing after completing
his freshman year at the Ateneo de Manila University in the Philippines with a BA in Interdisciplinary
Studies. He also completed the Advanced Management Program of Harvard Business School.

25
Lester A. Lao is the Managing Director of First in Colours, Incorporated and D&L Polymer and Colours,
Inc. and a member of the Management Committee of D&L Industries. He also serves as Director of First
in Colours, Incorporated, D&L Polymer and Colours, Inc., D&L Powder Coating, Inc. Anonas LRT
Property and Dev’t Corp., and Hotel Acropolis, Inc. He finished his Bachelor of Applied Science
(Information Business) in Edith Cowan University Australia.

Vincent D. Lao is the Managing Director of Oleo-Fats and a member of the Management Committee of
D&L Industries. He was previously Assistant Trader at Shuwa Co. Ltd. in Japan from 1994 to 1995. He
also serves as Director of D&L Polymer and Colours, Incorporated, Oleo-Fats, Incorporated, Anonas LRT
Property and Dev’t Corp., and Hotel Acropolis, Inc. He graduated from the University of Western
Australia with a Bachelor of Arts in Economics and Japanese Studies.

Kristine Ann C. Catindig-Ong is the Corporate Secretary of the Company, Corporate Information Officer
and Corporate Legal Counsel of the Company. She is likewise the Assistant Corporate Secretary of the
following subsidiaries: Oleo-Fats, Incorporated, D&L Polymer and Colours, Inc., First in Colours,
Incorporated, Aero-Pack Industries, Inc., and Chemrez Technologies, Inc.. She is lawyer with a juris doctor
degree from the Ateneo School of Law and a member of the Integrated Bar of the Philippines.

Ainslee T. Lao is the Assistant Corporate Secretary of the Company. She is likewise the Assistant Corporate
Secretary of the following subsidiaries: Oleo-Fats, Incorporated, D&L Polymer and Colours, Inc., First in
Colours, Incorporated, Aero-Pack Industries, Inc., and Chemrez Technologies, Inc. She holds a Bachelor of
Arts degree in History and a Master’s degree in International Business from the University of London.

Involvement in Certain Legal Proceedings

No Director, executive officer, or senior officer of the Company during the past five (5) years that has
been subject to:

(a) Any bankruptcy petition files by or against any business of which such person was a general partner
or executive officer either at the time of the bankruptcy or within two years prior to that time;

(b) Any conviction by final judgment, including the nature of the offense, in a criminal proceeding,
domestic or foreign, excluding traffic violations and other minor offenses;

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

Being found by a domestic or foreign court of competent jurisdiction (in a civil action), the Commission
or comparable foreign body, or a domestic or foreign Exchange or other organized trading market or
self- regulatory organization, to have violated a securities or commodities law or regulation and the
judgment has not been reversed, suspended, or vacated.

26
Board Meetings and Attendance

No. of
Meetings No. of
Date of Held during
Board Name Meetings %
Election the year Attended
6/8/2015
Chairman Emeritus Dean L. Lao
6/6/2016 6 6 100
6/8/2015
Chairman Leon L. Lao 6/6/2016 6 5 83
6/8/2015
Member Alex L. Lao 6/6/2016 6 6 100
6/8/2015
Member Yin Yong L. Lao 6/6/2016 6 6 100
6/8/2015
Member John L. Lao 6/6/2016 6 6 100

Member Alvin D. Lao 8/1/2016 2 2 100


6/8/2015
Independent Filemon T. Berba, Jr. 6/6/2016 6 6 100
4/4/2016
Independent Mercedita S. Nolledo 6/6/2016 4 4 100

Item 10. Executive Compensation

The total annual compensation received by Executive Officers and key senior personnel of the Company
and its wholly-owned subsidiaries and affiliate in 2014, 2015, and 2016 amounted to P79,764,505,
P91,636,597 and P103,513,169 , respectively. The projected total annual compensation for the current
year 2017 is P109, 723,959. The table below shows the most highly compensated key officers and senior
personnel of the Company.

Other
Name Position Year Salary Bonus Compensation
President and CEO (until July
John L. Lao 2016) 2016 - -
Chief Finance Officer, Treasurer
and Chief Compliance Officer (until
July 2016), President and CEO
Alvin D. Lao (starting August 2016) 2016 - -

Dean A. Lao, Jr. Managing Director - Chemrez 2016 - -


Lester A. Lao Managing Director - DLPC/FIC 2016 - -
Vincent D. Lao Managing Director - Oleo Fats 2016 - -
Other Senior Mangers 2016 - -
Total P 103,513,169 - -

27
The following allowances for reimbursable expenses are given to Directors for each meeting attended:

 P60,000 for the Chairman of the Board


 P50,000 for each Board member
 P35,000 for the chairman of the Board Committee
 P25,000 for each member of the Board Committee

Aside from the aforementioned allowances, no other compensation is paid to Directors of the Company.
Further, the Company does not have any stock option or management incentive plan as part of its
current compensation for Directors and officers.

Item 11. Security Ownership of Certain Beneficial Owners and Management

As of December 31, 2016, the beneficial owners of more than five (5) percent of any class of the
Company’s voting securities are as follows:

Name, address of record Name of Beneficial


Title of Owner & No. of Shares Percent
owner and relationship with Citizenship
Class Relationship w/ Held (1)
issuer
Record Owner
JADEL Holdings, Inc. (2)
65 Industria St.,
Common n/a Filipino 55.02%
Bagumbayan, Quezon City 3,930,114,072
Stockholders
PCD Nominee Corp (Non- The Hongkong and
Filipino) Shanghai Banking
Common Foreign 8.09%
G/F Makati Stock Exchange, Corp. Ltd. - Clients' 577,733,638
Ayala Avenue, Makati City Account
PCD Nominee Corp (Non-
Deutsche Bank
Filipino)
Common Manila - Clients' Foreign 6.75%
G/F Makati Stock Exchange, 481,930,623
Account
Ayala Avenue, Makati City

Note: (1) Percentage is based on total number of shares issued – 7,142,857,990


(2) Figures are based on the report rendered by the stock transfer agent

The following table shows the security ownership of the Company’s senior management as of December
31, 2016:

Amount and Nature


Title of Name of Beneficial % to Total
Position of Beneficial Citizenship
Class Owner Outstanding
Ownership (1)
54,610,096 (D) 0.76%
Common Dean L. Lao Chairman Emeritus Filipino
403,773 (I) 0.01%
60,708,934 (D) 0.85%
Common Leon L. Lao Chairman Filipino
38,209,830 (I) 0.53%
65,159,776 (D) 0.91%
Common Alex L. Lao Director Filipino
52,808,953 (I) 0.74%
28
Director and Vice- 65,987,202 (D) 0.92%
Common Yin Yong L. Lao Filipino
Chairman 73,044,729 (I) 1.02%
68,837,202 (D) 0.96%
Common John L. Lao Director Filipino
49,453,168 (I) 0.69%
Common Filemon T. Berba Independent Director 200,002 (D) Filipino 0.00%
Common Mercedita S. Nolledo Independent Director 200,000 (D) Filipino 0.00%
President & Chief 7,753,000 (D) 0.11%
Common Alvin D. Lao Filipino
Executive Officer 19,673,498 (I) 0.28%
Managing Director, 430,000 (D) 0.01%
Common Dean A. Lao, Jr. Filipino
Chemrez Technologies 2,503,769 (I) 0.04%
Managing Director, FIC 200,000 (D) 0.00%
Common Lester A. Lao Filipino
and DLPC 100,034,428 (I) 1.40%
0.02%
Managing Director, Oleo- (D)
Common Vincent D. Lao 1,760,000 Filipino
Fats, Inc.
14,530,569 (I) 0.20%
Assistant Corporate
Common Ainslee Anne Lao 546,000 (D) Filipino 0.01%
Secretary
Chief Financial Officer,
Common Amorsolo Rosario Treasurer, & Chief - - Filipino 0.00%
Compliance Officer
Kristine Catindig-
Common Corporate Secretary (D) Filipino 0.00%
Ong 125,000

Percentage is based on total number of shares issued of 7,142,857,990

Note:
(1) Indirectly owned shares are attributable to the individual Lao family member’s direct (D)

and indirect (I) interests in the following companies, which are principal stockholders of the
Company

No. of shares in the % to Total


Name of Company Company Outstanding
Jadel Holdings, Inc. 4,130,629,976 57.83%
Allvee United, Inc. 28,657,369 0.40%
CEE Industries, Inc. 6,594,315 0.09%
Hansevian, Inc. 700,000 0.01%
Jadana, Inc. 21,123,580 0.30%
Prime Spin, Inc. 35,691,318 0.50%
SmartWorks Trading Co., Inc. - 0.00%

Item 12. Certain Relationships and Related Transactions

Mr. Dean L. Lao, Mr. Leon L. Lao, Mr. Alex L. Lao, Mr. Yin Yong L. Lao and Mr. John L. Lao are brothers.
Mr. Dean A. Lao, Jr. and Mr. Lester A. Lao are sons of Mr. Dean L. Lao. Mr. Alvin D. Lao and Mr. Vincent
D. Lao are sons of Mr. Leon L. Lao. Ms. Ainslee Anne T. Lao is the daughter of Mr. Alex L. Lao.

All other directors and officers are not related either by consanguinity or affinity.

Details of the Related Party Transaction are discussed under Notes 1 (General Corporate Information)
and 18 (Related Party Transaction) of the Notes to the Consolidated Financial Statements of the

29
Company. There were no transactions with directors, officers or any principal stockholders (owning at
least 10% of the total outstanding shares of the Company) that are not in the ordinary course of
business of the Company.

PART IV – CORPORATE GOVERNANCE

Item 13. Compliance with Leading Practice on Corporate Governance

Please refer to attached Annual Corporate Governance Report ("ACGR"), which is marked as Exhibit I
of this Annual Report.

Whistle Blowing Policy

The Company expects its employees to bring to its attention, or to that of senior management, any
breach or suspected breach of these principles. Provisions have been made to assure its employees
that their reports shall be held in confidence and that they will not suffer as a consequence of doing
so.

PART V – EXHIBITS AND SCHEDULES

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

(a) Exhibits

Exhibit 1 – Annual Corporate Governance Report

(b) Reports on SEC Form 17-C

D&L INDUSTRIES, INC.


LIST OF CORPORATE DISCLOSURES/REPLIES TO SEC LETTERS
UNDER SECTION FORM 17-C
JANUARY 1, 2016 TO DECEMBER 31, 2016

Date Description of disclosure


05-Jan-16 Certification on the Attendance of the Board of Directors for 2015
07-Jan-16 List of Top 100 Stockholders
12-Jan-16 Public Ownership Report
12-Jan-16 Statement of Changes in Beneficial Ownership of Securities
12-Jan-16 Statement of Changes in Beneficial Ownership of Securities
13-Jan-16 Statement of Changes in Beneficial Ownership of Securities
19-Jan-16 Statement of Changes in Beneficial Ownership of Securities
19-Jan-16 Statement of Changes in Beneficial Ownership of Securities
22-Jan-16 Statement of Changes in Beneficial Ownership of Securities
22-Jan-16 Statement of Changes in Beneficial Ownership of Securities
29-Jan-16 Statement of Changes in Beneficial Ownership of Securities
29-Jan-16 Statement of Changes in Beneficial Ownership of Securities

30
24-Feb-16 Notice of Analysts'/Investors' Briefing
01-Mar-16 Notice of Annual or Special Stockholders' Meeting
01-Mar-16 Press Release
02-Mar-16 Setting of Annual Stockholders’ Meeting
28-Mar-16 Compliance Report on Corporate Governance
Change in Directors and/or Officers (Resignation, Removal or Appointment,
05-Apr-16
Election and/or Promotion)
05-Apr-16 Press Release
07-Apr-16 Appointment of Independent Director
06-Apr-16 Initial Statement of Beneficial Ownership of Securities
07-Apr-16 List of Top 100 Stockholders
13-Apr-16 Annual Report
15-Apr-16 Public Ownership Report
27-Apr-16 Request for distribution of Annual report in CD format
28-Apr-16 Notice of Analysts'/Investors' Briefing
28-Apr-16 Information Statement
03-May-16 Press Release
03-May-16 Amendments to By-Laws
04-May-16 Clarification of News Reports
05-May-16 Quarterly Report
12-May-16 Information Statement
06-Jun-16 Declaration of Cash Dividends
06-Jun-16 Press Release
06-Jun-16 Results of Annual or Special Stockholders' Meeting
06-Jun-16 Results of Organizational Meeting of Board of Directors
09-Jun-16 Guidelines for Cash Dividends Distribution
17-Jun-16 Stockholders’ List as of Record Date of May 12, 2016
27-Jun-16 Statement of Changes in Beneficial Ownership of Securities
05-Jul-16 Statement of Changes in Beneficial Ownership of Securities
07-Jul-16 List of Top 100 Stockholders
13-Jul-16 Public Ownership Report
28-Jul-16 Notice of Analysts'/Investors' Briefing
02-Aug-16 Press Release
Change in Directors and/or Officers (Resignation, Removal or Appointment,
02-Aug-16
Election and/or Promotion)
03-Aug-16 Clarification of News Reports
03-Aug-16 Initial Statement of Beneficial Ownership of Securities
03-Aug-16 Initial Statement of Beneficial Ownership of Securities
04-Aug-16 Quarterly Report
05-Sep-16 Change in Shareholdings of Directors and Principal Officers
30-Sep-16 Press Release
06-Oct-16 List of Top 100 Stockholders

31
11-Oct-16 Public Ownership Report
03-Nov-16 Notice of Analysts'/Investors' Briefing
08-Nov-16 Press Release
09-Nov-16 Quarterly Report
15-Nov-16 Corporate Governance Certificates of Attendance of Directors and Officers
01-Dec-16 Clarification of News Reports
Change in Directors and/or Officers (Resignation, Removal or Appointment,
01-Dec-16
Election and/or Promotion)
28-Dec-16 Statement of Changes in Beneficial Ownership of Securities
28-Dec-16 Statement of Changes in Beneficial Ownership of Securities

32
D&L INDUSTRIES, INC.

INDEX TO FINANCIAL STATEMENTS


Form 17-A, Item 7

Consolidated Financial Statements

Statement of Management’s Responsibility for Financial Statements


Independent Auditor’s Report
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and
2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statement

33
D&L Industries, Inc.
and Subsidiaries
Consolidated Financial Statements
As at December 31, 2016 and 2015
and for each of the three years in the period ended December 31, 201
FIRST SECTION
Audited Consolidated Financial Statements with
Supplemental Schedules for the
Securities and Exchange Commission
December 3t, zo16

TABLE OF CONTENTS

First Section

Statement of management responsibility


Report of independent auditors
Consolidated statements of financial position
Consolidated statements of total comprehensive income
Consolidated statements of changes in equity
Consolidated statements of cash flows
Notes to the consolidated financial statements
}
pwc Isla Lipana & Co.
Independent Auditor's Report
To the Board of Directors and Shareholders of
D&L Industries, Inc. and Subsidiaries
65 Industria Street
Bagumbayan, Quezon City

Our Opinion
In our opinion, the accomp-anying
_consolidated financial statements present fairly, in all material
respects, the consolidated financial position of D&L Industries, Inc. (ihe "parent b'ompany,,)
and its
subsidiaries (together, the "Group") as at December gt, zo16 and zoi5, and the .o.rroiidui.d financial
performance and consolidated cash flows for each of the three years ii'the period ended
December gr, zot6 in accordance with Philippine Financial Reporting Standards (pFRSs).

What ue haue audited

The consolidated financial statements of the Group comprise:

o the consolidated statements of financial position as at December


3r, zo16 and zo15;
r the consolidated statements of total comprehensive income for each of the three years in the
period ended December 3t, zo16;
o the consolidated statements ofchanges in equity for each ofthe three years in the period ended
December 3r, zo16;
r the consolidated statements ofcash flows for each ofthe three years in the period ended
December 3r, zo16; and
o the notes to the consolidated financial statements, which include a summary of significant
accounting policies.

Basisfor Opinion
We conducted our audits in accordance with Philippine Standards on Auditing (pSAs). Our
responsibilities under those standards are further described in the Auditor'. i.ipon.iUilities for the
Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.

Independence

We are-independent of the Group in accordance with the Code of Ethics for Professional Accountants in
the Philippines (Code of Ethics), together with the ethical requirements that are relevant to our audit
of
the financial statements in the Philippines, and we have fulfiied our other ethical responsibilities in
accordance with these requirements and the Code of Ethics.

I
Isla Lipana & Co., 29th Floor, Philamlife Tower, 8767 Paseo de Roxas, 1226 Makati City, Philippines
T: +63 (2) 845 2728, F: +63 (2) 845 2806, www.pwc.com,/ph
I
Pwe Isla Lipana & Co.
Independent Auditor's Report
To the Board ofDirectors and Shareholders of
D&L Industries, Inc. and Subsidiaries
Page z

Our Audit Approach

As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we considered where management made
subjective judgements; for. example, in respect of significant accounting estimates tf,at involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits, we als6
addressed the risk of management override of internal controls, including among other matters,
consideration of whether there was evidence of bias that represented a riik of miterial misstatement
due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the financial statements as a whole, taking into account the structure of tht Group, the
accounting processes and controls, and the industry in which the Group operates.

Key audit matters

Key audit matters are th-ose matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters *e..*uddr..sed in the
context of our audit of the consolidated financial statemenls as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

Key audit matters identified in our audit are summarized as follows:

o Revenue recognition
. Impairment of goodwill

How our audit addressed the


Revenue recognition Wea matter by testing of
operating effectiveness ofthe business process to gain
Refer to note 13 to the consolidated financial comfort over the revenue and receivable process of the
statements. respective subsidiaries.

For the year ended December 3r, zo16, the We performed testing of sales transactions before
Group reported sale of goods amounting to December 3r and extended our testing period after
Pzz.z billion. This is an area of focus end ofthe year to ensure that sales transactions were
because of the high volume of sales of goods. recognized in the correct period by examining sales
Revenue is recognized by the Group based invoices and reconciling them to delivery receipts
on the accounting policy described in Note which indicate customer acceptance.
24.20. There can be differences between the
timing of the invoicing and actual delivery of No exceptions were noted from our testing.
goods towards end ofthe year and therefore
potential errors over revenue recognition can
occur.
I
,wc Isla Lipana & Co.
Independent Auditor's Report
To the Board of Directors and Shareholders of
D&L Industries, Inc. and Subsidiaries
Page 3

Holv our audit addressed the


Matters KeyAudit Matter
Impairment of goodwill We addressed the matter by evaluating management's
impairment testing which includes cash flow forecasts
Refer to note 1.2.1 to the consolidated approved by the Board of Directors. We performed an
financial statements assessment of the historical accuracy of management's
estimates through retrospective review.
As at December 3r, zo16, the Group reported
goodwill amounting to P3 billion in the We also tested the assumptions and methodologies
consolidated statement of financial position. used, in particular those relating to CGU
An annual impairment review is performed determination, discount rate and growth rates:
based on the requirements of PAS 36,
Impairment of Assets. Goodwill impairment . We reviewed management's basis for identifying the
tests was performed by management related CGU where goodwill is grouped.
to the oleochemicals, resins and powder . Our valuation experts assessed the reasonableness
coating segment which was assessed to be of the assumptions used in the review of the WACC
the lowest level of cash-generating unit (or with reference to comparable companies.
CGU). o We compared the key assumptions to externally
derived data where possible.
Management's impairment tests over
goodwill were significant to our audit We concluded that the growth rate assumptions were
because the assessment process is complex, reasonable given historic results and economic
and requires significant management outlook.
estimates and judgement. The most
significant judgements relate to the discount In testing the valuation model:
rate applied together with the assumptions . We checked the calculations of the valuation model
supporting the underlying forecast cash
for mathematical accuracy with no exceptions noted.
flows, in particular the weighted average cost
of capital (WACC) and revenue growth rates.
. We checked the calculations of the carrying amount
of the CGU are consistent with the requirements of
PAS 36.
. We considered the sensitivity of the calculation by
varying the assumptions and applying other values
within a reasonably possible range, particularly for
WACC and forecast revenue growth rate.

Based on sensitivity analysis performed by


management, no reasonable change in the
assumptions would cause the carrying amount of the
CGU to exceed its recoverable amount.
I
,wc Isla Lipana & Co.
Independent Auditor's Report
To the Board of Directors and Shareholders of
D&L Industries, Inc. and Subsidiaries
Page 4

Other Infortnation
Management is-responsible for the other information. The other information comprises the
information included in the SEC Form zo-IS (Definitive Information Statement) andSEC Form r7-A,
but does not include the consolidated financial statements and our auditor's report thereon. The
SEC
Form zo-IS (Definitive Information Statement) and SEC Form r7-A are expected to be made available
to us after the date of this auditor's report.

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

In connection with our audit of the consolidated financial statements, our responsibility is to read
the
other information identified above when it becomes available and, in doins .o, whether the
other information is materially inconsistent with the financial statements o. ou.";nrid"r
knowledge obtained in
the audit, or otherwise appears to be materially misstated.

Respons_dbilities of Manog ernent and Those Charg ed uith Gouernance for the
Corts olidoted. Fino;nciol Statetnents

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

In preparing the consolidated financial statements, management is responsible for assessing the ability
of-each entity within the Group to continue as a going con""..n, disclosing, as appllcable, matters
related to going concern and using the going of accountiniunlessLunr!"r.r"nt either
intends to liquidate or to cease operations of "onc.rr-bu.is
an entity within the Grouplor has no real"istic alternative
but to do so.

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

Auditor's Responsibilitiesfor the Audit of the Consolid.oted. FinoLncioLl StoLternents


Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud. or error, and to issue an auditor,s
report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a
guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individualij
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financiil statements.
I
pwc Isla Lipana & Co.
Independent Auditor's Report
To the Board ofDirectors and Shareholders of
D&L Industries, Inc. and Subsidiaries
Page 5

As part of an audit in accordance with PSAs, we exercise professional judgment and


maintain
professional skepticism throughout the audit. We also:

' Identi& a,nd assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design andperform 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 resuiting from fraud is higher tfra" fo. one resulting
from
error, as fraud may involve collusion, forgery, intentional omission-s, misrepresentations, orihe
override of internal control.

' Obtain an understanding ofinternal control relevant to the audit in order to design audit
procedures that a_re appropriate in the circumstances, but not for the purpose of Expressing
an
opinion on the effectiveness of the Company,s internal control.

' Evaluate the app-ropriateness ofaccounting policies used and the reasonableness ofaccounting
estimates and related disclosures made by management.

' Conclude on the aPProPriateness of management's use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a materialun."".tuirrty exists related to events
or conditions that may cast significant doubt on the ability of each entity within the Group to
c-ontinue as a going concern. If we conclude that a materiil uncertainty Lxists, we are required
to
draw attention in our auditor's report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modift our opinion. Our conclusions are based
on the audit evidence obtained up to the dati of our auditor's report. However, future events
or
conditions may cause an entity within the Group to cease to coniinue as a going concern.

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

We communicate with thos_e charged


rylth governance regarding, among other matters, the planned
scope and timing of the auditand significant audit findings, incl"uding aiy significant deficiencies
in
internal control that we identiff during our audit.

We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regardingindependence, and to communicate with them all r6lationships
and
other matters that may reasonably be thought to bear on our independence, and *her" applicable,
related safeguards.
I
pwc Isla Lipana & Co.
Independent Auditor's Report
To the Board ofDirectors ind Shareholders of
D&L Industries, Inc. and Subsidiaries
Page 6

From the matters communicated with those charged with governance,


we determine those matters that
were of most significance in the audit of the
n]nanciat staiements oitt period and
"onsJlidrt"d
are therefore th-e key audit matters. We describe ""u...nt
regulation precludes public disclosure about the *utt".-rtt".,
these ioour auditor's report unless 1aw or
determine that a matier should not be .om,nrrni.u1"g i1
* *ir"rr, i.r-.*,..mely rari circumstances, we
ygfi.t b".ur." tir" ;i;; consequences
of doing so would reasonably be expected to outweigh
the"rr
fubi[ interest benefits of such
communication.

The engagement partner on the audit resulting in this independent


auditor,s report is Gina S. Detera.

Isla Lipana & Co.

CPA Cert. No. 8oo47


lll Ng, oo1136r, issued on January 6,2c17, Makati City
sEC A'N' (individual) as general auditors o4rr-AR-3, caiegory A; effective
(firm) as general auditors ooog-ri{-4; calego.y;.; until January 6, zorg
A.N'
l_E-g
TIN rrz-o7z-z9r
untl Juiy is,
"n".tirr" ""ie
PI^R 4-{
-ooo745-43-2015, issued on December B, zor5; effective
BoA/PRC-d
until December 7, zorg
Reg. No. or4z, with extended varidity until aprir"i i,-iorz pursuant
to
Board Resolution No. 3Z series of zorT

Makati City
March S,2ot7
-e
we Isla Lipana & Co.
Statement Required by Rule 68, part t, Section
3B(v)
Securities Regulation Code (SRC)

To the Board of Directors and Shareholders of


D&L Industries, Inc. and Subsidiaries
65 Industria Street
Bagumbayan, Quezon City

we have audited the financial statements of D&L Industries, Inc. and its
subsidiaries (the ,,Group,,) as
at and for the year ended December 31, zot6, on which we have rendered
the attaclied report dated
March g 2ot7.

In compliance with SRC Rule 68 and based on the certification received


from the Group,s corporate
secretary and the results.of our work done, the said Group has
- si*ty six (66) shar"hoidJrs owning one
---
hundred (roo) or more shares each as at Decembe.3r, ,612.

Isla Lipana & Co.

CPA Cert. No. Boo47


No. oo1136r, issued on January 6, zor7, Makati City
!!n A'N' (individual)
SEC as g-eneral auditors o+r-AR-3, Caiegory A; effective until
January 6, zotg
A.N. (firm) as general auditors ooog-tr'ir-4; cu6grti;;ff;tive untit j"rv
:E-9
TIN rrz-o7z-z9r
ii, ,"ie
!$a!' oa-ooo745-43-2o15, issued on December 8, zo15; effective until December 7, zorg
BoA/PRc Reg. No. or4z, with extended varidity until'Aprii3 o,iorz pursuant
to
Board Resolution No. 37 series of eorT

Makati City
March g,2ot7

Isla Lipana & Co., 29th Floor, Philamlife Tower, 8767 Paseo de Roxas, 1226 Makati
City, philippines
T: +63 (2) 845 2728, F: +69 (2) 845 2806, www.pwc.com,/ph
_e
wc Isla Lipana & Co.
Statement Required by Rule 6g, part I, Section
4,
Securities Regulation Code (SRC),

To the Board of Directors and Shareholders of


D&L IndusFies, Inc. and Subsidiaries
No. 65 Calle Industria,
Bagumbayan, Quezon City, Metro Manila

we have audited the consolidated financial statements of D&L Industries


and its subsidiaries as at
and for the year ended December gL, zc16,on which we have .endered
March g, 2017. The supplementary information shown i" irrl
th.';tt;;h;a;;;ort dated
n..onciliation or pareni'company,s
Retained Earnings Available for Dividend Declaration, u vr"p
siior"i"g the Relationships between
an$
13o1s the company and its Urtimate parent co*prny,-tvrid;i"H;;,, ;;;t,ii;;j;. or co_
subsidiaries and Associates and Schedule of Philippin"'Fil;.i"1
Reporting standards effective as at
Decemb.er gt, zC16' as additional componentsrequired by
Part I, section 4 of Rule 68 of the securities
Regulation code, and schedules A, B, b, D, E, F, c, u urd t,
as .equired by part II, section 6g of the
Securities Regulation code is presented fo.lgrrgr"^g of flnig
wiih the securitie, urJr*.rrung"
commission and is not a required part ortne baiic nnanciat'staiements.
such supplementary
information is the respons.ibilill of management and has been subjected
to auditing procedures applied
in the audit of the consolidated basic fina"ncial statements. i;
information has been prepared in accordance with Rule 68 orin.
;;; opinion, the supplementary
s..rr.ities Regulation code.

Isla Lipana & Co.

Detera
PA Cert. No. 8oo47
lll No. ootr.36r, issued on January 6, zot7, Makati City
sEC A'N' (individual) as general auditors o.ttr-A}-s, calegory
A; effective until January 6, zorg
A.N. (firm) as general auditors ooog-tr'ir-4; calegory i; Jff""tir" until "luiy is, ,-g
9E--9
TIN rrz-o7z-z9r
!!n aa{' oa -ooo745-43-2015, issued on De.cember 8, zo15; effective until December 7, zorg
Bolr/PRc Reg. No. or4z, with extended varidity until'Aprii3-o,irrzpursuant
to
Board Resolution No. 37 series of zorT

Makati City
March 3,2ot7

Isla Lipana & Co., 29th Floor, philamlife Tower, g767 paseo de Roxas, 1226
Makati City, Philippines
T: +63 (2) 845 2728, F: +65 (2) 845 2906, www.pwc.com,/ph
D&L Industries, Inc. and Subsidiaries

Consolidated Statements of Financial Position


December 31, 2016 and 2015
(All amounts in Philippine Peso)

Notes 2016 2015

ASSETS

Current assets
Cash and cash equivalents 3 2,780,033,609 3,126,096,790
Receivables, net 4 4,614,242,942 3,272,923,872
Inventories, net 5 4,641,381,559 3,597,804,219
Due from related parties 18 77,379,970 111,302,934
Prepayments and other current assets 6 2,061,448,859 1,695,831,829
Total current assets 14,174,486,939 11,803,959,644
Non-current assets
Available-for-sale financial assets 7 112,130,825 114,612,804
Property, plant and equipment, net 9 2,396,977,977 2,366,673,952
Retirement benefit asset 19 111,465,738 93,952,476
Goodwill 1.2.1 3,367,846,840 3,367,846,840
Other non-current assets 6,18.2 113,675,117 23,267,864
Total non-current assets 6,102,096,497 5,966,353,936
Total assets 20,276,583,436 17,770,313,580

LIABILITIES AND EQUITY

Current liabilities
Trade payables and other liabilities 10 1,366,499,443 796,185,171
Due to related parties 18 18,949,786 2,351,165
Short-term borrowings 11 3,850,481,200 3,179,039,800
Income tax payable 53,502,485 41,533,003
Total current liabilities 5,289,432,914 4,019,109,139
Non-current liabilities
Deferred income tax liabilities, net 20 16,893,704 1,056,282
Long-term borrowings 11 1,000,000,000 1,000,000,000
Total non-current liabilities 1,016,893,704 1,001,056,282
Total liabilities 6,306,326,618 5,020,165,421
Equity
Attributable to the owners of the Parent Company
Share capital 12 7,142,857,990 7,142,857,990
Share premium 12 3,255,166,445 3,255,166,445
Reserve for remeasurement on retirement benefit 19 159,178,579 144,711,183
Fair value reserve on available-for-sale financial assets 7 45,251,900 40,735,680
Retained earnings 12 3,346,634,057 2,148,054,982
Total equity attributable to owners of the Parent Company 13,949,008,971 12,731,526,280
Non-controlling interest 21,167,847 18,621,879
Total equity 13,970,256,818 12,750,148,159
Total liabilities and equity 20,276,583,436 17,770,313,580

(The notes on pages 1 to 69 are integral part of these consolidated financial statements)
D&L Industries, Inc. and Subsidiaries

Consolidated Statements of Total Comprehensive Income


For each of the three years in the period ended December 31, 2016
(All amounts in Philippine Peso, except per share data)

Notes 2016 2015 2014


Revenues
Sales, net 13,18 22,194,673,216 19,547,657,506 15,973,325,260
Management service fees 13,18 37,723,088 30,046,666 147,776,953
22,232,396,304 19,577,704,172 16,121,102,213
Cost of sales and services
Cost of sales 14 (18,157,128,927) (15,954,106,563) (13,467,601,774)
Cost of services 14 (26,309,813) (18,531,022) (82,519,588)
(18,183,438,740) (15,972,637,585) (13,550,121,362)
Gross profit 4,048,957,564 3,605,066,587 2,570,980,851
Selling and marketing expenses 15 (563,546,088) (486,121,054) (413,204,394)
General and administrative expenses 16 (268,254,400) (280,294,916) (157,967,893)
Gain on remeasurement of previously held
interest in associate 1.2.1 - - 960,463,563
Other income, net 17 84,653,275 116,677,258 35,300,387
Operating profit 3,301,810,351 2,955,327,875 2,995,572,514

Finance costs
Interest expense 11 (112,819,370) (105,325,309) (45,273,125)
Foreign exchange gain (loss), net 21 21,894,900 (52,781,622) (95,964)
(90,924,470) (158,106,931) (45,369,089)
Profit before share in profit of associate 3,210,885,881 2,797,220,944 2,950,203,425
Share in profit of associate 8 - - 146,859,417
Profit before income tax expense 3,210,885,881 2,797,220,944 3,097,062,842

Income tax expense


Current (569,398,686) (518,882,369) (371,466,686)
Deferred (11,804,203) 5,903,239 (5,828,165)
20 (581,202,889) (512,979,130) (377,294,851)
Profit for the year 2,629,682,992 2,284,241,814 2,719,767,991

Other comprehensive income


Item that will not be subsequently reclassified to profit or
loss
Remeasurement gain on retirement benefit, net of tax 19 14,481,045 27,990,108 83,889,797
Item that may be subsequently reclassified to
profit or loss
Fair value adjustment on available-for-sale financial
assets, net of tax 7 4,516,220 5,748,802 18,699,826
18,997,265 33,738,910 102,589,623
Total comprehensive income for the year 2,648,680,257 2,317,980,724 2,822,357,614

Profit for the year attributable to:


Owners of the Parent Company 2,627,150,673 2,280,308,939 2,718,952,061
Non-controlling interest 2,532,319 3,932,875 815,930
2,629,682,992 2,284,241,814 2,719,767,991

Total comprehensive income attributable to:


Owners of the Parent Company 2,646,134,289 2,314,013,390 2,821,510,907
Non-controlling interest 2,545,968 3,967,334 846,707
2,648,680,257 2,317,980,724 2,822,357,614

Earnings per share


Basic and diluted 12.4 0.37 0.32 0.38

(The notes on pages 1 to 69 are integral part of these consolidated financial statements)
D&L Industries, Inc. and Subsidiaries

Consolidated Statements of Cash Flows


For each of the three years in the period ended December 31, 2016
(All amounts in Philippine Peso)

Notes 2016 2015 2014


Cash flows from operating activities
Profit before income tax expense 3,210,885,881 2,797,220,944 3,097,062,842
Adjustments for:
Depreciation and amortization 9 354,910,685 342,740,861 249,555,583
Unrealized foreign exchange (gain) loss 21 (14,146,749) 34,723,714 13,366,123
Provision for inventory losses 5 3,965,864 14,337,275 1,297,228
Provision for impairment of receivables 16 6,943,006 3,601,001 16,514,490
Loss on direct write-off of receivables 15 1,434,877 369,073 120,181
Share in profit of associate 8 - - (146,859,417)
Gain on remeasurement of previously held interest in
associate 1.2.1 - - (960,463,562)
(Gain) loss on disposal of property and equipment 17 (1,005,422) (83,172,348) 111,122
Dividend income 17 (53,646) (151,988) (311,077)
Interest income 17 (5,313,789) (3,719,965) (16,430,130)
Interest expense 11 112,819,370 105,325,309 45,273,125
Operating profit before working capital changes 3,670,440,077 3,211,273,876 2,299,236,508
(Increase) decrease in:
Receivables (1,346,784,631) 649,777,753 (775,359,334)
Inventories (1,047,543,203) 208,482,830 (534,403,413)
Due from related parties 33,922,964 (8,920,345) (111,444,802)
Loans receivable - - 11,000,000
Prepayments and other current assets (365,617,030) (222,887,485) 20,150,127
Retirement benefit assets 499,198 3,123,070 1,053,070
Other non-current assets (82,907,253) 749,392,139 (7,304,068)
Increase (decrease) in:
Trade payables and other liabilities 570,657,389 (400,403,858) (471,925,681)
Due to related parties 16,598,621 (24,833,811) 26,747,620
Cash generated from operations 1,449,266,132 4,165,004,169 457,750,027
Income taxes paid (557,429,206) (368,520,830) (419,946,387)
Interest received from banks 5,313,789 3,719,965 22,644,477
Net cash provided by operating activities 897,150,715 3,800,203,304 60,448,117
Cash flows from investing activities
Dividend received 8,17 53,646 151,988 54,434,405
Cash paid for the acquisition of a subsidiary, net of cash
acquired 1.2.1 - - (4,557,294,662)
Change in ownership interest from associate to subsidiary 1.1 - - (13,807,838)
Acquisition of property and equipment 9 (389,095,026) (298,137,950) (260,748,922)
Proceeds from disposal of property and equipment 9 4,885,738 325,845,672 4,925,378
Net cash (used in) provided by investing activities (384,155,642) 27,859,710 (4,772,491,639)
Cash flows from financing activities
Proceeds from borrowings 2,591,441,400 14,400,000,000 7,499,671,757
Payment of borrowings (1,920,000,000) (16,264,863,741) (3,647,759,437)
Dividends paid 12 (1,428,571,598) (535,714,349) (714,385,799)
Interest paid (113,878,401) (108,966,976) (45,273,125)
Net cash (used in) provided by financing activities (871,008,599) (2,509,545,066) 3,092,253,396
Net increase (decrease) in cash and cash equivalents (358,013,526) 1,318,517,948 (1,619,790,126)

Cash and cash equivalents, January 1 3 3,126,096,790 1,807,038,648 3,438,432,258


Effect of foreign exchange rate changes 11,950,345 540,194 (11,603,484)
Cash and cash equivalents, December 31 3 2,780,033,609 3,126,096,790 1,807,038,648

(The notes on pages 1 to 69 are integral part of these consolidated financial statements)
D&L Industries, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity


For each of the three years in the period ended December 31, 2016
(All amounts in Philippine Peso)

Attributable to the owners of the Parent Company


Fair value
Reserve for reserve on
remeasurement available-for-
Share on retirement sale financial Retained Non-
Share capital premium benefit assets earnings controlling
(Note 12) (Note 12) (Note 19) (Note 7) (Note 12) interest Total equity
Balances at January 1, 2014 3,571,428,995 3,255,166,445 20,616,746 16,287,052 1,996,258,069 - 8,859,757,307
Comprehensive income
Profit for the year - - - - 2,718,952,061 815,930 2,719,767,991
Other comprehensive income for the year - - 83,859,020 18,699,826 - 30,777 102,589,623
Total comprehensive income for the year - - 83,859,020 18,699,826 2,718,952,061 846,707 2,822,357,614
Transaction with owners
Credits (Charges) to equity as a result of
acquisition of shareholdings (Note 1.1) - - 12,279,768 - (26,034,944) 13,807,838 52,662
Declaration of cash dividend - - - - (714,285,799) - (714,285,799)
Total transactions with owners - - 12,279,768 - (740,320,743) 13,807,838 (714,233,137)
Balances at December 31, 2014 3,571,428,995 3,255,166,445 116,755,534 34,986,878 3,974,889,387 14,654,545 10,967,881,784
Comprehensive income
Profit for the year - - - - 2,280,308,939 3,932,875 2,284,241,814
Other comprehensive income for the year - - 27,955,649 5,748,802 - 34,459 33,738,910
Total comprehensive income for the year - - 27,955,649 5,748,802 2,280,308,939 3,967,334 2,317,980,724
Transactions with owners
Declaration of stock dividend 3,571,428,995 - - - (3,571,428,995) - -
Declaration of cash dividend - - - - (535,714,349) - (535,714,349)
Total transactions with owners 3,571,428,995 - - - (4,107,143,344) - (535,714,349)
Balances at December 31, 2015 7,142,857,990 3,255,166,445 144,711,183 40,735,680 2,148,054,982 18,621,879 12,750,148,159
Comprehensive income
Profit for the year - - - - 2,627,150,673 2,532,319 2,629,682,992
Other comprehensive income for the year - - 14,467,396 4,516,220 - 13,649 18,997,265
Total comprehensive income for the year - - 14,467,396 4,516,220 2,627,150,673 2,545,968 2,648,680,257
Transactions with owners
Declaration of cash dividend - - - - (1,428,571,598) - (1,428,571,598)
Balances at December 31, 2016 7,142,857,990 3,255,166,445 159,178,579 45,251,900 3,346,634,057 21,167,847 13,970,256,818

(The notes on pages 1 to 69 are integral part of these consolidated financial statements)
D&L Industries, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements


As at December 31, 2016 and 2015
and for each of the three years in the period ended December 31, 2016
(All amounts are shown in Philippine Peso, unless otherwise stated)

Note 1 - General information

1.1 Business information

D&L Industries, Inc. (the “Parent Company” or “D&L”) was registered with the Securities and
Exchange Commission (SEC) on July 27, 1971 primarily to invest in, purchase or otherwise acquire and
own, hold, use, mortgage, pledge, exchange, or otherwise dispose of personal property of any
corporation. The Parent Company is also engaged to carry on and conduct its business through any
subsidiary companies or managers, or to enter into working agreements with other corporations
including providing its subsidiaries corporate support services.

On November 5, 2012 and November 16, 2012, the SEC and Philippine Stock Exchange (PSE),
respectively, approved the Parent Company’s application for the initial public offering. The Parent
Company attained its status of being a “public company” on December 12, 2012 when it listed its share
in the Philippine Stock Exchange (PSE). As a public company, it is covered by Part I Section 2 A (i) of
the Securities Regulation Code (SRC) Rule 68, as amended on October 20, 2011 and also covered by
additional requirements under SRC Rule 68, as amended, Part II.

On May 11, 2015, the Parent Company’s Board of Directors (BOD), through an amendment of the Parent
Company’s Articles of Incorporation, added, as an additional secondary purpose, the business of
establishing and operating an analytical laboratory and rendering chemical testing services. These
amendments were approved and ratified by the Parent Company’s stockholders during the annual
stockholders meeting on June 8, 2015. The SEC approved the amendment on July 24, 2015.

The Parent Company is a subsidiary of Jadel Holdings, Inc. (JHI). As at December 31, 2016, of the total
shares outstanding, JHI held 57.8% (2015 - 57.5%), local individuals held 10.9% (2015 - 10.9%) and
LBL Industries, Inc. held nil (2015 - 0.2%). The remaining 31.3% (2015 - 31.4%) were publicly held.

The Parent Company’s ultimate Parent Company is Banco de Oro Trust, organized and domiciled in the
Philippines, with a group of local individuals as the beneficial owner.

As at December 31, 2016, the Parent Company has sixty six (66) shareholders (2015 - 43; 2014 - 25)
owning one hundred (100) or more shares each.

The Parent Company’s registered office address which is also its principal place of business is at No. 65
Calle Industria, Bagumbayan, Quezon City, Metro Manila. As at December 31, 2016, the Parent
Company has 135 regular employees (2015 - 182).

The consolidated financial statements of the Group as at December 31, 2016 were authorized and
approved for issuance by the BOD on February 27, 2017. There are no significant events that occurred
subsequent to February 27, 2017 until March 3, 2017 requiring adjustment or disclosure in the
consolidated financial statements.
1.2 Consolidation

As at December 31, 2016, the consolidated financial statements include the financial statements of the
Parent Company and its subsidiaries, namely, First in Colours, Incorporated (FIC) and its subsidiary,
D&L Polymer and Colours, Inc. (DLPCI), Aero-Pack Industries, Inc. (API), Oleo-Fats, Incorporated
(OFI), and Chemrez Techonologies, Inc. (CTI) and its subsidiaries, Chemrez, Inc. (CHI), and Natura
Nutricare Corporation (NNC).

As at December 31, 2015, the consolidated financial statements include the financial statements of the
Parent Company and its subsidiaries, namely, FIC and its subsidiary, DLPCI, API, OFI, and CTI and its
subsidiary, CHI.

The Parent Company and its subsidiaries are collectively referred to here as the “Group”.

The principal activities of the subsidiaries are set out below.

Registered
place of
Ownership interest/ business/
participating shares held Country of
2016 2015 2014 incorporation Main activity
First In 100% 100% 100% Philippines FIC was registered with the SEC on November 17, 1988
Colours, primarily to carry on the business of importing, exporting,
Incorporated manufacturing and distributing at wholesale and retail chemical
(FIC) products, compounds, derivatives or chemical substances and
generally, engage in and conduct any form of manufacturing or
mercantile enterprises.

Its registered address, which is also its principal place of


business, is at No. 65 Calle Industria, Bagumbayan, Quezon
City, Metro Manila.

D&L Polymer 100% 100% 100% Philippines DLPCI was incorporated and registered with the SEC on March
and Colours, 30, 2006 primarily to carry on the business of buying, selling,
Inc. (DLPCI) importing, exporting, bartering, distributing, exchanging,
processing, manufacturing, producing, refining, beneficiating and
disposing at wholesale and retail of chemical products,
compounds, derivatives or chemical substances and all kinds of
goods, wares, manufactures, such as, but not limited to,
machines, supplies and products and generally to engage in the
conduct of manufacturing or mercantile enterprises.

DLPCI is a wholly-owned subsidiary of FIC, and it is indirectly a


wholly-owned subsidiary of the Parent Company.

Its registered address, which is also its principal place of


business, is at Carmelray Industrial Park, Laguna.

Aero-Pack 100% 100% 100% Philippines API was incorporated and registered with the SEC on
Industries, Inc. September 29, 1989 to engage in the manufacture of aerosol
(API) packaging materials, aerosol products, chemical derivatives and
compounds and other related products.

Its registered address, which is also its principal place of


business, is at No. 65 Calle Industria, Bagumbayan, Quezon City,
Metro Manila.

(2)
Registered
place of
Ownership interest/ business/
participating shares held Country of
2016 2015 2014 incorporation Main activity
Oleo-Fats, 100% 100% 100% Philippines OFI was registered with the SEC on May 4, 1987 to carry on the
Incorporated business of manufacturing, processing, sourcing, marketing,
(OFI) selling, utilizing fats and oils, oleo chemicals and derivatives,
distributing locally and abroad.

Its registered address, which is also its principal place of


business, is at No. 65 Calle Industria, Bagumbayan, Quezon City,
Metro Manila.
Chemrez 99.7% 99.7% 99.7% Philippines CTI was incorporated and registered with the SEC on June 1,
Technologies, 1989. CTI is engaged in the business of manufacturing,
Inc. (CTI) processing, refining all kinds of chemical products, compounds,
derivatives or chemical substances and all kinds of goods,
wares, supply and manufacture, buy, sell, trade, distribute or
otherwise dispose of the same, locally or abroad, in the normal
course of business without engaging in the business of
manufacturing food, drugs and cosmetics.

CTI attained its status of being a “public company” on


December 8, 2000 and was listed on the Philippine Stock
Exchange up to January 2015 as discussed below.

On May 12 and June 9, 2007, CTI’s BOD and Shareholders,


respectively, authorized CTI to invest and/or engage in the
manufacture, sale and distribution of biodiesel under the brand
“BioActiv”.

As further discussed below, on August 29, 2014, the Parent


Company’s BOD resolved to purchase the remaining 65% equity
from other shareholders through a tender offer for a
consideration of P5.1 billion. As a result, CTI became 100%
owned by the Parent Company as at October 7, 2014. On
January 6, 2015, the Board of Directors of the PSE granted the
petition for voluntary delisting filed by CTI and ordered the
delisting of the shares of CTI from the Official Registry of the
Exchange effective January 10, 2015.

The Parent Company’s ownership interests were accounted for


as investment in associate until October 6, 2014.

As at December 31, 2016 and 2015, CTI is a wholly-owned


subsidiary of the Parent Company.

CTI’s registered address, which is also its principal place of


business, is at No. 65 Calle Industria, Bagumbayan, Quezon
City, Metro Manila.

(3)
Registered
place of
Ownership interest/ business/
participating shares held Country of
2016 2015 2014 incorporation Main activity
Chemrez, Inc. 99.7% 99.7 99.7% Philippines CHI was registered with the SEC on November 16, 1988 to carry
(CHI) % on the business of buying, selling, importing, exporting, bartering,
distributing, exchanging, processing, manufacturing, and disposing
at wholesale and retail of chemical products, compounds,
derivatives of chemical substances and generally engage in and
conduct any form of manufacturing or mercantile enterprises.

Following the Parent Company’s acquisition of additional


controlling interest in CTI in 2014 as discussed above, CHI
indirectly became a wholly-owned subsidiary of the Parent
Company.

The Parent Company’s ownership interests were accounted for as


investment in associate until October 6, 2014.

As at December 31, 2016 and 2015, CHI is a wholly-owned


subsidiary of CTI.

CHI’s registered address, which is also its principal place of


business, is at No. 65 Calle Industria, Bagumbayan, Quezon City,
Metro Manila.
Natura 99.7% - - Philippines NNC was incorporated and registered with the SEC on July 20,
Nutricare 2016 primarily to carry on the business of buying, selling,
Corporation importing, exporting, bartering, distributing, exchanging,
(NNC) processing, manufacturing, and disposing at wholesale and retail
chemical products, compounds, derivatives of chemical
substances and generally engage in and conduct any form of
manufacturing or mercantile enterprises.

As at December 31, 2016 NNC is a wholly-owned subsidiary of


CTI. NNC is indirectly a wholly-owned subsidiary of the Parent
Company.

NNC’s registered address, which is also its principal place of


business, at No. 65 Calle Industria, Bagumbayan, Quezon City,
Metro Manila.

1.2.1 Acquisition of controlling interest in CTI

On August 29, 2014, the Parent Company’s BOD resolved to acquire all the outstanding shares of CTI
not currently owned by the Parent Company for P6.00 per share through a public tender offer for a
total acquisition cost of P5,078.5 million. On October 7, 2014 (the acquisition date), a total of
846,408,196 shares have been tendered, representing approximately 65% of the issued and
outstanding shares of CTI. As a result, CTI became a 100% owned by the Parent Company effective
October 7, 2014.

The purchase method of accounting is used to account for the above acquisition (common control
business combination) whereby the cost of an acquisition is measured at the fair value of the
consideration given.

(4)
The following commercial substance of transaction supporting the rationale behind the use of purchase
method was accordingly considered by management:

(i) the main objective of the transaction is to fully consolidate the Group’s operations, through
acquisition of further interest in CTI;
(ii) a re-assessment of net assets of CTI was accordingly carried out by management;
(iii) the acquisition brought the entities together in a reporting structure that did not exist before, such
that CTI transitioned from associate to a subsidiary and from equity method of accounting to full
consolidation, at the Parent Company level;
(iv) significant change in ownership of the Parent Company from non-controlling to controlling interest
in CTI;
(v) the involvement of parties holding non-controlling interests, including public interest, from which
additional shares were acquired by the Parent Company; and
(vi) as a result of the acquisition and full consolidation, the Parent Company (as the acquiring entity) is
expected to benefit with respect to improvement in its consolidated financial performance, results
of operations and cash flows from the full consolidation of CTI.

The details of the fair value of net assets acquired at acquisition date are as follows:

(in million Peso)


Current assets
Cash 514.7
Trade and other receivables 1,214.1
Inventories 1,123.7
Prepayments 926.4
Input VAT 118.6
Other current assets 131.7
Total current assets 4,029.2

Non-current assets
Property, plant and equipment 1,028.4
Input VAT 745.2
Other non-current assets 30.8
Total non-current assets 1,804.4
Total assets 5,833.6

Current liabilities
Trade and other payables 871.1
Income tax payable 28.7
Borrowings 506.8
Total liabilities 1,406.6
Net assets 4,427.0

The fair value of assets and liabilities acquired were determined on the basis of income approach,
except for property, plant and equipment, retirement benefits and deferred income tax. The fair value
of property, plant and equipment was determined based on appraisal reports by external professional
valuers. Retirement benefits and deferred income taxes were measured in accordance with PAS 19,
Retirement Benefits, and PAS 12, Income Taxes, respectively, in accordance with the provisions of
PFRS 3, Business Combinations - Exceptions to Recognition or Measurement Principles. Management
believes that the above valuation techniques are considered appropriate given the circumstances and
the nature and components of the assets and liabilities acquired.

(5)
The gross contractual amount of trade and other receivables is equivalent to its fair value at acquisition
date. There are no contingent liabilities assumed at acquisition date.

The consideration given with respect to the acquisition is based on the fair market value of CTI’s shares
on the date of acquisition totaling P5,078.5 million less acquisition-related costs amounting to P6.5
million which was charged to profit or loss in 2014. Goodwill amounting to P3,367.9 million was
recognized from this acquisition.

Also, a gain was recognized in the remeasurement of previously held equity interest to fair value
specific to this transaction amounting to P960.5 million in the Group’s consolidated statement of total
comprehensive income in 2014. The summary of this determination is presented below:

(In million Peso)


Goodwill calculation
Consideration transferred, net of transaction costs 5,072.0
Non-controlling interest 13.8
Fair value of previously held equity interest 2,709.1
Total 7,794.9
Less: Recognized value of 100% of identifiable assets (4,427.0)
Goodwill 3,367.9

Remeasurement of previously held equity interest


Fair value of previously held equity (451,507,804 shares x P6.00) 2,709.1
Carrying value of previously held equity interest 1,748.6
Gain on remeasurement of previously held equity interest in CTI to fair value
on acquisition of control 960.5

There are no other expenses paid, contingent consideration arrangement and indemnification assets in
relation to the business combination.

Cash paid for the acquisition of a subsidiary of P5,072 million is presented net of cash from acquired
subsidiary of P514.7 million for a net cash paid of P4,557.3 million in the consolidated statement of cash
flows for the year ended December 31, 2014.

The consolidated statement of total comprehensive income for the year ended December 31, 2014
include the results of operation of CTI and its subsidiary, CHI, for the period from October 7, 2014 to
December 31, 2014.

(6)
Had it been that the business combination occurred at January 1, 2014, the aggregate revenue and
profit or loss of the combined entities for year ended December 31, 2014 are as follows:

Parent Company
and subsidiaries
prior to
(In million Peso) acquisition of CTI CTI and CHI Eliminations Combined
Revenues 14,665 6,267 (483) 20,449
Cost of sales and services (12,356) (5,294) 449 (17,201)
Gross profit 2,309 973 (34) 3,248

Net operating income and


expenses (463) (245) 34 (674)
Operating profit 1,846 728 - 2,574

Finance cost (56) (10) - (66)


Profit before income tax 1,790 718 - 2,508

Income tax expense (347) (126) - (473)


1,443 592 - 2,035

1.2.2 Critical accounting judgment: determining commercial substance of business acquisition

The Group has adopted the acquisition (purchase) method of accounting for common control business
combinations. In applying this method, the Group evaluates whether the business combination has
commercial substance following the Philippine Interpretations Committee Question and Answer (PIC
Q&A) 2011-02.

In making that judgment, the Group considers the purpose of the transaction, involvement of outside
parties in the transaction, whether or not the transaction is conducted at fair value, the existing
activities of the entities involved in the transactions, whether or not the transaction is bringing
entities together into a reporting entity that did not exist before, whether a new company is
established, the extent to which an acquiring entity’s future cash flows are expected to change as a
result of the business combination, among other factors.

Based on management’s judgment and assessment, the acquisition of CTI in 2014 was determined to
have commercial substance under PIC Q&A 2011-02 (Note 1.2.1).

1.2.3 Critical accounting estimate and judgment: impairment tests for goodwill; key assumptions
used for value-in-use calculations

The Group reviews goodwill annually for impairment or whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. Goodwill is monitored by management at
the level of oleochemicals, resin and powder coatings segment (lowest level of cash generating unit or
CGU) following the business acquisition of CTI as discussed in Note 1.2.

As at December 31, 2016 and 2015, the recoverable amount of oleochemicals, resin and powder
coatings CGU (the “CGU”) was determined based on value-in-use (VIU) calculation (using Level 3
inputs) and require the use of assumptions. The calculations use cash flow projections based on
financial budgets approved by the Board of Directors covering a five-year period.

(7)
The cash flow forecast reflect management’s expectation of revenue growth, operating costs and
margins based on past experience and outlook, consistent with internal measurements and monitoring.

Cash flows beyond the five-year period are extrapolated using the estimated terminal growth rate. The
growth rate is consistent with forecasts included in industry reports specific in which the CGU operates.

A weighted average of cost of capital (WACC) is used in discounting the free cash flows; this reflects the
expectation of return on the capital market.

The following are the key assumptions used as at December 31, 2016 and 2015:

Revenue growth rate 8-10%


WACC 17-18%
Terminal growth rate 3%

Based on the above assessment, goodwill is not impaired as at December 31, 2016 and 2015 as the
recoverable amount exceeds the carrying amount of the CGU included in the financial statements.

As at December 31, 2016, if the above key assumptions increased/decreased by 1%, the recoverable
amount of the CGU will decrease/increase by P662 million/P1,752 million which will not result in an
impairment charge to goodwill.

The Group’s goodwill impairment review includes an impact assessment of changes in key assumptions
used for VIU calculations. Based on the sensitivity analysis performed, the BOD concluded that no
reasonable change in the base case assumptions would cause the carrying amount of the CGU to exceed
its recoverable amount.

Note 2 - Segment information

Primary reporting - business segments

The Group’s operating businesses are organized and managed according to the nature of the products
marketed. Each segment, representing a strategic business unit, offers different products and services
to different markets.

The Group has organized its reporting structure based on the grouping of similar products and services
resulting in the following business segments:

(i) Food ingredients

The Group, operating through its subsidiary OFI, manufactures a line of industrial fats and oils, food
ingredients, specialty fats and oils and culinary and other specialty food ingredients. The Group
supplies food ingredients to most of the leading food manufacturers and quick-service restaurant
chains in the Philippines, and also produces food safety solutions such as cleaning and sanitation
agents for various customers.

(8)
(ii) Colorants and plastic additives

The Group, operating through its subsidiaries FIC and the latter’s subsidiary, DLPCI, manufactures a
line of pigment blends, color and additive master batches and engineered polymers for a wide range of
applications, introducing a number of products into the Philippine market and expanding into the
export of certain products overseas. The Group's products add properties such as precise coloring,
reduced friction or increased resistance to degradation for plastics used in consumer goods, appliances
and outdoor furniture.

(iii) Oleochemicals, resins and powder coatings

The Group, operating through its subsidiary CTI and the latter’s subsidiaries, CHI, and NNC ,
manufactures Coconut Methyl Ester ("CME", also known as coco-biodiesel), other oleochemicals or
chemicals derived from vegetable oils, resins such as polystyrene, acrylic emulsions and polyester; and
a line of powder coatings.

(iv) Aerosols

The Group, operating through its subsidiary API, manufactures aerosol cans and components, and
provides contract aerosol filling and compounding services. The Group also toll manufactures a range
of products, including insect control, industrial maintenance chemicals, and home and personal care
products, among others.

(v) Management and administrative

The Parent Company maintains significant operational control of its subsidiaries that provide goods
and services complementary to those provided by the Group, through a contractual "shared services"
model (Note 18).

(9)
The following table presents the segment information provided to the ManCom about the Group’s business segments for the years ended
December 31:

Oleo chemicals,
Colorants and resins and powder Management and
Food ingredients plastic additives coatings Aerosols administrative Eliminations Total
2016
External revenue 11,478,508,483 2,670,377,767 6,842,613,440 411,641,178 1,889,784 - 21,405,030,652
Sales to related parties 464,151,940 73,904,507 59,618,945 191,967,173 37,723,088 - 827,365,652
Intersegment sales 76,640,531 121,856,185 60,321,527 18,751,767 1,934,506,824 (2,212,076,834) -

Segment result 1,248,880,372 911,278,816 1,004,965,176 179,673,281 98,569,402 (226,209,972) 3,217,157,075


General corporate income 27,288,510 18,336,902 22,186,614 1,158,729 22,790,943 (7,108,422) 84,653,276
Finance costs (28,916,118) (5,615,777) (36,228,191) - (20,164,384) - (90,924,470)
Income tax expense (310,780,489) (62,089,877) (132,532,651) (37,126,519) (38,673,353) - (581,202,889)
Profit for the year 936,472,275 861,910,064 858,390,948 143,705,491 62,522,608 (233,318,394) 2,629,682,992

Oleochemicals,
Colorants and resins and powder Management and
Food ingredients plastic additives coatings Aerosols administrative Eliminations Total
2015
External revenue 9,897,807,861 2,571,539,889 6,324,425,897 378,890,284 1,707,577 - 19,174,371,508
Sales to related parties 217,318,563 - 43,123,597 112,843,838 30,046,666 - 403,332,664
Intersegment sales 56,444,221 28,540,724 35,142,729 22,795,705 3,943,257,519 (4,086,180,898) -

Segment result 1,183,653,416 436,875,099 889,192,863 126,114,199 31,451,187 171,363,853 2,838,650,617


General corporate income 16,227 289,173,190 615,281,093 308,273 24,837,874 (812,939,399) 116,677,258
Finance costs (78,200,143) (4,401,424) (45,510,524) - (29,994,840) - (158,106,931)
Income tax expense (278,996,744) (32,571,126) (170,976,489) (26,618,409) (3,816,362) - (512,979,130)
Profit for the year 826,472,756 689,075,739 1,287,986,943 99,804,063 22,477,859 (641,575,546) 2,284,241,814

Oleochemicals,
Colorants and resins and powder Management and
Food ingredients plastic additives coatings Aerosols administrative Eliminations Total
2014
External revenue 10,997,331,403 2,775,504,727 1,596,199,253 200,006,866 4,717,282 - 15,573,759,531
Sales to related parties 262,775,225 22,569,040 - 114,221,464 147,776,953 - 547,342,682
Intersegment sales 29,034 89,197,587 - 131,708,428 1,416,880,847 (1,637,815,896) -

Segment result 964,411,802 579,635,587 244,383,370 118,987,996 98,746,323 (6,356,514) 1,999,808,564


General corporate income 2,605,904 (418,586) (100,137) 683,113 1,144,580,690 (4,727,617) 1,142,623,367
Finance costs (29,177,047) (185,317) (2,706,725) - (13,300,000) - (45,369,089)
Income tax expense (242,794,036) (30,244,325) (29,819,861) (24,597,347) (49,839,282) - (377,294,851)
Profit for the year 695,046,623 548,787,359 211,756,647 95,073,762 1,180,187,731 (11,084,131) 2,719,767,991

Eliminations pertain to the consolidation adjustments in the preparation of the consolidated financial statements as discussed in Note 24.6.1.

(10)
Other segment information as at December 31 are as follows:

Oleochemicals,
Colorants and resins and powder Management and
Food ingredients plastic additives coatings Aerosols administrative Total
2016
Segment assets 7,787,631,101 1,952,419,942 5,556,801,378 389,226,505 4,590,504,510 20,276,583,436
Segment liabilities 4,204,442,035 428,338,355 1,256,887,436 52,772,498 363,886,294 6,306,326,618
Capital expenditures 144,416,168 60,083,321 89,881,060 10,230,963 84,483,514 389,095,026
Depreciation and amortization 163,354,059 30,384,257 104,521,359 9,258,678 47,392,332 354,910,685
Non-cash expenses other than
depreciation and amortization 3,447,829 15,563,895 10,657,562 5,787,920 7,618,559 43,075,765

Oleochemicals,
Colorants and resins and powder Management and
Food ingredients plastic additives coatings Aerosols administrative Total
2015
Segment assets 5,542,138,010 1,611,893,792 5,480,673,658 312,521,888 4,823,086,232 17,770,313,580
Segment liabilities 1,935,841,404 366,044,247 2,218,531,238 27,223,245 472,525,287 5,020,165,421
Capital expenditures 108,952,436 58,306,516 55,315,597 22,203,735 53,359,666 298,137,950
Depreciation and amortization 167,243,984 28,497,987 94,109,211 8,073,587 44,816,092 342,740,861
Non-cash expenses other than
depreciation and amortization 39,829,128 2,554,140 4,255,593 662,968 7,997,434 55,299,263

Oleochemicals,
Colorants and resins and powder Management and
Food ingredients plastic additives coatings Aerosols administrative Total
2014
Segment assets 5,578,173,868 1,871,564,324 6,141,224,765 328,879,838 4,288,757,364 18,208,600,159
Segment liabilities 2,162,313,019 429,938,519 1,545,962,163 81,440,092 3,021,064,585 7,240,718,378
Capital expenditures 114,779,678 74,719,783 26,073,362 14,660,275 30,515,824 260,748,922
Depreciation and amortization 167,169,570 24,601,245 22,927,136 6,568,083 28,289,549 249,555,583
Non-cash expenses other than
depreciation and amortization 4,494,238 3,786,867 27,219,605 857,822 10,068,253 46,426,785

The amounts provided to the ManCom with respect to total assets, liabilities and profit or loss are recognized and measured in a manner
consistent with that of the consolidated financial statements.

Secondary reporting - geographical information

For the years ended December 31, 2016, the revenue from customers in the Philippines is P19,637,368,218 (2015 - P17,581,257,926; 2014 -
P14,345,192,262), and the total of revenue from customers in other countries is P2,595,028,086 (2015 - P1,996,446,246; 2014 - P1,775,909,951).

(11)
Note 3 - Cash and cash equivalents

Cash and cash equivalents as at December 31 consist of:

2016 2015
Cash in banks 2,437,407,634 2,895,969,030
Short-term investments 339,922,027 222,184,146
Cash on hand 2,703,948 7,943,614
2,780,033,609 3,126,096,790

Cash in banks earn interest at the bank deposit rates of 0.13% to 1.40% per annum for the years ended
December 31, 2016 and 2015. Short-term investments are time deposits and other cash placements
with original maturities of less than three months, which earn interest at the rates of 1.00% to 2.50%
per annum for the years ended December 31, 2016 and 2015. The Group earned interest income from
the above cash and cash equivalents amounting to P5,313,789 during the year (2015 - P3,719,965; 2014
- P16,430,130) (Note 17).

Note 4 - Receivables, net

Receivables, net as at December 31 consist of:

Note 2016 2015


Trade receivables 4,020,553,187 2,967,551,773
Less: allowance for impairment of receivables (11,901,872) (18,079,858)
4,008,651,315 2,949,471,915
Advances to suppliers 600,765,893 307,818,075
Advances to officers and employees 18.6 4,137,606 7,612,807
Other receivables 688,128 8,021,075
4,614,242,942 3,272,923,872

Movements in the allowance for impairment of receivables for the years ended December 31 are as
follows:

Note 2016 2015 2014


Beginning of year 18,079,858 18,671,559 78,336
Provision during the year 16 6,943,006 3,601,001 16,514,490
Allowance for impairment from
acquired subsidiary - - 2,078,733
Written off during the year (13,120,992) (4,192,702) -
End of year 11,901,872 18,079,858 18,671,559

For the year ended December 31, 2016, the Group has directly written off uncollectible other
receivables amounting to P1,434,877 (2015 - P369,073; 2014 - P120,181) charged as part of general and
administrative expenses (Note 16).

(12)
4.1 Critical accounting estimate and judgment: allowance for impairment of receivables

Allowance for impairment of receivables is maintained at a level considered adequate to provide for
potentially uncollectible receivables. The level of provision is based on past collection experience and
other factors that may affect collectibility. An evaluation of the receivables, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the year.
Management evaluates specific accounts of customers who are unable to meet their financial
obligations. In these cases, management uses judgment based on the best available facts and
circumstances, including but not limited to, the length of relationship with the customers and the
customers’ payment history. The amount and timing of recorded provision for impairment for any
period would therefore differ based on the judgments made.

In relation to receivables which are past due but not impaired as at December 31, 2016 and 2015,
particularly those over 90 days which account for 6.5% of receivables (2015 - 6.6%), no provision for
impairment has been determined by management to be necessary considering customer relationship
and historical collection experience.

Management believes, based on its assessment and judgment, that the allowance for impairment of
receivables as at December 31, 2016 and 2015 is adequate.

Note 5 - Inventories

Inventories as at December 31 consist of:

2016 2015
At net realizable value
Finished goods 1,513,519,951 1,215,385,690
Less: allowance for inventory losses (19,600,367) (15,634,503)
1,493,919,584 1,199,751,187
At cost
Raw materials 2,894,535,259 2,300,403,787
Raw materials - in transit 252,926,716 97,649,245
4,641,381,559 3,597,804,219

The cost of inventories recognized in cost of sales for the year ended December 31, 2016 amounted to
P18,157,128,927 (2015 - P15,954,106,563; 2014 - P13,467,601,774) (Note 14).

Movements in the allowance for inventory losses for the years ended December 31 are as follows:

2016 2015 2014


Beginning of year 15,634,503 1,297,228 -
Provision during the year 18,303,139 14,337,275 1,297,228
Written off during the year (14,337,275) - -
End of year 19,600,367 15,634,503 1,297,228

(13)
5.1 Critical accounting estimate and judgment: allowance for inventory losses

Allowance for inventory losses is maintained at a level considered adequate to provide for potential loss
on inventory items. The level of provision is based on past experience and other factors affecting the
recoverability and obsolescence of inventory items. An evaluation of inventories, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the period.
Management uses judgment based on the best available facts and circumstances, including but not
limited to evaluation of individual inventory items’ future recoverability and utilization. The amount
and timing of recorded provision for inventory obsolescence for any period would therefore differ based
on the judgments made. A change in provision for inventory obsolescence would impact the Group’s
recorded expenses and carrying value of inventories.

The carrying values of the inventories at the end of the reporting period and the amount and timing of
recorded provision for inventory obsolescence for any period could be materially affected by actual
experience and changes in such judgments such as effect of technological obsolescence, competition in
the market and changes in prices of raw and packaging materials, including any associated labor costs.
Thus, it is reasonably possible, on the basis of existing knowledge, that outcome within the next
financial year arising from changes in judgments may have a significant impact on the carrying
amounts of and provisions for inventories.

As at December 31, 2016, the Group reported an allowance for inventory loses amounting to
P19,600,367 (2015 - P15,634,503).

Management believes, based on its assessment and judgment, that the allowance for inventory losses as
at December 31, 2016 and 2015 is adequate.

Note 6 - Prepayments and other current assets

Prepayments and other current assets as at December 31 consist of:

2016 2015
Input value-added tax (VAT), net of output VAT 1,497,839,172 1,085,752,801
Creditable withholding taxes 373,519,547 327,819,737
Deposit to suppliers 118,088,693 69,581,630
Prepaid taxes 65,689,356 211,058,064
Others 6,312,091 1,619,597
2,061,448,859 1,695,831,829

Input VAT

The Group’s input VAT as at December 31 consist of:

2016 2015
Carry-over claimable against output VAT 895,143,253 724,458,561
Tax credit claim 575,715,289 324,314,058
On depreciable assets claimable against output VAT 3,540,634 27,672,388
Deferred 23,439,996 9,307,794
1,497,839,172 1,085,752,801

(14)
Deferred input VAT pertains to input VAT on services which is claimable upon payment of related
liabilities. As at December 31, 2016 and 2015, there are no disallowed tax credit certificate application.

As at December 31, 2016, non-current input VAT presented under other non-current assets amounted
to P76,193,806 (2015 - nil).

Creditable withholding taxes (CWT)

CWT pertain to taxes withheld from income payments made to the Group and are creditable against
future income tax payable.

Deposits to suppliers

Deposits to suppliers pertain to advance payments for inventory purchases for raw materials in transit
as at December 31, 2016 and 2015.

Prepaid taxes

On January 29, 2013, BIR approved the monetization of tax credits of the Group amounting to
P745,254,926. The amount was collected in full in December 2015.

Prepaid taxes as at December 31, 2016 and 2015 mainly pertain to actual tax credit certificates issued
by the BIR in favor of the Group relating to filed application claims to convert excess input VAT into tax
credit certificates.

6.1 Critical accounting judgment: Allowance for unrecoverable claim for input VAT

Allowance for unrecoverable claim for input VAT is maintained at a level considered adequate to
provide for potentially unrecoverable tax claims from excess input VAT. The level of provision is based
on factors affecting the recoverability of the tax credit claims applied and filed with the Bureau of
Internal Revenue (BIR). An evaluation of the input VAT claims, designed to identify potential charges
to the provision, is performed on a continuous basis throughout the period. Management uses
judgment based on the best available facts and circumstances, including but not limited to the
evaluation of the individual tax credit claim’s recoverability considering the requirements of tax
regulations and future utilization in determining provision for unrecoverable input VAT. A change in
the provision would impact the Group’s recorded carrying value of claim for input VAT and provision
for impairment.

Based on management’s assessment and judgment, no allowance for unrecoverable input VAT is
necessary to be recognized as of December 31, 2016 and 2015 as there are no indications of impairment
or changes in circumstances indicating that the carrying value of its input VAT may not be fully
recoverable.

6.2 Critical accounting judgment: Allowance for CWT

The Group recognizes CWT to the extent that it is probable that future tax liabilities will be available
against which tax credits can be utilized. Determining the realizability of CWT requires the assessment
of the availability of taxable profit expected to be generated from the operations which effectively drives
the tax liabilities against which such creditable taxes can be applied.

(15)
Significant judgment is required in determining the realizability of CWT. CWT arise mainly from the
Parent Company’s management and support services to its affiliates. Management believes that the
Group would be able to obtain sufficient taxable income and future tax liabilities against which the
CWT can be fully applied.

Based on management’s assessment and judgment, no allowance for unrecoverable CWT has been
recognized as of December 31, 2016 and 2015 as there are no indications of impairment or changes in
circumstances indicating that the CWT may not be fully recoverable.

Note 7 - Available-for-sale financial assets

As at December 31, 2016, available-for-sale (AFS) financial assets amounted to P112,130,825


(2015 - P114,612,804).

As at December 31, 2016, fair value adjustment on AFS financial assets is presented net of deferred
income tax of P501,802 (2015 - P638,756; 2014 - P2,077,758) in the consolidated statements of total
comprehensive income and changes in equity.

7.1 Critical accounting judgment: impairment of available-for-sale financial assets

The Group follows the guidance in PAS 39 to determine when an available-for-sale financial asset is
impaired. To determine if an available-for-sale financial asset is impaired, the Group evaluates if there
is a significant (20% or more) or prolonged decline (more than 12 months) to which the fair value of the
asset is less than its cost, and the financial health of and short-term business outlook for the investee
(including factors such as industry and sector performance, changes in technology and operational and
financing cash flows). The Group determines whether the decline in fair value are significant or
prolonged before making an assessment as to whether a provision for impairment is needed to be
recognised.

As at December 31, 2016 and 2015, based on management’s assessment and judgment, there are no
indications of impairment or changes in circumstances indicating that the carrying value of its
available-for-sale financial assets may not be recoverable.

Note 8 - Investment in associate

The movements in investment in associate for the years ended December 31 are as follows:

Note 2016 2015 2014


Balance at beginning of year - - 1,655,850,772
Share in profit of associate - - 146,859,417
Share in other comprehensive income of
associate - - -
Share in dividend declaration of associate - - (54,123,328)
Changes in ownership interests from
associate to subsidiary 1.2.1 - - (1,748,586,861)
Balance at end of year - - -

Until October 6, 2014, CTI was an associate of the Parent Company. On October 7, 2014, the Parent
Company completed the acquisition of 65% of CTI’s outstanding shares through a public tender offer
which resulted in CTI becoming a subsidiary of the Parent Company (Note 1.2.1).

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Note 9 - Property, plant and equipment, net

Property, plant and equipment, net as at December 31 consist of:

Building and Office,


leasehold Transportation and furniture and Tools, machinery Construction in
Land improvements delivery equipment fixtures and equipment progress Total
At January 1, 2014
Cost 216,000,000 621,673,689 134,226,390 164,776,762 3,546,939,241 106,501,079 4,790,117,161
Accumulated depreciation and amortization - (157,343,868) (113,795,233) (126,951,741) (1,738,076,132) - (2,136,166,974)
Net carrying value 216,000,000 464,329,821 20,431,157 37,825,021 1,808,863,109 106,501,079 2,653,950,187
For the year ended December 31, 2015
Opening net carrying value 216,000,000 464,329,821 20,431,157 37,825,021 1,808,863,109 106,501,079 2,653,950,187
Additions - 20,919,616 13,017,259 14,282,613 54,116,648 195,801,814 298,137,950
Transfers
Cost - 89,379,882 553,808 30,085,590 73,289,787 (194,930,711) (1,621,644)
Accumulated depreciation and amortization - (4,176,671) - - 5,798,315 - 1,621,644
Disposals
Cost (216,000,000) (55,910,550) - - (1,498,038) (396,303) (273,804,891)
Accumulated depreciation and amortization - 30,477,705 - - 653,862 - 31,131,567
Depreciation and amortization - (35,073,701) (21,188,615) (23,162,660) (263,315,885) - (342,740,861)
Closing net carrying value - 509,946,102 12,813,609 59,030,564 1,677,907,798 106,975,879 2,366,673,952
At December 31, 2015
Cost - 676,062,637 147,797,457 209,144,965 3,672,847,638 106,975,879 4,812,828,576
Accumulated depreciation and amortization - (166,116,535) (134,983,848) (150,114,401) (1,994,939,840) - (2,446,154,624)
Net carrying value - 509,946,102 12,813,609 59,030,564 1,677,907,798 106,975,879 2,366,673,952
For the year ended December 31, 2016
Opening net carrying value - 366,143,055 12,813,609 59,030,564 1,821,710,845 106,975,879 2,366,673,952
Additions - 7,189,684 47,786,771 27,828,202 49,916,182 256,374,187 389,095,026
Transfers
Cost - 3,970,370 - 14,746,482 57,832,333 (76,549,185) -
Accumulated depreciation - 53,606 - - (53,606) - -
Disposals
Cost - - - - (13,076,477) - (13,076,477)
Accumulated depreciation and amortization - - - - 9,196,161 - 9,196,161
Depreciation and amortization - (31,740,773) (17,547,792) (26,769,580) (278,852,540) - (354,910,685)
Closing net carrying value - 345,615,942 43,052,588 74,835,668 1,646,672,898 286,800,881 2,396,977,977
At December 31, 2016
Cost - 687,222,691 195,584,228 251,719,649 3,767,519,676 286,800,881 5,188,847,125
Accumulated depreciation and amortization - (197,803,702) (152,531,640) (176,883,981) (2,264,649,825) - (2,791,869,148)
Net carrying value - 489,418,989 43,052,588 74,835,668 1,502,869,851 286,800,881 2,396,977,977

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Construction in progress represents building, leasehold improvements, various plant developments
and machinery and equipment that will be used in operations and are expected to be fully completed
within twelve months from reporting date.

Transfers represent reclassification of completed construction in progress to appropriate property,


plant and equipment account.

In December 2015, the Group sold its land including the building and all improvements with a net
carrying value of P241,829,148 to Indo Resources, Inc., a related party under common control, for a
total consideration of P325,000,000.

Depreciation and amortization are charged for the years ended December 31 as follows:

Notes 2016 2015 2014


Cost of sales 14 346,575,238 334,860,206 235,595,270
Cost of services 14 3,768,957 2,823,961 8,539,068
General and administrative expenses 16 4,566,490 5,056,694 5,421,245
354,910,685 342,740,861 249,555,583

9.1 Critical accounting estimate: Useful life of property, plant and equipment

The useful life of each of the Group’s property, plant and equipment is estimated based on the period
over which these assets are expected to be available for use. Such estimation is based on a collective
assessment of internal technical evaluation and experience with similar assets. The estimated useful life
of each asset is reviewed periodically and updated if expectations differ from previous estimates due to
physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the
asset. It is possible, however, that future results of operations could be materially affected by changes in
the amounts and timing of recorded expenses brought about by changes in the factors mentioned
above. A change in the estimated useful life of any property, plant and equipment would impact the
recorded depreciation expense and carrying value of property, plant and equipment.

9.2 Critical accounting judgment: impairment of property, plant and equipment

The Group’s property, plant and equipment is carried at cost. The carrying value is reviewed and
assessed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Changes in those judgments could have a significant effect on the
carrying value of property, plant and equipment and the amount and timing of recorded impairment
provision for any period.

As at December 31, 2016 and 2015, management believes, based on its assessment and judgment, that
there are no indications of impairment or changes in circumstances that the carrying value of its
property, plant and equipment may not be recoverable.

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Note 10 - Trade payables and other liabilities

Trade payables and other liabilities as at December 31 consist of:

Note 2016 2015


Trade payables 1,258,218,863 702,478,019
Due to regulatory agencies 43,951,810 43,894,860
Accrued utilities 6,299,236 14,884,875
Advances from customers 5,482,266 3,974,030
Accrued interest expense 2,582,636 -
Advances from officers and employees 18.6 343,875 1,283,542
Others 49,620,757 29,669,845
1,366,499,443 796,185,171

Due to regulatory agencies substantially consist of percentage tax payable, expanded withholding tax
payable and withholding tax payable on compensation as at December 31, 2016 and 2015.

Others pertain to accruals for rent, employee benefits and professional fees.

Note 11 - Borrowings

Borrowings as at December 31 consist of:

2016 2015
Current
Philippine Peso 3,850,481,200 2,550,000,000
US Dollar - 629,039,800
Non-current (Philippine Peso) 1,000,000,000 1,000,000,000
4,850,481,200 4,179,039,800

The Group’s outstanding borrowings are from local and foreign banks. These borrowings are covered
by surety and corporate guarantee agreements (Notes 18.4 and 18.5).

In 2016 and 2015, short-term borrowings have an average maturity of one to eleven months and bear
average interest rates ranging from 2.2% and 1.8% subject to monthly repricing. During 2016 and 2015,
the Group obtained and repaid short-term loans in various dates which are presented in the
consolidated statements of cash flows.

Long-term borrowings, payable in lump sum are due in August 2020 and are subject to fixed interest
rate of 4%. Long-term borrowings of the Group were obtained to refinance short-term borrowings.

Short-term borrowings of the Group were obtained for working capital purposes.

Interest expense for the year ended December 31, 2016 amounted to P112,819,370 (2015 -
P105,325,309; 2014 - P45,273,125).

There are no significant covenant provisions and warranties, including breaches thereof, related to the
above borrowings.

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Note 12 - Equity

12.1 Share capital and share premium

Details of share capital and share premium as at December 31 are as follows:

2016 2015
Shares Amount Shares Amount
Share capital
Common shares at P1 par value per share
Authorized
January 1 18,000,000,000 18,000,000,000 4,000,000,000 4,000,000,000
Increase in authorized share capital - - 14,000,000,000 14,000,000,000
December 31 18,000,000,000 18,000,000,000 18,000,000,000 18,000,000,000
Issued and outstanding
January 1 7,142,857,990 7,142,857,990 3,571,428,995 3,571,428,995
Stock dividends declared - - 3,571,428,995 3,571,428,995
December 31 7,142,857,990 7,142,857,990 7,142,857,990 7,142,857,990
Share premium 3,255,166,445 3,255,166,445

The Parent Company undertook a public offering of its common shares on December 12, 2012, in which
the Parent Company issued 1 billion additional shares at P4.30 per share for a total consideration of
P4.6 billion. As a result of the public offering, share premium amounting to P3.2 billion (net of share
issuance costs of P280.5 million) has been recognized by the Parent Company as at December 31, 2012.

On November 5, 2013, which is also the date of approval by the SEC, the Parent Company registered its
shares under the Securities Regulation Code (SRC) with an issue/offer price of P4.30. As at December
31, 2016 and 2015, the Parent Company’s record of registration of its securities under the SRC reported
7,142,857,990 shares registered.

On May 11, 2015, the Parent Company’s Board of Directors, through an amendment of the Parent
Company’s Articles of Incorporation, resolved to increase its authorized capital stock from four billion
pesos (P4,000,000,000) divided into four billion (4,000,000,000) common shares with a par value of
P1.00 each to eighteen billion pesos (P18,000,000,000) divided into eighteen billion
(18,000,000,000) common shares with a par value of P1.00 each. The amendment was approved and
ratified by the Parent Company’s stockholders during the annual stockholders meeting on June 8,
2015. The SEC approved the increase in authorized capital stock on July 24, 2015.

12.2 Dividend declaration - Stock dividends

On May 11, 2015, the Parent Company’s BOD approved the declaration of 100% stock dividends
amounting to P3,571,428,995 (P1 per share) out of the unrestricted retained earnings of the Parent
Company as at
March 31, 2015 to be issued out of the increase in authorized share capital to all shareholders as at a
record date set by the SEC after approval of the increase in the Parent Company’s authorized capital
stock. Following the approval by the SEC of Parent Company’s increase in authorized capital stock, the
Parent Company set the Record Date on August 20, 2015, and the issue and listing date on September
17, 2015.
PSE approved the issue and listing of the additional shares on September 17, 2015.

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12.3 Dividend declaration - Cash dividends

The Parent Company’s BOD declared and paid cash dividends as follows:

Declaration date Payment date Dividend rate per share Amount


June 6, 2016 July 8, 2016 P0.20 per share (consisting of P1,428,571,598
P0.16 regular cash dividend and
P0.04 special cash dividend)
June 25, 2015 July 8, 2015 P0.15 per share (consisting of 535,714,349
P0.10 regular cash dividend and
P0.05 special cash dividend)
June 2, 2014 June 30, 2014 P0.20 per share (consisting of 714,285,799
P0.10 regular cash dividend and
P0.10 special cash dividend)

12.4 Earnings per share calculation

The calculation of earnings per share as at December 31 is as follows:

2016 2015 2014


Profit for the year attributable to the owners of the
Parent Company 2,627,150,673 2,280,308,939 2,718,952,061
Weighted average number of common shares 7,142,857,990 7,142,857,990 7,142,857,990
Basic and diluted earnings per share 0.37 0.32 0.38

The calculation of the basic and diluted earnings per share reflects the stock dividends of 3.5 billion
shares in 2015 (Note 12.2).

The Parent Company has no dilutive potential ordinary shares. Therefore, the amount reported for
basic and diluted earnings per share is the same.

Note 13 - Revenues

For the years ended December 31, revenues consist of the following:

Note 2016 2015 2014


Sale of goods, gross 22,319,915,385 19,666,811,427 16,120,129,397
Sales discounts (94,475,518) (77,807,843) (75,591,325)
Sales returns (30,766,651) (41,346,078) (71,212,812)
Sale of goods, net 18 22,194,673,216 19,547,657,506 15,973,325,260
Management service fees 18 37,723,088 30,046,666 147,776,953
22,232,396,304 19,577,704,172 16,121,102,213

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Note 14 - Cost of sales and services

The components of cost of sales and services for the years ended December 31 consist of:

Notes 2016 2015 2014


Raw materials used 5 16,546,693,596 14,599,534,209 12,254,788,542
Net change in inventories 5 (484,295,372) (496,192,354) (137,991,738)
Direct labor 19 74,849,359 78,330,407 67,182,597
Factory overhead
Contracted services 408,028,789 271,517,990 140,407,423
Depreciation and amortization 9 303,232,235 292,868,076 215,991,203
Utilities 251,371,318 252,436,066 199,489,541
Fuels and oils 199,325,043 218,001,650 180,781,078
Repairs and maintenance 194,466,779 157,543,519 87,313,903
Rental 18.2 172,598,573 147,731,378 135,157,468
Indirect labor 102,932,054 93,965,368 67,394,179
Indirect materials used 38,696,525 38,600,223 17,354,036
Supplies 24,380,702 30,756,082 14,400,759
Other direct costs 324,849,326 269,013,949 225,332,783
Cost of sales 18,157,128,927 15,954,106,563 13,467,601,774
Employee costs 19 9,036,074 6,414,549 29,221,432
Rental 18.2 5,164,632 2,802,348 15,461,794
Depreciation and amortization 9 3,768,957 2,823,961 8,539,068
Contracted services 2,804,411 1,793,117 9,322,557
Repairs and maintenance 1,610,739 1,234,002 6,010,062
Supplies 785,949 500,479 2,803,060
Utilities 624,497 915,192 2,672,537
Delivery charges 599,236 466,081 2,186,324
Fuels and oils 266,491 313,366 2,149,339
Taxes and licenses 172,998 385,842 1,392,846
Others 1,475,829 882,084 2,760,570
Cost of services 26,309,813 18,531,022 82,519,588
18,183,438,740 15,972,637,585 13,550,121,362

Other direct costs include depreciation and amortization expense for the year ended December 31, 2016
amounting to P43,343,003 (2015 - P41,992,130; 2014 - P19,604,067) (Note 9).

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Note 15 - Selling and marketing expenses

The components of selling and marketing expenses for the years ended December 31 consist of:

Note 2016 2015 2014


Delivery charges 342,062,436 290,230,774 259,470,530
Employee costs 19 115,019,983 101,508,701 83,490,486
Contracted services 35,148,461 28,605,188 23,686,638
Representation expenses 34,707,935 32,812,079 23,887,450
Transportation and travel 31,258,489 27,516,454 17,044,851
Advertising and promotion 4,871,512 5,204,578 5,577,631
Others 477,272 243,280 46,808
563,546,088 486,121,054 413,204,394

Note 16 - General and administrative expenses

The components of general and administrative expenses for the years ended December 31 consist of:

Notes 2016 2015 2014


Taxes and licenses 134,379,909 158,578,519 64,538,731
Professional fees 32,743,013 6,534,934 5,436,807
Donations and contributions 23,766,896 21,410,560 14,883,444
Contracted services 17,813,082 39,598,694 16,678,565
Bank charges 11,555,602 10,552,181 9,565,591
Utilities 11,472,124 8,332,741 8,497,764
Supplies 8,937,853 7,933,665 5,640,557
Provision for impairment of receivables 4 6,943,006 3,601,001 16,514,490
Membership dues 5,286,320 4,118,071 3,519,962
Depreciation and amortization 9 4,566,490 5,056,694 5,421,245
Repairs and maintenance 1,978,539 248,087 -
Rentals 18.2 1,480,222 1,480,222 1,184,708
Loss on direct write-off of receivables 4 1,434,877 369,073 120,181
Miscellaneous 5,896,467 12,480,474 5,965,848
268,254,400 280,294,916 157,967,893

For the year ended December 31, 2015, taxes and licenses include one-time costs on tax and filing fees
on Parent Company’s increase in authorized capital stock (Note 12.1) amounting to P46,137,655.

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Note 17 - Other income, net

The components of other income (expenses), net for the years ended December 31 consist of:

Notes 2016 2015 2014


Foreign exchange gain (loss), net 21 68,531,660 11,312,058 (4,467,397)
Freight income 18 7,972,478 10,683,555 18,420,791
Interest income 3,24.20 5,313,789 3,719,965 16,430,130
Gain (loss) on disposal of property,
plant and equipment 9 1,005,422 83,172,348 (111,122)
Rental income 18 142,010 369,625 767,228
Dividend income 53,646 151,988 311,077
Miscellaneous 1,634,270 7,267,719 3,949,680
84,653,275 116,677,258 35,300,387

Foreign exchange gain in 2016 mainly pertains to USD-denominated loan which was settled in 2016.

Miscellaneous income pertains to laboratory and calibration services provided to customers.

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Note 18 - Related party transactions and balances

The Group, in the ordinary course of business, has transactions with related parties. Significant related party transactions and related balances include
the following:

For the years ended December 31:

Transactions Due from related parties


2016 2015 2014 2016 2015 Terms and conditions
(a) Management service fees The fee for technical and logistics
Entities under common support services ranges from 2% to 3%
control 27,801,610 21,542,003 19,158,509 - 2,198,431 of net receipts from operations,
Immediate Parent Company 9,921,478 8,504,663 10,109,656 - 757,651 excluding intercompany sales, and those
Associates - - 118,508,788 - - for administrative and executive
management support services ranges
from 3.5% to 7% of gross income from
operations. These receivables are
unsecured, unguaranteed, non-interest
bearing, collectible in cash at net
amount, due on demand but not later
than 12 months from reporting date.
37,723,088 30,046,666 147,776,953 - 2,956,082
(b) Sale of goods and services Sale of goods and services are negotiated
Entities under common with related parties on a cost-plus basis.
control 749,100,229 373,276,918 243,887,621 78,648,157 74,139,360 These receivables are unsecured,
Immediate Parent Company 40,542,336 9,080 - 48,602 - unguaranteed, non-interest bearing,
Associate - - 155,639,416 - - collectible in cash net amount, due on
demand but not later than 12 months from
reporting date.
789,642,565 373,285,998 399,527,037 78,696,759 74,139,360
(c) Rental income Lease rental are based on contracts
Entity under common mutually agreed by the parties. These
control 142,010 369,625 767,228 - 52,196 receivables are unsecured,
unguaranteed, non-interest bearing,
collectible in cash at net amount, due on
demand but not later than 12 months
from reporting date.
(d) Sale of property, plant and Sold property for cash in accordance with
equipment agreed sales agreement and were fully
Entity under common collected in 2015 (Note 9).
control - 325,000,000 - - -

(25)
Transactions Due from related parties
2016 2015 2014 2016 2015 Terms and conditions
(e) Advances to: Advances are obtained for working capital
Entities under common purposes. These advances are unsecured,
control 4,134,691 - 10,959,987 6,824,296 7,744,600 unguaranteed, non-interest bearing,
Immediate Parent Company - - - - 38,361,236 collectible in cash at net amount, due on
demand but not later than 12 months from
reporting date.
4,134,691 - 10,959,987 6,824,296 46,105,836
85,521,055 123,253,474

Transactions Due to related parties


2016 2015 2014 2016 2015 Terms and conditions
(f) Rental expenses Lease rental are based on contracts
Entities under common mutually agreed by the parties. These
control (105,857,149) (190,825,208) (179,859,509) (21,617,241) (2,367,840) payables are unsecured, unguaranteed,
Associate - - (5,531,722) - - non-interest bearing, settled in cash at net
amount, due on demand but not later than
12 months from reporting date.
(105,857,149) (190,825,208) (185,391,231) (21,617,241) (2,367,840)
(g) Purchase of goods Purchases of goods are negotiated with
Entities under common related parties on a cost-plus basis. These
control (134,363,677) (44,751,667) (6,051,279) (5,473,630) (11,924,383) payables are unsecured, unguaranteed,
Immediate Parent Company (48,002,303) - - - (9,482) non-interest bearing, settled in cash at net
Associate - - (36,491,805) - - amount, due on demand but not later than
12 months from reporting date.
(182,365,980) (44,751,667) (42,543,084) (5,473,630) (11,933,865)
(h) Purchase of CTI shares Purchase of shares following the tender
Parent Company - - (937,366,180) - - offer made by the Parent Company over
Entity under common control - - (546,796,938) - - the outstanding shares of CTI in 2014
(Note 1.2.1).
- - (1,484,163,118) - -
(27,090,871) (14,301,705)

(26)
Details of offsetting at December 31 are as follows:

Due from related parties

Gross amount of
recognized financial Net amount of financial
Gross amount of liabilities set off in the assets presented in the Related amounts not set off in the consolidated
recognized consolidated statement consolidated statement statement of financial position
financial assets of financial position of financial position Financial instruments Cash collateral received Net amount
2016 85,521,055 (8,141,085) 77,379,970 - - 77,379,970
2015 123,253,474 (11,950,540) 111,302,934 - - 111,302,934

Due to related parties

Gross amount of Net amount of financial


recognized financial liabilities presented in
Gross amount of assets set off in the the consolidated Related amounts not set off in the consolidated
recognized consolidated statement statement of financial statement of financial position
financial liabilities of financial position position Financial instruments Cash collateral received Net amount
2016 27,090,871 (8,141,085) 18,949,786 - - 18,949,786
2015 14,301,705 (11,950,540) 2,351,165 - - 2,351,165

CTI and CHI were associates until October 6, 2014 and are subsidiaries from October 7, 2014 (Note 1.2.1).

There are no provisions for impairment recognized against due from related parties.

There are no collaterals held or guarantees issued, except as disclosed under surety and corporate guarantee agreements, with respect to related party
transactions and balances.

As at December 31, 2016, the Group presented net amount of due from related parties of P77,379,970 (2015 - P111,302,934) and net amount of due to
related parties of P18,949,786 (2015 - P2,351,165) in the consolidated statement of financial position as a result of the Group's offsetting agreement with
its related parties (Note 23.2.3).

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18.1 Management services

The Parent Company has an existing management agreement with its related parties, whereby it
provides the following management services to related parties:

 Technical support, which includes research and development, quality control and assurance, use of
trademarks, and IT related services;

 Logistics support, which includes transport, fleet management, warehousing management, tank farm
management, port clearing and procurement;

 Administrative support, which includes accounting and finance, human resources, information
technology, property management, legal services, and research and development; and

 Executive management, which includes the services performed by the executives to manage the
business operations of the related parties.

The agreement remains in force, unless terminated by the parties.

18.2 Lease agreements

D&L

D&L has existing cancellable operating lease agreements with LBL Industries, Inc. (LBL), an entity
under common control by the Ultimate Parent Company, whereby the Parent Company leases from
LBL its factory and warehouse spaces. The lease is for a period of five years starting July 1, 2007 and
renewable for another five years thereafter, unless terminated by either party. On July 1, 2012, the lease
agreements were renewed for another five years.

CTI

On February 2, 2008, the CTI and CHI have entered into an assignment and assumption agreement
whereby CTI assumed and CHI assigned to the latter its cancellable operating lease agreement with
LBL covering the lease by CTI of LBL’s factory and warehouse spaces. The lease shall be for a period of
ten years from June 1, 2007, unless terminated by either party or renewed by mutual agreement of
parties.

CHI

CHI has cancellable operating lease agreements with LBL covering its factory and warehouse spaces.
The leases are for a period of five years starting July 1, 2007 and were extended until June 30, 2017.

OFI

OFI has existing cancellable operating lease agreements with LBL covering its factory and warehouse
spaces. The lease runs for a period of one year and renewable every year thereafter, unless terminated
by either party.

OFI also has existing cancellable operating lease agreement with FIC Tankers Corporation (FICT),
entity under common control, for the use of the latter’s storage tanks. The agreement remains in force
unless terminated by the parties.

(28)
API

API has an existing various cancellable operating lease agreements with LBL, whereby API leases
certain factory and warehouse spaces. The lease runs for a period of five years starting May 1, 2007 up
to April 30, 2012 and subject to an escalation of five percent annually and cumulatively starting on the
second year of the lease term. The lease agreement was subsequently renewed for another five years
with no significant changes to the previous agreement.

FIC

In 2016, FIC entered into an operating lease agreement with LBL Land Corporation for its plant and
warehouse in Quezon City. The term of the lease agreements commences on January 1, 2016, subject to
escalation clause of 5% starting in year 2 and every year after. The agreement is for a period of five
years, renewable upon mutual agreement with the lessor.

DLPCI

On October 1, 2009, DLPCI entered into a cancellable operating lease agreement with Ecozone
Properties, Inc. (EPI), a related party under common control by the Immediate Parent Company,
covering the lease of land for the DLPCI’s manufacturing warehouse for a period of five years up to
October 1, 2014, with renewal options. The lease agreement was subsequently renewed and extended
for three months until December 31, 2014 with no significant changes from the previous agreement.

On January 1, 2010, DLPCI entered into another cancellable operating lease agreement with EPI
covering the lease of its warehouse for a period of five years up to January 1, 2015, with renewal
options.

On January 1, 2015, the two lease agreements above with EPI were renewed for another five years until
January 1, 2020 with no significant changes from the previous lease agreements.

Future minimum lease payments from the above lease agreements are as follows:

2016 2015
Not later than one year 162,317,152 138,009,451
Later than one year but not later than five years 612,073,476 669,927,740
774,390,628 807,937,191

(29)
18.3 Advances

The Group provides cash advances to its related parties, for working capital requirements, which are
unsecured, non-interest bearing, due on demand, but not later than twelve months from reporting date.

18.4 Surety agreements

The Parent Company, its subsidiaries (namely, FIC, DLPCI, API, and OFI) and entities under common
control (namely, CCPI and FICM) have an existing agreement to provide surety for the obligations and
indebtedness incurred or may be incurred by all aforementioned related parties from short term credit
accommodation extended by a local bank. As at December 31, 2016, total short term borrowings from the
local bank availed by the above related parties amounted to P650 million (2015 - P335 million). As at
December 31, 2016 and 2015, the Parent Company and its related parties have not incurred any
obligation and indebtedness related to this agreement. Obligations, arising from the above surety
agreement if any, will be funded by the above related parties. There is no limitation or allocation for the
obligations and indebtedness that may be funded by the above related parties.

The Parent Company, and its subsidiaries (namely, FIC, DLPCI, API, and OFI) and entities under
common control (namely, CCPI and FICM) provide surety for the obligations or indebtedness incurred or
may be incurred by all aforementioned related parties from short term credit accommodation extended
by a local bank. As at December 31, 2016, total short term borrowings from the local bank availed by the
above related parties amounted to P220 million (2015 - P100 million). As at December 31, 2016 and
2015, the Parent Company and its related parties have not incurred any obligations or indebtedness
arising from default in the above borrowings covered by surety agreement. Obligations, arising from the
above surety agreement if any, will be funded by the above related parties. There is no limitation or
allocation for the obligations and indebtedness that may be funded by the above related parties.

18.5 Corporate guarantee agreement

The Parent Company, its subsidiaries (namely, FIC, DLPCI, API, and OFI) and entity under common
control (namely, FICM), entered into a continuing corporate guarantee with a foreign bank whereby
related parties will provide for the obligations and indebtedness incurred or may be incurred by all
aforementioned related parties from short term credit accommodation extended by the foreign bank. As
at December 31, 2016, total short term borrowings from foreign banks of the above related parties
amounted to P1,550 million (2015 - P78 million). As at December 31, 2016 and 2015, the Parent Company
and its related parties have not incurred any obligation or indebtedness relating to this agreement.
Obligations, arising from the above corporate guarantee, if any, will be funded by the above related
parties. There is no limitation or allocation for the obligations and indebtedness that may be funded by
the above related parties.

(30)
18.6 Key management compensation

Key management compensation for the years ended December 31 consist of:

Terms 2016 2015 2014


Salaries and wages Key management compensation 91,936,237 80,690,704 70,190,261
Other short term covering salaries and wages and
employee benefits other short term benefits are 11,576,932 10,945,893 9,574,244
determined based on contract of
employment and payable in
accordance with the Company’s
payroll period. These were fully
paid at reporting date.
Retirement benefits Retirement benefits are 13,736,845 14,192,656 10,101,060
determined and payable in
accordance with policies
disclosed in Notes 19 and 24.22.
117,250,014 105,829,253 89,865,565

The Group has not provided share-based payments, termination benefits or other long term benefits,
other than the retirement benefits, to its key management employees for the years ended December 31,
2016, 2015 and 2014.

As at December 31, 2016, advances to officers amounting to P4,137,606 (2015 - P7,612,807) represent
loans granted to officers and employees (Note 4). As at December 31, 2016 advances from officers
amounting to P343,875 (2015 - P1,283,542) represent reimbursement of employees related to
transportation and other expenses (Note 10). These are unsecured and non-interest bearing advances,
subject to liquidation and/or collectible through salary deduction, and expected to be settled in cash
within the next twelve months from reporting date.

Other related party transactions for the years ended December 31 also include contributions to, and
investment in shares of stock of the Parent Company by the retirement fund (Note 19).

Note 2016 2015 2014


Investment in shares of stock of
the Parent Company as at December 31 19 245,235,033 82,350,000 112,621,600
Retirement fund contribution during the year 19 15,613,234 16,094,928 17,790,556

Note 19 - Retirement benefit asset

The Group maintains a non-contributory defined benefit retirement plan for the benefit of its regular
employees. The normal retirement age is 60. Normal retirement benefit is equal to three-fourth month
salary as of date of retirement multiplied by retiree’s years of service. Three-fourth month salary is
equivalent to 22.5 days basic salary, cash equivalent of 5 day vacation leaves, and one-twelfth (1/12) of
the 13th month pay. Actuarial valuation is performed by an independent actuary on an annual basis.

(31)
The Group has plan assets, a group-administered fund, under the D&L Employees’ Retirement Plan
(the “Group Retirement Plan”) that share risks between various entities under common control. Plan
assets are held by trustee banks, governed by local regulations and practices and approved by the
management of the Parent Company.

Net defined benefit cost and contributions are allocated to the participating entities in the retirement
plan on the basis of retirement benefit expense and obligation attributable to each of the participating
entities.

The amounts recognized in the consolidated statements of financial position as at December 31 are
determined as follows:

2016 2015
Fair value of plan assets 365,155,921 332,679,362
Present value of funded obligation (253,690,183) (238,726,886)
Retirement benefit asset 111,465,738 93,952,476
Asset ceiling adjustment - -
Assets in the consolidated statement of financial position 111,465,738 93,952,476

The movements in the defined benefit obligation for the years ended December 31 are as follows:

2016 2015
Beginning of year 238,726,886 257,256,646
Current service cost 20,803,312 21,705,742
Interest cost 12,104,275 11,703,872
Benefits paid (14,552,433) (31,009,835)
Remeasurement gain (3,391,857) (20,929,539)
End of year 253,690,183 238,726,886

The movements in the fair value of plan assets for the years ended December 31 are as follows:

2016 2015
Beginning of the year 332,679,362 313,213,486
Interest income 16,795,154 14,191,616
Contributions 15,613,234 16,094,928
Benefits paid (14,552,433) (31,009,835)
Remeasurement gain 14,620,604 20,189,167
End of the year 365,155,921 332,679,362

The amounts recognized in profit or loss for the years ended December 31 are as follows:

2016 2015 2014


Current service cost 20,803,312 21,705,742 17,064,115
Net interest (income) cost (4,690,879) (2,487,744) 1,779,511
Retirement benefit expense 16,112,433 19,217,998 18,843,626

(32)
Retirement benefit expenses is included as part of employee costs as follows:

2016 2015 2014


Cost of sales 15,385,319 18,316,806 17,971,332
Cost of services 22,293 21,275 110,115
Selling and marketing expenses 484,616 562,670 573,582
General and administrative expenses 220,205 317,247 188,597
16,112,433 19,217,998 18,843,626

The amounts recognized in other comprehensive income for the years ended December 31 are as
follows:

2016 2015 2014


On defined benefit obligation due to change
in financial assumption 2,130,343 12,593,514 7,990,828
On defined benefit obligation due to
experience adjustment 1,261,514 8,336,025 4,405,375
On plan assets due to experience
adjustment 14,620,604 20,189,167 86,149,825
Remeasurement gain 18,012,461 41,118,706 98,546,028
Deferred tax expense (3,531,416) (13,128,598) (14,656,231)
Remeasurement gain, net of tax 14,481,045 27,990,108 83,889,797

The movements in the retirement benefit asset recognized in the consolidated statements of financial
position as at December 31 are as follows:

2016 2015
Beginning of year 93,952,476 55,956,840
Retirement benefit expense recorded in profit or loss (16,112,433) (19,217,998)
Remeasurement gain recognized in other
comprehensive income 18,012,461 41,118,706
Contributions paid 15,613,234 16,094,928
End of year 111,465,738 93,952,476

As at December 31, 2016, the Group has an allocated fund of P365,155,921 (2015 - P332,679,362) in the
Retirement plan based on the fund balance report of the trustee banks (using the Company’s
percentage of equity over the total plan assets under the Retirement plan).

The Group Retirement Plan has net investments as at December 31 consisting of the following:

2016 2015
Amount Percentage Amount Percentage
Listed stocks 263,581,109 67.16% 255,201,770 71.78%
Treasury bonds and notes 82,879,848 21.12% 26,418,763 7.43%
Mutual funds 17,686,067 4.51% 59,090,479 16.62%
Unit investment trust funds 14,657,767 3.73% 11,902,861 3.35%
Other receivables 14,525,679 3.70% 768,859 0.22%
Cash 27,591 0.01% 3,903,398 1.09%
Other payables (884,762) (0.23%) (1,750,446) (0.49%)
392,473,299 100.00% 355,535,684 100.00%

(33)
The defined benefit plan typically exposes the participating entities to a number of risks such as
investment risk and interest rate risk.

The present value of the defined benefit obligation is determined by discounting the estimated future
cash outflows using interest rates of government bonds that are denominated in the currency in which
the benefits will be paid, and that have terms to maturity approximating the terms of the related
retirement liability. A decrease in government bond yields will increase the defined benefit obligation
although this will be partially offset by an increase in the value of the plan's fixed income holdings.

The participating entities believe that due to the long-term nature of the retirement liability, the mix of
debt and equity securities holdings of the plan is an appropriate element of the long-term strategy to
manage the plan efficiently. Investments are well diversified, such that the failure of any single
investment would not have a material impact on the overall level of assets. The largest proportion of
assets is invested in equities, although there are also investments in mutual fund, unit investment trust
funds and treasury bonds and notes. The management believes that equities offer the best returns over
the long term with an acceptable level of risk.

As at December 31, 2016, listed stocks include shares of stocks of the Parent Company amounting to
P245,235,033 representing 0.18% interest in the Parent Company (2015 - P82,350,000; 0.09%
interest). The voting rights over these shares are exercised by the trustee bank. The Group Retirement
Plan recognized net gains on these investments in listed stocks of the Parent Company for the year
ended December 31, 2016 amounted to P81,645,344 (2015 - P34,620,125).

The allocated share of the Group in the Retirement Plan as at December 31 is as follows:

2016 2015
Amount Percentage Amount Percentage
Listed stocks 245,235,033 67.16% 238,797,246 71.78%
Treasury bonds and notes 77,111,150 21.12% 24,718,077 7.43%
Mutual funds 16,455,061 4.51% 55,291,310 16.62%
Unit investment trust funds 13,637,540 3.73% 11,144,759 3.35%
Other receivables 13,514,646 3.70% 731,895 0.22%
Cash 25,671 0.01% 3,626,205 1.09%
Other payables (823,180) (0.23%) (1,630,130) (0.49%)
365,155,921 100.00% 332,679,362 100.00%

The principal annual actuarial assumptions used as at December 31 were as follows:

2016 2015
Discount rate 4.97-5.19% 4.54-5.20%
Future salary increase rate 6.00% 6.00%

As at December 31, 2016, the average life expectancy in years of experience of a pensioner retiring at
age 60 is 18 years for both male and female (2015 - 18 years).

Assumptions regarding future mortality experience are set based on advice from published statistics
and experience.

(34)
As part of its funding policy, the Group follows the recommended contribution to the plan as
determined by an independent actuary. The recommended contribution to the plan consists of the
annual amortization of the excess fund plus the current service cost for the year. The expected
contribution to retirement fund by December 31, 2017 is P17,764,298 (2016 - P15,613,234).

19.1 Critical accounting estimate: actuarial assumptions and sensitivity

The present value of the retirement benefit obligation depends on a number of factors that are
determined on an actuarial basis using a number of assumptions. The assumptions used in determining
the net cost (income) for retirement benefit include the discount rate and future salary increases. Any
changes in these assumptions will impact the carrying amount of retirement benefit obligation.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate
that should be used to determine the present value of estimated future cash outflows expected to be
required to settle the retirement benefit obligation. In determining the appropriate discount rate, the
Group considers the interest rates of government bonds that are denominated in the currency in which
the benefits will be paid and that have terms to maturity approximating the terms of the related
retirement benefit obligation and related retirement benefit expense.

Other key assumptions for retirement benefit obligation are based in part on current market
conditions.

The sensitivity of the defined benefit obligation as at December 31 to changes in the significant
weighted principal assumptions follows:

Impact on defined benefit obligation


Change in Increase in Decrease in
assumption assumption assumption
As at December 31, 2016
Discount rate +/-0.50% (15,213,609) 16,656,997
Future salary increase +/-0.50% 33,044,336 (28,223,422)
As at December 31, 2015
Discount rate +/-0.50% (14,291,543) 15,648,182
Future salary increase +/-0.50% 31,019,064 (26,492,753)

The above sensitivity analyses are based on a change in an assumption while holding all other
assumptions constant. When calculating the sensitivity of the defined benefit obligation to significant
actuarial assumptions, the same method has been applied as when calculating the retirement benefit
obligation recognized within the consolidated statement of financial position.

The methods and types of assumptions used in preparing the sensitivity analysis did not change
compared to the previous period.

Expected maturity analysis of undiscounted retirement benefits as at December 31 is as follows:

Less than a year 1 to 5 years 5 to 10 years Over 10 years Total


2016 5,698,274 60,969,009 119,725,812 2,675,832,751 2,862,225,846
2015 12,598,074 63,664,522 94,181,146 2,320,047,626 2,490,491,368

(35)
There are no other related party transactions with the retirement fund except for the contributions to,
benefits paid and investment in shares in the Parent Company by the retirement fund.

Note 20 - Taxation

Deferred income tax

DIT assets (liabilities), net as at December 31 consist of:

2016 2015
Fair value adjustment on net assets acquired (Note 1.2.1) 14,604,085 21,906,127
Allowance for inventory obsolescence 3,422,324 2,969,877
Net operating loss carry-over (NOLCO) 1,010,717 -
Accrued rent expense - 2,147,270
Accrued rent income - (3,477)
Fair value adjustment of available-for-sale financial assets (5,027,987) (4,526,187)
Unrealized foreign exchange gain (3,471,015) (849,075)
Retirement benefit asset (27,431,828) (22,700,817)
(16,893,704) (1,056,282)

The offset amounts as at December 31 are as follows:

2016 2015
Deferred tax assets
Expected to be recovered within 12 months 4,433,041 429,191
Expected to be recovered after 12 months 27,659,380 35,416,984
32,092,421 35,846,175
Deferred tax liabilities
Expected to be settled within 12 months (3,471,015) (852,551)
Expected to be settled after 12 months (45,515,110) (36,049,906)
(48,986,125) (36,902,457)
(16,893,704) (1,056,282)

The movements in the DIT liabilities, net for the years ended December 31 are as follows:

2016 2015
Beginning of year (1,056,282) (616,565)
Credited (charged) to profit or loss (11,804,203) 5,903,239
Charged to other comprehensive income (4,033,219) (6,342,956)
End of year (16,893,704) (1,056,282)

20.1 Critical accounting judgment: recoverability of deferred income tax assets

The Group recognizes deferred income tax assets to the extent that it is probable that future taxable
income will be available against which temporary differences can be utilized. Determining the
realizability of deferred income tax assets requires the assessment on the availability of taxable profit
expected to be generated from the operations against which the deferred income tax assets can be
applied.

(36)
As at December 31, 2016 and 2015, based on management’s assessment and judgment, deferred income
tax assets are fully recoverable.

Current income tax

Corporate income tax

In compliance with local tax law, the entities shall pay the greater of minimum corporate income tax
(MCIT), which is 2% of gross income as defined under the law, and the normal income tax. Any excess
of MCIT over the normal income tax shall be carried forward for the next three (3) consecutive taxable
years immediately following the year such MCIT was paid.

The Tax Reform Act of 1997 (the Act) introduced NOLCO as a deduction from taxable income for the
three consecutive years immediately following the year such loss was incurred. As at December 31,
2016, NNC recognized NOLCO with details as follow:

Year Year of expiration 2016 Expired Utilized 2016


2016 2019 1,010,734 - - 1,010,734

Realization of the future tax benefit related to these DIT asset is dependent on NNC’s ability to generate
future taxable income during the periods the temporary differences reverse, and before NOLCO benefit
prescribes.

PEZA registered activity

On October 26, 2007, the Philippine Economic Zone Authority (PEZA) approved DLPCI’s application for
registration to manufacture specialty polymer and colours compound. Under this registration, such
activity is entitled to a four-year income tax holiday (ITH) from the start of commercial operations in
April 2008. On March 16, 2009, PEZA approved DLPCI's request for the adjustment of the start date of
commercial operations to March 1, 2009. As a result, the ITH was extended until February 28, 2013. On
September 18, 2012, PEZA approved the extension of DLPCI’s ITH to February 28, 2014 on the basis of
its Net Foreign Exchange Earnings. On May 16, 2013, PEZA approved DLPCI’s request for the grant of
pioneer status. As a result, DLPCI was entitled to a six-year ITH until February 28, 2016. Beginning
March 1, 2016, the gross income from the foregoing registered activity of DLPCI is subject to 5% tax rate.

On November 16, 2014, PEZA approved DLPCI’s application for registration to manufacture new
generation, eco-friendly specialty polymer and colour compounds. Under this registration, such activity
is entitled to a four-year ITH from the start of commercial operations in November 2014.

BOI registered activity

On March 4, 2011, CTI’s registration with the BOI as “new export producer of oleochemical specialties
and derivatives” was approved. As a result, the Company’s sales generated from oleochemical segment
are entitled to ITH for a period of four (4) years. Upon expiration of its ITH in March 2015, CTI pays
10% income tax on income generated from its biodiesel operations. Subsequently, through a legal
service letter from Board of Investment dated October 15, 2014, CTI amended its BOI status from non-
pioneer to pioneer effectively extending its ITH period from 4 to 6 years until March 2017.

(37)
Optional Standard Deduction

On December 20, 2008, Revenue Regulations No. 16-2009 on the Optional Standard Deduction (OSD)
was published. The regulation prescribed the rules for the OSD application by corporations in the
computation of their final taxable income. For corporations, OSD shall be 40% based on gross income;
“cost of sales” and “cost of services” will be allowed to be deducted from gross sales.
Following are the election of the Group on OSD or itemized deduction for each of the three years in the
period ending December 31, 2016:

2016 2015 2014


Parent Company Itemized Itemized OSD
OFI OSD OSD OSD
DLPCI ITH/Itemized ITH ITH
FIC OSD OSD OSD
API OSD OSD OSD
CTI ITH/Itemized ITH/Itemized ITH/Itemized
CHI OSD OSD OSD

A reconciliation of income tax expense computed at the statutory income tax rate to the income tax expense as
reflected in the consolidated statement of total comprehensive income for the years ended December 31 is as
follows:

2016
PEZA PEZA BOI BOI
registered Registered registered registered Regular tax
activity (0%) activity (5%) activity (0%) activity (10%) rate (30%) Total
Net profit before tax 171,416,438 304,872,943 315,944,831 325,096,066 2,093,555,603 3,210,885,881
Availment of OSD - - - - (332,650,638) (332,650,638)
Interest income subject to final tax - (278,155) - (716,550) (4,319,088) (5,313,793)
Change in tax rate - - - - (2,044,527) (2,044,527)
Dividend income - - - - (53,646) (53,646)
Non-deductible expenses - 78,794,092 - 295,580 10,732,083 89,821,755
Gross income of BOI registered (315,944,831
activity under ITH - - ) - - (315,944,831)
Gross income 171,416,438 383,388,880 - 324,675,096 1,765,219,787 2,644,700,201
Statutory income tax rates 0% 5% 0% 10% 30%
Income tax expense - 19,169,444 - 32,467,509 529,565,936 581,202,889

2015
PEZA
registered BOI registered BOI registered Regular tax rate
activity (0%) activity (0%) activity (10%) (30%) Total
Net profit before tax 410,952,435 331,698,616 307,827,660 1,746,742,233 2,797,220,944
Availment of OSD - - - (137,118,069) (137,118,069)
Interest income subject to final tax (358,074) - (483,770) (2,878,121) (3,719,965)
Change in tax rate - - - (5,805,028) (5,805,028)
Dividend income - - - (151,988) (151,988)
Non-deductible expenses - - 199,560 6,626,923 6,826,483
Gross income of BOI registered
activity under ITH - (331,698,616) - - (331,698,616)
Non-deductible expenses under the
PEZA rules 69,158,993 - - - 69,158,993
Gross income 479,753,354 - 307,543,450 1,607,415,950 2,394,712,754
Statutory income tax rates 0% 0% 10% 30%
Income tax expense - - 30,754,345 482,224,785 512,979,130

(38)
2014
PEZA
registered BOI registered BOI registered Regular tax
activity (0%) activity (0%) activity (10%) rate (30%) Total
Net profit before tax 442,446,639 36,384,650 57,164,071 2,561,067,482 3,097,062,842
Availment of OSD - - - (215,789,189) (215,789,189)
Share in net income of associate - - - (146,859,417) (146,859,417)
Gain on revaluation of previously
held interest in an associate - - - (960,463,563) (960,463,563)
Interest income subject to final tax (376,467) - - (4,743,637) (5,120,104)
Change in tax rate - - - 5,214,009 5,214,009
Dividend income - - - (311,077) (311,077)
Non-deductible expenses - - - 480,206 480,205
Gross income of BOI registered
activity under ITH - (36,384,650) - - (36,384,650)
Non-deductible expenses under
the PEZA rules 75,481,108 - - - 75,481,108
Gross income 517,551,280 - 57,164,071 1,238,594,814 1,813,310,165
Statutory income tax rates 0% 0% 10% 30%
Income tax expense - - 5,716,407 371,578,444 377,294,851

Change in tax rate relates to the change in effective rate as a result of the Group’s availment of OSD and
itemized deductions.

20.2 Critical accounting estimate: provision for income tax

Significant judgment is required in determining the income tax expense. There are many transactions
and calculations for which the ultimate tax determination is uncertain in the ordinary course of
business. The Group recognizes liabilities based on careful evaluation of whether additional taxes will
be due. Where the final tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the Group’s current and deferred income tax provisions in the
period in which such determination is made.

For each of the three years in the period ended December 31, 2016, based on management’s assessment
and judgment, provision for income tax is considered adequate and reasonable.

Note 21 - Foreign currency denominated monetary assets and liabilities

The Group’s foreign currency denominated monetary assets and liabilities as at December 31 consist of:

2016 2015
Euro Singapore Dollar US Dollar US Dollar
Cash 509,869 - 14,068,096 6,253,513
Receivables 568,082 9,936 7,605,084 7,186,995
1,077,951 9,936 21,673,180 13,440,508
Trade payable and other liabilities - - (5,408,720) (5,254,733)
Borrowings - - - (13,400,000)
- - (5,408,720) (18,654,733)
Net assets (liabilities) 1,077,951 9,936 16,264,460 (5,214,225)
Closing exchange rate 51.94 34.50 49.72 47.06
Philippine Peso equivalent 55,988,775 342,792 808,668,951 (245,381,429)

(39)
Foreign exchange gain (loss), net for the years ended December 31 consists of:

2016 2015 2014


Realized foreign exchange gain (loss) 32,490,011 (6,745,850) 8,802,762
Unrealized foreign exchange gain (loss) 14,146,749 (34,723,714) (13,366,123)
Foreign exchange gain (loss), net 46,636,760 (41,469,564) (4,563,361)
Less: Foreign exchange gain (loss) pertaining
to borrowings 21,894,900 (52,781,622) (95,964)
Foreign exchange gain (loss), net presented
under other income 68,531,660 11,312,058 (4,467,397)

Note 22 - Critical accounting estimates, assumptions and judgments

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

The Group makes estimates, assumptions and judgments concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual results. The estimates,
assumptions and judgments that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below.

22.1 Critical accounting estimates and assumptions

22.1.1 Key assumptions used for value-in-use calculations (Note 1.2.3)


22.1.2 Allowance for impairment of receivables (Note 4)
22.1.3 Allowance for inventory obsolescence (Note 5)
22.1.4 Estimated useful life of property, plant and equipment (Note 9)
22.1.5 Estimation of retirement benefit obligation (Note 19)
22.1.6 Income tax expense (Note 20)

22.2 Critical accounting judgments in applying the Group’s accounting policies

22.2.1 Impairment tests for goodwill (Note 1.2.3)


22.2.2 Determining commercial substance of business acquisition (Note 1.1)
22.2.3 Allowance for impairment of receivables (Note 4)
22.2.4 Allowance for inventory obsolescence (Note 5)
22.2.5 Recoverability of creditable withholding taxes (Note 6)
22.2.6 Allowance for unrecoverable claim for input value-added tax (VAT) (Note 6)
22.2.7 Impairment of available-for-sale financial assets (Note 7)
22.2.8 Impairment of investment in associate (Note 8)
22.2.9 Impairment of property, plant and equipment (Note 9)
22.2.10 Recoverability of deferred income tax assets (Note 20)

(40)
Note 23 - Financial risk and capital management

23.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks and these activities involve the analysis,
evaluation and management of some degree of risk or combination of risks. The Group’s overall risk
management program focuses on the unpredictability of financial markets, aims to achieve an
appropriate balance between risk and return and seeks to minimize potential adverse effects on the
Group’s financial performance.

Risk management is carried out by the ManCom (Management Committee).

The most important types of risk the Group manages are: credit risk, market risk and liquidity risk.
Market risk includes foreign currency exchange, price and interest risks.

23.2 Components of financial assets and financial liabilities by category

23.2.1 Financial assets

Details of the Group’s financial assets as at December 31 are as follows:

Notes 2016 2015


Loans and receivables
Cash and cash equivalents 3 2,780,033,609 3,126,096,790
Receivables, gross 4 4,025,378,921 2,983,185,655
Due from related parties 18 77,379,970 111,302,934
Refundable deposits 25,119,742 14,878,560
6,907,912,242 6,235,463,939
Available-for-sale financial assets 7 112,130,825 107,112,804
7,020,043,067 6,342,575,743

Receivables are presented gross of allowance for impairment as at December 31, 2016 amounting to
P11,901,872 (2015 - P18,079,858) and excludes advances to suppliers amounting to P600,765,893
(2015 - P307,818,075).

As at December 31, 2016 and 2015, refundable deposits amounting to P24,020,118 (2015 -
P14,878,560) is presented as part of other non-current assets in the consolidated statement of financial
position.

The other components of other current and non-current assets are considered non-financial assets
which include deposits to suppliers, input VAT, creditable withholding taxes and prepayments.

The carrying amounts of loans and receivables, except refundable deposits, are assumed to be the same
as their fair values (Level 1) due to their short-term nature and the impact of discounting is not
considered significant. Available-for-sale financial assets are measured at quoted prices (Level 1).

(41)
23.2.2 Financial liabilities

Details of the Group’s financial liabilities, categorized as other financial liabilities at amortized cost at
December 31 are as follows:

Notes 2016 2015


Trade payables and other liabilities 10 1,317,065,367 748,316,281
Due to related parties 18 18,949,786 2,351,165
Borrowings 11 4,850,481,200 4,179,039,800
6,186,496,353 4,929,707,246

Trade payables and other liabilities exclude amounts due to regulatory agencies and advances from
customers as at December 31, 2016 amounting to P43,951,810 and P5,482,266 (2015 - P43,894,860
and P3,974,030), respectively (Note 10).

The carrying amounts of other financial liabilities at amortized cost are assumed to be the same as their
fair values (Level 1) due to their short-term nature and the impact of discounting is not considered
significant. Long-term borrowings approximate its fair value (Level 1) as the borrowing is interest-
bearing and measured at amortized cost.

23.2.3 Offsetting financial assets and liabilities

The financial assets and liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements pertains only to amounts due from / to related parties (Note 18).

23.3 Credit risk

Credit risk arises from cash deposits with banks and financial institutions, as well as credit exposure on
receivable from customers, related parties and other counterparties.

The Group’s financial assets that are subject to credit risks are shown below:

Neither past Past due but not impaired Overdue


Carrying due nor Over 90 and
amount impaired 31 - 60 days 61 - 90 days days impaired
December 31, 2016
Cash and cash
equivalents 2,777,329,661 2,777,329,661 - - - -
Receivables, gross 4,025,378,921 2,937,821,613 612,512,511 198,110,417 265,032,598 11,901,782
Due from related parties 77,379,970 77,379,970 - - - -
Refundable deposits 25,119,742 25,119,742 - - - -
6,905,208,294 5,817,650,986 612,512,511 198,110,417 265,032,598 11,901,782
December 31, 2015
Cash and cash
equivalents 3,118,153,176 3,118,153,176 - - - -
Receivables, gross 2,983,185,655 1,600,297,416 930,022,610 237,178,854 197,606,917 18,079,858
Due from related parties 111,302,934 111,302,934 - - - -
Refundable deposits 14,878,560 14,878,560 - - - -
6,227,520,325 4,844,632,086 930,022,610 237,178,854 197,606,917 18,079,858

Cash presented above excludes cash on hand as at December 31, 2016 amounting to P2,703,948 which
is not subject to significant credit risk (2015 - P7,943,614) (Note 3).

(42)
The maximum exposure to credit risk at the reporting date is equal to the carrying value of financial
assets summarized above.

None of the financial assets that are fully performing has been renegotiated in 2016 and 2015.

The Group does not hold any collateral as security to the above financial assets.

23.3.1 Credit quality of the Group’s financial assets

(i) Neither past due nor impaired

Cash in banks and short-term investments

Credit risk exposure arising from cash in banks and short-term investments arises from default of the
counter party, with a maximum exposure equal to the fair value of financial assets. The Group has
policies that limit the amount of credit exposure with financial institutions.

To minimize credit risk exposure, the Group deposits its cash and short-term investments in banks
with good credit ratings as at December as follows:

2016 2015
Universal banks 2,627,849,323 2,932,412,930
Commercial banks 149,422,884 179,998,225
Thrift banks 57,454 5,742,021
2,777,329,661 3,118,153,176

Receivables

Trade receivables

The Group has prudent credit policies to ensure that sale of its products are made to customers with
good credit history. The senior management team, product group heads and the respective sales teams
perform monthly reviews of outstanding receivables as part of the regular performance assessment
process. All receivables from key customers are monitored for collectibility and actual settlement
performance, and action plans are required for any material overdue amounts from all categories of
customers.

From time to time management undertakes an evaluation of certain customer accounts for potential
provisioning and/or write-off.

Trade receivables from its major customers (existing customers with some defaults in the past but all
defaults were fully recovered) at December 31, 2016 amounted to P1,547,933,312 (2015 -
P1,093,120,002) comprising 55% (2015 - 68%) of neither past due nor impaired category. The
remaining balance comes from a broad base of customers in all of the markets where the Group’s
business is engaged, where certain defaults were experienced in the past but significant balances have
been fully recovered. Management is not expecting significant credit risks on its major customers as
well as from its remaining customers as at reporting date.

(43)
Advances to officers and employees

This account pertains to mostly to loans and cash advances to officers and employees for expenses used in
various official business activities. To address credit risk, these advances are subject to liquidation and/or
collectible through salary deduction. Advances to officers and employees are considered to be fully
recoverable.

Other receivables

Other receivables comprise mainly of receivables from third parties which are considered collectible on
demand. The Group limits its exposure to credit risk by transacting only with counterparties that have
appropriate and acceptable credit history. Other receivables are considered to be fully recoverable.

Due from related parties

Due from related parties, arising mainly from transaction on sale of goods and services, are given the
right of offset against the outstanding balance of due to related parties as at a particular date.
Receivables from related parties under the neither past due nor impaired category have minimal
history of default or write off and considered fully performing. The Group is not expecting significant
exposure on these balances considering these are transacted with related parties.

Refundable deposits

This account pertains to security deposits on properties leased by the Group. Security deposits are
generally refundable at the end of the lease term. Management is not expecting significant credit risk
on these deposits.

(ii) Past due but not impaired

Past due but not impaired trade receivables are related to a number of independent customers with
whom there is no recent history of default. As at December 31, 2016, past due but not impaired trade
receivables amounting to P1,075,655,526 (2015 - P1,364,808,381) are fully recoverable and no
allowance for impairment is required on these outstanding balances.

(iii) Overdue and impaired

Overdue and impaired trade receivable relate to transactions arising from sale of goods to customers.
The Group establishes an allowance for impairment based on the loss component that relates to
significant exposure.

Impaired trade receivables as at December 31, 2016 amounting to P11,901,782 (2015 - P18,079,858)
substantially relate to receivables from customers that are in difficult economic situations. Overdue and
impaired accounts as at December 31, 2016 and 2015 are fully provided with allowance for impairment
(Note 4).

The Group does not hold any collateral as security to the above financial assets.

(44)
23.4 Market risk

23.4.1 Foreign currency exchange risk

Foreign exchange risk arises when future commercial transactions and assets and liabilities are
denominated in a currency that is not the Parent Company’s functional currency.

As at December 31, 2016 and 2015, the Group’s financial assets and liabilities denominated in US
Dollar, Euro and Singaporean Dollar as presented in Note 21.

The Group manages its foreign currency exchange risk through minimizing foreign currency
denominated transactions. Also, the Group maintains sufficient cash in foreign currency to cover its
maturing obligations.

A reasonable possible change in foreign currency exchange rate, significantly arising from US Dollar
denominated assets (liabilities), as at December 31 would lead to the following pre-tax profit and equity
movements:

2016 2015
Net foreign currency denominated monetary assets (liabilities) 865,000,518 (245,381,429)
Reasonable possible changes in exchange rates +/-1.25% +/-1.25%
Effect on consolidated pre-tax profit for the year and equity +/- 10,812,506 -/+ (3,067,268)

The reasonable possible change in foreign exchange rate used in the sensitivity analysis is the rate of
change in various foreign currencies using the Peso equivalent at reporting date and thirty (30) days
from reporting date, by which management is expected to receive or settle the Group’s most significant
financial assets or liabilities, respectively.

23.4.2 Price risk

The Group is exposed to price risk in relation to its available-for-sale financial assets. Components of
equity would increase or decrease as a result of gains or losses on these financial assets classified as
available-for-sale. Management monitors such financial assets based on the current market price of the
shares. Available-for-sale financial assets are managed on an individual basis and all buy and sell
decisions are approved by the ManCom, thereby reducing the Group’s exposure to equity price risk at
an acceptably low level.

As at December 31, 2016, the impact of 1.00% increase/decrease (2015 - 0.80%) in the bid share price
of listed equity securities, with all other variables held constant, would have been an increase/decrease
of P1,121,308 in the Group’s consolidated pre-tax comprehensive income and equity for the year
(2015 - P856,902). The rates used in the above sensitivity analysis takes into account the historical
performance of the equity securities in the past 12 months.

23.4.3 Cash flow and fair value interest rate risks

Cash flow interest rate risk is the risk that the future cash flows of a financial assets and liabilities will
fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the
value of a financial assets and liabilities will fluctuate because of changes in market interest rates.

(45)
Cash flow interest rate risks

The Group’s exposure to cash flow interest rate risk pertains to short-term borrowings where the
related interests are repriced at periodic intervals based on the prevailing mark-to-market prices, in
accordance with the terms of the agreement. The Group’s practice is to manage its interest cost by
reference to current market rates in borrowings.

At December 31, 2016, if interest rates increased/decreased by 0.51% (2015 - 0.51%; 2014 - 0.48%)
from the last repricing date, with all other variables held constant, profit for the year and equity would
have been P29,842,431 lower/higher (2015 - P6,510,106; 2014 - P1,645,362) lower/higher, respectively,
mainly as a result of higher/lower interest expense, based on variable rates.

The reasonable possible change in interest rate used in the sensitivity analysis is the rate of change
between the nominal interest rate at the end of the reporting period and the use of hypothetical interest
rate (gross of applicable final tax rate), which is normally equal to the discount rate set by reference to
yields on government bonds, determined at the next repricing date or the date by which management is
expected to settle the Group’s variable interest-bearing borrowings.

The Group’s fixed rate borrowings are measured at amortised cost. They are therefore not subject to
cash flow interest rate risk as defined in PFRS 7, since neither the carrying amount nor the future cash
flows will fluctuate because of a change in market interest rates.

Fair value interest rate risk

Changes in the market interest rates of the Group’s financial liabilities with fixed interest rates only
affect income if these are measured at their fair value. As such, the Group’s financial liabilities with
fixed interest rates that are carried at amortized cost are not subject to fair value interest rate risk as
defined in PFRS 7.

23.5 Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding
through an adequate amount of credit facilities and the ability to close out market positions. Due to the
dynamic nature of the underlying businesses, the Group aims to maintain flexibility by keeping credit
lines available.

On a regular basis, management monitors forecasts of the Group’s liquidity reserve on the basis of
expected cash flows. The Group places cash in excess of immediate requirements in banks.

(46)
The table below summarizes the maturity profile of the Group’s non-derivative financial liabilities
based on contractual undiscounted payments:

Due and Less than 3 Between 3 Between 7 Over 12


demandable months to 6 months to 12 months months Total
December 31, 2016
Trade payables and
other liabilities 1,050,797,404 266,267,963 - - - 1,317,065,367
Due to related parties 18,949,786 - - - - 18,949,786
Borrowings and future
interest payments - 3,813,449,390 - 20,000,000 1,166,777,777 5,000,227,167
1,069,747,190 4,079,717,353 - 20,000,000 1,166,777,777 6,336,242,320
December 31, 2015
Trade payables and
other liabilities 242,170,859 506,145,422 - - - 748,316,281
Due to related parties 2,351,165 - - - - 2,351,165
Borrowings and future
interest payments - 3,181,424,240 - 20,000,000 1,167,111,111 4,368,535,351
244,522,024 3,687,569,662 - 20,000,000 1,167,111,111 5,119,202,797

At December 31, 2016, borrowings include undiscounted cash flows on interest payable of P149,745,967
(2015 - P189,495,551) until its maturity.

The Parent Company, together with its related parties entered into surety agreements with local banks
and a corporate guarantee with a foreign bank. The surety agreements and corporate guarantee are
considered off-balance sheet items payable in less than 3 months (Note 18).

The amounts disclosed in the table are the contractual undiscounted cash flows. Balances equal their
carrying balances, as the impact of discounting is not significant.
The Group believes that cash generated from its operating activities and current assets are sufficient to
meet maturing obligations required to operate the business. The Group would also be able to meet
unexpected cash outflows by accessing additional funding sources from local banks and related parties.

The Group expects to settle the above financial obligations in accordance with their maturity date.

23.6 Capital management

The Group’s objective when managing capital is to generate the maximum possible returns for its
shareholders while taking on a manageable degree of risk ensuring that the Group will continue to
operate as a going concern into the foreseeable future.

In order to maintain or adjust the capital structure, the Group reviews its capital structure from time to
time to assess the proper financing mix necessary to grow and sustain its operations. As a matter of
policy, capital expenditures have been financed from internally-generated cash flow while working
capital requirements will be augmented by short-term bank borrowings from time to time.

Earnings in excess of dividend distribution to shareholders have been continuously redeployed and
reinvested in the growth of the Group’s business. Each instance of expansion of manufacturing capacity
and entry into new products and markets undergo a thorough evaluation process to ensure that such
investments and marketing programs are in consonance with the Group’s core competencies and would
be enhancing, rather than diminishing, shareholder value in the long run.

(47)
As part of the reforms of the PSE to expand capital market and improve transparency among listed
firms, PSE has required a minimum percentage of ten percent (10%) of the listed companies’ issued
and outstanding shares, exclusive of any treasury shares, to be held by the public. The Parent Company
is compliant with respect to this requirement.

As at December 31, 2016 and 2015, total capital is equal to total equity (less reserves) as shown in the
consolidated statement of financial position.

2016 2015
Total equity 13,967,256,818 12,750,148,159
Reserves (204,430,479) (185,446,863)
13,762,826,339 12,564,701,296

There are no changes to the Group’s capital management policies as at December 31, 2016 and 2015.

Note 24 - Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements
are set out below. These policies have been consistently applied to all the years presented, unless
otherwise stated.

24.1 Basis of preparation

These consolidated financial statements of the Group have been prepared in accordance with
Philippine Financial Reporting Standards (PFRS). The term PFRS in general includes all applicable
PFRS, PAS and interpretations of the Philippine Interpretations Committee (PIC), Standing
Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee
(IFRIC) which have been approved by the Financial Reporting Standards Council (FRSC) and adopted
by the SEC.

These consolidated financial statements have been prepared under the historical cost convention, as
modified by revaluation of available-for-sale financial assets and retirement benefit plan where plan
assets are measured at fair value.

The preparation of consolidated financial statements in conformity with PFRS requires the use of
certain critical accounting estimates. It also requires management to exercise judgment in the process
of applying the Group’s accounting policies. The areas involving higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the consolidated financial
statements are disclosed in Note 22.

(48)
Changes in accounting policy and disclosures

24.1.1 Amended standards adopted by the Group

The following relevant and applicable standards have been adopted by the Group effective January 1,
2016:

 Amendments to PAS 1 'Presentation of financial statements' (effective January 1, 2016). These


amendments clarify guidance in PAS 1 on materiality and aggregation, the presentation of
subtotals, the structure of financial statements and the disclosure of accounting policies. The
amendments form a part of the International Accounting Standards Board’s (IASB) Disclosure
Initiative, which explores how financial statement disclosures can be improved. The adoption of
this amendment did not affect the current presentation of the Group’s consolidated financial
statements.

Other amendments to PFRS adopted by the Group did not have any impact on the consolidated
financial statements.

24.1.2 New standards, amendments and interpretations not yet effective and not yet adopted by the
Group

A number of new standards and amendments to standards and interpretations are effective for annual
periods after January 1, 2017, and have not been applied in preparing these financial statements. The
relevant and applicable standards affecting the consolidated financial statements of the Group, are set
out below:

 PFRS 9 ‘Financial Instruments’ (effective January 1, 2018). PFRS 9 deals with the classification,
measurement and impairment of financial instruments, as well as hedge accounting.

PFRS 9 replaces the multiple classification and measurement models for financial assets in PAS 39
‘Financial Instruments: Recognition and Measurement’ with a single model that has three
classification categories: amortized cost, fair value through other comprehensive income (OCI),
and fair value through profit or loss. Classification under PFRS 9 is driven by the entity’s business
model for managing the financial assets and whether the contractual characteristics of the financial
assets represent solely payments of principal and interest. Investments in equity instruments are
required to be measured at fair value through profit or loss with the irrevocable option at inception
to present changes in fair value in OCI. The classification and measurement of financial liabilities
under PFRS 9 remains the same as in PAS 39 except where an entity has chosen to measure a
financial liability at fair value through profit or loss. For such liabilities, changes in fair value
related to changes in own credit risk are presented separately in OCI.

The impairment rules of PFRS 9 introduce an expected credit losses model that replaces the
incurred loss impairment model used in PAS 39. Such new impairment model will generally result
in earlier recognition of losses compared to PAS 39.

The hedging rules of PFRS 9 better align hedge accounting with an entity's risk management
strategies. Also, some of the prohibitions and rules in PAS 39 are removed or changed, making
hedge accounting easier or less costly to achieve for many hedges.

The standard is effective for annual periods beginning on or after January 1, 2018 and earlier
application is permitted.

(49)
The Group’s initial assessment of the potential impact of PFRS 9 is that it is not significant
considering that its financial assets and liabilities are substantially measured at amortized cost. The
Group will update its assessment upon adoption of this new standard.

 PFRS 15, ‘Revenue from Contracts with Customers’ (effective January 1, 2018). This standard
replaces PAS 18 ‘Revenue’ and PAS 11 ‘Construction contracts’ and related interpretations. The new
standard is based on the principle that revenue is recognized when control of a good or service
transfers to a customer - so that the notion of control replaces the existing notion of risks and
rewards.

The standard permits a modified retrospective approach for the adoption. Under this approach,
entities will recognize transitional adjustments in retained earnings on the date of initial
application, i.e. without restating the comparative period. Entities will only need to apply the new
rules to contracts that are not completed as of the date of initial application.

The standard is effective for annual periods beginning on or after January 1, 2017 and earlier
application is permitted.

The Group is assessing the impact of PFRS 15. Based on its initial assessment, management does
not expect a significant impact on its consolidated financial statements as a result of the adoption
of this standard in light that its revenue recognition policy is considered straight forward and
already complies with this new standard.

 PFRS 16, ‘Leases’ (effective January 1, 2018). This standard replaces PAS 17 ‘Leases’. PFRS 16 now
requires lessees to recognize a lease liability reflecting future lease payments and a ‘right-of-use
asset’ for virtually all lease contracts. For lessors, the accounting stays almost the same. However,
as the guidance on the definition of a lease (as well as the guidance on the combination and
separation of contracts) has been updated, lessors will also be affected by the new standard.

Under PFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use
of an identified asset for a period of time in exchange for consideration.

PFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019. Earlier
application is permitted, but only in conjunction with PFRS 15, ‘Revenue from Contracts with
Customers’. In order to facilitate transition, entities can choose a ‘simplified approach’ that
includes certain reliefs related to the measurement of the right-of-use asset and the lease liability,
rather than full retrospective application; furthermore, the ‘simplified approach’ does not require a
restatement of comparatives. In addition, as a practical expedient entities are not required to
reassess whether a contract is, or contains, a lease at the date of initial application (that is, such
contracts are “grandfathered”).

At this stage, it is likely that the Group will record a ‘right-of-use asset’ upon adoption of this
standard. Management is in the process of calculating the potential impact and will review
appropriate discount rate in preparation for the adoption of this standard.

There are no other applicable and relevant standards, amendments and interpretations, which are
issued and effective January 1, 2017 and onwards that have or are expected to have a significant impact
on the Group’s consolidated financial statements during and at the end of reporting period.

(50)
24.2 Financial assets

24.2.1 Classification and presentation

The Group classifies its financial assets in the following categories: (a) loans and receivables, (b) at fair
value through profit or loss, (c) held-to-maturity and (d) available-for-sale. The classification depends
on the purpose for which the financial assets were acquired. Management determines the classification
of its financial assets at initial recognition.

The Group did not hold financial assets under categories (b) and (c) above during and at the end of
each reporting period.

Loans and receivables

The Group’s financial assets categorized as loans and receivables are non-derivative financial assets
with fixed or determinable payments and are not quoted in an active market. They are included in
current assets, except for maturities greater than twelve months after the reporting date, which are
classified as non-current assets.

The Group’s loans and receivables consist mainly of cash and cash equivalents, receivables, due from
related parties, loans receivable and refundable deposits presented under other non-current assets in
the consolidated statement of financial position.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that is either designated in this category or not
classified in any of the other categories. It is included in non-current assets unless management intends
to dispose of the investment within twelve months from the reporting date.

The Group’s available-for-sale financial assets consist of investment in equity securities of listed
entities in the Philippines including investment in golf club shares for use by the Group’s
officers (Note 7).

24.2.2 Initial recognition and measurement

The Group recognizes a financial asset in the consolidated statement of financial position when the
Group becomes a party to the contractual provisions of the instrument.

Loans and receivables

Loans and receivables are initially recognized at invoice amount which approximates fair value plus
transaction costs. Loans and receivables are subsequently carried at amortized cost using the effective
interest method, less allowance for impairment.

(51)
Available for sale financial assets

Regular purchases of available for sale financial assets are initially recognized at fair value plus
transaction cost, at the trade date. These financial assets are subsequently carried at fair value, except
where fair value cannot be reliably measured, in which case such is measured at cost. Unrealized gains
and losses arising from changes in the fair value of assets classified as available-for-sale financial assets
are recognized in other comprehensive income. For available-for-sale financial assets carried at cost, if
a reliable measure of fair value becomes available, it is measured at fair value and the difference
between its carrying amount and fair value is recognized in other comprehensive income. Dividends on
available-for-sale financial assets are recognized in profit or loss when the Group’s right to receive such
dividends is established.

24.2.3 Derecognition

Loans and receivables and available-for-sale financial assets are derecognized when the rights to
receive cash flows have expired or the Group has transferred substantially all the risks and rewards of
ownership to the financial assets.

24.2.4 Impairment

Loans and receivables

The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets
is impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and
that loss event (or events) has an impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated.

The criteria that the Group uses to determine that there is objective evidence of an impairment loss
include:
 Significant financial difficulty of the customer or other third party considered as obligor;
 A breach of contract, such as a default or delinquency in interest or principal payments;
 It becomes probable that the customer or other third party considered as obligor will enter
bankruptcy or other financial reorganization; or
 Observable data indicating that there is a measurable decrease in the estimated future cash flows
from a portfolio of financial assets since the initial recognition of those assets, although the
decrease cannot yet be identified with the individual financial assets in the portfolio, including
adverse changes in the payment status of customers or other third parties considered as obligors in
the portfolio and national or local economic conditions that correlate with defaults on the assets in
the portfolio.

The Group first assesses whether objective evidence of impairment exists individually for receivables
that are individually significant, and collectively for receivables that are not individually significant. If
the Group determines that no objective evidence of impairment exists for an individually assessed
receivable, whether significant or not, it includes the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses those for impairment. Receivables that are
individually assessed for impairment and for which an impairment loss is or continues to be recognized
are not included in a collective assessment of impairment.

(52)
The amount of the loss is measured as the difference between the asset’s carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is
reduced and the amount of the loss is recognized in the provision for impairment of receivables in
profit or loss within selling and marketing expenses.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized (such as an improvement in the
debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized within
profit or loss.

Reversals of previously recorded impairment provision are based on the result of management’s update
assessment, considering the available facts and changes in circumstances, including but not limited to
results of recent discussions and arrangements entered into with customers as to the recoverability of
receivables at the end of the reporting period. Subsequent recoveries of amounts previously written-off
are credited within profit or loss.

Available for sale financial assets

In the case of equity investments classified as available-for-sale financial assets, a significant or


prolonged decline in the fair value of the security below its cost is also evidence that the assets are
impaired. Generally, the Group treats ‘significant’ decline in fair value as 20% or more, and ‘prolonged’
decline in fair value as more than twelve months.

When a decline in the fair value of an available-for-sale financial asset has been recognized in other
comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss
that has been recognized in other comprehensive income (within fair value adjustment on available-
for-sale financial assets, net of tax) is reclassified from equity to profit or loss as a reclassification
adjustment even though the financial asset has not been derecognized, measured as the
difference between the acquisition cost and the current fair value, less any impairment loss on that
financial asset previously recognized in other comprehensive income. Impairment losses recognized in
profit or loss for an investment in an equity instrument classified as available-for-sale is not reversed.

24.3 Financial liabilities

24.3.1 Classification and presentation

The Group classifies its financial liabilities in the following categories: (a) financial liabilities at fair
value through profit or loss (including financial liabilities held for trading and those that are designated
at fair value) and (b) other liabilities at amortized cost. The classification depends on the purpose for
which the financial liabilities were incurred. Management determines the classification of its financial
liabilities at initial recognition.

The Group did not hold financial liabilities at fair value through profit or loss during and at the end of
each reporting period.

Other liabilities at amortized cost

Financial liabilities that are not classified as at fair value through profit or loss fall into this category
and are measured at amortized cost. They are included in current liabilities, except for maturities more
than twelve months after reporting date which are classified as non-current liabilities.

(53)
The Group’s on-balance sheet financial liabilities at amortized cost consist mainly of trade payables and
other liabilities (excluding payables to government agencies for value-added tax, withholding and other
taxes), due to related parties and borrowings.

The Group’s off-balance sheet items include surety and corporate guarantee agreement (Note 18).

24.3.2 Initial recognition and subsequent measurement

The Group recognizes a financial liability in the consolidated statement of financial position when the
Group becomes a party to the contractual provisions of the instrument.

The Group’s financial liabilities at amortized cost are initially measured at invoice amount, which
approximates fair value plus transaction costs. Subsequently, these are measured at amortized cost
using the effective interest method. Interest expense on financial liabilities is recognized within finance
cost, at gross amount, in profit or loss.

24.3.3 Derecognition

Financial liabilities are derecognized when extinguished, that is, when the obligation specified in a
contract is discharged or cancelled or when the obligation expires.

24.4 Determination of fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.

The Group classifies its fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has the following
levels:
• quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
• inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
• inputs for the asset or liability that are not based on observable market data (that is, unobservable
inputs) (Level 3).

The fair value of financial instruments traded in active markets is based on quoted market prices at the
reporting date. A market is regarded as active if quoted prices are readily and regularly available from
an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an arm’s length basis. The quoted
market price used for financial instruments that are traded in active market is the current bid price.
These instruments are included in Level 1.

The fair value of financial instruments that are not traded in an active market (for example, over-the-
counter derivatives) is determined by using valuation techniques. These valuation techniques maximize
the use of observable market data where it is available and rely as little as possible on entity specific
estimates. If all significant inputs required to fair value an instrument are observable, the instrument is
included in Level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is
included in Level 3.

(54)
Specific valuation techniques used to value financial instruments include:
• Quoted market prices or dealer quotes for similar instruments.
• The fair value of interest rate swaps is calculated as the present value of the estimated future cash
flows based on observable yield curves.
• The fair value of forward foreign exchange contracts is determined using forward exchange rates
at the reporting date, with the resulting value discounted back to present value.
• Other techniques, such as discounted cash flow analysis, are used to determine fair value for the
remaining financial instruments.

The Group’s available-for-sale financial assets with quoted market price are valued using Level 1 of the
fair value hierarchy and those with unquoted market price are carried at cost.

The carrying value of the Group’s other financial assets and liabilities disclosed in Notes 23.2.1 and
23.2.2 approximate their fair value at reporting date considering that these financial assets and
liabilities generally have short term maturities and the impact of discounting is not significant.

For non-financial assets, the Group uses valuation techniques that are appropriate in the circumstances
and applies the technique consistently. The fair value of a non-financial asset is measured based on its
highest and best use. The asset’s current use is presumed to be its highest and best use.

The fair value of financial and non-financial liabilities takes into account non-performance risk, which
is the risk that the Group will not fulfill an obligation.

24.5 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of
financial position when there is a legally enforceable right to offset the recognized amounts and there is
an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. The
legally enforceable right must not be contingent on future events and must be enforceable in the
normal course of business and in the event of default, insolvency or bankruptcy of the company or the
counterparty.

24.6 Consolidation

24.6.1 Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.

Inter-company transactions, balances and unrealized gains on transactions between group companies
are eliminated. Unrealized losses are also eliminated.

Accounting policies and reporting period of its subsidiaries are consistent with the policies adopted by
and the reporting period of the Parent Company.

(55)
24.6.2 Associates

Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. The Group’s investment in
associate is accounted for using the equity method in the consolidated financial statements. Under the
equity method, the investment is initially recognized at cost, and the carrying amount is increased or
decreased to recognize the investor’s share of the profit or loss, and other comprehensive income or
loss of the investee after the date of acquisition. The Group identifies and monitors goodwill (if any)
upon acquisition and initial recognition of an investment in associate.

The Group’s share of its associate’s post-acquisition profits or losses is recognized in profit or loss, and
its share of post-acquisition movements in other comprehensive income is recognized in other
comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying
amount of the investment. When the Group’s share of losses in an associate equals or exceeds its
interest in the associate, including any other unsecured receivables, the Group does not recognize
further losses, unless it has incurred legal or constructive obligations or made payments on behalf of
the associate.

Profits and losses resulting from upstream and downstream transactions between the Group and its
associate are recognized in the Group’s consolidated financial statements only to the extent of
unrelated investor’s interests in the associates. Unrealized losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred.

Dilution gains and losses arising in investment in associates are recognized in profit or loss.

The Group determines at each reporting date whether there is any objective evidence that the
investment in the associate is impaired. If this is the case, the Group calculates the amount of
impairment as the difference between the recoverable amount of the associate and its carrying value
and recognizes the amount adjacent to ‘share in profit (loss) of associate’ in profit or loss.

The accounting policies of the associate are consistent with the policies adopted by the Parent
Company.

24.6.3 Business combination (including common control business combination)

The Group applies the purchase or acquisition method to account for business combinations. The
consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred,
the liabilities incurred to the former owners of the acquiree and the equity interests issued by the
Group. The consideration transferred includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Identifiable assets acquired, and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date.

On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the


acquiree either at fair value or at the non-controlling interest’s proportionate share of the recognized
amounts of the acquiree’s identifiable net assets.

Acquisition-related costs are expensed as incurred.

(56)
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date
through profit or loss in the consolidated statement of total comprehensive income.

Any contingent consideration to be transferred by the Group is recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to
be an asset or liability is recognized in accordance with PAS 39 either in profit or loss or as a change to
other comprehensive income. Contingent consideration that is classified at equity is not re-measured,
and its subsequent settlement is not accounted for within equity.

24.6.4 Goodwill

Goodwill is initially measured as the excess of the aggregate of the consideration transferred (including
the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any
previous equity interest in the acquire) over the fair value of the Group’s share of the identifiable net
assets acquired. If this consideration is lower than the fair value of the net assets of the subsidiary
acquired, in the case of a bargain purchase, the difference is recognized directly in profit or loss.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each
of the cash-generating units (CGUs), or groups of CGUs, that is expected to benefit from the synergies
of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest
level within the Group at which the goodwill is monitored for internal management purposes. Goodwill
is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill
is compared to the recoverable amount, which is the higher of value in use and the fair value less costs
of disposal. Any impairment is recognized immediately as an expense and is not subsequently reversed.

24.6.5 Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as
equity transactions that is, as transactions with the owners in their capacity as owners. For purchases
from non-controlling interests, the difference between any consideration paid and the relevant share
acquired in the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on
disposals to non-controlling interests are also recorded in equity.

24.6.6 Transactions with non-controlling interest

The Group applies a policy of treating transactions with non-controlling interests as transactions with
parties external to the Group. Disposals of non-controlling interests result in gains or losses for the
Group that are recorded in other income in the consolidated statement of total comprehensive income.
Purchases from non-controlling interests result in goodwill, being the difference between any
consideration paid and the relevant share acquired in the carrying value of net assets of the subsidiary.

(57)
24.6.7 Disposal of subsidiaries and associates

Subsidiary

When the Group ceases to have control, any retained interest in the subsidiary is re-measured to its fair
value at the date when control is lost, with the change in carrying amount generally recognized in profit
or loss. The fair value is the initial carrying amount for purposes of subsequently accounting for the
retained interest as an associate, joint venture or financial asset. In addition, any amounts previously
recognized in other comprehensive income in respect of that subsidiary are accounted for as if the
Group had directly disposed of the related assets or liabilities. This may mean that amounts previously
recognized in other comprehensive income are reclassified to profit or loss.

If the Group surrenders control to a related party within the group it ultimately belongs, the difference
between the consideration received and the fair value of the subsidiary at divestment date, is
recognized as other charges to equity.

Associate

If the ownership interest in an associate is reduced but significant influence is retained, only a
proportionate share of the amounts previously recognized in other comprehensive income are
reclassified to profit or loss where appropriate. Investment in associates are derecognized when the
Group ceases to have control or shareholding over the associate or when the risks and rewards of
ownership have been transferred or extinguished.

24.7 Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, cash deposits held at call with banks and other
short-term highly liquid investments with maturities of three months or less from date of acquisition.
These are measured in the statement of financial position at face or nominal amount. Cash in bank
earns interest at the prevailing bank deposit rate.

24.8 Receivables

Trade receivables arising from regular sales with an average credit term of 30 days are recorded at
invoice amount, which approximates fair value, less any allowance for impairment.

Other receivables are recognized initially at invoice amount, which approximates fair value, and
subsequently measured at amortized cost using effective interest method, less any allowance for
impairment.

An individual and collective provision for impairment of receivables is established when there is
objective evidence that the Group will not be able to collect all amounts due according to the original
terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganization, and default or delinquency in payments are considered as
indicators that the receivable is impaired. The amount of the provision is the difference between the
asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective
interest rate. The carrying amount of the asset is reduced through the use of an allowance account and
the amount of the loss is recognized in profit or loss.

(58)
The Group first assesses whether objective evidence of impairment exists individually for receivables
that are individually significant, and collectively for receivables that are not individually significant. If
the Group determines that no objective evidence of impairment exists for an individually assessed
receivable, whether significant or not, it includes the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses them for impairment. Receivables that are
individually assessed for impairment and for which an impairment loss is or continues to be recognized
are not included in a collective assessment of impairment.

When a receivable is uncollectible, it is written off against an allowance account for receivables, if any.
Receivables and its related allowance for impairment are written off when the Group has determined
that the receivable is uncollectible as they have already exerted all collection efforts, including filing a
legal case. Bad debts written off are specifically identified by the Group’s marketing department after
exhausting all collection efforts (i.e. sending demand letters and legal notice of default to customers),
and is approved by the respective product manager and subsequently by the BOD. Write offs represent
the release of previously recorded provision from the allowance account and credited to the related
receivable account following the Group’s assessment that the related receivable will no longer be
collected after all collection efforts have been exhausted.

Subsequent recoveries of amounts previously written-off are credited against the provision account in
profit or loss. Reversals of previously recorded impairment provision are credited against provision
account in profit or loss based on the result of management’s update assessments, considering available
facts and changes in circumstances, including but not limited to results of recent discussions and
arrangements entered into with customers as to the recoverability of receivable at reporting date.

Receivables are derecognized when actually collected, written off, the rights to receive cash flows have
expired or the Group has transferred substantially all risks and rewards of ownership to the receivables.

24.9 Inventories

Inventories are stated at the lower of cost and net realizable value (NRV). The cost of finished goods
inventories is determined on the basis of standard cost which is adjusted at periodic intervals and
which approximate actual manufacturing cost determined using the weighted average method. For
food ingredients, colorants and plastic additives, and aerosol segments, the cost of raw materials is
determined using specific identification. For oleochemicals, resins and powder coatings segment, the
cost of raw materials is determined using the weighted average method. Inventories in transit are
valued at invoice cost including related importation costs. The cost of inventories excludes borrowing
costs. NRV is the estimated selling price in the ordinary course of business, less cost to complete and to
sell.

Allowance for inventory losses and obsolescence is provided, when necessary, based on management’s
review of inventory turnover and projected future production demands, and is recognized in profit or
loss. Provision for inventory losses is established for slow moving, and defective inventories based on
physical inspection and management evaluation. Inventories and its related allowance account are
written off when the Group has determined that the related inventory is already obsolete and damaged.
Write offs represent the release of previously recorded provision from the allowance account and
credited to the related inventory account following the disposal of the inventories. Destruction of the
obsolete and damaged inventories is made in the presence of regulatory agencies.

(59)
Reversals of previously recorded impairment provisions are credited against provision within cost of
sales account in profit or loss based on the result of management’s update assessment, considering
available facts and circumstances, including but not limited to net realizable value at the time of
disposal.

Inventories are derecognized when sold or otherwise disposed of.

24.10 Claim for input value added tax (VAT), prepayments and other current assets

24.10.1 Claim for input VAT

Claims for input VAT and prepaid taxes is stated at face value less allowance for impairment, if any.
They are included in current assets, except for maturities greater than twelve months after the
reporting date, which are classified as non-current assets.

The Group, on a continuing basis, makes a review of the status of the claim which is designed to
identify those that may require provision for impairment. Provision for unrecoverable input VAT and
prepaid taxes, if any, is maintained by the Group at a level considered adequate to provide for potential
uncollectible portion of the claim.

A provision for unrecoverable input VAT and prepaid taxes is established when there is objective
evidence that the Group will not be able to recover the claim. The carrying amount of the asset is
reduced through the use of an allowance account and the amount of the loss is recognized in profit or
loss.

Provision for unrecoverable tax credit claim from excess input VAT is recognized at each reporting
period in consideration of management's assessment that it has complied with the prescribed
regulatory requirements such that the tax credit claim from excess input VAT is filed within the two (2)
year prescription period, appropriate supporting documents are available to support the tax credit
claim from excess input VAT and likelihood of potential disallowed amounts based on discussions with
and correspondences received from local tax authorities. Write-off is recognized upon receipt of a
formal notice of disallowance from local tax authorities

Prepayments in the form of unused tax credits are derecognized when there is a legally enforceable
right to offset the recognized amounts against income tax due and there is an intention to settle on a
net basis, or realize the asset and settle the liability simultaneously.

Claims for input VAT and prepaid taxes is derecognized when actually collected or disallowed by tax
authority.

24.10.2 Prepayments and other current assets

Prepayments are recognized in the consolidated statement of financial position in the event that
payment has been made in advance of obtaining right of access to goods or receipt of services and
measured at nominal amounts. They are included in current assets, except for maturities greater than
twelve months after the reporting date, which are classified as non-current assets. These are
derecognized in the consolidated statement of financial position upon delivery of goods or when
services have been rendered, through amortization over a certain period of time, and use or
consumption.

(60)
Other current assets consist substantially of input value-added tax and creditable withholding taxes
which are recognized as assets in the period such input value-added tax and income tax payments
become available as tax credits to the Group and carried over to the extent that it is probable that the
benefit will flow to the Group.

Prepayments and other non-financial assets are included in current assets, except when the related
goods or services are expected to be received or rendered more than twelve months after the reporting
period in which case, are classified as non-current assets.

These are derecognized from the consolidated statement of financial position when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or
realize the asset and settle the liability simultaneously.

24.11 Property, plant and equipment

Property, plant and equipment is initially measured and recognized at acquisition cost which comprises
its purchase price and any directly attributable cost of bringing the asset to its working condition and
location for its intended use.

After initial measurement, property, plant and equipment is stated at historical cost less accumulated
depreciation, amortization and impairment, if any.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to profit or loss during the financial period in which they are incurred.

Construction in progress, which represents properties under construction, is stated at cost and
depreciated only when the relevant assets are completed and put into operational use. Upon
completion, these properties are reclassified to their relevant property, plant and equipment account.

Leasehold improvements are amortized over the estimated useful life of the improvements which is
shorter than the lease term, considering the renewal option.

Land is not depreciated. Depreciation on other assets is computed on the straight-line method to
allocate the cost of each asset, less its residual value, over its estimated useful life (in years),
determined based on the Group’s historical information and experience on the use of such assets, as
follows:

Building 40
Tools, machinery and equipment 5 to 20
Transportation and delivery equipment 5 to 10
Office furniture and fixtures 5
Leasehold improvements 5

The asset’s residual values and useful lives are reviewed, and adjusted as appropriate, at each reporting
date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.

(61)
An item of property, plant and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal at which time the cost and their accumulated depreciation
are removed from the disposal accounts.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of
the assets and are credited to profit or loss.

24.12 Impairment of non-financial assets

Non-financial assets that have an indefinite useful life, such as land, are not subject to amortization and
are tested annually for impairment. Other non-financial assets, mainly property, plant and equipment,
and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less cost to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash-generating units or CGUs). Impairment losses, if any, are recognized in profit or loss.

When impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but the increased carrying amount
should not exceed the carrying amount that would have been determined had no impairment loss been
recognized for the asset or CGU in prior years. Reversals of an impairment loss are credited against the
provision account in profit or loss.

24.13 Current and deferred income tax

The tax expense for the period comprises current and deferred income tax. Tax is recognized in profit
or loss, except to the extent that it relates to items recognized in other comprehensive income or
directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in
equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the reporting date. Management periodically evaluates positions taken in the tax returns
with respect to situations in which applicable tax regulation is subject to interpretation and establishing
provisions where appropriate on the basis of amounts to be paid to tax authorities.

Deferred income tax (DIT) is recognized on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. However,
DIT is not accounted for if it arises from initial recognition of an asset or liability in a transaction other
than a business combination that at the time of the transaction affects neither accounting nor taxable
profit or loss. DIT is determined using tax rates (and laws) that have been enacted or substantively
enacted by the reporting date and are expected to apply when the related DIT asset is realized or the
DIT liability is settled.

DIT assets are recognized for all deductible temporary differences, carry-forward of unused tax credits
from excess minimum corporate income tax (MCIT) and unused tax losses (net operating loss
carryover or NOLCO), to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilized.

DIT liabilities are recognized in full for all taxable temporary differences, except to the extent that the
deferred tax liability arises from the initial recognition of goodwill.

(62)
DIT assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the DIT assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.

The Group re-assesses at each reporting date the need to recognize a previously unrecognized DIT
asset, if any.

DIT assets and liabilities are derecognized when the related temporary difference are realized or
settled.

24.14 Trade payables and other liabilities

Trade payables and other liabilities are obligations to pay for goods or services that have been acquired
in the ordinary course of business with suppliers.

Trade payables and other liabilities are recognized in the period in which the related money, goods or
services are received or when a legally enforceable claim against the Group is established or when the
corresponding assets or expenses are recognized. These are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of the business if longer). If not, they are
presented as non-current liabilities.

Trade payables and other liabilities are recognized initially at invoice amount, which approximates fair
value, and subsequently measured at amortized cost using effective interest method.

These are derecognized when extinguished or when the obligation is discharged, cancelled or has
expired.

24.15 Borrowings and borrowing costs

24.15.1 Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs)
and the redemption value is recognized in profit or loss over the period of the borrowings using the
effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer
settlement of the liability for at least twelve months after the reporting date.

Borrowings are derecognized when the obligation is settled, paid or discharged.

24.15.2 Borrowing costs

Borrowing costs incurred for the construction of any qualifying asset, if any, are capitalized during the
period of time that is required to complete and prepare the asset for its intended use.

Other borrowing costs are recognized and charged to profit or loss in the year in which these are
incurred.

(63)
24.16 Provisions

Provision are recognized when the Group has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount can be made. Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision is recognized
even if the likelihood of an outflow with respect to any one item included in the same class of
obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to passage of time is recognized as
interest expense.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best
estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be
required to settle the obligation, the provision is reversed and derecognized in the consolidated
statement of financial position.

24.17 Equity

24.17.1 Share capital

Ordinary shares are stated at par value and are classified as equity. Incremental costs directly
attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

24.17.2 Additional paid-in capital

Share premium

Any amount received by the Group in excess of par value of its shares is credited to share premium
which forms part of the non-distributable reserve of the Group and can be used only for purposes
specified under corporate legislation.

Share issuance cost

Share issuance costs incurred for the listing and offering process of the Group are recognized as
deduction to share premium in accordance with PIC - Question and Answer (PIC - Q&A) 2011-04.

24.17.3 Retained earnings

Retained earnings pertain to the unrestricted portion of the accumulated profit from operations of the
Group which are available for dividend declaration.

(64)
24.18 Dividend distribution

Dividend distribution to the shareholders is recognized as a liability in the consolidated financial


statements in the period in which the dividends are approved by the Parent Company’s BOD.

Recording of stock dividend depends on whether the stock dividend declared is a small stock dividend
or a large stock dividend. Stock dividend declared is considered to be small when the shares to be
issued are less than 20-25% of the total outstanding shares before the stock dividend, otherwise the
stock dividend will be considered large. The amount to be released from retained earnings when a small
stock dividend is declared will be equivalent to the fair market value of the shares at the date of
declaration. Any excess of the fair market value of the shares against its par value will be recorded as
share premium. On the other hand, the amount to be released in retained earnings when a large stock
dividend is declared will be equivalent to the par value of the shares being issued.

24.19 Earnings per share

24.19.1 Basic

Basic earnings per share is computed by dividing the profit attributable to the owners of the Parent
Company by the weighted average number of shares in issue during the year, excluding ordinary shares
purchased by the Parent Company held as treasury shares.

24.19.2 Diluted

The diluted earnings per share is calculated by adjusting the weighted average number of shares
outstanding to assume conversion of all dilutive potential ordinary shares, if any.

The Group has no potentially dilutive ordinary shares. Therefore, the amount reported for basic and
diluted earnings per share is the same.

24.20 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
services in the ordinary course of the Group’s activities.

The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable
that future economic benefits will flow into the Group, collectibility of the related receivable is
reasonably assured, and specific criteria have been met for each of the Group’s activities as described
below. The amount of revenue is not considered to be reliably measured until all contingencies relating
to the sale have been resolved.

Revenue is recognized as follows:

24.20.1 Sale of goods

Sale of goods are recognized in profit or loss when the Group has delivered the products to the
customer and there is no unfulfilled obligation that could affect the acceptance of the products.
Delivery does not occur until the products have been shipped to the specific location, the risk of
obsolescence and loss have been transferred to the customer, and either the customer has accepted the
products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has
objective evidence that all criteria for acceptance have been satisfied.

(65)
Sale of goods is shown net of returns, and/or discounts in the consolidated statement of total
comprehensive income.

24.20.2 Management service fees

Management service fees from technical, logistics, administrative and executive management service
agreements are recognized in profit or loss when the service has been completed and rendered in
accordance with the provision of relevant agreements.

24.20.3 Dividend income

Dividend income is recognized in profit or loss when the right to receive payment is established.

24.20.4 Interest income

Interest income from cash in banks and short-term investments, which is presented net of final taxes
paid or withheld, is recognized in profit or loss on a time-proportion basis using the effective interest
method.

24.20.5 Other income

Income from rental, lighterage and thruput is recognized in profit or loss when services have been
rendered and accepted by the customer in accordance with the relevant agreements.

All other income items are recognized in profit or loss when earned.

24.21 Costs and expenses

Costs and expenses, classified by function, are recorded in profit or loss when incurred.

24.22 Employee benefits

24.22.1 Retirement benefit obligation

The Group has a defined benefit retirement plan in accordance with the local conditions and practices
in the Philippines. The plan is generally funded through payments to trustee-administered funds as
determined by periodic actuarial calculations. Defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as
age, years of service and compensation.

The liability (or asset) recognized in the consolidated statement of financial position is the present
value of the defined benefit obligation less fair value of the plan assets at the reporting date. In cases
when the amount determined results in an asset, the Group measures the resulting asset at the lower of
such amount determined and the present value of any economic benefits available to the Group in the
form of refunds or reductions in future contributions to the plan. The defined benefit obligation is
calculated annually by independent actuaries using the projected unit credit method. The present value
of the defined benefit obligation is determined by discounting the estimated future cash outflows using
interest rates of government bonds that are denominated in the currency in which the benefits will be
paid, and that have terms to maturity which approximate the terms of the related retirement benefit
obligation.

(66)
When the Group has a surplus in a defined benefit plan, the Group measures the net defined benefit
asset at the lower of the surplus in the defined benefit plan, and the asset ceiling determined using the
same discount rate in determining the present value of defined benefit obligations. The amount of the
asset recognized should not exceed the aggregate of the present values of any refunds expected from the
plan; and any expected reduction in future contributions arising from the surplus.

Plan assets are those that are: (a) held by an entity (a fund) that is legally separate from the Group, (b)
available to be used only to pay or fund employee benefits; and (c) not available to the Group’s
creditors, and cannot be returned to the Group unless: (i) the remaining assets of the fund are sufficient
to meet all the related employee benefit obligations of the plan or the Group; or (ii) the assets are
returned to the Group to reimburse for employee benefits advanced by the Group. Plan assets exclude
investments in group shares that are not transferrable.

Remeasurement gains or losses arising from experience adjustments and changes in actuarial
assumptions are charged or credited to equity (within reserve for remeasurement on retirement
benefit) in other comprehensive income in the period in which they arise.

Past service costs are recognized immediately in profit or loss.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit
obligation and the fair value of plan assets.

24.22.2 Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal
retirement date, or whenever an employee accepts voluntary redundancy in exchange for these
benefits. The Group recognizes termination benefits at the earlier of the following dates: (a) when the
Group can no longer withdraw the offer of those benefits; and (b) when the Group recognizes costs for a
restructuring that is within the scope of PAS 37 and involves the payment of termination benefits. In
the case of an offer made to encourage voluntary redundancy, the termination benefits are measured
based on the number of employees expected to accept the offer. Benefits falling due more than twelve
months after the end of the reporting period are discounted to their present value.

24.22.3 Other short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided.

24.24 Leases

When the Group enters into an arrangement, comprising a transaction or a series of related
transactions, that does not take the legal form of a lease but conveys a right to use an asset or is
dependent on the use of a specific asset or assets, the Group assesses whether the arrangement is, or
contains, a lease. The Group does not have such arrangements during and at the end of each reporting
period.

(67)
24.24.1 The Group is the lessee

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases are charged to profit or loss
over the term of the lease on a straight-line basis.

Leases where the Group has substantially all the risks and rewards of ownership are classified as
finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value
of the leased property and the present value of the minimum lease payments. The Group has no lease
that qualifies as finance lease during and at the end of each reporting period.

24.24.2 The Group is the lessor

When assets are leased out under an operating lease, the asset is included in the consolidated
statement of financial position based on the nature of the asset. Lease income is recognized in profit or
loss over the term of the lease on a straight-line basis.

When assets are leased out under a finance lease, the present value of the lease payments is recognized
as a receivable. The difference between the gross receivable and the present value of the receivable is
recognized as unearned finance income. Lease income is recognized over the term of the lease using the
net investment method, which reflects a constant periodic rate of return. The Group has no lease that
qualifies as finance lease during and at the end of each reporting period.

24.25 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the
Chief Operating Decision Maker (CODM), which is represented by the members of the Management
Committee (ManCom), in making collective operating decisions with regards to the business segments.
The ManCom, which is responsible for allocating resources and assessing performance of the operating
segments, is identified as the one that makes strategic decisions for the Group.

Reportable segments are presented by aggregating operating segments based on similar products and
services.

The accounting policies used to recognize and measure the segment’s assets, liabilities and profit or
loss is consistent with that of the consolidated financial statements.

24.26 Related party relationships and transactions

Related party relationship exists when one party has the ability to control, directly or indirectly through
one or more intermediaries, the other party or exercises significant influence over the other party in
making financial and operating decisions. Such relationship also exists between and/or among entities
which are under common control with the reporting enterprise, or between and/or among entities and
its key management personnel, directors, or its shareholders. In considering each possible related party
relationship, attention is directed to the substance of the relationship, and not merely the legal form.

(68)
24.27 Foreign currency transactions and translation

24.27.1 Functional and presentation currency

Items included in the financial statements of each of the Group’s subsidiaries are measured using the
currency of the primary economic environment in which the Group’s subsidiaries operate (the
“functional currency”). The consolidated financial statements are presented in Philippine Peso (Peso),
which is the Parent Company’s functional and presentation currency.

24.27.2 Transactions and balances

Foreign currency transactions are translated into Philippine Peso using the exchange rates prevailing at
the dates of the transaction or valuation where items are remeasured. Foreign exchange gains and
losses resulting from the settlement of foreign currency transactions and from the translation at year-
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized
in profit or loss.

For income tax purposes, foreign exchange gains or losses are treated as taxable income or deductible
expense in the period such are realized/sustained.

24.28 Reclassifications

Certain cost and expense items have been reclassified in order to align the prior year’s disclosures with
the current year disclosure and to better present the financial performance of the Group. For the years
ended December 31, 2015 and 2014, the following items were reclassified:
 direct costs which were recorded within cost of services have been reclassified to ‘Other direct costs’
within cost of sales; and
 ‘Provision for impairment of receivables’ and ‘Loss on direct write-off of receivables’ which were
recorded within sales and marketing expenses were reclassified to general and administrative
expenses.

These reclassifications did not affect previously reported profit for the year and cash flow statements,
nor did it affect previously reported statement of financial position.

24.29 Subsequent events (or events after the reporting date)

Post year-end events that provide additional information about the Group’s financial position at
reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end
events that are not adjusting events are disclosed in the notes to the consolidated financial statements
when material.

(69)
Second Section

Schedules Supplementary Schedules Remarks


A Financial assets Schedule A

B Amounts Receivable and payable from Directors, Schedule B


Officers, Employees, Related parties, and principal
Stockholders (Other than Related parties)

C Amounts Receivable and payable from Related parties Schedule C


which are eliminated during the consolidation of
financial statements

D Intangible Assets - Other Assets Schedule D


E Long-term Debt Schedule E
F Indebtedness to Related parties NotApplicable
G Guarantees of Securities of Other Issuers NotApplicable
H Share Capital Schedule H
I Schedule of Financial Soundness Schedule I
Annex 6B-C Reconciliation of Parent Company,s Retained Annex 6B-C
Earnings Available for Dividend Declaration

Annex 68-H
4 M3p Showing the Relationships between and among Annex 68-H
the Parent Company and its Llltimate parent
Company, Middle Parent, Subsidiaries or Co-
subsidiaries and Associates
SCHEDULE A

D&L Industries, Inc. and Subsidiaries

Financial Assets
December 3t, zot6

Loans and receivables

Cash and cash equivalents 2,780,033,609


Receivables, gross 4,025,378,921
Due from related parties 77,379,970
Refundable 119,742
907,912,242

Available-for-sale fi nancial assets

Amount in PHP
Name of issuing entity and association of Number of shown in the lncome earned
each issue shares balance sheet in PHP
Manila Golf and Country Club 2 78,000,000
38,509 34,130,825
112,130
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SECURITIES AND EXCHANGE COMMISSION

SEC FORM – ACGR

ANNUAL CORPORATE GOVERNANCE REPORT

GENERAL INSTRUCTIONS

(A) Use of Form ACGR

This SEC Form shall be used to meet the requirements of the Revised Code of Corporate Governance.

(B) Preparation of Report

These general instructions are not to be filed with the report. The instructions to the various captions of the form
shall not be omitted from the report as filed. The report shall contain the numbers and captions of all items. If
any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be
made. Provide an explanation on why the item does not apply to the company or on how the company’s practice
differs from the Code.

(C) Signature and Filing of the Report

A. Three (3) complete set of the report shall be filed with the Main Office of the Commission.

B. At least one complete copy of the report filed with the Commission shall be manually signed.

C. All reports shall comply with the full disclosure requirements of the Securities Regulation Code.

D. This report is required to be filed annually together with the company’s annual report.

(D) Filing an Amendment

Any material change in the facts set forth in the report occurring within the year shall be reported through SEC
Form 17-C. The cover page for the SEC Form 17-C shall indicate “Amendment to the ACGR”.

Consolidated changes in the ACGR for 2015 1


SECURITIES AND EXCHANGE COMMISSION

SEC FORM – ACGR

ANNUAL CORPORATE GOVERNANCE REPORT

1. Report is Filed for the Year 2015

2. Exact Name of Registrant as Specified in its Charter D&L INDUSTRIES, INC.

3. 65 Industria Street, Bagumbayan, Quezon City 1110


Address of Principal Office Postal Code

4. SEC Identification Number 44852 5. (SEC Use Only)


Industry Classification Code

6. BIR Tax Identification Number 000-421-957-000

7. (02) 635 0680


Issuer’s Telephone number, including area code
8. not applicable
Former name or former address, if changed from the last report

Consolidated changes in the ACGR for 2015 2


TABLE OF CONTENTS

A. BOARD MATTERS………………………………………………………………………………………………………………………….……….5
1) BOARD OF DIRECTORS
(a) Composition of the Board………………………………………………………………………………….………5
(b) Corporate Governance Policy/ies……………………………………………………………………………….5
(c) Review and Approval of Vision and Vision…………………….……………………………………........5
(d) Directorship in Other Companies……………………………………………………………………………….5
(e) Shareholding in the Company…………………………………………………………………………………….6
2) CHAIRMAN AND CEO…………………………………………………………………………………………………………………6
3) PLAN FOR SUCCESSION OF CEO/MANAGING DIRECTOR/PRESIDENT AND TOP KEY POSITIONS…7
4) OTHER EXECUTIVE, NON-EXECUTIVE AND INDEPENDENT DIRECTORS……………………………………….7
5) CHANGES IN THE BOARD OF DIRECTORS……………………………………………………………………………………7
6) ORIENTATION AND EDUCATION PROGRAM……………………………………………………………………………….8

B. CODE OF BUSINESS CONDUCT & ETHICS……………………………………………………………………………………………….9


1) POLICIES…………………………………………………………………………………………………………………………………….9
2) DISSEMINATION OF CODE………………………………………………………………………………………………….………9
3) COMPLIANCE WITH CODE………………………………………………………………………………………………………….9
4) RELATED PARTY TRANSACTIONS………………………………………………………………………………………………..9
(a) Policies and Procedures……………………………………………………………………………………………..9
(b) Conflict of Interest……………………………………………………………………………………………………10
5) FAMILY, COMMERCIAL AND CONTRACTUAL RELATIONS…………………………………………………….……10
6) ALTERNATIVE DISPUTE RESOLUTION……………………………………………………………………………………….11

C. BOARD MEETINGS & ATTENDANCE……………………………………………………………………………………………….…….11


1) SCHEDULE OF MEETINGS…………………………………………………………………………………………………………11
2) DETAILS OF ATTENDANCE OF DIRECTORS………………………………………………………………………………..11
3) SEPARATE MEETING OF NON-EXECUTIVE DIRECTORS………………………………………………………………11
4) QUORUM REQUIREMENT ……………………………………………………………………………………………………….11
5) ACCESS TO INFORMATION……………………………………………………………………………………………………….11
6) EXTERNAL ADVICE……………………………………………………………………………………………………………………12
7) CHANGES IN EXISTING POLICIES……………………………………………………………………………………………….12

D. REMUNERATION MATTERS………………………………………………………………………………………………………………12
1) REMUNERATION PROCESS……………………………………………………………………………………………………….12
2) REMUNERATION POLICY AND STRUCTURE FOR DIRECTORS…………………………………………………….13
3) AGGREGATE REMUNERATION …………………………………………………………………………………………………13
4) STOCK RIGHTS, OPTIONS AND WARRANTS………………………………………………………………………………14
5) REMUNERATION OF MANAGEMENT…………………………………………………………………………………….….15

E. BOARD COMMITTEES……………………………………………………………………………………………………………………….15
1) NUMBER OF MEMBERS, FUNCTIONS AND RESPONSIBILITIES…………………………………………………..15
2) COMMITTEE MEMBERS……………………………………………………………………………………………………………15
3) CHANGES IN COMMITTEE MEMBERS……………………………………………………………………………………….17
4) WORK DONE AND ISSUES ADDRESSED…………………………………………………………………………………….17
5) COMMITTEE PROGRAM……………………………………………………………………………………………………………17

F. RISK MANAGEMENT SYSTEM……………………………………………………………………………………………………………17


1) STATEMENT ON EFFECTIVENESS OF RISK MANAGEMENT SYSTEM…………………………………………..17
2) RISK POLICY……………………………………………………………………………………………………………………………..17
3) CONTROL SYSTEM……………………………………………………………………………………………………………………18

Consolidated changes in the ACGR for 2015 3


G. INTERNAL AUDIT AND CONTROL………………………………………………………………………………………………………19
1) STATEMENT ON EFFECTIVENESS OF INTERNAL CONTROL SYSTEM…………………………………………..19
2) INTERNAL AUDIT
(a) Role, Scope and Internal Audit Function…………………………………………………………………..19
(b) Appointment/Removal of Internal Auditor………………………………………………………………19
(c) Reporting Relationship with the Audit Committee…………………………………………………..19
(d) Resignation, Re-assignment and Reasons…………………………………………………………………19
(e) Progress against Plans, Issues, Findings and
Examination Trends………………………………………………………..….……………………………………20
(f) Audit Control Policies and Procedures……………………………………………………………………..20
(g) Mechanisms and Safeguards…………………………………………………………………………………...20

H. ROLE OF STAKEHOLDERS….……………………………………………………………………………………………………………...21
I. DISCLOSURE AND TRANSPARENCY………………………………………………………………………………………………..…21
J. RIGHTS OF STOCKHOLDERS………………………………………………………………………………………………………………23
1) RIGHT TO PARTICIPATE EFFECTIVELY IN STOCKHOLDERS’ MEETINGS……………………………………….23
2) TREATMENT OF MINORITY STOCKHOLDERS…………………………………………………………………………….26
K. INVESTORS RELATIONS PROGRAM…………………………………………………………………………………………………..26
L. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES…………………………………………………………………………….27
M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL…………………………………………………………………….27
N. INTERNAL BREACHES AND SANCTIONS…………………………………………………………………………………………….27

Consolidated changes in the ACGR for 2015 4


A. BOARD MATTERS

1) Board of Directors

Number of Directors per Articles of Incorporation Seven

Actual number of Directors for the year Seven

(a) Composition of the Board

Complete the table with information on the Board of Directors:

Date last
Type [Executive Elected
If Nominator in the last elected (if ID, No. of
(ED), Non- Date when
nominee election (if ID, state state the years
Director’s Name Executive (NED) first (Annual
, identify the relationship with number of served as
or Independent elected /Special
the the nominator) years served director
Director (ID)] 1 Meeting)
principal as ID)
Cesar B. Bautista ID n/a Leon Lao, 7-2-12 6-8-15, 3 Annual 3
Not related Meeting
Filemon T. Berba, Jr. ID n/a Leon Lao, 7-2-12 6-8-15, 3 Annual 3
Not related Meeting
Dean L. Lao NED, n/a Leon Lao 1992 6-8-15 Annual 23
Chairman Meeting
Emeritus
Leon L. Lao NED, n/a Dean Lao 1992 6-8-15 Annual 23
Chairman Meeting
Alex L. Lao ED n/a Leon Lao 1992 6-8-15 Annual 23
Meeting
Yin Yong L. Lao ED n/a Leon Lao 1992 6-8-15 Annual 23
Meeting
John L. Lao ED n/a Leon Lao 1992 6-8-15 Annual 23
Meeting

(b) Provide a brief summary of the corporate governance policy that the board of directors has adopted. Please
emphasize the policy/ies relative to the treatment of all shareholders, respect for the rights of minority
shareholders and of other stakeholders, disclosure duties, and board responsibilities.

The Board of Directors (Board) is primarily responsible for the governance of the Company and shall,
hence, ensure compliance with the principles of good corporate governance. The Board is likewise committed
to promote shareholder rights, remove impediments to the exercise of shareholders’ rights and allow
possibilities to seek redress for violation of their rights. They shall give minority shareholders the right to
propose the holding of meetings and items for discussion in the agenda that relate directly to the business of
the Company. They shall be instrumental in removing excessive costs and other administrative impediments to
shareholders’ meaningful participation in meetings, whether in person or by proxy. Also, the directors shall
ensure timely distribution of accurate shareholder information necessary to make informed decisions subject
to legal constraints.

(c) How often does the Board review and approve the vision and mission?

As the Board may deem necessary

(d) Directorship in Other Companies

(i) Directorship in the Company’s Group2

Identify, as and if applicable, the members of the company’s Board of Directors who hold the office of

1
Reckoned from the election immediately following January 2, 2015.
2
The Group is composed of the parent, subsidiaries, associates and joint ventures of the company.
Consolidated changes in the ACGR for 2015 5
director in other companies within its Group:

Type of Directorship
Corporate Name of the (Executive, Non-Executive,
Director’s Name
Group Company Independent). Indicate if
director is also the Chairman.
Dean L. Lao Oleo-Fats, Incorporated NED, Chairman
Aero-Pack Industries, Inc. NED
First in Colours, Incorporated NED
Chemrez Technologies, Inc. ED, Chairman
Chemrez, Inc. ED, Chairman
Leon L. Lao Oleo-Fats, Incorporated ED
Aero-Pack Industries, Inc. NED
First in Colours, Incorporated ED, Chairman
D&L Polymer and Colours, Inc. ED, Chairman
Chemrez Technologies, Inc. ED
Chemrez, Inc. ED
Alex L. Lao Oleo-Fats, Incorporated NED
Aero-Pack Industries, Inc. NED
First in Colours, Incorporated NED
Chemrez, Inc. NED
Yin Yong L. Lao Oleo-Fats, Incorporated NED
Aero-Pack Industries, Inc. ED
First in Colours, Incorporated NED
Chemrez Technologies, Inc. ED
Chemrez, Inc. ED
John L. Lao Oleo-Fats, Incorporated NED
Aero-Pack Industries, Inc. ED, Chairman
First in Colours, Incorporated NED
D&L Polymer and Colours, Inc. NED
Chemrez Technologies, Inc. ED
Chemrez, Inc. NED

(ii) Directorship in Other Listed Companies

Identify, as and if applicable, the members of the company’s Board of Directors who are also directors of
publicly-listed companies outside of its Group:

Type of Directorship
(Executive, Non-Executive,
Director’s Name Name of Listed Company Independent). Indicate if
director is also the
Chairman.
Cesar B. Bautista First Philippine Holdings Corporation ID
Filemon T. Berba, Jr. EEI Corporation ID
iPeople, inc. ID

(iii) Relationship within the Company and its Group

Provide details, as and if applicable, of any relation among the members of the Board of Directors, which
links them to significant shareholders in the company and/or in its group:

Name of the
Director’s Name Description of the relationship
Significant Shareholder
Dean L. Lao Jadel Holdings Co., Inc. Chairman of the Board & President
Leon L. Lao Jadel Holdings Co., Inc. Director & Treasurer
Alex L. Lao Jadel Holdings Co., Inc. Director
Yin Yong L. Lao Jadel Holdings Co., Inc. Director & Corp. Secretary
John L. Lao Jadel Holdings Co., Inc. Director
Consolidated changes in the ACGR for 2015 6
(iv) Has the company set a limit on the number of board seats in other companies (publicly listed, ordinary
and companies with secondary license) that an individual director or CEO may hold simultaneously? In
particular, is the limit of five board seats in other publicly listed companies imposed and observed? If yes,
briefly describe other guidelines:

Yes, policy on multiple board seats is as follows:

“The optimum number of directorships that Directors can hold in other corporations shall be
determined according to the capacity of a director to perform his duties diligently in general.

The President and Chief Executive Officer and other executive directors shall submit
themselves to a low indicative limit on membership in other corporate Boards. The same low
limit shall apply to independent or non-executive directors, who at the same time, serve as
full time executives in other corporations. In any case, the capacity of directors to serve with
diligence shall not be compromised.”

(e) Shareholding in the Company

Complete the following table on the members of the company’s Board of Directors who directly and indirectly
own shares in the company:

Number of Number of
Name of Director % of Capital Stock
Direct shares Indirect shares / Through (name of record owner)
Cesar B. Bautista 2 - 0.00
Filemon T. Berba, Jr. 200,002 - 0.00
Dean L. Lao 4 / Jadel Holdings Co. Inc.
54,610,096 403,769 / SmartWorks Trading Co., Inc. 0.77
51 / LBL Prime Properties, Inc.
Leon L. Lao 4 / Jadel Holdings Co. Inc.
60,608,934 38,209,826 /Allvee United, Inc. 1.38
51 / LBL Prime Properties, Inc.
Alex L. Lao 4 / Jadel Holdings Co. Inc.
65,159,776 52,808,949 / Jadana, Inc. 1.65
51 / LBL Prime Properties, Inc.
Yin Yong L. Lao 4 / Jadel Holdings Co. Inc.
65,987,202 73,044,725 / CEE Industries, Inc. 1.95
51 / LBL Prime Properties, Inc.
John L. Lao 4 / Jadel Holdings Co. Inc.
507,255 / CEE Industries, Inc.
68,837,202 3,520,597 / Jadana, Inc. 1.66
45,425,313 / Prime Spin , Inc.
51 / LBL Prime Properties, Inc.
TOTAL 315,403,214 213,920,708 7.41

2) Chairman and CEO

(a) Do different persons assume the role of Chairman of the Board of Directors and CEO? If no, describe the
checks and balances laid down to ensure that the Board gets the benefit of independent views.

Yes  No

Identify the Chair and CEO:

Chairman of the Board Leon L. Lao


CEO/President John L. Lao

(b) Roles, Accountabilities and Deliverables


Define and clarify the roles, accountabilities and deliverables of the Chairman and CEO.
Consolidated changes in the ACGR for 2015 7
Chairman Chief Executive Officer
Preside at the meetings of the directors and General charge and supervision of the
Role
stockholders business of the Corporation
Ensure that the meetings of the Board are
held in accordance with the By-Laws; Formulate and implement group
Supervise the preparation of the agenda of strategies and business plan;
the meeting in coordination with the Oversee group strategic alignment,
Accountabilities
Corporate Secretary; and governance and operating structure;
Maintain qualitative and timely lines of Supervise, monitor and control group
communication and information between activities, performance and budgets
the Board and Management.
Provide stockholders with a balanced and
comprehensible assessment of the
corporation’s performance, position and
prospects on a quarterly basis, including Quarterly and Annual Reports to
Deliverables
interim and other reports that could stockholders
adversely affect its business, as well as
reports to regulators that are required by
law

3) Explain how the board of directors plan for the succession of the CEO/Managing Director/President and the top
key management positions?

Management uses a performance appraisal tool to assess employee’s accomplishment and performance
against a set of objectives and performance standards and identify employees with potentials to hold key
management positions. Performance review is conducted quarterly and evaluated annually to assess the
employee’s potentials. An employee who has shown exceptional talent and/or potential to handle higher
responsibility will be enrolled in the Career Development Program. This program aims to prepare the candidate to
fulfill the duties and responsibilities required by the position projected for him by his immediate supervisor.

4) Other Executive, Non-Executive and Independent Directors

Does the company have a policy of ensuring diversity of experience and background of directors in the board?
Please explain.

The Company welcomes diversity of experience and background of directors in the Board. However, the
paramount considerations are the person’s integrity and probity and practical understanding of the business of the
Company and the industry to which it belongs.

Does it ensure that at least one non-executive director has an experience in the sector or industry the company
belongs to? Please explain.

Yes, the qualifications required for election to the Board include previous business experience, membership in
good standing in relevant industry, business or professional organizations, and practical understanding of the
business of the Company.

Define and clarify the roles, accountabilities and deliverables of the Executive, Non-Executive and Independent
Directors:

Executive Non-Executive Independent Director


Role  To conduct fair business transactions with the Corporation and ensure
that personal interests do not conflict with the Corporation’s interests;
Accountabilities  To devote time and attention necessary to properly discharge his duties
and responsibilities;
 To act judiciously;
Deliverables  To exercise independent judgment ;
 To have a working knowledge of the statutory and regulatory
requirements affecting the Corporation, including the contents of its
Consolidated changes in the ACGR for 2015 8
Articles of Incorporation and By-Laws, the requirements of the SEC, and
where applicable, the requirements of other regulatory agencies; and
 To observe confidentiality.

Provide the company’s definition of "independence" and describe the company’s compliance to the definition.

The Company believes that independence means freedom from any business or relationship which could, or
could reasonably be perceived to, materially influence, or interfere with the exercise of, independent judgment in
carrying out his or her duties and responsibilities. Insofar as independent directors are concerned, the Company adopts
the requirements on nomination and election of independent directors found in SRC Rule 38 of the Amended IRR of the
SRC. In addition, the Company disqualifies, subject to certain exception, as independent director any person who
becomes an officer, employee or consultant of the Company and any person whose beneficial equity ownership in the
Company or its subsidiaries and affiliates exceeds two percent (2%) of its subscribed capital stock.

Does the company have a term limit of five consecutive years for independent directors? If after two years, the
company wishes to bring back an independent director who had served for five years, does it limit the term for no
more than four additional years? Please explain.

The Company adopts the 5-2-5 term-limit for independent directors prescribed by the Securities and Exchange
Commission (SEC) in SEC Memorandum Circular No. 9, Series of 2011.

5) Changes in the Board of Directors (Executive, Non-Executive and Independent Directors)

(a) Resignation/Death/Removal

Indicate any changes in the composition of the Board of Directors that happened during the period:

Date of
Name of Director Position Reason
Cessation
Amb. Cesar B. Bautista Independent Director,
Member of the
Remuneration Committee Dec. 9, 2015 Demise
and Chairman of Audit
Committee

(b) Selection/Appointment, Re-election, Disqualification, Removal, Reinstatement and Suspension

Describe the procedures for the selection/appointment, re-election, disqualification, removal, reinstatement
and suspension of the members of the Board of Directors. Provide details of the processes adopted
(including the frequency of election) and the criteria employed in each procedure:

Procedure Process Adopted Criteria


a. Selection/Appointment
(i) Executive Directors The Nomination Committee In addition to the qualifications provided in the
shall conduct nominations and Corporation Code, Securities Regulation Code and
pre-screen the qualifications of other relevant laws, a Director shall also possess
candidates for regular & the following qualifications:
independent directors. It shall a. At least twenty one (21) years old;
review and evaluate the
qualifications of all persons b. College graduate or sufficiently
nominated as director, whose experienced in managing the business to
(ii) Non-Executive Directors substitute for such formal education;
names are submitted to the
Corporation in accordance with c. Practical understanding of the business
its By-laws. A final list of of the Corporation;
candidates. A final list of
candidates shall be made d. Membership in good standing in
relevant industry, business or professional
Consolidated changes in the ACGR for 2015 9
available to the SEC and organizations;
shareholders through the e. Previous business experience;
Information Statement. In the
election of directors, each f. He shall have proven to possess integrity
stockholder may vote such and probity; and
number of shares for as many g. He shall be assiduous.
persons as there are directors
to be elected or he may
cumulate said shares and give
one nominee as many votes as
the number of directors to be
elected multiplied by the
number of his shares equal, or
he may distribute them on the In addition to the above stated qualifications,
same principle among as many independent directors are selected in accordance
(iii) Independent Directors nominees as he shall see fit, with the rules provided under SRC Rule 38 of the
provided that the whole Amended IRR of the SRC.
number of votes cast by him
shall not exceed the number of
shares owned by him
multiplied by the whole
number of directors to be
elected.
b. Re-appointment
(i) Executive Directors
(ii) Non-Executive Directors Same as (a)
(iii) Independent Directors
c. Permanent Disqualification
(i) Executive Directors No person shall qualify or be eligible for
nomination or election to the Board of Directors
(ii) Non-Executive Directors
if such person is engaged in any business which
competes with or is antagonistic or harmful to
the business of the Corporation, or where such
person is serving as a director, will suffer a
serious conflict of interest which adversely
In the event that any director affects the business of the Corporation. In
during such director’s tenure addition thereto and other disqualifications
becomes subject to the provided in the Corporation Code, SRC and other
provided disqualification, the relevant laws, the following persons shall be
Chairman of the Board upon permanently disqualified to be elected to the
recommendation of the Board:
Nomination Committee, may
call a special Board meeting, in a. Any person convicted by final judgment or
(iii) Independent Directors which meeting the Board by at order by a competent judicial or
least 2/3 vote of its entire administrative body of any crime that (i)
membership may declare such involves the purchase or sale of securities,
director disqualified to as defined in the Securities Regulation Code;
continue to act as director of (ii) arises out of the person’s conduct as an
the Corporation. underwriter, broker, dealer, investment
adviser, principal, distributor, mutual fund
dealer, futures commission merchant,
commodity trading advisor, or floor broker;
or (iii) arises out of his fiduciary relationship
with a bank, quasi-bank, trust company,
investment house or as an affiliated person
of any of them;

Consolidated changes in the ACGR for 2015 10


b. Any person who, by reason of misconduct,
after hearing, is permanently enjoined by a
final judgment or order of the SEC or any
court or administrative body of competent
jurisdiction from: (i) acting as underwriter,
broker, dealer, investment adviser, principal
distributor, mutual fund dealer, futures
commission merchant, commodity trading
advisor, or floor broker; (ii) acting as
director or officer of a bank, quasi-bank,
trust company, investment house, or
investment company; (iii) engaging in or
continuing any conduct or practice in any of
the capacities mentioned in sub-paragraphs
(i) and (ii) above, or willfully violating the
laws that govern securities and banking
activities.
The disqualification shall also apply if such
person is currently the subject of an order of
the SEC or any court or administrative body
denying, revoking or suspending any
registration, license or permit issued to him
under the Corporate Code, Securities
Regulation Code or any other law
administered by the SEC or Bangko Sentral
ng Pilipinas (BSP), or under any rule or
regulation issued by the SEC or BSP, or has
otherwise been restrained to engage in any
activity involving securities and banking; or
such person is currently the subject of an
effective order of a self-regulatory
organization suspending or expelling him
from membership, participation or
association with a member or participant of
the organization;
c. Any person convicted by final judgment or
order by a court or competent
administrative body of an offense involving
moral turpitude, fraud, embezzlement,
theft, estafa, counterfeiting,
misappropriation, forgery, bribery, false
affirmation, perjury or other fraudulent
acts;
d. Any person who has been adjudged by final
judgment or order of the SEC, court, or
competent administrative body to have
willfully violated, or willfully aided, abetted,
counseled, induced or procured the violation
of any provision of the Corporation Code,
Securities Regulation Code or any other law
administered by the SEC or BSP, or any of its
rule, regulation or order;
e. Any person earlier elected as independent
director who becomes an officer, employee
or consultant of the Corporation, provided
that such person may again be qualified to
be elected as an independent director after
the lapse of one (1) year from his
resignation as officer, employee or
Consolidated changes in the ACGR for 2015 11
consultant of the Corporation;
f. Any person judicially declared as insolvent;
g. Any person found guilty by final judgment
or order of a foreign court or equivalent
financial regulatory authority of acts,
violations or misconduct similar to any of
the acts, violations or misconduct
enumerated in sub-paragraphs (a) to (e)
above; and
h. Conviction by final judgment of an offense
punishable by imprisonment for more than
six (6) years, or a violation of the
Corporation Code committed within five (5)
years prior to the date of his election or
appointment.
d. Temporary Disqualification
(i) Executive Directors a. Refusal to comply with the disclosure
requirements of the Securities Regulation
(ii) Non-Executive Directors
Code and its Implementing Rules and
Regulations. The disqualification shall be in
effect as long as the refusal persists.
b. Absence in more than fifty (50) percent of all
regular and special meetings of the Board
during his incumbency, or any twelve (12)
month period during the said incumbency,
unless the absence is due to illness, death in
the immediate family or serious accident.
The disqualification shall apply for purposes
In the event that any director of the succeeding election.
during such director’s tenure c. Dismissal or termination for cause as
becomes subject to the director of any public or listed corporation.
provided disqualification, the The disqualification shall be in effect until he
Chairman of the Board upon has cleared himself from any involvement in
recommendation of the the cause that gave rise to his dismissal or
Nomination Committee, may termination.
call a special Board meeting, in d. If the beneficial equity ownership of an
(iii) Independent Directors which meeting the Board by at independent director in the Corporation or
least 2/3 vote of its entire its subsidiaries and affiliates exceeds two
membership may declare such percent (2%) of its subscribed capital stock.
director disqualified to The disqualification shall be lifted if the limit
continue to act as director of is later complied with. However, the
the Corporation. disqualified independent director may run
for election as a regular director provided
there is a vacancy in the Board.
e. If any of the judgments or orders cited in the
grounds for permanent disqualification has
not yet become final.
A temporarily disqualified director shall, within
sixty (60) business days from such
disqualification, take the appropriate action to
remedy or correct the disqualification. If he fails
or refuses to do so for unjustified reasons, the
disqualification shall become permanent, unless
otherwise decided by the Board.
e. Removal
(i) Executive Directors The Company adopts the A director may be removed from office with or
procedure provided in Section without cause, provided that removal without
(ii) Non-Executive Directors
Consolidated changes in the ACGR for 2015 12
28 of the Corporation Code. cause may not be used to deprive minority
(iii) Independent Directors
stockholders the right of representation.
f. Re-instatement
(i) Executive Directors
(ii) Non-Executive Directors Same as (a)
(iii) Independent Directors
g. Suspension
(i) Executive Directors
(ii) Non-Executive Directors As may be decided by the Board
(iii) Independent Directors

Voting Result of the last Annual General Meeting

Name of Director Votes Received


Cesar B. Bautista
Filemon T. Berba, Jr.
In view of the fact that there are only 7
Dean L. Lao individuals nominated for the 7 board seats, the
Leon L. Lao 7 nominees were elected to the Board without
Alex L. Lao need of a ballot upon motion duly made and
Yin Yong L. Lao seconded.
John L. Lao

6) Orientation and Education Program

(a) Disclose details of the company’s orientation program for new directors, if any.

New directors are taken on a tour of the Company’s business lines, scheduled depending on the availability of
the directors.

(b) State any in-house training and external courses attended by Directors and Senior Management3 for the past
three (3) years:

 Investor Relations Professionals Association (Singapore) Seminar Series (Nov. 28 – 30, Holiday Inn, Singapore)
 Phil Energy & Infrastructure Business Meeting (Sept. 25, 2012, Makati Shangri-La)
 Asia Pacific Real Estate & Hospitality Investment Summit (Sept. 28, 2012)
 APREA-Philippine Chapter Presentation on Global Experiences in Infrastructure and Public-Private Partnership
(June 28, 2012, Makati Shangri-La)
 Moving Metro Manila: A Public Lecture on Urban Planning, Transport and Mobility (Oct. 25, 2011, Romulo
Lounge Tower 1 and Exchange Plaza)
 26th Professional Directors Program (Sept. 1, 6, 7, 13, and 14, 2010, The Peninsula Manila)
 Real Estate INvestment Trust - the New Wave (May 25, 2010, Dusit Thani Manila)
 Various ICD Roundtable Fora
 Corporate Governance: A Lecture Especially Prepared For D&L Industries’ Board Of Directors & Management
(November 26, 2015, D&L Office)

(c) Continuing education programs for directors: programs and seminars and roundtables attended during the
year.

Name of Date of Program Name of Training

3
Senior Management refers to the CEO and other persons having authority and responsibility for planning, directing
and controlling the activities of the company.

Consolidated changes in the ACGR for 2015 13


Director/Officer Training Institution
As Trustee of the Institute of Corporate
Directors and Institute of Solidarity for
Asia, participated in the 12 Roundtable
For a and the following activities:
reviewer of the Performance
Institute of
Governance Scorecards of NGAs;
Corporate Directors
Cesar B. Bautista various alignment of corporate governance in
and Institute of
the country with the Asian Corporate
Solidarity for Asia
Governance; improvement of
governance in family businesses and the
various professions under PRC; and the
upgrade of standards in the public listed
corporations in the PSE.
Filemon T. Berba, Jr. various Speaker in various Management Fora various
 Investor Relations Professionals Association (Singapore) Seminar
Series (Nov. 28 – 30, Holiday Inn, Singapore)
 Phil Energy & Infrastructure Business Meeting (Sept. 25, 2012,
Makati Shangri-La)
Alvin D. Lao  Asia Pacific Real Estate & Hospitality Investment Summit (Sept. 28,
2012)
 APREA-Philippine Chapter Presentation on Global Experiences in
Infrastructure and Public-Private Partnership (June 28, 2012, Makati
Shangri-La)

Note: A lecture on corporate governance was organized for and attended by the Directors and Senior Management
of the Company. The lecture was given by Mr. Juan Carlos B. Robles on November 26, 2015 and organized by The
Center for Global Best Policy.

B. CODE OF BUSINESS CONDUCT & ETHICS

1) Discuss briefly the company’s policies on the following business conduct or ethics affecting directors, senior
management and employees:

Business Conduct & Senior


Directors Employees
Ethics Management
No person shall qualify or be
Management and employees are expected to
eligible for nomination or
avoid financial, business or other relationships
election to the Board of Directors
or activities that might be opposed to the
if such person is engaged in any
interests of the Corporation, or might cause a
business which competes with or
conflict with the performance of their duties, or
is antagonistic or harmful to the
(a) Conflict of Interest would result in activities that would compete
business of the Corporation, or
with the Corporation’s business. Employees
where such person is serving as a
must conduct themselves in a manner that
director, will suffer a serious
avoids even the appearance of a conflict
conflict of interest which
between their personal interests and those of
adversely affects the business of
the Corporation.
the Corporation.
(b) Conduct of The Corporation is committed to establishing beneficial, harmonious and lasting
Business and Fair relations with our suppliers, customers and business partners. The Corporation
Dealings respects the legitimate interests of those with whom we have relationships.
The Corporation does not give or receive, whether directly or indirectly, bribes or
other improper advantages for business or financial gain. No employee may offer,
(c) Receipt of gifts from
give or receive any gift or payment which is, or may be considered as being a bribe.
third parties
Any demand for, or offer of, a bribe must be rejected immediately and reported to
management.
(d) Compliance with Directors, management and employees must comply with the laws and regulations
Laws & Regulations of the countries in which they operate.
Consolidated changes in the ACGR for 2015 14
(e) Respect for Trade The Corporation respects the legitimate interests of those with whom we have
Secrets/Use of Non- relationships.
public Information
(f) Use of Company The Corporation conducts operations with honesty, integrity and openness. No
Funds, Assets and corporate funds, assets, services or facilities shall be used, directly or indirectly, for
Information any unlawful, unethical or personal enrichment purpose.
The Corporation respects the dignity of the individual and the rights of employees.
We do not use any form of forced, compulsory or child labor. We maintain good
communications with our employees through company based information and
consultation procedures. We work with our employees to develop and enhance each
individual’s skills and capabilities and provide safe and healthy working conditions
(g) Employment &
for all our employees.
Labor Laws &
Policies
The Corporation does not discriminate according to race, color, religion, age,
gender, sexual orientation, marital status, disability, ethnic origin or nationality.
Hiring, evaluation, promotion, training, development, discipline, compensation and
termination decisions are based on qualifications, merit, performance and business
considerations only.
Failure by any employee, including managers or supervisors who ignore prohibited
conduct, or have knowledge of the conduct and fail to correct it, to comply with the
(h) Disciplinary action
Corporation’s Code of Business Principles (COBP) or associated standards of conduct
will be subjected to appropriate disciplinary action.
The Corporation expects employees to bring to their attention, or to that of senior
management, any breach or suspected breach of the Corporation’s COBP. Provision
(i) Whistle Blower
has been made for employees to be able to report in confidence and no employee
will suffer as a consequence of doing so.
The Corporation shall establish an alternative dispute resolution system to amicably
(j) Conflict Resolution settle conflicts or differences between the corporation and its stockholders, and the
corporation and third parties, including the regulatory authorities.

2) Has the code of ethics or conduct been disseminated to all directors, senior management and employees? Yes

3) Discuss how the company implements and monitors compliance with the code of ethics or conduct.

All D&L employees must comply with the Code of Business Principles (COBP) and associated standards of conduct
in the pursuit of the Company’s business. Failure by any employee, including managers or supervisors who ignore
prohibited conduct, or have knowledge of the conduct and fail to correct it, to comply with the COBP or associated
standards of conduct will be subjected to appropriate disciplinary action.

Managers and heads of the business units are ultimately responsible for ensuring compliance with the COBP.
Management at all levels must be role-models for compliance with the COBP and associated standards by visibly
demonstrating support and by regularly encouraging adherence by the employees. Managers must ensure that
members of their staff receive guidance, training and communication on ethical behavior and legal compliance
relevant to their duties to the Company.

The Company expects employees to bring to their attention, or to that of senior management, any breach or
suspected breach of these principles. Provision has been made for employees to be able to report in confidence and no
employee will suffer as a consequence of doing so.

4) Related Party Transactions

(a) Policies and Procedures

Describe the company’s policies and procedures for the review, approval or ratification, monitoring and
recording of related party transactions between and among the company and its parent, joint ventures,
subsidiaries, associates, affiliates, substantial stockholders, officers and directors, including their spouses,
children and dependent siblings and parents and of interlocking director relationships of members of the
Board.
Consolidated changes in the ACGR for 2015 15
Related Party Transactions Policies and Procedures
(1) Parent Company
(2) Joint Ventures Any Related Party Transaction shall be reported to the Audit
(3) Subsidiaries Committee, which shall review the material facts of all
(4) Entities Under Common Control Related Party Transactions and either approve, disapprove or
(5) Substantial Stockholders ratify such transactions. The Audit Committee shall report all
(6) Officers including Related Party Transactions to the Board of Directors.
spouse/children/siblings/parents
(7) Directors including All Related Party Transactions shall be disclosed in the
spouse/children/siblings/parents Company’s Financial Statements and Annual Report to
Shareholders.
(8) Interlocking director relationship
of Board of Directors

(b) Conflict of Interest

(i) Directors/Officers and 5% or more Shareholders

Identify any actual or probable conflict of interest to which directors/officers/5% or more shareholders
may be involved.

Details of Conflict
of Interest (Actual or Probable)
Name of Director/s The Lao Family has control of the Company and its subsidiaries
Name of Officer/s through direct and indirect shareholdings. Several member of the Lao
Family also serve in various capacities as directors and officers of the
Company and its subsidiaries. Conflicts of interest that may arise
between the Lao Family and the Company in a number of areas
relating to the Company’s businesses include:
 Major business combinations involving the Company,
including transfers of Lao Family-affiliated companies into
Name of Significant Shareholders
the Company or other affiliates, or transfers of assets of the
Company to other Lao Family affiliates;
 Plans to develop the respective businesses of the Company;
and
 Business opportunities that may be attractive to both the
Lao Family and the Company.

(ii) Mechanism

Describe the mechanism laid down to detect, determine and resolve any possible conflict of interest
between the company and/or its group and their directors, officers and significant shareholders.

Directors/Officers/Significant Shareholders
Company The responsibility for avoiding conflict of interest rests with the
Directors/Officers/Significant Shareholders. They are required to disclose his, his
family members’, up to his or his spouse’s second degree relatives, relation with the
Group
Company’s customers, suppliers and contractors, other relevant information and
actual (or potential) conflicts of interest and other matters whenever they arise.

5) Family, Commercial and Contractual Relations

(a) Indicate, if applicable, any relation of a family,4 commercial, contractual or business nature that exists
between the holders of significant equity (5% or more), to the extent that they are known to the company:
Names of Related Brief Description of the
Type of Relationship
Significant Shareholders Relationship

4
Family relationship up to the fourth civil degree either by consanguinity or affinity.
Consolidated changes in the ACGR for 2015 16
Details of the Related Party Transaction are discussed under Notes 1 (General Corporate Information)
and 19 (Related Party Transaction) of the Notes to the Consolidated Financial Statements of the
Company (attached herewith as Annex 1).

(b) Indicate, if applicable, any relation of a commercial, contractual or business nature that exists between the
holders of significant equity (5% or more) and the company:

Names of Related
Type of Relationship Brief Description
Significant Shareholders
Details of the Related Party Transaction are discussed under Notes 1 (General Corporate Information)
and 19 (Related Party Transaction) of the Notes to the Consolidated Financial Statements of the
Company (attached herewith as Annex 1).

(c) Indicate any shareholder agreements that may impact on the control, ownership and strategic direction of
the company:

% of Capital Stock affected Brief Description of the


Name of Shareholders
(Parties) Transaction
There are no shareholder agreements that may impact on the control, ownership and strategic
direction of the Company.

6) Alternative Dispute Resolution

Describe the alternative dispute resolution system adopted by the company for the last three (3) years in amicably
settling conflicts or differences between the corporation and its stockholders, and the corporation and third
parties, including regulatory authorities.

Alternative Dispute Resolution System


Corporation & Stockholders As of date, there are no disputes between the Company
Corporation & Third Parties and any of its stockholders, third parties and regulatory
authorities that would require adoption of an alternative
Corporation & Regulatory Authorities
dispute resolution system.

C. BOARD MEETINGS & ATTENDANCE

1) Are Board of Directors’ meetings scheduled before or at the beginning of the year?

At the beginning of the year.

2) Attendance of Directors

Board Name Date of No. of No. of %


Election Meetings Meetings
Held during Attended
the year
Director & Chairman Emeritus Dean L. Lao 06-8-15 6 6 100
Chairman Leon L. Lao 06-8-15 6 6 100
Member Alex L. Lao 06-8-15 6 6 100
Member Yin Yong L. Lao 06-8-15 6 6 100
Member John L. Lao 06-8-15 6 6 100
Independent Cesar B. Bautista 06-8-15 6 6 100
Independent Filemon T. Berba, Jr. 06-8-15 6 6 100

3) Do non-executive directors have a separate meeting during the year without the presence of any executive? If
yes, how many times? No.
Consolidated changes in the ACGR for 2015 17
4) Is the minimum quorum requirement for Board decisions set at two-thirds of board members? Please explain.

No, the By-Laws only require a majority of the Directors to constitute a quorum for the transaction of corporate
business.

5) Access to Information
5
(a) How many days in advance are board papers for board of directors meetings provided to the board?

Notice, agenda and board papers are given to the directors at least five (5) days before the scheduled board
meeting.

(b) Do board members have independent access to Management and the Corporate Secretary? Yes.

(c) State the policy of the role of the company secretary. Does such role include assisting the Chairman in
preparing the board agenda, facilitating training of directors, keeping directors updated regarding any
relevant statutory and regulatory changes, etc?

Yes, the duties and responsibilities of the Corporate Secretary include those mentioned above. Specifically, the
duties and responsibilities of the Corporate Secretary are as follows:

a. Assist the Chairman with the Corporate Secretary ;


b. Responsible for the safekeeping and preservation of the integrity of the minutes of the meetings of the
Board and its committees, as well as the other official records of the Corporation;
c. Work fairly and objectively with the Board, Management and stockholders;
d. Possess administrative, interpersonal and legal skills;
e. Possess awareness of the laws, rules and regulations necessary in the performance of his duties and
responsibilities and knowledge of the Corporation’s operations;
f. Notify members of the Board before every meeting, inform them, in accordance with the by-laws, of the
agenda of their meetings and ensure that the members have before them accurate information to enable
them to make informed decisions;
g. Attend all Board meetings, except when justifiable causes such as illness, death in the immediate family
and serious accidents, prevent him from doing so; and
h. Ensure compliance by the Board members with all Board procedures, rules and regulations.
(d) Is the company secretary trained in legal, accountancy or company secretarial practices? Yes.

Please explain should the answer be in the negative.

(e) Committee Procedures

Disclose whether there is a procedure that Directors can avail of to enable them to get information necessary
to be able to prepare in advance for the meetings of different committees:

Yes  No

Committee Details of the procedures


Executive Management, upon request of the Board or Board committee,
Audit shall provide them with complete, adequate and timely
Nomination information about the matters to be taken up in their meetings.
Remuneration

5
Board papers consist of complete and adequate information about the matters to be taken in the board meeting.
Information includes the background or explanation on matters brought before the Board, disclosures, budgets,
forecasts and internal financial documents.
Consolidated changes in the ACGR for 2015 18
Others (specify)

6) External Advice

Indicate whether or not a procedure exists whereby directors can receive external advice and, if so, provide
details:

Procedures Details

Directors may receive external advice as may be requested.

7) Change/s in existing policies

Indicate, if applicable, any change/s introduced by the Board of Directors (during its most recent term) on
existing policies that may have an effect on the business of the company and the reason/s for the change:

Existing Policies Changes Reason


Dividend Policy Declaring a dividend payout rate of 25% of its To improve the
prior year’s consolidated net income (based on benefits to be
the Resolution dated 02 October 2012) TO 50% received by the
of its prior year’s consolidated recurring net shareholders
income, to be paid out of from the Corporation’s
available unrestricted retained earnings

D. REMUNERATION MATTERS

1) Remuneration Process

Disclose the process used for determining the remuneration of the CEO and the four (4) most highly compensated
management officers:

Top 4 Highest Paid


Process CEO
Management Officers
(1) Fixed remuneration
(2) Variable remuneration
(3) Per diem allowance
The Board of Directors, upon recommendation of the Compensation
(4) Bonus Committee, shall fix, increase, or reduce the compensation of the
(5) Stock Options and CEO and senior management officers of the Corporation
other financial
instruments
(6) Others (specify)

2) Remuneration Policy and Structure for Executive and Non-Executive Directors

Disclose the company’s policy on remuneration and the structure of its compensation package. Explain how the
compensation of Executive and Non-Executive Directors is calculated.

Structure of How
Remuneration Policy Compensation Compensation is
Packages Calculated
The Board of Directors may, as and when it The following allowances for
Executive Directors
deems appropriate, provide compensation reimbursable expenses are given to
for each meeting of the Board attended by Directors per meeting:
Non-Executive them. A Director may serve the Corporation
Directors in any other capacity and receive Board Chairman – PhP60,000
compensation therefor. No policy resulting Board Members – PhP50,000
Consolidated changes in the ACGR for 2015 19
in an increase in the compensation and Committee Chairman – PhP35,000
remuneration of Directors shall take effect Committee Members – PhP25,000
until after the expiration of the term of all
Directors approving such policy. Aside from the aforementioned
allowances, no other compensation is
paid to Directors of the Company.

Do stockholders have the opportunity to approve the decision on total remuneration (fees, allowances, benefits-
in-kind and other emoluments) of board of directors? Provide details for the last three (3) years.

Date of
Remuneration Scheme
Stockholders’ Approval
The Corporation’s Manual of Corporate Governance requires disclosure of all fixed and variable compensation
that may be paid, directly and indirectly, to its Directors and top four (4) management officers during the
preceding fiscal year in its annual reports and information and proxy statements, which may be subject to
objection or ratification of the stockholders. There were no issues on the compensation of directors and officers
which was brought up in the last annual stockholders meeting.

3) Aggregate Remuneration

Complete the following table on the aggregate remuneration accrued during the most recent year:

Non-Executive Directors
Executive Independent
Remuneration Item (other than independent
Directors Directors
directors)
(a) Fixed Remuneration none none None
(b) Variable Remuneration none none None
(c) Per diem Allowance none none None
(d) Bonuses none none None
(e) Stock Options and/or
other financial none none None
instruments
The following allowances for reimbursable expenses are given to
Directors per meeting:

Board Chairman – PhP60,000


Board Members – PhP50,000
(f) Others (Specify) Committee Chairman – PhP35,000
Committee Members – PhP25,000

Aside from the aforementioned allowances, no other compensation


is paid to Directors of the Company.

Total As stated above.

Non-Executive Director
Executive Independent
Other Benefits (other than independent
Directors Directors
directors)
1) Advances NONE
2) Credit granted
3) Pension Plan/s
Contributions
(d) Pension Plans,
Obligations incurred
Consolidated changes in the ACGR for 2015 20
(e) Life Insurance Premium
(f) Hospitalization Plan
(g) Car Plan
(h) Others (Specify)
Total
4) Stock Rights, Options and Warrants

(a) Board of Directors

Complete the following table, on the members of the company’s Board of Directors who own or are entitled
to stock rights, options or warrants over the company’s shares:

Number of
Number of Direct Number of
Indirect Total % from
Director’s Name Option/Rights/ Equivalent
Option/Rights/ Capital Stock
Warrants Shares
Warrants
The Company does not have any stock option or management incentive plan as part of its
current compensation for it’s the Directors.

(b) Amendments of Incentive Programs

Indicate any amendments and discontinuation of any incentive programs introduced, including the criteria
used in the creation of the program. Disclose whether these are subject to approval during the Annual
Stockholders’ Meeting:

Date of
Incentive Program Amendments
Stockholders’ Approval
There were no amendments and discontinuation of any incentive programs introduced
during the year.

5) Remuneration of Management

Identify the five (5) members of management who are not at the same time executive directors and indicate the
total remuneration received during the financial year:

Name of Officer/Position Total Remuneration

Alvin D. Lao/EVP, CFO and Compliance Officer


Dean A. Lao, Jr./Managing Director, Chemrez P13,392,957.60
Lester A. Lao/Managing Director, FIC & DLPC
Vincent D. Lao/Managing Director, Oleo-Fats

E. BOARD COMMITTEES

1) Number of Members, Functions and Responsibilities

Provide details on the number of members of each committee, its functions, key responsibilities and the
power/authority delegated to it by the Board:

No. of Members
Executi Indepen Key
Non- dent Committee Function
ve Non-
Committee executive Responsibi Power
Directo
Director
Director Directo Charter s
r (ID) r lities
(NED)
(ED)

Consolidated changes in the ACGR for 2015 21


Executive 1 3 1 During the intervals between the meetings of the
Board, the Executive Committee possesses and
may exercise powers of the Board which can
lawfully be delegated in the management and
direction of the affairs of the Corporation in all
cases in which specific directions shall have not
been given by the Board. All actions by the
Executive Committee shall be reported to the
Board at its meeting next succeeding such action,
and shall be subject to revision and alteration by
the Board, provided that no rights of third parties
shall be affected by any such revision or alteration.
.
Audit 1 2 a) Assist the Board in the performance of its
oversight responsibility for the financial
reporting process, system of internal
control, audit process, and monitoring of
compliance with applicable laws, rules and
regulations;

b) Provide oversight over Management’s


activities in managing credit, market,
liquidity, operational, legal and other risks
of the corporation. This function shall
include regular receipt from Management
of information on risk exposures and risk
management activities;

c) Perform oversight functions over the


corporation’s internal and external auditors.
It should ensure that the internal and
external auditors act independently from
each other, and that both auditors are given
unrestricted access to all records, properties
and personnel to enable them to perform
their respective audit functions;

d) Review the annual internal audit plan to


ensure its conformity with the objectives of
the corporation. The plan shall include the
audit scope, resources and budget
necessary to implement it;

e) Prior to the commencement of the external


audit, discuss with the external auditor the
nature, scope and expenses of the audit,
and ensure proper coordination if more
than one audit firm is involved in the activity
to secure proper coverage and minimize
duplication of efforts;

f) Establish an internal audit function, and


consider the appointment of an
independent internal auditor and the terms
and conditions of its engagement and
removal;

g) Monitor and evaluate the adequacy and


effectiveness of the corporation’s internal
Consolidated changes in the ACGR for 2015 22
control system, including financial reporting
control and information technology
security;

h) Review the reports submitted by the


internal and external auditors;

i) Review the quarterly, half-year and annual


financial statements before their submission
to the Board, with particular focus on the
following matters:

- Any change/s in accounting policies and


practices
- Major judgmental areas
- Significant adjustments resulting from the
audit
- Going concern assumptions
- Compliance with accounting standards
- Compliance with tax, legal and regulatory
requirements

j) Coordinate, monitor and facilitate


compliance with laws, rules and regulations;

k) Evaluate and determine the non-audit work,


if any, of the external auditor, and review
periodically the non-audit fees paid to the
external auditor in relation to their
significance to the total annual income of
the external auditor and to the
corporation’s overall consultancy expenses.
The committee shall disallow any non-audit
work that will conflict with his duties as an
external auditor or may pose a threat to his
independence. The non-audit work, if
allowed, should be disclosed in the
corporation’s annual report; and

l) Establish and identify the reporting line of


the Internal Auditor to enable him to
properly fulfill his duties and responsibilities.
He shall functionally report directly to the
Audit Committee. The Audit Committee
shall ensure that, in the performance of the
work of the Internal Auditor, he shall be free
from interference by outside parties.

Nomination 1 1 1 The Nomination Committee shall review and


evaluate the qualifications of all persons
nominated as director, whose names are
submitted to the Corporation in accordance with
Article IV, Section 1 of the By-laws, and other
appointments that require Board approval, and
assess the effectiveness of the Board’s processes
and procedures in the election and replacement of
directors. It shall conduct nominations and pre-
screen the qualifications of candidates for

Consolidated changes in the ACGR for 2015 23


independent directors and prescribe screening
policies and parameters in the review of the
qualifications of nominees for independent
directors. It shall adopt procedures for the
nomination, election and termination and or
cessation of independent directors in conformity
with applicable laws and regulations.
Remuneration 1 1 1 The Compensation Committee shall establish a
formal and transparent procedure for developing a
policy on remuneration of directors and officers to
ensure that their compensation is consistent with
the Corporation’s culture, strategy and the
business environment in which it operates.
Others
(specify)

2) Committee Members

(a) Executive Committee

Length of
No. of No. of
Date of Service in
Office Name Meetings Meetings %
Appointment the
Held Attended
Committee
Chairman Dean L. Lao 6-8-15 11 11 100 3 yrs
Member (NED) Leon L. Lao 6-8-15 11 11 100 3 yrs
Member (NED) Yin Yong L. Lao 6-8-15 11 11 100 3 yrs
Member (NED) Alex L. Lao 6-8-15 11 11 100 3 yrs
Member Alvin D. Lao 6-8-15 11 11 100 3 yrs

(b) Audit Committee

Length of
Date of No. of No. of
Service in
Office Name Appointm Meetings Meetings %
Attended the
ent Held
Committee
Chairman (ID) Cesar B. Bautista 6-8-15 4 4 100 3 yrs
Member (ED) - - - - - -
Member (NED) Yin Yong L. Lao 6-8-15 4 4 100 3 yrs
Member (ID) Filemon T. Berba, Jr. 6-8-15 4 4 100 3 yrs
Member - - - - - -

Disclose the profile or qualifications of the Audit Committee members.

Cesar B. Bautista is the audit committee chairman and independent director of the Company. He is an
independent director of Chemrez Technologies Inc. and the Chairman of CIBI and St, James’ Ventures Inc. Mr.
Bautista is also a Director of First Philippines Holding Corporation, Bayantel Telecommunications, Inc., Pilipinas
Shell Petroleum, Chartis Insurance Inc., Philratings Services Inc., PHINMA, Maxicare Healthcare Inc., as well as an
Advisory Director of AIM-Zuellig Center for Business Transformation, Co-Chairman of the National Competitiveness
Council and a Trustee of the Institute of Corporate Directors. Mr. Bautista previously served as Philippine
Ambassador to the United Kingdom, the Republic of Ireland and the Republic of Iceland, as Secretary of the
Department of Trade and Industry of the Philippines, as well as President and Chairman of Unilever Philippines,
Inc. Mr. Bautista obtained a B.S. in Chemical Engineering from the University of the Philippines and an M.S. in
Chemical Engineering from Ohio State University.

Filemon T. Berba, Jr. is an independent director of the Company. He is the President of the Philippine
Foundation for Science & Technology, President Emeritus of the Philippine Quality Award Foundation and serves
as independent director of iPeople, EEI Corporation. He also previously served as member of the Board of Trustees
of La Salle Canlubang, Senior Managing Director of Ayala Corporation from 1991 to 2003, seconded as Vice
Consolidated changes in the ACGR for 2015 24
Chairman and President of Manila Water Company from 1997 to 2003, President of Globe Telecom from 1995 to
1997, Vice Chairman and President of Integrated Microelectronics, Inc. from 1991 to 2003, President and Chief
Executive Office of Philippine Electric Corporation from 1987 to 1990, President of Westinghouse Asia Controls
Corporation from 1979-1987, Group President of various companies under the Herdis Group from 1975-1979, Vice
President for Manufacturing and Logistics Services for United Laboratories from 1973 to 1975, as well as other
senior management positions in the First Philippine Holdings Group. Mr. Berba obtained a B.S. in Electrical
Engineering (Magna Cum Laude) from the University of the Philippines in 1959 and obtained his Masters of
Business Administration degree (with distinction) from the Wharton School of the University of Pennsylvania in
1964.

Yin Yong L. Lao is the Vice Chairman of the Company, having been a Director since 1971, having
previously served as President. He is President of LBL Prime Properties, Inc. Mr. Lao is also a Trustee of the
Association of Petrochemical Manufacturers of the Philippines. He also serves as a director of the following: Aero-
Pack Industries, Inc., Chemrez, Inc., Chemrez Technologies, Inc., First in Colours, Incorporated, Oleo-Fats
Incorporated, Malay Resources, Incorporated, FIC Marketing Co., Inc., LBL Prime Properties, Inc., Ecozone
Properties, Inc., First Batangas Industrial Park, Inc., Anonas LRT Property and Dev’t Corp. and Hotel Acropolis, Inc.
He graduated from the Ateneo de Manila University with a Bachelor of Arts degree in General Studies.

Each member has an adequate understanding at least or competence at most of the Corporation’s
financial management systems and environment. The chair of the Audit Committee must be an independent
director.

Describe the Audit Committee’s responsibility relative to the external auditor.

In relation to the external auditor, the Audit Committee is tasked to:


 Perform oversight functions over the external auditors. It should ensure the independence of external
auditors and unrestricted access to all records, properties and personnel to enable external auditors to
perform their audit functions.

 Prior to the commencement of the external audit, discuss with the external auditor the nature, scope and
expenses of the audit, and ensure proper coordination if more than one audit firm is involved in the
activity to secure proper coverage and minimize duplication of efforts.

 Review the reports submitted by the external auditors.

 Evaluate and determine the non-audit work, if any, of the external auditor, and review periodically the
non-audit fees paid to the external auditor in relation to their significance to the total annual income of
the external auditor and to the corporation’s overall consultancy expenses. It shall disallow any non-audit
work that will conflict with the duties of the external auditor or may pose a threat to the independence of
the external auditor. The Audit Committee shall cause disclosure of the non-audit work, if allowed,
annual report.

(c) Nomination Committee

Length of
No. of No. of
Date of Service in
Office Name Meetings Meetings %
Appointment Attended the
Held
Committee
Chairman Leon L. Lao 6-8-15 1 1 - 3 yrs
Member (ED) John L. Lao 6-8-15 1 1 - 3 yrs
Member (NED) - - - - - -
Member (ID) Filemon T. Berba, Jr. 6-8-15 1 1 - 3 yrs
Member - - - - - -

(d) Remuneration Committee

No. of Length of
Date of No. of
Office Name Meetings % Service in
Appointment Meetings Attended
Consolidated changes in the ACGR for 2015 25
Held the
Committee
Chairman Yin Yong L. Lao 6-8-15 0 0 - 3 yrs
Member (ED) John L. Lao 6-8-15 0 0 - 3 yrs
Member (NED) - - - - - -
Member (ID) Cesar B. Bautista 6-8-15 0 0 - 3 yrs
Member - - - - - -

(e) Others (Specify)

Provide the same information on all other committees constituted by the Board of Directors:

Length of
No. of No. of
Date of Service in
Office Name Meetings Meetings %
Appointment Attended the
Held
Committee
Chairman
Member (ED)
Member (NED)
Member (ID)
Member

The Company has no other Board Committees.

3) Changes in Committee Members

Indicate any changes in committee membership that occurred during the year and the reason for the changes:

Name of Committee Name Reason


Executive
Audit
There were no changes in the committee memberships as of date. The same
Nomination
set of directors was re-appointed to the Committees.
Remuneration
Others (specify)

4) Work Done and Issues Addressed

Describe the work done by each committee and the significant issues addressed during the year.

Name of Committee Work Done Issues Addressed


Executive Deliberate on matters dealing with
Authorizations required for matters
day-to-day management of the
in the ordinary course of business
Company
Audit  Review quarterly and annual  Approval of Financial
financial results Statements
 Discuss and recommend draft  Adoption of formal policies of
Code of Business Principles business ethics
 Discuss and recommend draft  Adoption of a formal Audit
Audit Committee Charter Committee Charter
 Discuss External Audit Plan  Areas of Improvement
 Discuss Internal Audit Findings  Areas of Improvement
Nomination Screening and evaluation of
Qualifications and Disqualifications
nominees for directors
Remuneration None None
Others (specify)
5) Committee Program

Consolidated changes in the ACGR for 2015 26


Provide a list of programs that each committee plans to undertake to address relevant issues in the improvement
or enforcement of effective governance for the coming year.

Name of Committee Planned Programs Issues to be Addressed


Executive none
Audit Monitor work of external and Areas of improvement
internal auditors
Nomination Screening and evaluation of
Qualifications and Disqualifications
nominees for directors
Remuneration  Screening and evaluation of  Qualifications of candidates
candidates for promotion
 Review of executive  Adjustment of compensation
compensation
Others (specify)

F. RISK MANAGEMENT SYSTEM

1) Disclose the following:

(a) Overall risk management philosophy of the company;

Management should be able to identify risks as they arise and ensure that these risks are appropriately managed.

(b) A statement that the directors have reviewed the effectiveness of the risk management system and
commenting on the adequacy thereof;

The Board, through the Audit Committee, has reviewed the effectiveness of the risk management system and
assures the Shareholders and Stakeholders that the risk management system is adequate to mitigate major
business risks.

(c) Period covered by the review; 2012


(d) How often the risk management system is reviewed and the directors’ criteria for assessing its effectiveness;
Annually
(e) Where no review was conducted during the year, an explanation why not. Not applicable

2) Risk Policy

(a) Company

Give a general description of the company’s risk management policy, setting out and assessing the risk/s
covered by the system (ranked according to priority), along with the objective behind the policy for each kind
of risk:

Risk Exposure Risk Management Policy Objective


Fraud To involve management and
Whistle Blower Policy employees in all levels in fraud
detection and provide deterrence
Health Safety  To ensure well-being of
Environment employees
Comply with health, safety and  To preserve the environment,
environmental regulations conserve and wisely use
resources
 To ensure business continuity in
case of manmade or natural
disasters
Asset Protection Authority Schedule To ensure proper buying,
CAPEX Policy safeguarding, use and disposal of

Consolidated changes in the ACGR for 2015 27


Asset Inventory/Reconciliation assets
Stock Protection To ensure that stocks are properly
Purchasing Guidelines
received, paid, used, stored,
Inventory Control
dispensed and disposed.
Information Technology To ensure that IT systems are
IT Security
safeguarded against threats and
Disaster Recovery Plan
that operations are continuous.
Product Failure To ensure that products are
Quality Policy manufactured within
Product Recall specifications and are safe for use.
Material Safety Data Sheets In the event of failure, recall is
Technical Bulletins/Specs effected to minimize customer
risks.
Human Resource D&L works with employees to
develop and enhance each
individual’s skills and capabilities
and provide safe and healthy
working conditions for all
employees. D&L does not
discriminate according to race,  To ensure compliance with
color, religion, age, gender, sexual Labor Laws.
orientation, marital status,  To encourage employee
disability, ethnic origin or retention.
nationality. Hiring, evaluation,
promotion, training, development,
discipline, compensation and
termination decisions are based
on qualifications, merit,
performance and business
considerations only.

(b) Group

Give a general description of the Group’s risk management policy, setting out and assessing the risk/s covered
by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:

Risk Exposure Risk Management Policy Objective


Same as F.2(a)

(c) Minority Shareholders

Indicate the principal risk of the exercise of controlling shareholders’ voting power.

Risk to Minority Shareholders


Through direct and indirect interests, the Lao Family effectively controls the Company and its
subsidiaries. There can be no assurance that the respective businesses or activities of other Lao Family-
related companies will not compete with the Company’s businesses or activities in the future. In addition,
certain Lao Family-controlled companies have significant commercial transactions with the Company or
its subsidiaries. The interests of the Lao Family may differ from the Company’s interests or the interests of
other shareholders, and there can be no assurance that the Lao Family will exercise influence over the
Company in a manner that is in the best interests of the Company’s other shareholders.
3) Control System Set Up

(a) Company

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the
company:

Consolidated changes in the ACGR for 2015 28


Risk Assessment Risk Management and Control
Risk Exposure
(Monitoring and Measurement Process) (Structures, Procedures, Actions Taken)
Fraud Reports submitted to the Executive and
Audit of Business Process and
Audit Committees and Managing
Procedures
Directors of operating companies
Health Safety Safety statistics
Environment Environmental Permit Renewals Periodic review by HSE Committee
Annual Physical Exam
Asset Protection CAPEX budgeting
Periodic review by auditors
Reconciliation of Assets
Stock Protection Inventory reconciliation and 3-way Accounting review and physical
matching counting
Information IT Audit
Corporate Audit
Technology Disaster Recovery Drill
Product Failure Cost of Quality Audit by Customers
Product Recall Testing Report review by Supply Chain Director
Human Resource Labor Laws update by Legal Corporate Audit

(b) Group

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the
company:

Risk Assessment Risk Management and Control


Risk Exposure
(Monitoring and Measurement Process) (Structures, Procedures, Actions Taken)

Same as F.3(b)

(c) Committee

Identify the committee or any other body of corporate governance in charge of laying down and supervising
these control mechanisms, and give details of its functions:

Committee/Unit Control Mechanism Details of its Functions


Formulates policies and
Board and Audit Committee Policies/Regulation/Declarations declarations; Declares
adequacy of safeguards
Review safeguards for risks
Management Committee Review of Safeguards
identified by auditors
Assures that Business Process
CAPEX budgeting
Risks are properly mitigated
Reconciliation of Assets
and that safeguards installed
Corporate Audit IT Audit
are adequate to reduce the
Disaster Recovery Drill
risks to low materiality and
Labor Laws update by Legal
low probability
Assures that Policies and
Inventory reconciliation and 3- Procedures are in place and
way matching that safeguards are adequate
Internal Audit
Accounting review and physical to reduce the risks to low
counting materiality and low
probability.
Identifies specific business risks
Safety statistics regarding health, safety and
HSE Committee Environmental Permit Renewals environment and provides
Annual Physical Exam grass-root coverage.

Consolidated changes in the ACGR for 2015 29


G. INTERNAL AUDIT AND CONTROL

1) Internal Control System

Disclose the following information pertaining to the internal control system of the company:

(a) Explain how the internal control system is defined for the company;

The Company has an Accounting Manual which defines the internal controls implemented within the different
processes. In addition, additional controls or policies are defined in different memoranda distributed to its
employees.

(b) A statement that the directors have reviewed the effectiveness of the internal control system and whether
they consider them effective and adequate;

Please see attached Statement of Management Responsibility for Financial Statements (Annex 2).

(c) Period covered by the review; 2012 and 2013


(d) How often internal controls are reviewed and the directors’ criteria for assessing the effectiveness of the
internal control system; and

The Company ensures that implemented controls are documented in its Accounting Manual which defines the
internal controls implemented within the different processes. The manual is regularly revisited. Controls are
evaluated during the monitoring activities conducted by the process owners and during the internal control
reviews

(e) Where no review was conducted during the year, an explanation why not.

Not Applicable – There were reviews performed for the year 2013.

2) Internal Audit

(a) Role, Scope and Internal Audit Function

Give a general description of the role, scope of internal audit work and other details of the internal audit
function.
Internal audit should be able to provide independent and objective assessment of risk mgt strategies, mgt
control framework and governance so that stakeholders are assured that financial information are accurate,
reliable and timely, that the assets are safeguarded, that everyone is compliant with policies and procedures
and that plans and objectives are being achieved.

Indicate whether
Name of Chief
In-house or
Internal Reporting
Role Scope Outsource
Auditor/Auditing process
Internal Audit
Firm
Function
The scope of Punongbayan & Directly
internal auditing Araullo (P&A) and reporting to the
To provide an encompasses, but is D&L Internal Audit Audit Committee
independent and not limited to, the Department
objective assurance examination and
For 2013,
and consulting evaluation of the
outsourced and
activity designed to adequacy and
in-house
add value and effectiveness of the
combined
improve an organization’s
organization’s governance, risk
operations. management, and
internal controls as
well as the quality
Consolidated changes in the ACGR for 2015 30
of performance in
carrying out
assigned
responsibilities to
achieve the
organization’s
stated goals and
objectives.

(b) Do the appointment and/or removal of the Internal Auditor or the accounting /auditing firm or corporation to
which the internal audit function is outsourced require the approval of the audit committee?

Yes, the Audit Committee has approved the appointment of P&A as its outsourced internal audit service
provider for 2013. It has also created its in-house internal audit function in the second half of 2013 which has
started its audit activity in the last quarter of the year.

(c) Discuss the internal auditor’s reporting relationship with the audit committee. Does the internal auditor have
direct and unfettered access to the board of directors and the audit committee and to all records, properties
and personnel?

Both outsourced and in-house internal auditors are directly reporting to the Audit Committee. The Audit
Committee supervises and/or monitors the different process of the Company.

(d) Resignation, Re-assignment and Reasons

Disclose any resignation/s or re-assignment of the internal audit staff (including those employed by the third-
party auditing firm) and the reason/s for them.

Name of Audit Staff Reason


Cielo Diano, Managing Consultant Resigned from P&A in 2013 for other work opportunities

(e) Progress against Plans, Issues, Findings and Examination Trends

State the internal audit’s progress against plans, significant issues, significant findings and examination
trends.

For 2013, the planned scope of work was fully


Progress Against Plans
covered in quarterly audits.
Issues6 Issues and findings resulting from the quarterly
audits were presented to the concerned process
owners for resolution. The management of the
Findings7 Company is responsible for ensuring that
committed action plans are implemented.
The results of the internal control reviews for
Examination Trends
2013 shall be considered in this year’s review.

[The relationship among progress, plans, issues and findings should be viewed as an internal control review
cycle which involves the following step-by-step activities:
1) Preparation of an audit plan inclusive of a timeline and milestones;
2) Conduct of examination based on the plan;
3) Evaluation of the progress in the implementation of the plan;
4) Documentation of issues and findings as a result of the examination;
5) Determination of the pervasive issues and findings (“examination trends”) based on single year
result and/or year-to-year results;

6
“Issues” are compliance matters that arise from adopting different interpretations.
7
“Findings” are those with concrete basis under the company’s policies and rules.
Consolidated changes in the ACGR for 2015 31
6) Conduct of the foregoing procedures on a regular basis.]

(f) Audit Control Policies and Procedures

Disclose all internal audit controls, policies and procedures that have been established by the company and
the result of an assessment as to whether the established controls, policies and procedures have been
implemented under the column “Implementation.”

Policies & Procedures Implementation


Operating effectiveness or evaluation whether
Internal audit controls implemented by the
these controls are consistently being
company are documented in the Accounting
implemented was conducted as part of the 2012
Manual and in related memoranda.
audit.

(g) Mechanisms and Safeguards

State the mechanism established by the company to safeguard the independence of the auditors, financial
analysts, investment banks and rating agencies (example, restrictions on trading in the company’s shares and
imposition of internal approval procedures for these transactions, limitation on the non-audit services that an
external auditor may provide to the company):

Auditors
Financial Analysts Investment Banks Rating Agencies
(Internal and External)
Obtain results of
independence check
conducted by the audit firm
to ensure no conflicts of
interest exist. In addition, None none none
results of individual
declaration of independence
by the staff to be assigned
are also considered.

(h) State the officers (preferably the Chairman and the CEO) who will have to attest to the company’s full
compliance with the SEC Code of Corporate Governance. Such confirmation must state that all directors,
officers and employees of the company have been given proper instruction on their respective duties as
mandated by the Code and that internal mechanisms are in place to ensure that compliance.

The Compliance Officer and the President

H. ROLE OF STAKEHOLDERS

1) Disclose the company’s policy and activities relative to the following:

Policy Activities
D&L is committed to providing
products and services which
consistently offer value in terms of
 random product testing
price and quality, and which are safe
Customers’ welfare  secure appropriate ISO
for their intended use. Product and
certifications
services will be accurately and
properly labeled, advertised and
communicated.
D&L is committed to establishing
beneficial, harmonious and lasting
Supplier/contractor selection
relations with our suppliers, Adoption of COBP
practice
customers and business partners. In
our business dealings, we expect not
Consolidated changes in the ACGR for 2015 32
only our employees but also our
business partners to adhere to
business principles consistent with
our own.
D&L is committed to sustainable
development. We endeavor at all
times to meet the Company’s
business needs while preserving the  Promotion of Green Chemistry
environment so that these needs can  Encourage segregation and
be met not only in the present, but recycling
Environmentally friendly value- also for generations to come. D&L  Development of biodegradable
chain ensures compliance with health, plastic products
safety, security, environment and  Secure appropriate ISO
social performance requirements and certifications
aims to minimize impact on
ecosystems and biodiversity, lower
emissions, and use energy, water
and other resources more efficiently.
D&L recognizes that we have
responsibilities to the societies and
communities in which we operate.
D&L aims to contribute to the
Community interaction See Annex 3
development of the community,
create lasting social benefits and
minimize, if not avoid, disruptions to
the community.
D&L does not give or receive,
whether directly or indirectly, bribes
or other improper advantages for
business or financial gain. No
Anti-corruption programmes and employee may offer, give or receive
Adoption of COBP
procedures? any gift or payment which is, or may
be considered as being a bribe. Any
demand for, or offer of, a bribe must
be rejected immediately and
reported to management.
D&L conducts operations with
honesty, integrity and openness. The
Safeguarding creditors’ rights Company respects the legitimate Adoption of COBP
interests of those with whom we
have relationships.

2) Does the company have a separate corporate responsibility (CR) report/section or sustainability report/section?

Yes, the Corporation’s CSR activities are carried out through the Lao Foundation, Inc.

3) Performance-enhancing mechanisms for employee participation.

(a) What are the company’s policy for its employees’ safety, health, and welfare?
 Conduct business in a manner that will meet customer expectations while ensuring sustainable growth;
 Ensure the well-being of our employees by implementing health and safety programs;
 Preserve the environment, conserve and wisely use resources; and
 Comply with health, safety, environmental regulations and other applicable requirements.

(b) Show data relating to health, safety and welfare of its employees.

Please see attached latest annual physical exam (Annex 4-A) and the Company’s Safety Committee Report (Annex
4-B).

Consolidated changes in the ACGR for 2015 33


(c) State the company’s training and development programmes for its employees. Show the data.

Please see attached latest report on the Company’s training initiatives (Annex 5).

(d) State the company’s reward/compensation policy that accounts for the performance of the company beyond
short-term financial measures

The Company shall provide commensurate remunerations package (salary plus benefit package) that is
competitive within the industry and other similar establishments. The Company shall endeavor to give an
equitable benefit package that responds to the prevailing economic conditions.

4) What are the company’s procedures for handling complaints by employees concerning illegal (including
corruption) and unethical behaviour? Explain how employees are protected from retaliation.

D&L expects employees to bring to their attention, or to that of senior management, any breach or suspected
breach of these principles. D&L assures employees that they will be able to report in confidence and that no
employee will suffer as a consequence of doing so.

I. DISCLOSURE AND TRANSPARENCY

1) Ownership Structure

(a) Holding 5% shareholding or more

As of December 31, 2015, the following are owners of more than 5% of the Corporation’s outstanding shares:

Shareholder Number of Shares Percent Beneficial Owner


Jadel Holdings Co., Inc. 3,930,114,072 55.02%
Lao Family
PCD Nominee Corp. 1,229,300,943 17.21% We have no information to confirm
(Filipino) if there are no participants holding
more than 5% of the Corporation’s
voting securities
PCD Nominee Corp. 1,222,754,835 17.12% We have no information to confirm
(Non-Filipino) if there are no participants holding
more than 5% of the Corporation’s
voting securities

Number of % of
Name of Senior Number of
Indirect shares / Through (name of Capital
Management Direct shares
record owner) Stock
403,824 / Jadel Holdings Co. Inc. /
Dean L. Lao, Chairman
54,610,096 SmartWorks Trading Co., Inc. / LBL 0.77
Emeritus & Director
Prime Properties, Inc.
38,209,880 / Jadel Holdings Co. Inc.
Leon L. Lao, Chairman 60,608,934 /Allvee United, Inc. / LBL Prime 1.38
Properties, Inc.
52,809,004 / Jadel Holdings Co. Inc. /
Alex L. Lao, Director 65,159,776 1.65
Jadana, Inc. / LBL Prime Properties, Inc.
73,044,780 / Jadel Holdings Co. Inc. /
Yin Yong L. Lao, Director &
65,987,202 CEE Industries, Inc. / LBL Prime 1.95
Vice-Chairman
Properties, Inc.
49,453,220 / Jadel Holdings Co. Inc. /
John L. Lao, Director & CEE Industries, Inc. / Jadana, Inc. /
68,837,202 1.66
President Prime Spin, Inc. / LBL Prime Properties,
Inc.
Consolidated changes in the ACGR for 2015 34
Filemon T. Berba Jr.,
200,002 None 0.00
Independent Director
Cesar B. Bautista, Audit
Committee Chairman & 2 None 0.00
Independent Director
Alvin D. Lao, Executive
19,673,498 - Allvee United,
Vice-President, Chief
6,598,000 Inc./Jadana, Inc./ Prime Spin, Inc./ 0.36
Financial Officer, &
Smartworks Trading Co., Inc.
Compliance Officer
Dean A. Lao, Jr. –
2,413,769 – Smartworks Trading Co.,
Managing Director, 400,000 0.04
Inc./ Hansevian, Inc.
Chemrez Technologies
100,004,428 – Smartworks Trading
Lester A. Lao, Managing
200,000 Co., Inc./ Hansevian, Inc./Prime Spin, 1.40
Director, FIC and DLPC
Inc.
14,530,569 – Allvee United, Inc./
Vincent D. Lao, Managing
760,000 Smartworks Trading Co., Inc./ 0.21
Director, Oleo-Fats, Inc.
Hansevian, Inc.
Arthur R. Ponsaran,
1 none 0.00
Corporate Secretary

TOTAL 323,361,215 350,542,972 9.43

2) Does the Annual Report disclose the following:

Key risks Yes


Corporate objectives Yes
Financial performance indicators Yes
Non-financial performance indicators Yes

Dividend policy Yes

Details of whistle-blowing policy No

Biographical details (at least age, qualifications, date of first appointment, relevant experience, and any other
Yes
directorships of listed companies) of directors/commissioners

Training and/or continuing education programme attended by each director/commissioner Yes

Number of board of directors/commissioners meetings held during the year No

Attendance details of each director/commissioner in respect of meetings held No

Details of remuneration of the CEO and each member of the board of directors/commissioners Yes

Should the Annual Report not disclose any of the above, please indicate the reason for the non-
disclosure.

The information is disclosed in separate documents. The whistle-blowing policy may be found in the Code
of Business Policies as reported in this ACGR. The number of BOD meetings and attendance of the
directors may be verified in the Advisement Letters submitted to the SEC and disclosed to the PSE.

3) External Auditor’s fee

Name of auditor Audit Fee Non-audit Fee


Isla Lipana & Co (formerly Joaquin Cunanan & Co.) P5,319,022 none

Consolidated changes in the ACGR for 2015 35


4) Medium of Communication

List down the mode/s of communication that the company is using for disseminating information.

 Company disclosures filed with SEC and PSE


 Print (e.g. broadsheets, brochures)
 Written notices
 Corporate website/s
 Briefing sessions for analysts and the media

5) Date of release of audited financial report: February 25, 2015

6) Company Website

Does the company have a website disclosing up-to-date information about the following?

Business operations Yes

Financial statements/reports (current and prior years) Yes

Materials provided in briefings to analysts and media Yes

Shareholding structure Yes

Group corporate structure Yes

Downloadable annual report Yes

Notice of AGM and/or EGM Yes

Company’s constitution (company’s by-laws, memorandum and articles of association) Yes

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

The Company intends to make the above-mentioned items available to the public through the
Company website. As of date, the Company is in the process of uploading the above-mentioned items. In
the meantime, the same may be accessed through the SEC and PSE.

7) Disclosure of RPT

RPT Relationship Nature Value


Details of the Related Party Transaction are discussed under Notes 1 (General Corporate Information)
and 19 (Related Party Transaction) of the Notes to the Consolidated Financial Statements of the Company
(attached herewith as Annex 1). There were no transactions with directors, officers or any principal
stockholders (owning at least 10% of the total outstanding shares of the Company) that are not in the
ordinary course of business of the Company.

When RPTs are involved, what processes are in place to address them in the manner that will safeguard the
interest of the company and in particular of its minority shareholders and other stakeholders?

Any Related Party Transaction shall be reported to the Audit Committee, which shall review the material facts
of all Related Party Transactions and either approve, disapprove or ratify such transactions. The Audit Committee
shall report all Related Party Transactions to the Board of Directors. All significant Related Party Transactions shall
be disclosed in the Financial Statements and Annual Report to the stockholders.

J. RIGHTS OF STOCKHOLDERS

1) Right to participate effectively in and vote in Annual/Special Stockholders’ Meetings

(a) Quorum
Consolidated changes in the ACGR for 2015 36
Give details on the quorum required to convene the Annual/Special Stockholders’ Meeting as set forth in its
By-laws.

Quorum Required majority of the subscribed capital stock

(b) System Used to Approve Corporate Acts

Explain the system used to approve corporate acts.

System Used balloting


In all items for approval except election of directors, each stockholder
shall be entitled to one vote for each share of the capital stock held by the
stockholder, in person or by proxy. In case of election of directors, each
stockholder may vote such number of shares for as many persons as there
are directors to be elected or he may cumulate said shares and give one
nominee as many votes as the number of directors to be elected multiplied
by the number of his shares equal, or he may distribute them on the same
principle among as many nominees as he shall see fit, provided that the
whole number of votes cast by him shall not exceed the number of shares
owned by him multiplied by the whole number of directors to be elected.

Description The vote at the elections of Directors shall be by stock vote and by
ballot unless by unanimous vote of all the stockholders present in person or
by proxy, the said stockholders shall, by resolution, agree to a viva voce vote.
Upon demand of stockholders entitled to cast twenty percent (20%) of the
votes present in person or by proxy, the vote on any other question shall
likewise be a stock vote and by ballot. Each ballot shall state the name of the
stockholder acting and the number of shares owned by him and, in addition,
if such ballots be cast by proxy, it shall also state the name of such proxy.
With these exceptions, and the further exception of any question the manner
of deciding which is specially regulated by statute, all voting shall be viva
voce and all questions shall be determined by majority vote in interest of the
stockholders present in person or by proxy.

(c) Stockholders’ Rights

List any Stockholders’ Rights concerning Annual/Special Stockholders’ Meeting that differ from those laid
down in the Corporation Code.

Stockholders’ Rights under Stockholders’ Rights not in


The Corporation Code The Corporation Code
 Right to vote on all matters that require their
consent or approval;
 Right to inspect corporate books and records;
 Right to information; none
 Right to dividends;
 Appraisal right; and
 Right to appoint a proxy
Dividends

Declaration Date Record Date Payment Date


June 27, 2012 June 27, 2012 June 29, 2012
August 28, 2012 September 3, 2012 September 3, 2012
September 6, 2012
June 24, 2013 July 24, 2013 August 19, 2013
June 2, 2014 June 18, 2014 June 30, 2014

Consolidated changes in the ACGR for 2015 37


June 8, 2015 June 30, 2015 - cash July 8, 2015
August 20, 2015 - stock September 17, 2015

(d) Stockholders’ Participation

1. State, if any, the measures adopted to promote stockholder participation in the Annual/Special
Stockholders’ Meeting, including the procedure on how stockholders and other parties interested may
communicate directly with the Chairman of the Board, individual directors or board committees. Include
in the discussion the steps the Board has taken to solicit and understand the views of the stockholders as
well as procedures for putting forward proposals at stockholders’ meetings.

2. Measures Adopted 3. Communication Procedure


Submission of questions or comments in After all agenda items have been considered, the
the open forum Presiding Officer invites shareholders to bring
forward any additional matters, issues, or concerns
that they might wish to discuss.

4. State the company policy of asking shareholders to actively participate in corporate decisions regarding:
a. Amendments to the company's constitution
b. Authorization of additional shares
c. Transfer of all or substantially all assets, which in effect results in the sale of the company

As a matter of law and policy, the corporate decisions on the foregoing matter shall be submitted to
a vote of the stockholders in a meeting specifically called for the purpose and shall require the ratification
of 2/3 of the subscribed capital stock.

5. Does the company observe a minimum of 21 business days for giving out of notices to the AGM where
items to be resolved by shareholders are taken up?

No. But as matter of policy, AGM notices are given out at least 15 business days prior to the meeting.

a. Date of sending out notices: May 15, 2015

b. Date of the Annual/Special Stockholders’ Meeting: June 8, 2015

6. State, if any, questions and answers during the Annual/Special Stockholders’ Meeting.

There were no questions raised during the Annual Stockholders’ Meeting

7. Result of Annual/Special Stockholders’ Meeting’s Resolutions

8. Resolution 9. Approving 10. Dissenting 11. Abstaining


a) Approval of the minutes of the annual Majority of
stockholders' meeting held on June 2, 2014 stockholders in
b) Approval of the 2014 Annual Report and the attendance in
Audited Financial Statements of the Corporation as person or by
of December 31, 2014 included in the Annual Report proxy
c) Approval, ratification and confirmation of all acts
of the Board of Directors and Management from the
date of the last annual stockholders’ meeting held on
June 2, 2014 to date as well as the contracts and
transactions entered into by the Corporation for the
same period, all as reflected in the minutes of the
meetings of the Board of Directors, the Annual
Report, and the Audited Financial Statements as of
December 31, 2014.
d) Appointment of the accounting firm of Isla Lipana
& Co. as the Corporation's external auditors for the
year 2015-2016.
Consolidated changes in the ACGR for 2015 38
e) Election of the following Directors of the
Corporation to serve as such until their successors
shall have been elected and qualified:
 Mr. Dean L. Lao
 Mr. Leon L. Lao
 Mr. Yin Yong L. Lao
 Mr. John L. Lao
 Mr. Alex A. Lao
 Amb. Cesar B. Bautista
 Mr. Filemon T. Berba, Jr.

12. Date of publishing of the result of the votes taken during the most recent AGM for all resolutions:

Results of the AGM are not published as of date.

(e) Modifications

State, if any, the modifications made in the Annual/Special Stockholders’ Meeting regulations during the most
recent year and the reason for such modification:

Modifications Reason for Modification

There were no modifications made in 2015.

(f) Stockholders’ Attendance

(i) Details of Attendance in the Annual/Special Stockholders’ Meeting Held:

Names of Board Voting


% of SH Total % of
Type of members / Officers Date of Procedure (by % of SH
Attending SH
Meeting present Meeting poll, show of in Proxy
hands, etc.) in Person attendance
-Mr. Dean L. Lao 6-8-15 By poll 4.46% 79.83% 84.29%
-Mr. Leon L. Lao
-Mr. Yin Yong L.
Lao
-Mr. John L. Lao
Annual -Amb. Cesar B.
Bautista
-Mr. Filemon T.
Berba, Jr.
-Mr. Alvin D Lao -
CFO

(ii) Does the company appoint an independent party (inspectors) to count and/or validate the votes at the
ASM/SSMs?

No, the Corporate Secretary counts/validates votes. But if the need arises, the Board can designate
the external auditor to count/validate votes.
(iii) Do the company’s common shares carry one vote for one share? Yes.

If not, disclose and give reasons for any divergence to this standard. Where the company has more than one
class of shares, describe the voting rights attached to each class of shares. Not Applicable

(g) Proxy Voting Policies

State the policies followed by the company regarding proxy voting in the Annual/Special Stockholders’
Meeting.

Consolidated changes in the ACGR for 2015 39


Company’s Policies
In writing, dated and subscribed by the stockholder or of his
Execution and acceptance of proxies
duly authorized attorney
Notary Not required
Submission of Proxy 10 days before notice

Several Proxies As per SRC Rule 20-11.b.xiv


No proxy which is dated more than one year before the
Validity of Proxy
meeting at which it is offered shall be accepted.
Proxies executed abroad As per SRC Rule 20-11.b.xvii
Invalid proxies shall be set aside and cannot be entitled to
Invalidated Proxy
vote
A committee designated by the Board shall validate the
Validation of Proxy
proxies.
Violation of Proxy As may be provided by relevant laws and regulations

(h) Sending of Notices

State the company’s policies and procedure on the sending of notices of Annual/Special Stockholders’
Meeting.

Policies Procedure
Notice of regular or special meetings to the stockholders may be given in either one of the following
ways:

(a) By mailing to each stockholders not less than fifteen (15) days prior to the date set for
each meeting a notice written or printed advising him of the day, hour and place of the
meeting. In all cases where the registered address of the stockholder is outside the
territorial limits of the Philippines, notices shall be sent by airmail.

(b) By publication in a newspaper of general circulation published in Manila not less than
fifteen (15) days prior to the date set for the meeting, which advertisement shall state
the day, hour and place of the meeting. Provided, nevertheless, that in case the address
of a registered address of the stockholder is outside the territorial limits of the
Philippines, notices shall be sent by airmail not less that fifteen (15) days prior to the
date of the meeting shall be sent to said stockholder.

No failure or irregularity of notices of any regular or special meeting at which all the
stockholders are present or re-presented and voting without protest shall invalidate such
meeting or any proceeding thereat. No notice other than by verbal announcement need
be given of any adjourned meetings of stockholders.

(i) Definitive Information Statements and Management Report

Number of Stockholders entitled to receive


Definitive Information Statements and 37
Management Report and Other Materials
Date of Actual Distribution of Definitive
Information Statement and Management Report
May 15, 2015
and Other Materials held by market
participants/certain beneficial owners
Date of Actual Distribution of Definitive
Information Statement and Management Report May 15, 2015
and Other Materials held by stockholders
Consolidated changes in the ACGR for 2015 40
State whether CD format or hard copies were
Hard and soft copies
distributed
If yes, indicate whether requesting stockholders
Yes
were provided hard copies

(j) Does the Notice of Annual/Special Stockholders’ Meeting include the following:

Each resolution to be taken up deals with only one item. Yes

Profiles of directors (at least age, qualification, date of first appointment,


experience, and directorships in other listed companies) nominated for Yes
election/re-election.

The auditors to be appointed or re-appointed. Yes

An explanation of the dividend policy, if any dividend is to be declared. n/a

The amount payable for final dividends. n/a

Documents required for proxy vote. Yes

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

The amount payable for final dividends is usually not yet available on the date of the Notice as the matter of
dividends is usually decided by the Board in a meeting on the same day as the annual stockholders’ meeting,
immediately preceding the annual stockholders’ meeting.

2) Treatment of Minority Stockholders

(a) State the company’s policies with respect to the treatment of minority stockholders.

Policies Implementation
 Special stockholders’ meeting may be held at
the written request of the stockholders
representing a majority of the outstanding
The Board should give minority stockholders the
capital stock of the corporation.
right to propose the holding of meetings and the
 As matter of policy, after all agenda items
items for discussion in the agenda that relate
have been considered, the Presiding Officer
directly to the business of the corporation.
will invite shareholders to bring forward any
additional matters, issues, or concerns that
they might wish to discuss.

(b) Do minority stockholders have a right to nominate candidates for board of directors?

Yes, all nominations shall be submitted to the Company at least ten (10) calendar days before the date of the
meeting, addressed to the attention of the Corporate Secretary.

K. INVESTORS RELATIONS PROGRAM

1) Discuss the company’s external and internal communications policies and how frequently they are reviewed.
Disclose who reviews and approves major company announcements. Identify the committee with this
responsibility, if it has been assigned to a committee.

EXTERNAL COMMUNICATIONS

To minimize the risk that can be caused by improper and unauthorized external communications, communications with
the investment community and relevant stakeholders must be managed via the Investor Relations group. Other than

Consolidated changes in the ACGR for 2015 41


the Chairman, Chief Executive Officer, Chief Finance Officer, and the Investor Relations Officer, no other company
personnel may speak to the investment community for the Company without prior approval by the Chief Financial
Officer. Further, external communications, including company announcements, are approved by the Board of
Directors, the Chief Finance Officer, and relevant company executives.

The Company’s external communications policies are reviewed regularly by Investor Relations group.

INTERNAL COMMUNICATIONS

Directors, officers, employees, and business associates of the Company are prohibited from disclosing internal matters
or developments which related in any way to material, non-public information with any person not affiliated with the
Company (including, but not limited to, family members, relatives, and friends) except as required in the performance
of such individual duties and in accordance with this policy statements. This covers documents filed with the Securities
and Exchange Commission and the Philippine Stock Exchange, as well as communications between the Company and
analysts, investors, and general media. Further, discussion of material, non-public information online or in public or
quasi-public areas is forbidden.

The Company’s internal communications policies are reviewed regularly by Investor Relations group.

2) Describe the company’s investor relations program including its communications strategy to promote effective
communication with its stockholders, other stakeholders and the public in general. Disclose the contact details
(e.g. telephone, fax and email) of the officer responsible for investor relations.

Details
(1) Objectives Maintain open communications and credibility with stakeholders of the
company, which includes, but not limited to, the investment
community, employees, regulatory agencies, and general media and 2)
Manage stakeholders’ expectations relative to the company’s
performance and prospects
(2) Principles To achieve fair valuation for the company and to facilitate continued
access to capital in financial markets, the Investor Relations group
regularly communicates essential, accurate, and up-to-date information
with the investment community and other relevant stakeholders.
(3) Modes of Communications The Investor Relations department makes publicly available essential
investor information primarily through Philippine Stock Exchange
disclosures. These include annual and interim reports, company
announcements, and other relevant reports. Briefing sessions for
analysts and the media are also arranged at the time of announcing full
year results. At other times, inquiries of analysts and investors are
answered by phone or email, or at investor meetings.
(4) Investors Relations Officer Daryl Eunika Maloles
Tel: 635 0680 local 150; Fax: 635 0703;
Email: debmaloles@dnl.com.ph

3) What are the company’s rules and procedures governing the acquisition of corporate control in the capital
markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets?

As a matter of law and policy, corporate decisions on the foregoing matters shall be approved by a majority of
the Board of Directors and ratified by at least 2/3 of the subscribed capital stock at a meeting specifically called for
the purpose. The Board shall at all times fully disclose information on material dealings of the Company and cause
the filing of all required information for the interest of the shareholders.

Name of the independent party the board of directors of the company appointed to evaluate the fairness of the
transaction price. None.

L. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

Discuss any initiative undertaken or proposed to be undertaken by the company.

Consolidated changes in the ACGR for 2015 42


Initiative Beneficiary

Please see Annex 3.

M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL

Disclose the process followed and criteria used in assessing the annual performance of the board and its
committees, individual director, and the CEO/President.

Process Criteria
 Degree of fulfillment of the board’s
responsibilities
Accomplishment of Self-
 Quality of the board-management
Board of Directors Assessment
relationship
Questionnaire
Effectiveness of board processes and
meetings
Board Committees None None
 Competence
Accomplishment of Self-  Candor
Individual Directors Assessment  Attendance
Questionnaire  Preparedness
 Participation
CEO/President None None

N. INTERNAL BREACHES AND SANCTIONS

Discuss the internal policies on sanctions imposed for any violation or breach of the corporate governance manual
involving directors, officers, management and employees

Violations Sanctions
first minor violation reprimanded
second minor violation suspension, duration of which shall depend on the
gravity of the violation
third minor or first major violation removal from office or directorship

- signature page follows -

Consolidated changes in the ACGR for 2015 43


Pursuant to the requirement of the Securities and Exchange Commission, this updated Annual Corporate Governance
Report is signed on behalf of the registrant by the undersigned, thereunto duly authorized, in the City of Quezon on
__________________.

SIGNATURES

LEON L. LAO JOHN L. LAO


Chairman of the Board President

FILEMON T. BERBA, JR.


Independent Director Independent Director

ALVIN D. LAO
Compliance Officer

SUBSCRIBED AND SWORN to before me this ______________________ , affiant(s) exhibiting to me their


valid proof of identification, as follows:

Name Valid ID Issued on

Leon L. Lao Passport No. EB0366922 6/10/2010


John L. Lao
Filemon T. Berba, Jr. DL No. N11-60-007699 4/11/2012
Alvin D. Lao

Doc No.: ______;


Page No.: _____;
Book No.: _____;
Series of 2016.

Consolidated changes in the ACGR for 2015 44


t
ANNEX N' T N

D&L Industrics, Inc. a,rd Subsidia es

Notes to Consolid!ted tinancial StateneDts


As al DeceDiber 3r, 20'4 afd 2o13 aDd fof eadr of thc lhke veire ir rhe
!eriod eDded D.cc.$er 3r, 20r,l
(All .rinoutrts are shorLD itr Plilippire Peso, !nless orh$rlisf slared)

Note I - Gcneral ipfonnation

1.1 BusnressiDfonnation

D&LIndustries,Inf. (1he 'lafeDt CoDrp!r! of D&L ) was registercd wilh lhe Secu rjes ald
ExdraDge Connn issio tr (SllC) on JulI 27, 1971 pfirDa}ily Lo ca D O ! the business of bu\'iDg, sell i ns,
in!oftiDg, baItcriDg, dinrjbuting, exchangiDg. proccssi|9. ma|!facturiDg, producing compo ndsl
ded\.ati\es or chcDrical ,(ubstatrces !nd all kmds of Soods, rlarcs, Inarufactufes, such as bur roi li.rirrd
1o machines, pplics.Dd all kinds ofgoods, rvafes ard lroducts.nd gene.alll engage il and.ondu.r
aiI lonn ofnianulactunrB of mercartjle erterpuses.

Or,hrlv 2. 2012, the laEnl CompaDy s Boa.d of Directors IBODI ard slockhollers_ throrgh an
ameDdmenr ofthc Parcnt Co m!aD) t ,lriclcs ofincofporarion, fesolvcd ro.hange Lhe tuent
CoDipanys friftary pu.!ose $'hich is lo iDvcst ir. pufdrase or othemhe acq|ire aDd olrn, trold, rsc,
mo|tgagcj fledgej erdraDge, of othcN\'ise dlspose offeBonal propcrlj oi ant cor!oration. Thc Parerr
ConpaDy is ako e1)gaged to cadt on and condl|ct its|usiD€ss rhrough nn.y subsjdian .onrpanjes ol
naDageN. ofto crre. rntowofkiDg agrecmcDls Nilh other corporatiors i|ch iljng !rcridjD g its
subsidia cs corfofnle $rpport seniccs.

Otr Norembef 5. 2012 ard No\eDibef r6, 2or2. thf SIC aDd Phi]ilpiDf Sro.k ltrchange (tSE),
resfeclr.ely, approv.d the Prfent CoDrpanyt applicatjoD 1br drc nritiatpubtic offe rg. Thc prfeDt
Companr-. rltained its starrs otbelng ! "pullic comfarl))'oD DeceDrb$ r2, 2or2 wheD il tisrcrt its share
iD thc PlilippiDe Stock l.lxchaDge (PSl).

,\ a pnblic comtaD). it is coyered by lart I SecrioD ! A (i) or lhe Secu tics Regutation Codc {SRC)Rute
68. as ameDdcd on Octobef 20, 2C)r L and aLso colcred b) addirio!.1 requifeneDts undcr SRC Rulc 68,

4s at Decembor 31, :o1,+, thc Parent ConpaDy is 57 5% (2o13 - 55%) o$Ded aDd e nilrsidia.l ofJaoe,
IloldjDss.lrc.(JIII),1(].75%(20r3-13.15%)oi{Dedbrlocalnrdi'iduatsando.25%(2o13;.25%)
orvDed bv LBL Indushies,Inc.'l hr.enraiDDg 3r.5o% (2or3 31.6o%) ofihc shares ouisrandjni a(
publicl) beld.

The Parerrt Comlany\ ulti.rale Pa.eDt CoDpaDy is B!Dc. de O.o ftrNr, ofganizcd ard donicited nr ttrc
Philippires, $'ith a sroup ollocal indirtrluals as thc bcncficial o$!er.

As at Decembe.31, 20r4, the PafeDt Comparl hrs !i!entt,li\€ {25) sharchold.rs oslrlng one hundfcd
Goo) or nrore slrares each l2an 22t2ot2-r).
Thc farent CompaDl s rcgistered ofiice addrcss rhiclr is also its pfircif.rl ttaoe ofbusni.ss is
No.65CalleIrdustria,Bagurbaratr,QuezoDCit),IlctroNlmili.,\sarDc.cn €.3r, zo14. thc parcnl
conipan)'hls r67 rcsulafcnd.J..s (2oi3 - 165)

As rt DeccDrber ]Jr, 2014. thc.onsolidated fin^lcial st!tdnei,ts inclLrdc thc p!rcnt Conrpanv aDd ils
stbsidix.ies, Dalr.h, Iii|st in ColouN, Irr co.tor.r I ed. D&L follrrd .rrrt CotouN, tDc., A$o rack
IDdlLsr es, lDc., ard Okro lhts, INofto frtcd and CheDrfez TechonoloSjes, Inc.j aDd irs sr)bsidirn..
Che m rez. iN. Th c Pare r) t Compxn! ard ils s ubsilirries arc collc.r i\ eil referfcd r. h ffe as the ,croxp ,

{s ai D.c.'rb€r 3r, 2013, thc coirsol ated finan cial sl atemenrs iDclx(te rtre parent Conr!an).uDd its
n'bsi.li.rics, naniel)', Fifsl in ColouF, Incory.latcd (IICJ. D&L potljner rld Colous, trc. (DLpCIl.
,\ero Pack IDdustfies,IDc. {API) and Oleo Frts.lr.orpofated (OFr).

'fhe priDcital !ctjr ilies ofthe subsidjrdcs afe set our Dero\'.

2014 2011 20t2 nco oo ation


100% 100 100% Ph lpp nes F C was reg slered wrh the SEC on Nolember l7
1988 prmar y lo carry on the bus ness oiimponnq
expodrng manutaciurn9 and d strbutng al
(F C) who esale and rcla I clremical products cornpounds
denvalves or chem calsubslafces and genera y
engage in and conducl any fom olmafliacturng or
merca.r e eile|prses

As al December 31.201r FC s 67% owned bylhe


Parenl Conpafy 22% owned byJHl€nd'11% owned

On July 16 2012 lhe Parent Company s BOD


resoiled lo purchase lhe rema..g 33% equ ry fiom
other shareho de6 ior a cons derai on of P1'12 l
millon wh ch s equilaleft lo the fe r vatue oi FlCs
net assets rcqu red al June 30 20'l2lo obr! n '100%
owne.ship n F C Accord ng y there s no qai. or
oss, orgoodwi arisng from such acquston The
sha.e purchase agreemenl was s gned by lhe paries
and made effeclive on Juy 27 2012 As a resui FtC
beca.ie 100% owned by lhe Pare.l CompanV
effecl ve Ju y 27 20r2

On Oclober 30 2012 FCissuedaddtona 1935


m of shares amou.linq ro P']93 5 mi ion and was
ru y pa d by lhe Pa€nl Compafy on the sane date

As at December 31 2014and2013 FC sawhoty


owned slbsd ary oilhe Parent Company

100% 100 '100% Philpp nes AP was incoFoGled and reg stered w lh lhe SEC on
Seplember29 198S to engage rn the manufaclure or
aeroso packag ng materas. aeroso producrs chemca
dervalves and compounds and orher rehted pronucls

(2.)
Notc 18 - Other inconc. net

The conrpohents ofodrc| ircome (experscsl 10r lhe IeaN erd.d l)ecembef 3r corsisr of:

2414 2413 2012


18 424.t91 12107.302 12 629 760
16 430.T30 58.881 809 14.943 298
19 167.228 351 850 264.249
311.077 149 526 444 179
(Loss) ga n on disposa of
propeary pranl and equipnrenl t't i.111 122) 1 591 382 317 880 200
Foreign exchange oss net 22 t,4467 3971 (28 770 486) (9 06,1 575)
3.949 680 7 713 299 4 536 638
337 5917.19

rliscellaDcous jncone peLlaiN to lsbofntory and caiibration serrtces !rovidcd ro cl1srorners.

\ote 10 - Relatcd pa l trans.ctions and balances


Tbe Croup, ir thc ordirary couNe of business, has rraDsactions w:th retatcd parries. Signjficani rclated
party tr'a nsact ions iDch e the follownrg:

For the ueurs ended De.cnlber Jt:

2414 2413
(A) Uanagementseryiceiees The fee iorleclinica and
ro!rsics suppod sefurces
LBL nduslres lnc ranges irom 2% to 3% oi
10,109 656 9 765.522 I702.064
operai0ns. eNc ud n9
Oeo Fals ncorporaied nrercompany sa es an'l 188 52141A
EhftEs undet canmon entrcl ihose ior admin stral ve and
Cofsume.Care Producls nc execulve managemeft
suppon sery ces langes
t4 334,975 494 I432 609
10.400
F C Tanke6 Corp
fron 3 5% to 7% oigross 2.335 307 609 634 823
1,952
F C Uafter ng Co. hc
r.conie rom operat ons. 2 448 228 1 683.209 A12 a67
These are colecr bre on
Chemrez Technolog es nc damand bul not atefth€n
12 monihs irom rcporirng
113 508.788 106 054 065 s4 632.705
14t f76 954 129 855 699 l0t7l8ll8

G6J
2414 2413 2Q12
Lease refla a.e based on
connan entol
Ehtity unde. conlracts agreed by lhe
ConsumerCareProd!cts nc 369 625 228.818
payable on demand b!1
not laterthan 12 monlhs

369.625 344.464 226 818

LBL nduslres nc. Lease renla are based on 119.171 079 103 025 305 81.485.265
cannan @ntrcl
Entities under confracls agreed by lhe
27,081475 25 A61 5AA 24.4A9.259
FIC Tanke6 Corp Payabeon demand bul
nol alerlhan 12 monlhs
21,136364 24.529 255 8.863.636
f/a ay Reso!rces nc 14 398 569 14,000 000 1 600.000

ChemrezTechnologes. nc
5 531122 5.898 006 10 244 AT8
t6- 325 209 169.314 066 126 682 238

Oeo-Fals ncorporated 930 557


Entities undet connon @ntrc|
FIC l\4arkeln9 Co nc negotialed wth re ated 134 289623 11A,445466 377,682 678
ConsumerCare Products Lnc. 109.555 802 €2 067 990 65 949 020
collecl ble on demand blt 23942 117 A47
[/a ay Resou.ces nc nol alerthan l2 monlhs 11 116 57 036
Hole Acrcpolis, nc. 7,098

ChehrezTechnooqies nc
r55 639.416 132.123 813 6€ 824146
3q9 565 729 t24812152 5t33€6401

Purchases oi goods are


Oleo Fats ncorporated negol ated wlih relaled - 3 165 931
Entities un.ler cannan cantol
FC Ma*elfg Co. nc. bas s These are payable 5.669 554 663.991
.on demand but nol ater
ConsumerCareProducls. l.c 3e1 725

Che.nrez Technolog es. fc


and slbsidary 36.491 805 46 073 529 60 604112
a2,54jAgt 16 o' 0 o^,a,^,a.a

G7)
2414 2413 2A12

135 412 342


Enlibl under cannon @nlral
Palmera Resources, nc 10,000 000
Advances are oblained for
wo* ng capitalpurposes
FIC Markellng Co. nc These are non inleresl 1 475,215
FIC Ta.kers Corp. oearng unsecureo oue 0n 500 000
Cons!rnerCareProd!crs nc demafd blt notlaterthan 500.000
LBL Induslries nc 12 monihs from reponing
30,000
Anonas LRT Propeny Dev I
69,867 1A6129

ChemrezTechnoogies lfc
120.000 000
M7TA55A 69.867 255,518 5 t1

Jade Fold ngs, nc 'r0 000 000


Entity under cohnan @ntrol Advances are obla ned lor
FC Ma*elrg Co, nc. working capita pulposes
10 066 820
These are non-lnteresl
ndo Resources,Inc 440,122
oearnq, unsecured. 0ueon
Consumer Care Products, hc. dernand butfol aterthan
FIC Tafke6 Corporal on 12 months from reporung 8 000.000

Chemrez Technolog es, nc.


anc suos 0 ary
13.000 000 341 213 000

21.000 000 351.213.000


(H) Purchase orcTl shares
folowing the tender ofer
Jade Hold ngs. nc 937 366180
Entity under cohnan @nlral
Co or Chem CorpoGt on 0utstafdifg shares of 546 796 938
cTl
444 163 118

(s8)
,Vet baldD.€s d.s ui Decerlber 3ri

Duclrom rclated pat Lies

2414 2013

Jadel Ho d ngs Co , lnc 6,585 954

A B DandE T 773 845


G 43 437.978
u nde I co nnon c antro I
Enliti e s
F C Market ng Conc 38 662.482 3 014.486
Pa mera Resources Inc 10 000.000
Cons!merCare Pfoducls .c 7 078.795
Ecozone Propert es Inc B 2 332,735
ndo Reso!rces, nc B a4Q 122 59400
B 7 993

ChemrezTechnoogies nc. and


sups d arv A. B. D and E -
116719.864

Dtie ta related parLi.s

Terms 20 t4 2413

LBL A B Dand E 4 668.391 1.607 607


- 357,699
Entities un.le. cannan cohtrcl
tvlalay Resources,Inc 9.233 103 14 000 000
'12.901 757 3 447 33A
Anonas LRT Properly De! t
- 69 867
381.725
27.184 916 19 482 511

OII i{.s an associate xDlilJult 2T, 2or2 and a subsidiarr trom JutI28. 2lrLs to Deccnrber 3r_ 2013
(Note 1.t.
CheDuez TechDologles and Chenrez llrc. we.e associ.rles until Ocrobcr 6, 2014 and arc strbsidia e!
lrom OctoberT.2or4 (Note 1.t.

lhe.e are no collaterals held or guaraDtecs jssrcd, e{cept as discloscd uDder srlretl' and corporate
guarotee agleements! \rith fespedro rclated pafLy transactiors and brlaDces.

Gel
1 9. 1 XIdnag eneit scrt i.e s
The Pr.elt CoDrtary has an existirrg Duragenrelrt rgreemeDtwjth irs f€lated partjes, b,hoeb) il
provides the followiig nraDagonent schices to .elated paftcs:

. TcctDicdl snlpoft, Nhich lDclLrdes research and derelopDlerr, quatiry coDtrot and ass!mice, !se of
tradcDra.ks, atrd IT felatcd seNicesj

. LoEistics support, which ilclude! transport,ll.ct rnaDagenent, narehoLrsiDg managernenr. tank hnn
maDagenent, pofi clen.ing and prccrrcmerrr

. AdniDish alive s ppoft, Irhjch iDcllLd es accou ntirr I a 0d fi n aDce, htrmar resou fces. i bnnatioi
technologi. prol)eftr DraragcmcDt, legrl senices. aDd rcsea.ch and ds elopmcDtr and

r Xxcculhe managemcDt, $hicl) itrdudes the sen'ices pefo.nred b1 tli. cxectrLives to managc rtrc
busiress of€fatioDs ofthe relatcd tarlies.

lhe ngreement feDrails in force, unless teuniDarcd byboth pirties

19.2 Lease 1arceh1en\

D&L hldustt ies, lt1c. (DLI)

DLI has existing caDccll,rble opefatiDglease agrccnrents rvirh LBL In dustlies. I nc. (LBL), a shalchoroer,
whcrcbl lhe Gfou! leascs fronr l,BLits factoryand lra.ehouse slaces. The lense is fora leriod ofltve
years narti'r g J uh r- 2oo8 and I ene$able fof aDoth er Ii\ e
teaF thercafter, u rtess te Drnrai.d b). ei rher

alea- [ats, In orporcted (oFI )


orl'rF\rio...- "r :, p r-.8- "...rn . v i tr I 6 .. n"r r..rrr" .rr,or .o t.o
c!\elrng11\dcto.)Jrdtra,erorses!.'re!.fheeascrursfo.apedodofoDet.€araDd.en.{rbt.cre,}
..FJ ' d,i"|.,,|d..|.Ii|J,a .rt- t.-l
OEI I a\ criniDg car celhble olrcj3trng lpJse J8r.ejnent $,ith FIC trnkeN Corpo.arioD
{FtCTl, e!tit_"
uddcr,onrrronc.'tr!l tor thcr.e!l rhe htrcrs storage raDks. Tne agrccrr)e;t Enains iD forcexucss
t€DniDated ly the !.rries.
OFI has erlstiDg canccllable operatnrg lcase agreenieDrs with Cbenrez Tcch notosies, Inc. (CTr), entj\
uDder connroD coDtrol, fof the lse ofthc 1a!1efs variorLs machineries and equipment and storrge tanls
lor a period of5 years uDlil Decembef 31, 2012. This coDtracr iLss lenniDated efii.tile JanuaD. i, 2ur3

OfI b.rs a caDcellablc opefatiDg lease agrcemcnt wlth llalal Resourccs, ltrc. (NIRI), eDtirt urder
common conhrrl, ilhef€bt tIe Companyleascs IIRI s plaDl aDd warehorsc faciliL ies. The coDtracl is
effectire from,Ianlat r. 2or3 to Decemtrcr 3r, 20r3, reneirable anmalty.
Fit.st hl Calau s, hlcaryatuted (nC)

FIC has€Dter.d irto caDcellable opefatilg lcase agreemeDt with LBL, a shar€holder, rLhcrcb) FIC leases
c€ftaiD lactort a nd warehoN e spaccs. Th e lease ru ns for a pc odofonelearardrcnc$abteevery)rar
lhe.ealief, unless ternmated |y citler party.In lebNary 20r2j lhjs agreerncDr \!as lenniDaied.
Or.luly r, 2oo7.IIC eDlcrcd jrLo a cancellable ieasc agfeenreDt with aTr. an entirt uder conrmor
coDbol, rvherebrFIC lcases ceftalD produclioD ard warehouse spac.. the tease runs for a fe.jod offiye
)eaNstafti'rgfionJui\'r,2oo7loJLlne3o,2o12.]lorrlhlrreDt.lissubjcctroanescatationof5%
a t n ual\' startiDs otr the second year of lhc lease term Thc lcase rS.eemelr sas exrended up toOctobel
3r, 2012 and rcDcNed for arother nlc {5) )ears.

i€fo Pock Indrct tes, 1n c. ('1"11

i\PI has cristlnE rarious.anccllable opefaliDg lease agrecnrenrs \virh LBL, e slrarchotder. i{herebl,\lI
leascs cefl air faciorl' and warcho use s paces. The lease ruDs for a pe.iod of ilve ) ea$ st&ring xray , ,
2oo7 u! to A!.il3o,2lrL2 and subject to aD escalation oliive perceDt aDnully.Dd cu illhtivell
slarting on ilie sccoDd reaf ofthe lease tenn. The lcase agreenerrtrvas exteDded up to Octole.3r,
2o12. OD Octobct Jrj zcJ12, the lease agfeement $'as rc e$ed tof.rDother file years with no significanr
changes lo the prelious agrccDi.rt.

1he miDinun futrrre lerLal connnihnents oD the abo!e lenses as at Decembef 31arc as follow:

2014 201l
Nat laler than 1 year 5 883 990 5 650 498
Later than 1 year bui noi aterth€n 5 yearc 11 681 622 1/ 568.612
11 564 612 23,219114

D&I Po?Vrl.r dn.l Co?our,Inc. (DLPCt)

O. October 1, 20()9, I)LPCI entercd inlo I non-canc.llabte operatnig tcase iereement wiltr Ecozone
Pfoperties.IN. (EPi). aD eDtitl rnd$
conrnroD conh.ol, fo\e.ing ttrc lcase oaits marllacturiDg
warehouse 1br a lcrjod oflive ycaN r1p lo October r. 2014, $ittr feDcwnt oprions.

On,IaDuarv 1, 2o1o, DI.PCI entefed nrro anothef nor cancettabte otcr!Ling tease agrcenerr i,iih EpI,
coverils the lease ofits sa.ehouse for a p$iod offire ]cafs Ip to J;mLary j, 2015, ilrtb lereilat ophols

Tlte minimu.r [uLure rortal connn itmeDts oD tli. sbo\e ]ease ofDlp(jr ar Deconbcr 3r a.e as folo$s:

2414 2013
28 080 979 23 896.075
Laler than 1 veaf bLri not laler than 5 veqrs 12T 484155
155 165 r34 23.896 075

'rhe Group prolides cash advaDces to its related paties, lor norking capirai r.qrirenrents, which arc
!nsecured, loD irtuest bearins, duc on d€nrnnd,bur not latcr thar h{elve molths ftoD repor-rilg date.

(6t
19.1 9oet! agrcenent

The PaEnt Conpatry, its subsidiarics oraDrcly, FIC, DLPCI, AlI, and OFI) aid entiries undercoDm,o,,
control (namel)' CCPI aDd !lCNl) have an existiDg agrcemcDt to provide slfery for thc obligirioDs ard
iDdcbtedDess iDcurfed or rDay be i r)cr ned br all aibr.nr. r tion ed relared pafties fron sh ort le Dn credii
acconnnodatioD erLeDded by alocalbank. Ar al Decenrber 31,2014 and 20r3, rlre compaDyand irs
related psdies h.lre Dot incurfed.rv obliAation aDd ildebtedDoss rclarel ro this agreemenl (Note 3.51.

1 9,5 Caryorate gucn anLee agreenletlt

The Parent CoDrpaDy, its subsidiafjes 0iamcl], FlC, DLPCI,,\PI, OFI aDd CHI) ard eDtirynDder
coNnoD coDtrol (Iamcl], llcxl), ha\.e aD existiDg agrccncDt 10 issue corporate guaranrccs in favo. ofa
forcigD barrk to u!condilionally gurraDtee ll)e obligrtioDS olall atbrcnrcD!io.ed rclated pafties flor.-
shoft terDi crcdil acconuodatioD extended b,v a foreisn b!nk.,{s at Decemjrcr 31j 2or4 and 2013, the
PareDt CompaDI aDd ils rclated laties hare not iDcuucd xry obli8ations nnd i,rdebtedness relatcd to
this agreemeDt (Notc a 5).

19.6 Ke,! ntolagettenL c.rnlpelts.nion

KeI DraDagcDent conrpensation fof tlie )e0s cndcd Decernber 3r coDsist of:

2A14 2413 2412


Key managemenl codpensal of 70.190 26'l 68,013,908 59,565 277
covering salar es andwages and 10.101060 8702412 6.32't 794
othershonlerm beneits are
determined based on contract of 9,574 244 8 5'12 848 7.75a a94
emPLoymenl and payab e n
accordance wilh the companys
PayroL pe.od These were iu ly
paid al reporlng daie Relrernent
benefts are delermlned and
PayabLe n accordance wlh po icies
dlscosed in Noles 2 22 and 20.
89 865.565 e5 229 224 73.637165

The Grou! has not prolidcd sl)a.e,based la)rncDrs, rennination bcDe til s or othef long tern beDefirs,
otherthar llie fetirement benelits, to its kel managemeDr eDrployces fof rhe yeafs endcd December rr,
2014. 2013 ard !o12.

Ar at Decenber 3r, 2014, adrances to officeN amox.riirg ro P1o,659,53i (2orJ - p,+,997,29t rcpreserl
loans granted to officcrs arrd emplolees. As at Decernber 3 r. 2014 rdrances from oiticers amounril8 !o
P496.35: (2o13 - 1570,896) felresent fennbufseDrcDt olenrplolees relared ro transpoftdtion aDd ortrcr
expeDses. These .rc unsecur€d ind Don-iDtefen bcaring adyaDces and expccrcd ro be s€ttled in cash
rvithiLr the nexl h{che nroIltls lroni reporting datc.

Olher rclated pa$ lraDsacliors also iLldude conhibntiotrs to, benefih paid ard invesrne|r ir shares of
slock oflisted eDtities uDdcf cotrrhor coDtrcl bythe rctircnenl ftrnd (Note 2lr).
ANNEX " a ,,

ill.uch 20. l0l5

S.c filjcs rnd l:\ch,irrlic ( onrrissiolr


SJIC ll!1lding. lll)SA corncl
(l(rgl1! lvcDrLc. iU0ldrluvonq Cit!

s:'rvf I[1[tiT ot' ]ti\I.\(;


E iv !\.1. Rt.ispoi-s I Bt Ll t]
roR FIN.\NCt,\L STAl'E}TENl'S
'Jhcnmagenrent
of D& l.lnclusuics. 1nr. ir rsfnrsible iirr lhe lfcpafation 0nd ilir prr:scnLrLi,.rr
of $e consolidlted llnancial slatc cnls lif lh. ycrrJ gndccl l)ccembcr ll. 2014 and l0l-j and.
includilg rhc xddi!ionrll conrfoncnrs alachcd rhctcin. r'r alcor.iauro! \\!th rhe p.cscrlbcd linuroilrl
f.ponins lianrc\\ol.l indjclted thcfcin. Ihls respoDsibiljr\ inclutles dcsigning anrl irnplcnr.nling
lnlarnal conl[ois f('lc'.nt to thc ]rrcnrr:rliorl lnd liir pfescnlrlroI ol collsolidat.d finanrirl
stalcnronls Llrni xrc ficc lionr Inul,irirl rnisslalerllcnl. \\hcthcf drlc l(' llrud or ur11)r'. s.lccti]lg and
appl) iug npproDfiilc accout)ting polirj!s. ]nlllir! eccouutin! cstiitat.s thrl 1rrc fcasonitblc jt)
llrc'eirculnslanccs 'l|l
'lh. llou ol l)ircclors aerie\s lnd ilfprc\cs rh! consoliclotcd finrncial slnlcnre $ rmd s!rb*il\
drc scnte lt1 lhe slock]lolalafr.

lsla l-ipnna & ( o.. a 11s66g1 llln of tltc \\'orldwiclc l,riccwrtalhouseCoppefs OfganiruLion. thc
lrrritpcndfrr aLrdir.rs.:rppointctl br rhc stockhortler': has crlmincd thc corsolidalcd financi.l
srarfnrrrtli ol rllc Colifrrl in i]ccordancc Nilh phillppinc Strrrdards on AuLliting. antl ilt itr
rcporl lo ll)e stockholdcrs. hrs cxp|cssed its oplllion o11 thc lninless o1. prcscntation ufon
conrplctior of such cranination

l.eL)| l- I_i!!r-
( h irrnii ol lhc Boafd

JoIn 1.. l-ao

('hicl I inrfcc ( )lllccf

D&L INDU5'IRJE5, I\C.


6iCdlle li(l!\rrix lhgurrh!) (lorari (llr1: llllr Phil,f'iirrs
16rliii.r.'0.r0 (,rrl6ri.r):0\ ini!rrri:or.fl rhldirlinr
:L |]\( l{JBl t).\\t) S\\ oli\ Lti Lr(l:,rr Ir, r rii
.rr i.j iis.\|riritiri! 1!, Irf llr!ir i,r\\,Lil! rirtl :)r \.r . I i..|.r

\rr(:l) I \r .jr ,,rr r,.rr..ri l$Lr,|L.l

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il
ANNEX " 3 tt

D&L GROUP OF COMPANIES


ACCOMPLISHED/ON-GOING PROJECTS/PROGRAMS
FOR 2015

PROJECTS
ACCOMPLTSHE_p- (A)
_ Project OfficeFin.Charge_ ldaress L_ proiect
!;cat or/padrer
EOUCATIONAL ASS]STANCE/ SCHOLARSHIP PROGRA
1 LFI CFF Co ege valla LT 9tna E vfay bJ n0u5ra 5r
Scho arsh p Projecl Bag, .]odrd. 0.ezo' C ,. Cla ity Fisr Foundation. trc.

2 LFI'Don Bosco TechVoc lMar a Cisllfa E Vray 65Industr a St. Don Bosco PIJGAD FoundaUon
EducationalAss stance Bagumbayan, Quezon C ty
Pfoect
3. LF -Dua Tech Techvoc ['1ar a Crstina E Viray 65 nduslrla St DualTech Training Center Foundalion
Educatona Assslance Bagumbayaf , QLrezon City

2 LF -D&L Edrcallona l\'laria Crst na E. Viray 65 ndustria St D&L lndustries


Assslafce Prolect EagLrrnbayan OLezon
2 LF-PSHSFIHgh Schoo l\4aia Crslna E. V fay 65 ndusfa St Philippine Science High Schoo
Educalona Assistance Bag!rnbayan ouezon C ly Foundation, nc,
Proiecl
2 LF MLBI'IFlSpecia [4aria Crslna E. V ray 65 ndusfa St. lllaria Lena Buhay lvlemofial Foundation,
Educalon Educaiona Bagumbayan Quezon Cly lnc,

EDUCATIONAL SPONSORSH PROGRAIlI


1 Bagurnbayan E emenlary lllara Crislna E V ray 65 hdrstra 51. Bagumbayan Elementary School
Schoo Educatona BagLrnrbayan Quezon C ty
Sponsorsh o Pro ect
2 LF 'B NH Efgish Lileracy Llar a Crstina E Viray 65 nduslra St BINHI English Literacy Foundation
Bagumbayaf . Quezon City Bagumbayan E ementary Schoo 0C
L bs Elemenlary Schoo. QC
T Eafnshaw Elemeflary Schoo [4an aCty
San Ramon E ementafy Schoo Laguna
Brgy.898 Sta Ana, Mai la Day Care Center
Brgy.894 Sta Ana [/]anila Day Care Cenler

TEACHERSWELFARE PROGRAM
1 LF -PCF Teaclre6 Sa ary l\4afla Cr st na E. V ray 65 ndust a St Philippine Christian Foundation, Inc.
PToect Baqurnbayan, 0!ezof City
2 Eveyn Lee Lao Teachen N'la a Crslna E. Vray 65 ndustra St GCHS Project BLESS Foundation, Inc.
Baqumbavan ouezon C lv
EDUCATIONAL EXCELLENCE AWARDS PROGRAIM
LaoBohLmEducationa l\r1ar a Crislna E Vray 65 hd!stra Sl. D&L Group of Compan es
Exce lence Awafds Baqurnbayan Quezon C
COI!'I]VUNIIY OUTREACH PROGRAI,I
1. Sagip Buhay Prcject -[4araCrstrnaE Viray 65 nduslrla Sl Philippine General Hospital
Bloodletlnq Acl\' tv Baqumbavaf. Quezon Ci
2 Pamaskong Handog l,4ar a Crst na E. Viray 65 nd!slria St Bagumbayan Elenentary School
Baournbavan O!ezon Ci
3 LF'D&LHRD NHFPI Lunas It4aria Cfslna E V ray 65 ndustra St D&L Industries HRD
Trad syonal gagumbayan Quezon C ty Nat!ral Health Fo!ndation of the
Philippines,lnc.
ON-GOING (O
EDUCAT ONAL ASS]STANCE/] JCHOLARSH P PROGRAI
1 LF-CFF Colege [4ar a Cristina E V]ray 65Industra Sl
Scholafslrip Prolect Bagunrbayan Quezon C ty Charity First Foundation, Inc

2 LF -Don Bosco Techvoc l,4arla Crst na E Viray 65 ndlslria Sl Don Bosco PIJGAD Foundatlon
Educalona Asslslance Bagumbayan, Quezon C ty
Proiecl
3 LFfDuallech Techvoc l,'la a Cr sl na E V ray 65 nduslia St DualTech Training Center Foundation
Educalona Assistance Bagumbayan, Quezon Clty
Proiecl
2 LFfD&L Educatiofa ['ladaCrslnaE Vray 65 ndLrslia St D&L lndustries
EagLrrnbayan, QLrezof Cily
2. LFIPSHSF H gh Schoo Mara Cfstra E V ray 65 ndustra St Philippine Science Hlgh School
EducatiofalAssstance Bagumbayan ou€zon Cly Foundation,Inc.

2. LF -N4LBl,4F Spec al lvlar a Crist/na E \, ray 65l/rd!stra St. ll4aria Lena Buhay Memorial Foundation,
Educaton Educatiofal Bag!nrbayan Quezon C ty lnc,
Assistance Proiecl
EDUCATIONAL SPONSORSHIP PROGRA|vl
1 BagLrnrbayan E enrentary [4afa Crstna E Viray 65 ndLrslra Sl Bagumbayan Elemenlary School
Schoo Educational Bagumbaya|, Quezon C ty
Sponsorsh D PToiecl
2 LFI I NH Eng sh Lteracy l,4aia Cr st na E. V ray 65 nduslria St BINHI Engllsh Lilelacy Foundation
Projecl Bagumbayan, Quezon Cily Bagumbayan E ementary Schoo QC
Lbs Eementary School, QC
T. Earnshaw Eernentary Schoo, Llan la Cjty
San Ranroi Elemenlary School, Laguna
Bfgy 898 Sla Ana,lManila Day Carc Center
Bfqy 894 Sla Aia [4ania Dav Care Cenl€r
TEACHERS WELFARE PROGRA]V
1 Lf P0l- eachers Saiary MaraC srnr E Vray 65 ndust a Sl. Philippine Christian Foundation, Inc.
Proiecl Bagunrbayan Quezon Cty
2. Evelyn Lee Lao Teachers llar a Cistina E Vray 65lidustra Sl. GCHS Project BLESS Foundation, Inc.
Welfale Proiect Baounrbayan Quezon Cty
EDUCATIONAL EXCELLENCE AWARDS PROGRA]V
Lao Boh Lim Edrcatonal l,4aria Crst na E. Viray 65 nduslia St D&L Group of Cornpai €s
Exce ence Awards Bagurnbayan, QLrezon City
ANNEX " Q.[,

5 Annual Physical Examination (APE)


Profile Report

D&L Group of Companies

Actual Na. and Data

Cons!ltants
CLASSIFICATION

20'l5 APE 2015


100%
Dvslipidemia/ Elevated LDL 334 CLASS A c
Overweioht Phys ca t it bli wti mlnor a rnents cuGbe !!th n

with ECG F ndlnqs 158


CLASS B shod per od oit me ihat ir ncl afie.l.npoy€es 2A 21ti

Error of Refraction 127 fr'lh..n sabing cc.alnns and ab.ralor!


o

Pre - Hvpenens on 124 mlsr be ccnrrc ed & ma nta ned


inC ngs lhat
CLASS C 349
q medcal.n reguar nec':da b of4p s
08 03%
Low HDL Level 98
Hypertension Staqe 1 73 PEND]NG 60
Hypertens on Staqe 2 59
HVperuricemia 56
Diabetes / Elevated Glucose Le\ 54
ANNEX 86.{l:B*r'

D&L GROUP OF COMPANIES SAFETY COMMITTEE SUMMARY REPORT FOR YEAR 2015

1. Safety program accomplishment

' 100% implementation on the following strategy plan:


a. Hurnan Behavior towards safety
b. Learn from accident ( accident reporting)
c. Lead indicator (Safety audit)
d. Contractor safety
e. Tralning and education
f. Road transport safety
g. Fire safety and emergency preparedness
h. Lag indicator(Safety reporting)

2. Safety performance

D & LACCIDENT INDEX SUMMARY COMPARISON

2014 2015 Remarks

fotal Number of minor accident 13 Increased by 46%

rotal Disabling accident Increased by 87

I minor first aid injury) 8 15

Total Non disabling accident Feduced by 2006

( no lost time) 5

otal days lost 74 113 ncreased by 52%

Severity rate 26.2 ncreased by 12%

Frequency rate 2.5 3.4 ncreased by 360/"

Total D&[manhours ( ncreased by 18%


Estimated)

fotal number of employees 1552 ncreased by 15%

Prepared by: Romeo Tagarao


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Quezon ciS,

da$6 *iTv SECRETARY'S CERTIFICATE

I, KRISTINE ANN C. CATINDIC.ONG, Filipino, of lcgal age, and $,irh address at 65 Indushia St,
Bagumbayan, Quezon City, as the duly clccred Assistant Cofpofate Sccrctafy of D&L Indust es, lnc. [rhc
"Cofporation"l, do hefcby c€ftify that lhe following are rh€ changes/updatcs in rhe Corpora!ion,s Annual
Corporate Govefnance R€pof! covering rhc year 2015:

ACGR ltem Chanse


A.1.a - Composition ofthe Updated the nunber of yeafs seNcd as director of thc
Board
Shareholding in rhe Urdrl"d l" I ib. o J.fp.. JIo -o e..
Com cJoitrl stocl\ L,f all con.erned direc!L| s
As.a - Resignation/ Death/ Updated thc changes in thc composition of thc Board ol
Directors
C.2 A!!endanccofDirectofs updated the attcndance of rhe Dircctors
C.7 Change/s in Exisling Rcflccted the chr.ges in lli\ idend Po rcy
Policies
E.2.a ExecutiyeCommittee Updalcd inibmralion on the darc ofappoinhnent ofthe dircctors,
nr"be-o'r.ealir.",h.ld.ar."-d n.ecno. rgnut ".. - n. "
Connnillee ol the direcrofs [plcasc s€e attached Certificatc on
!he resLrlts ofthf ofcrnizatron-rl r.eetrn
E.2 b Audit Committee Updatcd inlbrmation on !he darc of appoinrment ot the dircctofs,
numberofnlcetings held, atlendancc and length ofservice in lhc
Commillee of the difeclors [please see attachcd Ceftificare on
lhe results ofthe orsanizational mcctin
E.2 c Nomination Comnittee Updated inlofmatjon on the da!e ofappoinrnlcnrot!he dtrectors,
nunrber ofnlectings held, altendancc and lengrh of sefvicc in rhc
Committee oi the dircctors (please see artached Ceftificate on
the results of !he orsanizational .leetin
E 2.d - Remunemtion Updated infofnation on the datc ofappointnen! of thc diredors,
Comnittcc numbcf ot m€etings held, attendance and length of service in tlle
Connnittee of the directo$ (plcase see attachod Certificare on
lfe r.sults ofdre o sariTnfiorLr Inee!i
L1.a - Holding 570 updated info nation on shafcholders holding 5% or rrofe and
sharcholdine of nlof€ shafrhirldings of dirL,Ltuis and oifrccfs
1.1.c - Stockholdefs' Rights Updated dividend infonnation (Pleasc scc attached Secretary's
Celtificate
.1.d to L1.i llEtated inlormation on the 2015 Annual Stockholders Meeti

IN WITNESS WHERIOF, I havc hefeunto ser my hand rhis dl Quczon C tr,


Philippines.

KRISTINE ANN C, CATINNIG-ONG


d4$ic {lfil'
SUBSCRIBED AND SWoRN TO BEFORE MI this
.4rP
,{lr!il
i : l,ii;""'"oratesecretar'
14, 2015 in Qrezon City, affianr €xhibired to e
her D ver's Licensc No Dl2-99 049415 exiiring on N4ay 11,2016.

rage No.14(
BookNa -AZ; TJA"PIA ]4 E. PAJIJLA
Series of 2016. ,,,t1:.'','t t\)i.)ia
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SECURITIES AND EXCHANGE COMMISSION


SECBU ding EDSA,Greenh ts Manda uyongciy Metrolrlan a ph tiDDines
_el:6r2
r
726.09 ) | ro l9F€\. 632 72b-52g3EE at s@s"c go\.ph

Barcode Page
The fo ov/ing document has been receiveo:
Receiving Officer/Encoder : Jojjt Licudne
Receiving Branch I SEC Head Offce
Receipt Date and Time : Ociober 27, 2A1E A3:22 A4 pM
Received From : He3d Office

Company Representatve
Doc Source

Company Informailon
SEC Reg slration No. 0000044852
Company Name D&L ]NDUSTR ES INC,
Induslry Classification
Company Type Stock Corporaiion

Document Information

Docunrent lD 110212A15A01391
Docunrent Type 17-C (FORI\,'| 1 1-C:CURRENT DISCL/RpT)
Documenl Code
Period Covefed October 26, 2015
No. of Days Late 0
Department CFD
Remarks
RECEIVTNG COPY

COVER SHEET

8 5 2

D & I N D S T R I E s N c

5l5t r N D T R T M N

o E z o N cll T

lBcies Adrrsss rc stred. rrrli i oro!i.er

ALVIN D, LAO 635-0680

I SEC Form 1?-c Dtvidend bohcy Amendhcnt I-


1 3 '|
|u ll __1

[Ft;Tl

To be acconplshed by SEC P€.sonne concemed


SECURITIES AND EXCIJANGE COMMISSION
SEC FORM 17.C
CURRENT REPORT UNDER SECTION 17 OF THE SECURITIES REGULATION CODE
AND SRL RUL[ I 7,I[c) THLRfUNDER

I Dale of Reporr:Ocrober 26.2015

2. SEC ldentification Numbei 44852

3. BIR Tax ldentificatjon No.r 000-421-957.000

4 Exac!namoofissucrasspeciiicdini!schaftcr. D&Llndnstries.tnc.

5. P.ovince, country or otherjurisdjction ofincoryofation: Merro Manita

a lndustly Classiiication Code

7. Address of principal office: 65 Industria SL, Bagunlbayan, Quezon City

PostalCode: 1110

8. lssuer's telephon€ number, includingarca coder (02) 63S-0680

o fo-mor_. mcor fornefddo." , , cnrng-d ) .]c. ,r |-epofr: no-l-a!!li!4-h!e


10. Securiries registered pursuant to Sections I and 12 of the SRC or Scctions 4 and I of thc RSA

Title ofEach Class


Common
Numbef of Shares of Common Stock Outstanding 7,742,857,990 as at Sept.30,201S
Amornt of Debt 0urstanding 4,493,417,60a as atSepr. 30,201S

11. lndicate the irem nLrmbefs reported hefcinl

Item No. 9 Amendment of Dividend policv

At the meeting ofthe Board ofDifectors ofD&L Industries,lnc,


[the.'Corporation,')
held today, 26 0ctober 2015, the Boafd, aFter fcviewing the Cofporation,slopefatrng
expenses, business plans, working capital requirements, cash flor,r, Dositlon ancl
capital expenditure requirer'l1ents, approved the amendment/revtsion of the
Corporation's dividend policy FROM declaring a divjdend payout rate of 25% of its
prior year's consolidated net income (based on the Resolution dated 02 october
2012) to be paid
out of from the Corporation s available unrestrictedietained earnines. The
Dividend Policy of rhe Corpordfion now read ds ollows:
"The Company shall declare at least t0%, of its pdor year,s
consolidated recurring net income as diVidends in favor oF the
stockholders of record date to be determined by the Board. The
dividends shall be payable out of the available unrestricted
retained earnings in cash, stock or property, or a combinatjon of
the three, as may be determined by the Board, and subject to
compliance with applicable laws, rules and regulations. The
dividends to be received by the stockholders shall be based on the
recommendation of the Board after considering factors such as
the Company's operating expenses, implementation of business
. plans, working capital requirements, cash flow posjtion and
capital expenditure requirements, among other factors."
[Emphasis supplied)
SIGNATURE

Pursuant to the requirements ot the Securjtics Regulation Cod€, th. issller has du]},
this repofl to be signed on its behalf
bJ, thc undersigred herounto duly authofired

INDUSTRIES,INC. October 26, 2 015


Issuer

EVP and c!0


08 June 2015

PHILIPPINE STOCK EXCHANGE


Listings and Disclosure Ctoup
i/F Phllippine Stock Exchange Plaza
Ayala Triangle, Ayala Avenue
Makati City

Atientron: MS, JANET A" ENCARNACION


Head. Disclosure Departnlenl

Gentlemenl

Please be advised that at the annual neeting of the stockholders of D&L lnduslries, Inc.
held at Wackwack Golf & Country Ciub, Mandaluyong City, Meto Manila on June g,
2015 at 8:30 a.tnt. the follo\\'jng matte$ n'erc taken up and actcd upon bv thc
Stockhoidefs irl thc manner indicaiedl

Ihc stockholclcrs elected the follo*,ing as rnenlbers o1.1he Boarcl crl Dj|cctors to scf\.e 1or
the term 2015-2016i

L Mf. Dean L. Lao


2. I4r'. Lcon L. Lao
3. Mr. Yin Yong I-. Lao
,1. N,lr. John L. Lro
5. Mr. Alex L. Lao
6. Anb. Cesar B. Balltisra lndependcnt Dircctof
7. lvlr. Filemon'1. Berba Jr. lndependcrt Dircctof

At the organizaliouaL meeLinp ol the nc*ly elected Directors l.ollor.vitig Lhe annual
stockholders' neetjng, the lollowing wete electcd Corporate Officersl

Chairt,tran Mr. Leon L. Lao


Chilirman Etneritus Mr. Dean L. Lao
Vice-Chairman Mr. Yin Yong I-. Lao
President and CEO Mr. John L. Lao
Exccutive Vicc-President \,{r. Alvin D. l,ao

D&L INDUSTRIES, INC.


6s Calle Indrstria, Bagumba)an, Quezon Citl', l1l0 Phililpines
i.;1632) 63s.0630 .l(632) 63s.0703 Einfo@dnl con ph jwrvw.dnl.con.ph
Treasurer/CFO Mr. Alvin D. Lao
CotTor?_e Secfcrdrr' \'r. Arl tr R. P\'1..". n
Asst. Corp. Sccretall \4s. Kristinc Ann C. Iatirrclig-Ong
Compllance Olllccf !1t. r\lr' in D. I.acr
Col'porate lnlifmation Officer V]s. Krislire Ann C. ('arindig Ong
And Cofporate Legal Counsel

Likewisc. the difectors appointed Nlanagin!: Difcctofs pufsurnt to the nt.Lnrging


agreements lletween the Corporirtion and its subsidiaries and appointncnt 10 these
posilions in senior managenlent \rcrc nade krlown and accepted by thc follor.ving:

Chemrez Technologies, Inc. - N4r. Dean A. Lao. Jr.

First in Colours, Incotporated and


D&L Polylner and Colou|s, Inc. - Mi. Lester A. Lao

Oleo-Fats, Incorporated Mr, Vincent D. Lao

At the same meeting the Board constituted the Execlltive Committee. the Audjt
Comnrittcc. rhc NontinaLiorr Comntilce. auLl thc Ilenurlefulion ( ot)rnjitlae lirt rnc tcrrl
2015-10 I 6. as follorvsr

E\ecuti\'a C0mmittee:

Chailman: N{r.DeanL Iao


N,lernbefs N4r. I-con L. Lao
Nfr. Yin Yong L. Lao
\4 r. John L. Lao
I{1. Ah,irr I-ao

,\udit Comrnittcc:

Chainnan Anrb. Cesar B. Baulista


Menbers: lvlr. filemon T. Belba. .h.
Mr. \'in Yo|rg L. Lao

Nominrtion Cornmirtcc:

Chainnan N1r. Leon I-. l.ao


Mcmbersr NIr. Jolu I-. I-ao
Mr. Filenlon l. Befba. Jr.
l{cmunemtion C0mmittcei

Chairnan N'h.Yin Yons L. Lao


Membcrs: L. Lao
N11. JrjhD
,\mb. Cesat B. Bautista

Thank )or.l.

\icn truly yours.

-A.ssjstant Corporate Secretary


REPUBLIC OF THE PH LIPPINES)
QUEZON CITY, METRO MANILA) S.S
rA$0 ClIl
SECRETARY'S CERTIFICATE

l, KRISTINE ANN C. CATINDIG-ONG. of lega age after havlng been du y sworn on


oath in accordancewth aw do hefeby depose and state that
1 lam the duly eected Assrstant Corpofate Secretary of D&L INOUSTRIES, lNC, a
corpofation duly organized and ex sting under and by virtue of the laws of the Phi ppines
with offceaddressat65 Industra St, Bagumbayan Quezon City;

2 At the Speclal Meeting of the Boafd of D rectors he d on June 8, 2015 at l\/tandaluyong


City, the folowing fesolutions were unanimously approved to wlt:

RESOLVED, as it s hereby resolved that D&L INDUSTR ES, tNC (ihe


Corporation ), through its Board of Directofs decare a reguar cash
dividend of Ffteen Centavos (Php0.15) per share to a I stockholders of
aecord as of June 30 2015 payab e on Ju y 8,2015 "

3. The foregoing fesoutons have not been amended nor fevoked and are therefore in ful
lorce and effect

S gned n Quezon City

KRISTINE ANN C, CATINDIG"ONG


PASIG Cl: l<s-corpo are sec ela-.'

suBSCRIBED AND SWORN TO BEFORE lllE tr.,G'ni, ri


^Dp f Z'dr'd n Quezon citv affranr
exhlbted to rne her Dfivefs Lcense No D12-99-049415 expifng on lvay .l1, 20i6.

aoc No /K
Paqe No -l/f
--7r-:,
Boak No
Series of2016.

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u ,\',./,, , .,r.tirl
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Bv t\, : U- zt"mi^
t
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REPUBLIC OF THE PHILIPPINES)
CITY OF PASIG )s.s.

CERTIFICATE

KNOW ALL IVEN BY THESE PRESENTS:

l, ARTHUR R, PONSARAN, Filipino, of legal age and with offic€ address at Unit
3104, 31/F Antel Global Corporate Center, No. 3 Dofia Julia Vargas Avenue, Ortigas
Center, Pasig City, having been duly sworn to in accordance wlth law, depose and say
as follows:

1. That I am the duly elected Corporate Secretary of D&L INDUSTRIES,


lNC, (the "Corporation'), a company duly organized and exlsting under
and by virtue of lhe laws of lhe Republic of the Philippines, wlth offlce
address at 65 Industria St., Bagumbayan, Quezon Cityi

2. That at the meeting of the Board Directors on ll May 2015, all the
directors were present and approved the declaration of 100% stock
dividends amounting to P3,571,428,995 equival€nt to 3,571,428,995
shares of common stock to be issued out of the increase in the authorized
capital stock of the Corporation payable to stockholders at a record date to
be set by the Securities and Exchange Commissign after approval of the
increase in the Corporation's capital stock, to wit:

'RESOLVED, as it is hereby resolved, lhat D&L


INDUSIRIES, lNC. (the "Corporation'), subject io
requlrements of applicable laws such as availabiljty of
unrestrlcted retained eamings and ratification of
stockholders, declare stock dividends, to be taken out from
the Corporation's unreslricted retained eafnings for the
period ended 3'1 March 2015, amountjng to Three Billion
Five Hundred Seventy One Million Four Hundred Twenty
Eight Thousand Nlne Hundred Ninety Five Pesos
(P3,571,428,995.00), to be issued out of the Corporation's
increase in aulhoriz€d capital stock and payable to the
existing stockholders at a record date to be set by the
Securities Exchange Commission after approval of the
increase in the Corporation's authorized capital stock.'
3. That in relation thereto, all the directors also apptoved the submission of
the necessary documents with the Securities Exchange Commission and
Philippine Stock Exchange, Inc. for the issuance and listing ot the stock
djvidends equivalenl to Three Billion Five Hundred Seventy One Million
Four Hundred Tweniy Eight Thousand Nine Hundred Ninety Five
(3,571 ,428,9S5.00) shares and for that purpose, the designatlon of
representatives and signatories, to wit:

'RESOLVED, as it is hereby resolved, that D&L


INDUSIRIES, lNC. (the "Corporation"), for purposes of
comp ying with law and the necessary and required
documentation of the Securitles Exchange Commission and
Philippine Stock Exchange, lnc. for the isquance and listing
of the stock dividends equivalent to Three Billion Five
Hundred Seventv One luillion Four Hundred Twenty Eight
Thousand Nine Hundred Ninety Five (3,571,428,995 00)
shares, the Presldent and Chief Execulive Ofilcer (CEO)'
Joho L. Lao, tl^e Cha rran. Leo'r L. -ao tae -reasLre'and
Chief Financial Offlcer, Alvin D. Lao, and/or the Corporate
Secfetary, Arihur. R. Ponsaran, acting singly or jointly, is/are
hereby authorized and designated as otficlal representataves
and signatories of the Corporation, with authority to do all
other acts ano hrngs n€cessary, proper or colveli€nt lo
glve etfect to the foregoing resolutions including the authority
to sel ihe record date and paymenvissue date after
consultation wilh management."

4. That lhe aforesaid resolutions were approved by the stockholders during


the annual stockholders meeting held on 08 June 2015.
UR R. PONSARAN
rate Secretary

SUBSCRIBED AND SWORN TO befofe rre on JU! ? ! .",r


Pasig Ci1y, aftant exhibiting to me his Philippine Passpo.t issued by the Department of
Foreign Affai6 with Passport No. 88997119 issued o a-11-2014 and valid u.rtil 1-10-
2019.

Doc. No. 4,
eage No. lj
Book No. //r ror J 2{?(?0Fr0l5t:ird rrr,rr .
tur oat6n6x l!o. 6ri0
Series of2015. rk 03a3:0u orarolr olhn 6
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I2102tt5!Cr:71

SECURITIES AND EXCHANGE COMMISSION


sECB!:ia n9 EDSA.Greenh s MaicaLyon!Ciq- M€tro[1an a Fn:ipp ce5
re i032,724 Ca3l ro36F6r (632r:25 5293;rar risose.cov.r

Barcode Page
The followihg document has been rece:ved:

Re.eiving Officer/Encoder : \"re.rCa:!n Francsco


Receiving Bfanch SEC FleacJ Offlce
Receipt Date and Time Decembef 1C 2015 04:01 45 pt/
HeaC Off ce

Conrpany Repfesentailve
Doc Soufce

Company lnioffiation
SEC Reg stratcn No. 0000044852
Compeny Name D&L NDUSTRIES NC
Ind!srry C ass ilcailcn
Compeny Type Stock Corpolat on

Docurnent Information

Dosumenl iD 1 1214241540121 1

Doc,.rm€nt Type 17-C iFORM 11 C:CURREl..lT DISCL/RPT)


Docuraent Code 17 -C
De.en-rber 09 2015
No. of Days Late 0
Depa.lmeni C;D
COVER SHEET

8 5 2

oi& L D ST I E s c

6 5l I N DIU s TIR I ST BAG UIM B A Y

a E z o c T

ALVIN O. LAO 635-0680

2 3 @ar_lfrr

tr.J
To be a.comp'shed by SEC personn€/.oncerred

--'__.llJ-
SECURITl!S AND EXCHANCE COMMISSION
sEc foRM 17-C
CURRENT RI]PORT IJNDER SECTION 17 OF T]IE SgCURITIES REGUI,AI'ION CODD
AND SRC RULE 1r-.2 (cJ THEREUNDER

1. Date of Repoft Decerrrber 9.2015

2 SEC lde.tificatbn N urrb.f:4485?

3 8lB Tar :d cn riiicn tio n X o.: 0!!:!ZL9-LZ:0Oj)


4. Erect nanc ofissuci as s|-.cjlied ir is cherler p&L Industries.Irc_

5. Pr.vincc, coLrnuy or olhcr jr.jsdtltjon olif cofp!farior,!1cEe,Ila!!a

6 lndusn!' Classiijcario" c",t., f- - l lsricus.only)


7 Addfess oitrincip!l officer 65 ttdusrria st., Bagumbaya, Quezon Ciry

jrostalCodc:1110

8. lssucr s tclcphone nrnber, i cl!ding axra codc [02) 635-0680

9 Formcf namc of fo ler addfess, rfihai8r.l sinlc last rcfofr: pot alpticable
10. Seclfities fegisrcrcd pursunnt lo Secrjo.s 8 rid I Z of:hc SRC or S€ctiors 4 n,rd I0ftlc RSA

Title 01 linch Class co mon


Nrnrlrer ofSharcs olConrnl()n Slr).k orrstandjng j:14Z,aS7,gg0 asatSepr.30,Z015
An0untoiDebrorrstanding 4,493,81,7,608asatSepr.30,2015

'' lr.l.c " I c:r ,. r.11 - . ret .. ..J r. ..n

Item No,4 Resignation, Removal or Election oJRegistraut,s Directors or


0fficers

lvc arc de€ply saddencd !o anno..rnce lhft r\rrb. Cesa: BaLrtisra passed a!\ ry tort,r)., Deccfrbrr 9

lmb aaLrtistr nas an lndeterdcnt Difeclor, ii mcnrbef ol the Remone.a!,)n Comintitcc ajju uLc
Chairnan ofthe Audit Cornnrrtcc ol D&t hrdusLIes.

Ile h.s had a lons and highly succe,shLl crfeef jn ttre piif3r. sac|oun.l s.fvic. He hart sery.o
fL.trtjc
on tlre boarc oi directors ol D&L Indrs|nes sincc 20tZ

Hjs pessi g leaves lacant one Boald seat, ;s \ .t r LF ChJ,rr.ri5Fip ot rhF r!r I Cun,n (ree. rfe
Ccnlpany'^ill ad!ise thc public oIcc: ncs, indcp.nd€rr difector.has ieef selelicd
SICN:\TTJRE

Pufsuant to ihe riqr trrm:Its !f !h. 5!.!ri1i.s RegiLl.lli!n Code t.c j!s:1er h!\ ar.,y L:,r\.11
thrs j efcrt to be signcd oI tt: brh.li by thcirnil.fsiqn.(l h.f€n|1. lul) rr.rtror /r,1.

D&L INDUSTRI!S, I NC, De.embcr 9, Z 015

E';P.tnl CIO

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