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MetroPac Movers, Inc. (A Subsidiary of MetroPac Logistics Company, Inc.) Financial Statements December 31, 2018 and 2017 and Independent Auditor’s Report

MetroPac Movers, Inc. (A Subsidiary of MetroPac Logistics

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MetroPac Movers, Inc.(A Subsidiary of MetroPac LogisticsCompany, Inc.)

Financial StatementsDecember 31, 2018 and 2017

and

Independent Auditor’s Report

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INDEPENDENT AUDITOR’S REPORT

The Board of Directors and the StockholdersMetroPac Movers, Inc.

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of MetroPac Movers, Inc. (a subsidiary of MetroPac LogisticsCompany, Inc.) (the Company) which comprise the statements of financial position as atDecember 31, 2018 and 2017, and the statements of comprehensive income, statements of changes inequity and statements of cash flows for the years ended December 31, 2018 and 2017, and notes to thefinancial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financialposition of the Company as at December 31, 2018 and 2017, and its financial performance and its cashflows for the years ended December 31, 2018 and 2017 in accordance with Philippine Financial ReportingStandards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for the Auditof the Financial Statements section of our report. We are independent of the Company in accordancewith the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with theethical requirements that are relevant to our audit of the financial statements in the Philippines, and wehave fulfilled our other ethical responsibilities in accordance with these requirements and the Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

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

Management is responsible for the preparation and fair presentation of the financial statements inaccordance with PFRSs, and for such internal control as management determines is necessary to enablethe preparation of financial statements that are free from material misstatement, whether due to fraud orerror.

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

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

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, October 4, 2018, valid until August 24, 2021SEC Accreditation No. 0012-FR-5 (Group A), November 6, 2018, valid until November 5, 2021

A member firm of Ernst & Young Global Limited

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Auditor’s Responsibilities for the Audit of the Financial Statements

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

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

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

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

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

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

∂ Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures, and whether the financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

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

A member firm of Ernst & Young Global Limited

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Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statements takenas a whole. The supplementary information required under Revenue Regulations 15-2010 in Note 28 tothe financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is nota required part of the basic financial statements. Such information is the responsibility of themanagement of MetroPac Movers, Inc. The information has been subjected to the auditing proceduresapplied in our audit of the basic financial statements. In our opinion, the information is fairly stated, in allmaterial respects, in relation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Meynard A. BonoenPartnerCPA Certificate No. 0110259SEC Accreditation No. 1739-A (Group A), February 7, 2019, valid until February 6, 2022Tax Identification No. 301-105-435BIR Accreditation No. 08-001998-136-2018, December 17, 2018, valid until December 16, 2021PTR No. 7332531, January 3, 2019, Makati City

June 6, 2019

A member firm of Ernst & Young Global Limited

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METROPAC MOVERS, INC.(A Subsidiary of MetroPac Logistics Company, Inc.)STATEMENTS OF FINANCIAL POSITION

December 312018 2017

ASSETSCurrent AssetsCash and cash equivalents (Notes 5 and 26) P=776,464,724 P=95,640,053Trade and other receivables (Notes 6, 18 and 26) 601,819,317 1,135,329,733Other current assets (Notes 1 and 7) 324,832,088 105,774,864

Total Current Assets 1,703,116,129 1,336,744,650Noncurrent AssetsLoans receivable (Note 18) 920,659,908 518,603,651Property and equipment (Notes 1 and 8) 1,629,310,760 351,918,396Software cost (Note 9) 5,112,890 1,805,255Investment in and advances to subsidiaries (Note 11) 580,681,903 447,612,866Equity instruments at fair value through other comprehensive

income (FVOCI) (Note 12) 100,429,147 –Goodwill and intangibles (Notes 1 and 10) 1,406,267,482 1,426,209,600Other noncurrent assets (Notes 1 and 13) 149,417,393 609,002,741

Total Noncurrent Assets 4,791,879,483 3,355,152,509P=6,494,995,612 P=4,691,897,159

LIABILITIES AND EQUITYCurrent LiabilitiesTrade payables and other current liabilities (Notes 14, 18 and 26) P=975,116,044 P=708,671,647Short-term loan (Note 15) 300,000,000 –Subscription payable (Note 11) – 3,750,000Current portion of:

Finance lease liability (Notes 17 and 24) 7,410,382 11,961,388Long-term loan (Notes 15 and 26) 259,876,344 154,000,000

Total Current Liabilities 1,542,402,770 878,383,035Noncurrent LiabilitiesNoncurrent portion of:

Finance lease liability (Notes 17 and 24) 21,881,592 46,344,499Long-term loan (Notes 15 and 26) 802,820,185 606,000,000

Other noncurrent liabilities (Note 16) 11,731,478 34,662,116Total Noncurrent Liabilities 836,433,255 687,006,615Total Liabilities 2,378,836,025 1,565,389,650

EquityCapital stock (Note 19) 3,961,550,676 3,040,623,714Additional paid-in capital (Note 19) 988,253,924 –Deposit for future stock subscription (Note 19) – 408,800,000Equity reserve (Note 19) (34,340,727) (21,683,717)Other comprehensive income reserve (Notes 12 and 22) (296,485,907) (766,775)Retained earnings (Deficit) (502,818,379) (300,465,713)

Total Equity 4,116,159,587 3,126,507,509P=6,494,995,612 P=4,691,897,159

See accompanying Notes to Financial Statements.

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METROPAC MOVERS, INC.(A Subsidiary of MetroPac Logistics Company, Inc.)STATEMENTS OF COMPREHENSIVE INCOMEFOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

2018 2017

REVENUES (Note 18)Warehouse management P=539,934,476 P=624,458,539Trucking services 292,353,543 159,328,875Warehouse rent 205,782,962 151,042,717Freight forwarding services 37,623,534 –Equipment rent 9,478,697 62,777,303Others 9,948,656 13,340,605

1,095,121,868 1,010,948,039

COSTS OF SERVICES (Note 20) 912,079,086 783,880,972

GROSS PROFIT 183,042,782 227,067,067

OPERATING EXPENSES (Note 21) (601,900,883) (596,656,921)

INTEREST INCOME (Notes 5, 11 and 13) 51,777,313 1,484,631

INTEREST EXPENSE (Notes 15, 16 and 17) (67,618,327) (9,503,208)

OTHER INCOME (Notes 1 and 18) 235,461,098 –

OTHER EXPENSES (813,769) (1,802,402)

LOSS BEFORE INCOME TAX (200,051,786) (379,410,833)

PROVISION FOR FINAL TAX (Note 23) 2,300,880 120,275

NET LOSS (202,352,666) (379,531,108)

OTHER COMPREHENSIVE LOSSOther comprehensive income not to be reclassified to profit or loss

in subsequent periodRemeasurement gain (loss) on retirement liability, net of tax

(Note 22) 3,851,721 (766,775)Remeasurement loss in fair value of unquoted equity

investments (Note 12) (299,570,853) –Total (295,719,132) (766,775)

TOTAL COMPREHENSIVE LOSS (P=498,071,798) (P=380,297,883)

See accompanying Notes to Financial Statements.

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METROPAC MOVERS, INC.(A Subsidiary of MetroPac Logistics Company, Inc.)STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

CapitalStock

(Note 18)

AdditionalPaid-inCapital

(Note 18)

Deposit forFuture StockSubscription

(Note 18)

EquityReserve(Note 18)

OtherComprehensive

Income(Note 21)

RetainedEarnings (Deficit) Total

At January 1, 2018 P=3,040,623,714 P=– P=408,800,000 (P=21,683,717) (P=766,775) (P=300,465,713) P=3,126,507,509Total comprehensive loss:

Net loss – – – – – (202,352,666) (202,352,666)Other comprehensive loss – – – – (295,719,132) – (295,719,132)Total – – – – (295,719,132) (202,352,666) (498,071,798)

Issuance of capital stock (Note 1) 920,926,962 988,253,924 (408,800,000) – – – 1,500,380,886Transaction costs on issuance of

capital stock – – – (12,657,010) – – (12,657,010)

At December 31, 2018 P=3,961,550,676 P=988,253,924 P=– (P=34,340,727) (P=296,485,907) (P=502,818,379) P=4,116,159,587

At January 1, 2017 P=1,704,200,000 P=– P=– (P=15,001,598) P=– P=79,065,395 P=1,768,263,797Total comprehensive loss:

Net loss – – – – – (379,531,108) (379,531,108)Other comprehensive loss – – – (766,775) – (766,775)

Total – – – – (766,775) (379,531,108) (380,297,883)Issuance of capital stock (Note 1) 1,336,423,714 – – – – – 1,336,423,714Transaction costs on issuance of

capital stock – – – (6,682,119) – – (6,682,119)Deposit for future stock

subscription – – 408,800,000 – – – 408,800,000

At December 31, 2017 P=3,040,623,714 P=– P=408,800,000 (P=21,683,717) (P=766,775) (P=300,465,713) P=3,126,507,509

See accompanying Notes to Financial Statements.

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METROPAC MOVERS, INC.(A Subsidiary of MetroPac Logistics Company, Inc.)STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

2018 2017

CASH FLOWS FROM OPERATING ACTIVITIESLoss before income tax (P=200,051,786) (P=379,410,833)Adjustments for:

Provision for expected credit losses (ECL)/doubtful accounts(Notes 6 and 21) 214,770,985 6,922,956

Depreciation and amortization (Notes 8, 9, 10, 20 and 21) 112,181,645 77,699,684Interest expense (Notes 15, 16 and 17) 67,618,327 9,503,208Interest income (Notes 5, 11 and 13) (51,777,313) (1,484,631)Pension expense (Notes 21 and 22) 4,926,481 6,285,202Gain on sale of property and equipment (Note 8) (2,776,406) –Deferred rent amortization – net (Note 20) 1,699,917 522,338Impairment loss (Notes 10 and 21) – 324,168,256

Income before working capital changes 146,591,850 44,206,180Decrease (increase) in:

Trade and other receivables (374,483,032) (507,813,167)Due from related parties 114,539,661 (244,121,794)Other current assets (219,057,224) 6,932,592

Increase (decrease) in:Trade payables and other current liabilities 391,804,047 400,693,798Due to related parties (90,500,000) (17,779,902)

Net cash used in operations (31,104,698) (317,882,293)Interest received 9,625,651 601,375Interest paid (56,677,706) (2,745,369)Final tax paid (2,300,880) (120,275)Net cash flows used in operating activities (80,457,633) (320,146,562)

CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of/additions to:

Property and equipment (Note 8) (862,580,621) (182,564,863)Software cost (Note 9) (4,393,654) (1,577,904)Investments (Note 11) (30,000,000) (236,000,010)

Disposal of property and equipment (Note 8) – 21,993,826Issuance of loans to subsidiaries (Notes 11 and 18) (385,185,000) (690,000,000)Increase in other noncurrent assets 59,540,755 (410,204,643)Net cash flows used in investing activities (1,222,618,520) (1,498,353,594)

(Forward)

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2018 2017

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from:

Issuance of capital stock (Note 19) P=1,429,880,886 P=608,000,000Long-term loan (Note 15) 510,000,000 770,000,000Short-term loan (Note 15) 470,000,000 –Deposits for future stock subscription (Note 19) – 408,800,000

Payments of/for:Transaction costs on issuance of capital stock (Note 19) (12,657,010) (6,682,119)Long-term loan (Note 15) (204,368,421) (10,000,000)Short-term loan (Note 15) (170,000,000) –Finance lease liability (31,378,831) (31,235,238)Transaction costs on issuance of loan (Note 15) (3,825,800) –Subscription payable (Note 11) (3,750,000) (3,750,000)

Net cash flows provided by financing activities 1,983,900,824 1,735,132,643

NET INCREASE (DECREASE) IN CASH AND CASHEQUIVALENTS 680,824,671 (83,367,513)

CASH AND CASH EQUIVALENTS AT BEGINNINGOF YEAR (Note 5) 95,640,053 179,007,566

CASH AND CASH EQUIVALENTS AT END OF YEAR(Note 5) P=776,464,724 P=95,640,053

See accompanying Notes to Financial Statements.

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METROPAC MOVERS, INC.(A Subsidiary of MetroPac Logistics Company, Inc.)NOTES TO FINANCIAL STATEMENTS

1. Corporate Information

MetroPac Movers, Inc. (the Company or MMI) was incorporated in the Philippines and registeredwith the Philippine Securities and Exchange Commission (SEC) on September 1, 2015. TheCompany is engaged in the business of logistics services relating to products, commodities, articles,and goods, including but not limited to, storage, warehousing, warehouse and inventory management,transport and delivery, domestic international freight and cargo forwarder of all classes of goods andmerchandise either by land, sea or air, non vessel operating common carrier, courier, express andparcel services, messengerial services, brokerage services and other allied services.

As at December 31, 2017, the Company is a wholly owned subsidiary by MetroPac LogisticsCompany, Inc. (MLCI), an entity incorporated in the Philippines. MLCI is a subsidiary of MetroPacific Investments Corporation (MPIC), whose shares of stock are listed with the SEC. OnDecember 5, 2018, a minority interest of 0.9% had been sold to an individual shareholder. As atDecember 31, 2018, MLCI’s ownership interest is reduced to 99.1% (see Note 19).

Metro Pacific Holdings, Inc. (MPHI) owns 41.9% of the total issued common shares (or 42.0% of thetotal outstanding common shares) of MPIC as at December 31, 2018 and 2017, respectively. As soleholder of the voting Class A Preferred Shares of MPIC, MPHI’s combined voting interest as a resultof all of its shareholdings is estimated at 55.0% as at December 31, 2018 and 2017.

MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH;60.0% interest), Intalink B.V. (26.7% interest) and First Pacific International Limited (FPIL; 13.3%interest). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed inHong Kong, through its subsidiaries, Intalink B.V. and FPIL, holds 40.0% equity interest in EIH andinvestment financing which under Hong Kong Generally Accepted Accounting Principles, requireFPC to account for the results and assets and liabilities of EIH and its subsidiaries as part of FPCgroup of companies in Hong Kong.

The principal office address of the Company is 12th Floor, VGP Center, Ayala Avenue, Makati City.

The accompanying financial statements were approved and authorized for issue by the Board ofDirectors (BOD) on June 6, 2019.

Asset Purchase Agreement (APA)On May 19, 2016, MMI completed the purchase of the assets and certain contracts of Basic LogisticsCorporation (Basic), A1Move Logistics, Inc. (A1Move), Philflash Logistics, Inc. (Philflash) andBasicLog Trade and Marketing Enterprises (BasicLog), collectively known as the Sellers, all ofwhich are involved in the logistics business.

The transaction involves the acquisition by MMI of the assets and certain contracts of the Sellers for atotal purchase price consideration of P=2,168.3 million, inclusive of applicable value-added taxes. Ofthe total purchase price, P=1,400.0 million was paid in cash, P=39.9 million was deposited into anominated escrow agent and the remaining balance of P=728.4 million will be offset against theSellers’ subscription of the Company’s common shares (see Notes 14 and 18).

After the completion of the transaction, a separate company that will be designated by the Sellers willacquire twenty-four percent (24%) of the outstanding capital stock of MMI.

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On February 8, 2017, Yellowbear Holdings, Inc. (YHI), the separate company designated by theSellers to acquire common shares of the Company, subscribed to 728.4 million common shares with apar value of P=1.00 per share. Consequently, acquisition payable to the Sellers amounting toP=728.4 million were offset against YHI’s subscription of the Company’s common shares(see Notes 17 and 18).

MMI will expand its logistics business utilizing the assets and businesses initially acquired from theSellers.

The transaction was carried out through an APA involving, among others, (a) the sale by the Sellersof identified logistics assets, (b) the novation of certain key contracts of the Sellers with theirrespective clients, (c) the execution of new contracts required to ensure continued operations of thebusiness under MMI, and (d) the transfer of certain key officers and employees of the Sellers to MMI.

The acquisition of the assets has been accounted for using the acquisition method. The final fairvalues of the assets acquired as at the date of acquisition:

FinalValues

(In Millions)Property and equipment (Note 8) P=154Intangible assets (Note 10) 91Total identifiable net assets at fair value 245Goodwill (Note 10) 1,691Total acquisition cost 1,936Input VAT (Notes 7 and 13) 232Total purchase price P=2,168

The goodwill comprises the value of expected synergies arising from the acquisition and a customerlist, which is not separately recognized. Based on assessment, the customer list is not separable andtherefore, it does not meet the criteria for recognition as an intangible asset under PAS 38, IntangibleAssets. None of the goodwill recognized is expected to be deductible for income tax purposes.

On February 28, 2018, a Memorandum of Agreement (MOA) was entered by and between theCompany, MLCI, YHI, and Sheldon Yap. Sheldon Yap and the Company agreed to settle claimsfrom failure to meet stipulations in the APA resulting in a net receivable amounting toP=238.6 million. The Company recognized income amounting to P=216.9 million under“Other income” account in the 2018 statement of comprehensive income.

2. Basis of Preparation, Statement of Compliance and Changes in Accounting Policies

Basis of PreparationThe accompanying financial statements have been prepared on a historical cost basis, except forfinancial assets at fair value through other comprehensive income (FVOCI) that are measured at fairvalue. The financial statements are presented in Philippine Peso, which is the Company’s functionaland presentation currency, and all values are rounded to the nearest peso unless otherwise indicated.

The Company elected not to prepare consolidated financial statements under the exemption providedin Philippine Financial Reporting Standards (PFRS) 10, Consolidated Financial Statements. MPICprepares consolidated financial statements in conformity with PFRS and such consolidated financial

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statements are filed with the SEC and Philippine Stock Exchange and are available for public use.MPIC’s consolidated financial statements may be obtained at 10th Floor, MGO Building, Legaspicorner Dela Rosa Streets, Legaspi Village, Makati City.

The accompanying financial statements are prepared for submission to the SEC and Bureau ofInternal Revenue (BIR).

Statement of ComplianceThe accompanying financial statements have been prepared in accordance with PFRS.

Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial year except for theadoption of the following new and amended Philippine Accounting Standards (PAS), PFRS andPhilippine Interpretation effective January 1, 2018. Adoption of the following standards andamendments did not have any material impact on the Company’s financial statements:

ƒ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-basedPayment Transactions

ƒ PFRS 9, Financial Instruments

The Company adopted PFRS 9 with a date of initial application of January 1, 2018. PFRS 9replaces PAS 39, Financial Instruments: Recognition and Measurement and all previous versionsof PFRS 9. The standard introduces new requirements for classification and measurement,impairment and hedge accounting.

The Company has adopted PFRS 9 using the modified retrospective approach. The Companychose not to restate comparative figures as permitted by the transitional provisions of PFRS 9,thereby resulting in the following impact:∂ Comparative information for prior periods will not be restated. The classification and

measurement requirements previously applied in accordance with PAS 39 and disclosuresrequired in PFRS 7, Financial Instruments: Disclosures will be retained for the comparativeperiods. Accordingly, the information presented for 2017 does not reflect the requirements ofPFRS 9.

∂ The Company will disclose the accounting policies for both the current period and thecomparative periods, one applying PFRS 9 beginning January 1, 2018 and one applyingPAS 39 as of December 31, 2017.

∂ As comparative information is not restated, the Company is not required to provide a thirdstatement of financial information at the beginning of the earliest comparative period inaccordance with PAS 1, Presentation of Financial Statements.

As at January 1, 2018, the Company has reviewed and assessed all of its existing financial assets.

The effect of adopting PFRS 9 as at January 1, 2018 was, as follows:

a. Classification and measurement

Under PFRS 9, the Company initially measures a financial asset at its fair value plus, in thecase of a financial asset not at fair value through profit or loss, transaction costs.

Under PFRS 9, financial assets are subsequently measured at fair value through profit or loss(FVTPL), amortized cost, or FVOCI. The classification is based on two criteria: theCompany’s business model for managing the assets; and, whether the instruments’contractual cash flows represent ‘solely payments of principal and interest’ on the principalamount outstanding (the ‘SPPI criterion’).

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The assessment of the Company’s business models was made as of the date of initialapplication, January 1, 2018, and then applied retrospectively to those financial assets thatwere not derecognized before January 1, 2018. The assessment of whether contractual cashflows on financial assets are solely comprised of principal and interest was made based on thefacts and circumstances as at the initial recognition of the assets.

The new classifications and measurements of the Company’s financial assets are as follows:

ƒ Financial assets at amortized cost are financial assets that are held within a businessmodel with the objective to hold the financial assets in order to collect contractual cashflows that meet the SPPI criterion. This category includes the Company’s cash and cashequivalents, trade and other receivables, refundable deposits and loans receivable(see Notes 5, 6, 18 and 26).

ƒ Equity instruments at FVOCI, with no recycling of gains or losses to profit or loss onderecognition. This category only includes equity instruments, which the Companyintends to hold for the foreseeable future and which the Company has irrevocably electedto classify upon initial recognition or transition. The Company classified its investmentin unquoted equity instruments at FVOCI. Equity instruments at FVOCI are not subjectto impairment assessment under PFRS 9 (see Note 12).

The following are the changes in the classification of the Company’s financial asset as atJanuary 1, 2018:

PFRS 9 measurementcategory

Amortized costPAS 39 measurement categoryLoans and receivablesCash and cash equivalents P=94,843,903 P=94,843,903Trade and other receivables 1,166,329,733 1,166,329,733Refundable deposits 40,283,824 40,283,824Loans receivables 518,603,651 518,603,651

The Company has not designated any financial liabilities as at fair value through profit orloss. There are no changes in classification and measurement for the Company’s financialliabilities.

b. Impairment

The adoption of PFRS 9 has fundamentally changed the Company’s accounting forimpairment losses for financial assets by replacing PAS 39’s incurred loss approach with aforward-looking expected credit loss (ECL) approach. PFRS 9 requires the Company torecord an allowance for ECLs for all financial assets at amortized cost. Under PFRS 9, thelevel of provision for credit and impairment losses has generally increased due to theincorporation of a more forward-looking approach in determining provisions.

Based on the Company’s assessment, which considers factors such as the nature of thefinancial assets at amortized cost, the financial capacity and historical experience transactingwith counterparties and a combination of forward-looking economic factors which is relevantto the recoverability of these assets, provision for impairment losses is recognized. TheCompany’s assessment of credit risk from financial assets at amortized cost is disclosed inNote 26.

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c. HedgingThe adoption of the hedge accounting requirement of PFRS 9 did not have an impact sincethe Company had no existing hedge relationships as at January 1, 2018.

ƒ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, withPFRS 4

ƒ PFRS 15, Revenue from Contracts with Customers

PFRS 15 supersedes PAS 11 Construction Contracts, PAS 18 Revenue, and relatedInterpretations and it applies, with limited exceptions, to all revenue arising from contracts withcustomers. PFRS 15 establishes a five-step model to account for revenue arising from contractswith customers and requires that revenue be recognized at an amount that reflects theconsideration to which an entity expects to be entitled in exchange for transferring goods orservices to a customer.

The standard requires entities to exercise judgement, taking into consideration all of the relevantfacts and circumstances when applying each step of the model to contracts with theircustomers. The standard also specifies the accounting for the incremental costs of obtaining acontract and the costs directly related to fulfilling a contract. In addition, the standard requiresrelevant disclosures.

The Company adopted PFRS 15 using the modified retrospective method with the date of initialapplication of January 1, 2018. Under this method, the standard can be applied either to allcontracts at the date of initial application or only to contracts that are not completed at thisdate. The Company elected to apply the standard to contracts not yet completed as atJanuary 1, 2018. Therefore, the comparative information was not restated and continues to bereported under PAS 11, PAS 18 and related Interpretations.

Upon adoption of PFRS 15, the Company has concluded revenue is recognized over time whenthe Company renders and completes the performance obligation agreed with the customer, whosimultaneously receives and consumes the benefit provided by the Company, as the agreedservice is performed.

Under PFRS 15, entities must disaggregate revenue from contracts with customers into categoriesthat depict how the nature, amount, timing and uncertainty of revenue and cash flows are affectedby economic factors. The Company has determined that a disaggregation of revenue using typesof services and the timing of the transfer of goods or services (at a point in time vs over time) isadequate for its circumstances. The Company’s revenues, which are presented in the Company’sstatements of comprehensive income, substantially comprises of services which revenuerecognition is over time.

The adoption of PFRS 15 did not have a material impact on the other comprehensive income orthe Company’s operating, investing and financing cash flows since the manner of recognizingrevenue prior to the adoption of the new standard is aligned with the requirements of PFRS 15.Accordingly, no adjustments in the statements of financial position as of December 31, 2018were recognized.

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ƒ Amendments to PAS 28, Investments in Associates and Joint Ventures, Measuring an Associateor Joint Venture at Fair Value (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)

ƒ Amendments to PAS 40, Investment Property, Transfers of Investment Propertyƒ Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration

The Company has not early adopted any other standard, interpretation or amendment that has beenissued but is not yet effective.

Future Changes in Accounting PoliciesThe Company will adopt the new and revised standards and interpretations enumerated below that arerelevant to the Company when these become effective. Except as otherwise indicated, the Companydoes not expect the adoption of these new and revised standards and amendments to PFRS andPhilippine Interpretations of the International Financial Reporting Interpretations Committee (IFRIC)to have a significant impact on the Company’s financial statements.

Effective beginning on or after January 1, 2019

ƒ Amendments to to PFRS 9, Prepayment Features with Negative Compensation

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

ƒ PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure ofleases and requires lessees to account for all leases under a single on-balance sheet model similarto the accounting for finance leases under PAS 17, Leases. It will result in almost all leases beingrecognized on the balance sheet by lessees, as the distinction between operating and financeleases is removed. Under the new standard, an asset (the right to use the leased item) and afinancial liability to pay rentals are recognized. The only exceptions are short-term and low-value leases.

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

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

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose toapply the standard using either a full retrospective or a modified retrospective approach. Thestandard’s transition provisions permit certain reliefs.

The Company is currently assessing the impact of adopting this standard.

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ƒ Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement

The amendments to PAS 19 address the accounting when a plan amendment, curtailment orsettlement occurs during a reporting period. The amendments specify that when a planamendment, curtailment or settlement occurs during the annual reporting period, an entity isrequired to:

∂ Determine current service cost for the remainder of the period after the plan amendment,curtailment or settlement, using the actuarial assumptions used to remeasure the net definedbenefit liability (asset) reflecting the benefits offered under the plan and the plan assets afterthat event; and

∂ Determine net interest for the remainder of the period after the plan amendment, curtailmentor settlement using: the net defined benefit liability (asset) reflecting the benefits offeredunder the plan and the plan assets after that event; and the discount rate used to remeasurethat net defined benefit liability (asset).

The amendments also clarify that an entity first determines any past service cost, or a gain or losson settlement, without considering the effect of the asset ceiling. This amount is recognized inprofit or loss. An entity then determines the effect of the asset ceiling after the plan amendment,curtailment or settlement. Any change in that effect, excluding amounts included in the netinterest, is recognized in other comprehensive income.

The amendments apply to plan amendments, curtailments, or settlements occurring on or after thebeginning of the first annual reporting period that begins on or after January 1, 2019, with earlyapplication permitted. The amendments will apply to any future plan amendments, curtailments,or settlements of the Company.

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

The amendments clarify that an entity applies PFRS 9 to long-term interests in an associate orjoint venture to which the equity method is not applied but that, in substance, form part of the netinvestment in the associate or joint venture (long-term interests). This clarification is relevantbecause it implies that the expected credit loss model in PFRS 9 applies to such long-terminterests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of anylosses of the associate or joint venture, or any impairment losses on the net investment,recognized as adjustments to the net investment in the associate or joint venture that arise fromapplying PAS 28.

The amendments should be applied retrospectively and are effective from January 1, 2019, withearly application permitted. Since the Company does not have such long-term interests inassociates and joint ventures, the amendments will not have an impact on its financial statements.

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

The interpretation addresses the accounting for income taxes when tax treatments involveuncertainty that affects the application of PAS 12, Income Taxes, and does not apply to taxes orlevies outside the scope of PAS 12, nor does it specifically include requirements relating tointerest and penalties associated with uncertain tax treatments.

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The interpretation specifically addresses the following:

∂ whether an entity considers uncertain tax treatments separately∂ the assumptions an entity makes about the examination of tax treatments by taxation

authorities∂ how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax

credits and tax rates∂ how an entity considers changes in facts and circumstances

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

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

ƒ Annual Improvements to PFRSs 2015-2017 Cycle

∂ Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements,Previously Held Interest in a Joint Operation

The amendments clarify that, when an entity obtains control of a business that is a jointoperation, it applies the requirements for a business combination achieved in stages,including remeasuring previously held interests in the assets and liabilities of the jointoperation at fair value. In doing so, the acquirer remeasures its entire previously held interestin the joint operation.

A party that participates in, but does not have joint control of, a joint operation might obtainjoint control of the joint operation in which the activity of the joint operation constitutes abusiness as defined in PFRS 3. The amendments clarify that the previously held interests inthat joint operation are not remeasured.

An entity applies those amendments to business combinations for which the acquisition dateis on or after the beginning of the first annual reporting period beginning on or afterJanuary 1, 2019 and to transactions in which it obtains joint control on or after the beginningof the first annual reporting period beginning on or after January 1, 2019, with earlyapplication permitted. These amendments are currently not applicable to the Company butmay apply to future transactions.

∂ Amendments to PAS 12, Income Tax Consequences of Payments on Financial InstrumentsClassified as Equity

The amendments clarify that the income tax consequences of dividends are linked moredirectly to past transactions or events that generated distributable profits than to distributionsto owners. Therefore, an entity recognizes the income tax consequences of dividends inprofit or loss, other comprehensive income or equity according to where the entity originallyrecognized those past transactions or events.

An entity applies those amendments for annual reporting periods beginning on or afterJanuary 1, 2019, with early application is permitted.

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∂ Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization

The amendments clarify that an entity treats as part of general borrowings any borrowingoriginally made to develop a qualifying asset when substantially all of the activities necessaryto prepare that asset for its intended use or sale are complete.

An entity applies those amendments to borrowing costs incurred on or after the beginning ofthe annual reporting period in which the entity first applies those amendments. An entityapplies those amendments for annual reporting periods beginning on or after January 1, 2019,with early application permitted.

The Company is currently assessing the impact of adopting this standard.

Effective beginning on or after January 1, 2020

ƒ Amendments to PFRS 3, Definition of a Business

The amendments to PFRS 3 clarify the minimum requirements to be a business, remove theassessment of a market participant’s ability to replace missing elements, and narrow thedefinition of outputs. The amendments also add guidance to assess whether an acquired processis substantive and add illustrative examples. An optional fair value concentration test isintroduced which permits a simplified assessment of whether an acquired set of activities andassets is not a business.

An entity applies those amendments prospectively for annual reporting periods beginning on orafter January 1, 2020, with earlier application permitted.

These amendments will apply on future business combinations of the Company.

ƒ Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,Changes in Accounting Estimates and Errors, Definition of Material

The amendments refine the definition of material in PAS 1 and align the definitions used acrossPFRSs and other pronouncements. They are intended to improve the understanding of theexisting requirements rather than to significantly impact an entity’s materiality judgements.

An entity applies those amendments prospectively for annual reporting periods beginning on orafter January 1, 2020, with earlier application permitted.

Effective beginning on or after January 1, 2021

ƒ PFRS 17, Insurance Contracts

PFRS 17 is a comprehensive new accounting standard for insurance contracts coveringrecognition and measurement, presentation and disclosure. Once effective, PFRS 17 will replacePFRS 4, Insurance Contracts. This new standard on insurance contracts applies to all types ofinsurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type ofentities that issue them, as well as to certain guarantees and financial instruments withdiscretionary participation features. A few scope exceptions will apply.

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The overall objective of PFRS 17 is to provide an accounting model for insurance contracts thatis more useful and consistent for insurers. In contrast to the requirements in PFRS 4, which arelargely based on grandfathering previous local accounting policies, PFRS 17 provides acomprehensive model for insurance contracts, covering all relevant accounting aspects. The coreof PFRS 17 is the general model, supplemented by:∂ A specific adaptation for contracts with direct participation features (the variable fee

approach)∂ A simplified approach (the premium allocation approach) mainly for short-duration contracts

PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, withcomparative figures required. Early application is permitted.

The amendments are not applicable since the Company has no activities that are predominantlyconnected with insurance or issuance of insurance contracts.

Deferred effectivity

ƒ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture

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

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

3. Summary of Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in theCompany’s financial statements, unless otherwise indicated.

Current versus Non-current ClassificationThe Company presents assets and liabilities in the statement of financial position based oncurrent/non-current classification.

An asset is current when it is:∂ Expected to be realized or intended to be sold or consumed in the normal operating cycle;∂ Held primarily for the purpose of trading;∂ Expected to be realized within twelve months after the reporting period; or∂ Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at

least twelve months after the reporting period.

All other assets are classified as non-current.

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A liability is current when:∂ It is expected to be settled in the normal operating cycle;∂ It is held primarily for the purpose of trading;∂ It is due to be settled within twelve months after the reporting period; or∂ There is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting period.

The Company classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as noncurrent assets and liabilities.

Fair Value MeasurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. The fair value measurement isbased on the presumption that the transaction to sell the asset or transfer the liability takes placeeither:

∂ In the principal market for the asset or liability; or,∂ In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in their economicbest interest. A fair value measurement of a non-financial asset takes into account a marketparticipant’s ability to generate economic benefits by using the asset in its highest and best use or byselling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observable inputsand minimizing the use of unobservable inputs. All assets and liabilities for which fair value ismeasured or disclosed in the financial statements are categorized within the fair value hierarchy,described, as follows, based on the lowest-level input that is significant to the fair value measurementas a whole:

∂ Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities∂ Level 2 – Valuation techniques for which the lowest-level input that is significant to the fair

value measurement is directly or indirectly observable∂ Level 3 – Valuation techniques for which the lowest-level input that is significant to the fair

value measurement is unobservable

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

The fair value for financial instruments not traded in an active market is determined by usingvaluation techniques deemed to be appropriate in the circumstances. Valuation techniques includethe market approach (i.e., using recent arm’s length market transactions adjusted as necessary andreference to the current market value of another instrument that is substantially the same) and theincome approach (i.e. discounted cash flow analysis and option pricing models making as much useof available and supportable market data as possible).

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The Company determines the policies and procedures for both recurring fair value measurement andnon-recurring measurement, such as impairment tests. At each reporting date, the Company analysesthe movements in the values of assets and liabilities which are required to be re-measured orreassessed as per the Company’s accounting policies. For this analysis, the Company verifies themajor inputs applied in the latest valuation by agreeing the information in the valuation computationto contracts, counterparty assessment and other relevant documents.

The Company also compares the changes in the fair value of each asset and liability with relevantexternal sources to determine whether the change is reasonable. The Company likewise presents thevaluation results to its independent auditors. This includes a discussion of the major assumptionsused in the valuations.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilitiesbased on the nature, characteristics and risks of the asset or liability and the level of the fair valuehierarchy as explained above.

Cash and Cash EquivalentsCash comprises cash in banks, which earns interest at prevailing bank deposit rates, and petty cash.Cash equivalents are short-term, highly liquid investments that are readily convertible to knownamounts of cash with original maturities of three months or less from acquisition date and that aresubject to an insignificant risk of changes in value.

Accounting policy applied for financial instruments beginning January 1, 2018

Financial InstrumentsA financial instrument is any contract that gives rise to a financial asset of one entity and a financialliability or equity instrument of another entity.

Financial Instruments: Financial Assets

Classification of Financial Assets. Financial assets are classified in their entirety based on thecontractual cash flows characteristics of the financial assets and the Company’s business model formanaging the financial assets. The Company classifies its financial assets into the followingmeasurement categories:

ƒ financial assets measured at amortized costƒ financial assets measured at FVTPLƒ financial assets measured at FVOCI, where cumulative gains or losses previously recognized are

reclassified to profit or lossƒ financial assets measured at FVOCI, where cumulative gains or losses previously recognized are

not reclassified to profit or loss.

The Company has no financial assets measured at FVTPL as at December 31, 2018.

Contractual Cash Flows CharacteristicsIf the financial asset is held within a business model, whose objective is to hold assets to collectcontractual cash flows or within a business model whose objective is achieved by both collectingcontractual cash flows and selling financial assets, the Company assesses whether the cash flowsfrom the financial asset represent SPPI on the principal amount outstanding.

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In making this assessment, the Company determines whether the contractual cash flows are consistentwith a basic lending arrangement, i.e., interest includes consideration only for the time value ofmoney, credit risk and other basic lending risks and costs associated with holding the financial assetfor a particular period of time. The assessment as to whether the cash flows meet the test is made inthe currency in which the financial asset is denominated.

Business ModelThe Company’s business model is determined at a level that reflects how groups of financial assetsare managed together to achieve a particular business objective. The Company’s business modeldoes not depend on management’s intentions for an individual instrument.

The Company’s business model refers to how it manages its financial assets in order to generate cashflows. The Company’s business model determines whether cash flows will result from collectingcontractual cash flows, selling financial assets, or both.

All financial assets are recognized initially at fair value plus, in the case of financial assets notrecorded at FVTPL, transaction costs that are attributable to the acquisition of the financial asset.

Purchases or sales of financial assets that require delivery of assets within a time frame established byregulation or convention in the market place (regular way trades) are recognized on the trade date,i.e., the date that the Company commits to purchase or sell the asset.

Financial assets at amortized cost. A financial asset is measured at amortized cost if (i) it is heldwithin a business model whose objective is to hold financial assets in order to collect contractual cashflows and (ii) the contractual terms of the financial asset give rise on specified dates to cash flows thatare solely payments of principal and interest on the principal amount outstanding. These financialassets are initially recognized at fair value plus directly attributable transaction costs andsubsequently measured at amortized cost using the EIR method, less any impairment in value. Gainsand losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

As at December 31, 2018, the Company’s financial assets at amortized cost includes cash and cashequivalents, trade and other receivables, refundable deposits and loans receivables (see Notes 5, 6, 18and 26).

Financial assets at FVOCI (Equity Instruments). The Company may also make an irrevocableelection to measure at FVOCI on initial recognition investments in equity instruments that are neitherheld for trading nor contingent consideration recognized in a business combination in accordancewith PFRS 3. Amounts recognized in OCI are not subsequently transferred to profit or loss.However, the Company may transfer the cumulative gain or loss within equity. Dividends on suchinvestments are recognized in profit or loss, unless the dividend clearly represents a recovery of partof the cost of the investment.

Dividends are recognized in profit or loss only when:ƒ the Company’s right to receive payment of the dividend is establishedƒ it is probable that the economic benefits associated with the dividend will flow to the Company;

and,ƒ the amount of the dividend can be measured reliably.

As at December 31, 2018, the Company’s investments in unquoted equity securities are classified asequity instruments at FVOCI (see Note 12).

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Impairment of Financial Assets. PFRS 9 introduces the single, forward-looking “expected loss”impairment model, replacing the “incurred loss” impairment model under PAS 39.

The Company recognizes an allowance for ECL for all debt instruments not held at fair value throughprofit or loss. ECLs are based on the difference between the contractual cash flows due in accordancewith the contract and all the cash flows that the Company expects to receive, discounted at anapproximation of the original effective interest rate. The expected cash flows will include cash flowsfrom the sale of collateral held or other credit enhancements that are integral to the contract terms.

ECLs are recognized in two stages. For credit exposures for which there has not been a significantincrease in credit risk since initial recognition, ECLs are provided for credit losses that result fromdefault events that are possible within the next 12 months (a 12-month ECL). For those creditexposures for which there has been a significant increase in credit risk since initial recognition, a lossallowance is required for credit losses expected over the remaining life of the exposure, irrespectiveof the timing of the default (a lifetime ECL).

For cash in banks and short-term deposits, expected credit loss is computed based on the externallyavailable credit ratings and default rates of the counterparty, adjusted for forward-lookingmacroeconomic factors.

For trade and other receivables, the Company applies simplified approach in calculating ECLs.Therefore, the Company does not track changes in credit risk, but instead recognized a loss allowancebased on lifetime ECLs at each reporting date. The Company establishes a provision matrix that isbased on its historical credit loss experience, adjusted for forward looking factors specific to thedebtors and the economic environment.

An impairment analysis is performed at each reporting date using a provision matrix to measureexpected credit losses. The provision rates are based on days past due for groupings of variouscustomer segments with similar loss patterns. The calculation reflects the probability-weightedoutcome, the time value of money and reasonable and supportable information that is available at thereporting date about past events, current conditions and forecasts of future economic conditions.

Derecognition of Financial Assets. A financial asset (or, where applicable, a part of a financial assetor part of a group of similar financial assets) is primarily derecognized (i.e., removed from theCompany’s statement of financial position) when:

∂ the rights to receive cash flows from the asset have expired; or,∂ the Company has transferred its rights to receive cash flows from the asset or has assumed an

obligation to pay the received cash flows in full without material delay to a third party under a‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risksand rewards of the asset, or (b) the Company has neither transferred nor retained substantially allthe risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards ofownership. When it has neither transferred nor retained substantially all of the risks and rewards ofthe asset, nor transferred control of the asset, the Company continues to recognize the transferredasset to the extent of its continuing involvement. In that case, the Company also recognizes anassociated liability. The transferred asset and the associated liability are measured on a basis thatreflects the rights and obligations that the Company has retained.

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Continuing involvement that takes the form of a guarantee over the transferred asset is measured atthe lower of the original carrying amount of the asset and the maximum amount of consideration thatthe Company could be required to repay.

Financial Instruments: Financial Liabilities

Initial Recognition and Measurement. Financial liabilities are classified, at initial recognition, asfinancial liabilities at FVPL or as financial liabilities at amortized cost, as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of financial liabilities atamortized cost, net of directly attributable transaction costs.

As at December 31, 2018, the Company does not have financial liabilities at FVPL.

Subsequent Measurement. For purposes of subsequent measurement, financial liabilities areclassified either as financial liabilities at FVPL or financial liabilities at amortized cost.

Financial Liabilities at Amortized Cost. After initial recognition, interest-bearing loans andborrowings are subsequently measured at amortized cost using the EIR method.

Gains and losses are recognized in profit or loss when the liabilities are derecognized as well asthrough the EIR amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and feesor costs that are an integral part of the EIR. The EIR amortization is included in profit or loss.

As at December 31, 2018, this category includes the Company’s trade payables and other currentliabilities (except for statutory payables), subscription payable, short-term and long-term loans andfinance lease liability (see Notes 14, 15, 17, 18 and 26).

Derecognition. A financial liability is derecognized when the obligation under the liability isdischarged or cancelled or expires. When an existing financial liability is replaced by another fromthe same lender on substantially different terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as the derecognition of the original liability andthe recognition of a new liability. The difference in the respective carrying amounts is recognized inthe statement of comprehensive income.

Accounting policy applied for financial instruments until December 31, 2017

Financial InstrumentsA financial instrument is any contract that gives rise to a financial asset of one entity and a financialliability or equity instrument of another entity.

Financial Instruments: Financial Assets

Initial Recognition and Measurement. Financial assets within the scope of PAS 39 are classified asfinancial assets at fair value through profit or loss, or FVPL, loans and receivables, held-to-maturity,or HTM, investments, available-for-sale financial investments or AFS, or as derivatives designated ashedging instruments in an effective hedge, as appropriate. The Company determines theclassification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates the designation of such assets at each reporting date.

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Financial assets are recognized initially at fair value plus transaction costs that are attributable to theacquisition of the financial asset, except in the case of financial assets recorded at FVPL.

Purchases or sales of financial assets that require delivery of assets within a time frame established byregulation or convention in the market place (regular way purchases or sales) are recognized on thetrade date, i.e., the date that the Company commits to purchase or sell the asset.

Subsequent Measurement. The subsequent measurement of financial assets depends on theirclassification. As at December 31, 2017, the Company does not have financial assets at FVPL, HTMinvestments and AFS financial assets.

Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments which are not quoted in an active market. After initial measurement, suchfinancial assets are carried at amortized cost using the effective interest rate, or EIR, method lessimpairment. This method uses an EIR that exactly discounts the estimated future cash payments orreceipts over the expected life of the financial instrument or a shorter period, where appropriate, tothe net carrying amount of the financial asset. Gains and losses are recognized in the incomestatement when the loans and receivables are derecognized or impaired, as well as through theamortization process. Interest earned is recorded in “Interest income” in the Company’s incomestatement. Assets in this category are included in the current assets except for those with maturitiesgreater than 12 months after the end of the reporting period, which are classified as noncurrent assets.

The Company’s loans and receivables include cash and cash equivalents, trade and other receivables,advances to lessors, refundable deposits and loan receivables as at December 31, 2017 (see Notes 5,6, 18 and 26).

Impairment of Financial Assets. The Company assesses, at each reporting date, whether there isobjective evidence that a financial asset or a group of financial assets is impaired. An impairmentexists if one or more events that has occurred since the initial recognition of the asset (an incurred‘loss event’), has an impact on the estimated future cash flows of the financial asset or the group offinancial assets that can be reliably estimated. Evidence of impairment may include indications thatthe debtors or a group of debtors is experiencing significant financial difficulty, default ordelinquency in interest or principal payments, the probability that they will enter bankruptcy or otherfinancial reorganization and observable data indicating that there is a measurable decrease in theestimated future cash flows, such as changes in arrears or economic conditions that correlate withdefaults.

Derecognition of Financial Assets. A financial asset (or, where applicable, a part of a financial assetor part of a group of similar financial assets) is primarily derecognized (i.e., removed from theCompany’s statement of financial position) when:

∂ The rights to receive cash flows from the asset have expired; or∂ The Company has transferred its rights to receive cash flows from the asset or has assumed an

obligation to pay the received cash flows in full without material delay to a third party under a‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risksand rewards of the asset, or (b) the Company has neither transferred nor retained substantially allthe risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards ofownership.

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When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nortransferred control of the asset, the Company continues to recognize the transferred asset to the extentof its continuing involvement. In that case, the Company also recognizes an associated liability. Thetransferred asset and the associated liability are measured on a basis that reflects the rights andobligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured atthe lower of the original carrying amount of the asset and the maximum amount of consideration thatthe Company could be required to repay.

Financial Instruments: Financial Liabilities

Initial Recognition and Measurement. Financial liabilities within the scope of PAS 39 are classifiedas financial liabilities at FVPL, other financial liabilities, or as derivatives designated as hedginginstruments in an effective hedge, as appropriate. The Company determines the classification of thefinancial liabilities at initial recognition.

Financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, netof directly attributable transaction costs.

Subsequent Measurement. The subsequent measurement of financial liabilities depends on theirclassification as described below:

Financial Liabilities at FVPL. Financial liabilities at FVPL include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as at FVPL. Financial liabilitiesare classified as held-for-trading if they are acquired for the purpose of selling in the near term.Derivative liabilities, including separated embedded derivatives are also classified as at FVPL unlessthey are designated as effective hedging instruments as defined by PAS 39.

Financial liabilities may be designated at initial recognition as at FVPL if any of the following criteriaare met: (i) the designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the liabilities or recognizing gains or losses on them on differentbases; (ii) the liabilities are part of a group of financial liabilities which are managed and theirperformance are evaluated on a fair value basis, in accordance with a documented risk managementstrategy and information about the company’s financial liabilities is provided internally on that basisto the entity’s key management personnel; or (iii) the financial liabilities contain an embeddedderivative, unless the embedded derivative does not significantly modify the cash flows or it is clear,with little or no analysis, that it would not be separately recorded.

The Company has no financial liabilities carried at FVPL as at December 31, 2017.

Other Financial Liabilities. After initial recognition, other financial liabilities are subsequentlymeasured at amortized cost using the EIR method.

Gains and losses are recognized in the statement of comprehensive income when the liabilities arederecognized as well as through the EIR amortization process. Amortized cost is calculated by takinginto account any discount or premium on acquisition and fees or costs that are an integral part of theEIR.

The Company’s other financial liabilities include trade payables and other current liabilities (exceptfor statutory payables), subscription payable, long-term loans and finance lease liability as atDecember 31, 2017 (see Notes 14, 15, 17, 18 and 26).

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Debt Issue Costs. Debt issue costs are deducted against long-term loans and are amortized over theterms of the related borrowings using the EIR method.

Derecognition. A financial liability is derecognized when the obligation under the liability isdischarged or cancelled or expires. When an existing financial liability is replaced by another fromthe same lender on substantially different terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as the derecognition of the original liability andthe recognition of a new liability. The difference in the respective carrying amounts is recognized inthe statement of profit or loss.

Offsetting of Financial Assets and Financial LiabilitiesFinancial assets and financial liabilities are offset and the net amount is reported in the statement offinancial position if, and only if, there is a currently enforceable legal right to offset the recognizedamounts and there is an intention to settle on a net basis, or to realize the assets and settle theliabilities simultaneously.

“Day 1” DifferenceWhere the transaction price in a non-active market is different from the fair value of other observablecurrent market transactions in the same instrument or based on a valuation technique which variablesinclude only data from observable market, the Company recognizes the difference between thetransaction price and fair value (a “Day 1” difference) in the Company’s statement of comprehensiveincome unless it qualifies for recognition as some other type of asset or liability. In cases where dataused by the Company are not observable, the difference between the transaction price and modelvalue is only recognized in the income statement when the inputs become observable or when theinstrument is derecognized. For each transaction, the Company determines the appropriate method ofrecognizing the “Day 1” difference amount.

Property and EquipmentProperty and equipment, including assets under finance lease, are carried at cost, excluding day-to-day servicing, less accumulated depreciation, amortization and any impairment loss. The initial costof property and equipment comprises its purchase price, including import duties and non-refundablepurchase taxes and any directly attributable costs of bringing the property and equipment to itsworking condition and location for its intended use. Such cost includes the cost of replacing part ofsuch property and equipment and borrowing cost for long-term construction project when recognitioncriteria are met. When significant parts of property and equipment are required to be replaced atintervals, the Company recognizes such parts as individual assets with specific useful lives anddepreciation, respectively. Likewise, when major repairs are performed, its cost is recognized in thecarrying amount of the property and equipment as a replacement if the recognition criteria aresatisfied.

Expenditures incurred after the property and equipment have been put into operation, such as repairsand maintenance, are normally recognized as expense in the period such costs are incurred. Insituations where it can be clearly demonstrated that the expenditures have resulted in an increase inthe future economic benefits expected to be obtained from the use of property and equipment beyondits originally assessed standard of performance, the expenditures are capitalized as additional cost ofthe property and equipment.

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Depreciation and amortization commence once the property and equipment are available for use andis computed using the straight-line method over the estimated useful lives of the assets as follows:

Warehousing equipment 5 to 10 yearsHeavy equipment 5 yearsTransportation equipment 5 yearsComputer and office equipment 3 to 5 yearsSoftware 3 yearsLeasehold improvement 3 years or term of the lease,

whichever is shorter

The asset’s residual values, useful lives and depreciation and amortization method are reviewed, andadjusted if appropriate, at each financial reporting period.

An item of property and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset(calculated as the difference between the net disposal proceeds and the carrying amount of the asset)is included in the statement of comprehensive income when the asset is derecognized.

Investment in and Advances to SubsidiariesInvestment in and advances to subsidiaries are accounted for at cost less any impairment in value.

A subsidiary is an entity controlled by the parent company. The parent company controls an entitywhen it is exposed or has rights to variable returns from its involvement with the entity and has theability to affect those returns through its power over the entity, generally accompanied by ashareholding more than one half of the voting rights. The existence and effect of potential votingrights that are currently exercisable or convertible are considered when assessing whether the parentcompany controls another entity.

Business Combinations and GoodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition ismeasured as the aggregate of the consideration transferred measured at acquisition date fair value andthe amount of any non-controlling interest (NCI) in the acquiree. For each business combination, theCompany elects whether to measure the NCI in the acquiree at fair value or at the proportionate shareof the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included ingeneral and administrative expenses.

When the Company acquires a business, it assesses the financial assets and liabilities assumed forappropriate classification and designation in accordance with the contractual terms, economiccircumstances and pertinent conditions as of the acquisition date. This includes the separation ofembedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest isre-measured at its acquisition date fair value and any resulting gain or loss is recognized in profit orloss. It is then considered in the determination of goodwill.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at theacquisition date. Contingent consideration classified as an asset or liability that is a financialinstrument and within the scope of PAS 39, is measured at fair value with changes in fair valuerecognized either in the statement of comprehensive income or as a change to other comprehensiveincome. If the contingent consideration is not within the scope of PAS 39, it is measured inaccordance with the appropriate PFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

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Goodwill is initially measured at cost, being the excess of the aggregate of the considerationtransferred and the amount recognized for NCI, and any previous interest held, over the netidentifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is inexcess of the aggregate consideration transferred, the Company re-assesses whether it has correctlyidentified all of the assets acquired and all of the liabilities assumed and reviews the procedures usedto measure the amounts to be recognized at the acquisition date. If the re-assessment still results in anexcess of the fair value of net assets acquired over the aggregate consideration transferred, then thegain is recognized immediately in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Forthe purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Company’s cash-generating units (CGUs) that are expectedto benefit from the combination, irrespective of whether other assets or liabilities of the acquiree areassigned to those units.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of,the goodwill associated with the disposed operation is included in the carrying amount of theoperation when determining the gain or loss on disposal. Goodwill disposed in these circumstances ismeasured based on the relative values of the disposed operation and the portion of the CGU retained.

If the initial accounting for business combination can be determined only provisionally by the end ofthe period by which the combination is effected because the fair values to be assigned to theacquiree’s identifiable assets and liabilities can be determined only provisionally, the Companyaccounts for the combination using provisional values. Adjustments to those provisional values as aresult of completing the initial accounting shall be made within twelve (12) months from theacquisition date. The carrying amount of an identifiable asset, liability or contingent liability that isrecognized as a result of completing the initial accounting shall be calculated as if its fair value at theacquisition date had been recognized from that date. Goodwill or any gain recognized shall beadjusted from the acquisition date by an amount equal to the adjustment to the fair value at theacquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted.

Intangible AssetsIntangible assets acquired separately are measured at cost on initial recognition. The cost ofintangible assets acquired from business combinations are initially recognized at fair value on the dateof acquisition. Following initial recognition, intangible assets are carried at cost less any accumulatedamortization and accumulated impairment losses. The useful lives of intangible assets are assessed atthe individual asset level as either finite or indefinite.

Intangible assets with finite lives are amortized over the useful economic life using the straight-linemethod and assessed for impairment whenever there is an indication that the intangible assets may beimpaired. At the minimum, the amortization period and the amortization method for an intangibleasset with a finite useful life are reviewed at each financial year-end. Changes in the expected usefullife or the expected pattern of consumption of future economic benefits embodied in the asset areaccounted for by changing the amortization period or method, as appropriate, and treated as changesin accounting estimates. The amortization expense on intangible assets with finite lives is recognizedin the statement of comprehensive income.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annuallyeither individually or at the CGU level. The useful life of an intangible asset with an indefinite life isreviewed annually to determine whether the indefinite life assessment continues to be supportable. Ifnot, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

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The estimate useful lives in amortizing the intangible assets are disclosed in Note 10. Gains or lossesarising from derecognition of an intangible asset are measured as the difference between the netdisposal proceeds and the carrying amount of the asset, and are recognized in the statement ofcomprehensive income when the asset is derecognized.

Internally generated intangibles are not capitalized and the related expenditures are charged againstoperations in the period in which the expenditures are incurred.

The Company’s intangible assets include software cost, customer contracts and goodwill as atDecember 31, 2018 and 2017 (see Notes 9 and 10).

Impairment of Nonfinancial AssetsThe Company assesses at each reporting date whether there is an indication that its property andequipment, software cost, investment in and advances to subsidiaries and intangibles may beimpaired. If any such indication exists, or when annual impairment testing for an asset is required,the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount isthe higher of an asset’s or CGU’s fair value less costs to sell and its value in use and is determined foran individual asset, unless the asset does not generate cash inflows that are largely independent ofthose from other assets or groups of assets. Where the carrying amount of an asset or CGU exceedsits recoverable amount, the asset is considered impaired and is written down to its recoverableamount. In assessing value in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments of the time value ofmoney and the risks specific to the asset. In determining fair value less costs to sell, recent markettransactions are taken into account, if available. If no such transactions can be identified, anappropriate valuation model is used. These calculations are corroborated by valuation multiples,quoted share prices for publicly traded subsidiaries or other available fair value indicators.Impairment losses are recognized in the statement of comprehensive income in those expensecategories consistent with the function of the impaired asset.

For nonfinancial assets excluding goodwill, an assessment is made at each financial reporting date asto whether there is any indication that previously recognized impairment losses may no longer existor may have decreased. If such indication exists, the recoverable amount is estimated. A previouslyrecognized impairment loss is reversed only if there has been a change in the estimates used todetermine the asset’s recoverable amount since the last impairment loss was recognized. If that is thecase, the carrying amount of the asset is increased to its recoverable amount. That increased amountcannot exceed the carrying amount that would have been determined, net of depreciation, had noimpairment loss been recognized for the asset in prior years. Such reversal is recognized in thestatement of comprehensive income unless the asset is carried at revalued amount, in which case thereversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjustedin future periods to allocate the asset’s revised carrying amount, less any residual value, on asystematic basis over its remaining useful life.

Goodwill. Goodwill is reviewed for impairment annually or more frequently if events or changes incircumstances indicate that the carrying amount may be impaired. Impairment is determined forgoodwill by assessing the recoverable amount of the CGU, or group of CGUs, to which the goodwillrelates. Where the recoverable amount of the CGU, or group of CGUs, is less than the carryingamount of the CGU or group of CGUs, to which goodwill had been allocated, an impairment loss isrecognized. Impairment losses relating to goodwill cannot be reversed in future periods.

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Deposits for Future Stock SubscriptionDeposits for future stock subscription are accounted for as a separate account under equity when allof the following elements are present as at end of the reporting period:

∂ the unissued authorized capital stock of the Company is insufficient to cover the amount of deposit;∂ there is BOD approval on the proposed increase in authorized capital stock (for which a deposit

was received by the Company);∂ there is stockholders’ approval of the said proposed increase; and,∂ the application for the approval of the proposed increase has been presented for filing or has been

filed with the SEC.

When one of the conditions above is not met, the amount is recorded as a liability.

EquityCapital stock is measured at par value for all shares issued. Any amount received in excess of the parvalue of shares are recognized as part of additional paid-in capital.

Equity reserves comprise of incremental costs incurred directly attributable to the issuance of newshares.

Deficit represents the Company’s accumulated net losses, adjusted for the effects of changes inaccounting policies as may be required by PFRS’s transitional provisions.

Other Comprehensive IncomeOther comprehensive income comprises items of income and expense that is not recognized in profitor loss as required or permitted by other PFRS.

Revenue Recognition

Accounting policy applied beginning January 1, 2018

Revenue from contracts with customers is recognized when services are transferred to the customer atan amount that reflects the consideration to which the Company expects to be entitled in exchange forthose services. The Company assesses its revenue arrangements against specific criteria in order todetermine if it is acting as principal or agent. The Company has generally concluded that it is theprincipal in its revenue arrangements because it typically controls the services before transferringthem to the customer.

The Company considers whether there are other promises in the contract that are separateperformance obligations to which a portion of the transaction price needs to be allocated (e.g.warranties). In determining the transaction price, the Company considers the effects of variableconsideration, the existence of significant financing components, noncash consideration andconsideration payable to the customer, if any.

The following specific recognition criteria must also be met before revenue is recognize.

Warehouse Management Income, Trucking Services, Freight Forwarding and Others. Revenue isrecognized overtime based on output method. This is on the basis of direct measurement of the valueto the customer of the services rendered relative to the remaining services promised under thecontract.

Rent Income. Revenue is recognized on a straight-line method over the lease term.

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Interest Income. Interest income is recognized as it accrues, using the effective interest method.

Accounting policy applied until December 31, 2017

Revenue is recognized to the extent that it is probable that the economic benefits will flow to theCompany and the revenue can be reliably measured. Revenue is measured at the fair value ofconsideration received, excluding discounts, rebates and VAT. The following specific recognitioncriterion must be met before revenue is recognized.

Warehouse Management Income, Trucking Services, Freight Forwarding and Others. Revenue isrecognized when the service has been rendered.

Rent Income. Revenue is recognized on a straight-line method over the lease term.

Interest Income. Interest income is recognized as it accrues, using the effective interest method.

Costs and Expenses RecognitionCosts and expenses are recognized in the statement of comprehensive income when a decrease infuture economic benefit related to a decrease of an asset or an increase of a liability has arisen thatcan be measured reliably. Costs and expenses are recognized in the statement of comprehensiveincome on the basis of systematic and rational allocation procedures when economic benefits areexpected to arise over several accounting periods and the association with income can only bebroadly or indirectly determined; or immediately when expenditure produces no future economicbenefits or when, and to the extent that, future economic benefits do not qualify or cease to qualify forrecognition in the Company’s financial position as an asset.

Employee Benefits

The Company has not yet arranged a formal retirement plan for its employees. However theCompany, as an entity operating in the Philippines, is covered under Republic Act (R.A.) 7641, ThePhilippine Retirement Law, which provides for qualified employees for a defined benefit minimumguarantee. The defined benefit minimum guarantee is equivalent to a certain percentage of themonthly salary payable to an employee at normal retirement age with the required credited years ofservice based on the provisions of RA 7641.

Accordingly, the Company accounts for the retirement obligation under the higher of the definedbenefit obligation relating to the minimum guarantee and the obligation arising from the definedcontribution plan.

The cost of providing benefits under the defined benefit plan is determined using the projected unitcredit method.

The net defined benefit asset or liability is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjustedfor any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is thepresent value of any economic benefits available in the form of refunds from the plan or reductions infuture contributions to the plan.

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Defined benefit costs comprise the following:

1) Service cost;2) Net interest on the net defined benefit liability or asset; and3) Remeasurements of net defined benefit liability or asset.

Service cost which include current service costs, past service costs and gains or losses onnon-routine settlements are recognized as expense in the statement of income. Past service costs arerecognized when plan amendment or curtailment occurs. These amounts are calculated periodicallyby independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arise from the passage of time which is determined by applyingthe discount rate based on government bonds to the net defined liability or asset. Net interest on thenet defined benefit liability or asset is recognized as expense or income in the statement of income.

Remeasurements comprising actuarial gains and losses are recognized immediately in the statementof comprehensive income in the period in which they arise. Remeasurements are not reclassified toprofit or loss in subsequent periods.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of thearrangement at inception date. The arrangement is assessed for whether the fulfillment of thearrangement is dependent on the use of a specific asset or assets and the arrangement conveys a rightto use the asset or assets, even if that right is not explicitly specified in an arrangement.

A reassessment is made after the inception of the lease, if any, if the following applies:a) there is a change in contractual terms, other than a renewal or extension of the arrangement;b) a renewal option is exercised, or extension granted, unless the term of the renewal or extensionwas initially included in the lease term;c) there is a change in the determination of whether fulfillment is dependent on a specified asset;or,d) there is substantial change to the asset.

Where the reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and the date ofrenewal or extension period for scenario (b).

Company as a Lessee. A lease is classified at the inception date as a finance lease or an operatinglease. A lease that transfers substantially all the risks and rewards incidental to ownership to theCompany is classified as a finance lease.

Finance leases are capitalized at the commencement of the lease at the inception date fair value of theleased property or, if lower, at the present value of the minimum lease payments. Lease payments areapportioned between finance charges and reduction of the lease liability so as to achieve a constantrate of interest on the remaining balance of the liability. Finance charges are recognized under“Interest expense” account in statements of comprehensive income.

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

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Leases where the lessor retains substantially all the risks and benefits of ownership of the assets areclassified as operating leases. Operating lease payments are recognized as “Warehouse rental”included under “Cost of services” in the statements of comprehensive income on a straight-line basisover the lease term.

Company as a Lessor. Leases in which the Company does not transfer substantially all the risks andrewards of ownership of the asset are classified as operating leases. Any initial direct costs incurredin negotiating an operating lease are added to the carrying amount of the leased asset and recognizedover the lease term on the same bases as rental income. Rental income is recognized in statement ofcomprehensive income on a straight-line basis over the lease term.

Income Tax

Current Tax. Current tax assets and liabilities for the current and prior period are measured at theamount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used tocompute the amount are those that are enacted or substantively enacted at the end of reporting period.

Deferred Tax. Deferred tax is provided, using the liability method, on all temporary differencesbetween the tax bases of assets and liabilities and their carrying amounts for financial reportingpurposes at the reporting date.

Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets arerecognized for all deductible temporary differences and unused net operating loss carryover(NOLCO), to the extent that it is probable that taxable profit will be available against which thedeductible temporary differences and carryforward benefits of unused NOLCO can be utilized.Deferred tax, however, is not recognized when it arises from the initial recognition of an asset orliability in a transaction that is not a business combination and, at the time of the transaction, affectsneither the accounting profit nor taxable profit or loss.

The carrying amount of deferred tax assets is reviewed at each end of reporting period and reduced tothe extent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the deferred tax asset to be utilized. Unrecognized deferred tax assets are measured at eachend of reporting period and are recognized to the extent that it has become probable that futuretaxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the periodwhen the asset is realized or the liability is settled, based on tax rates (and tax laws) that have beenenacted or substantively enacted at the end of reporting period.

Deferred taxes relating to items recognized outside profit or loss are recognized in correlation to theunderlying transaction either in other comprehensive income or directly in equity.

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

VAT. Revenue, expenses and assets are recognized net of the amount of tax, except:

∂ When the VAT incurred on a purchase of assets or service is not recoverable from the taxationauthority, the VAT is recognized as part of the cost of acquisition of the asset or as part of theexpense item as applicable; and

∂ When receivables and payables are stated with the amount of VAT included.

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ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation and a reliable estimate can be made of the amount of the obligation.If the effect of the time value of money is material, provisions are made by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments of the time value of moneyand, where appropriate, the risks specific to the liability. Where discounting is used, the increase inthe provision due to the passage of time is recognized as an interest expense.

Where the Company expects some or all of a provision to be reimbursed, the reimbursement isrecognized as a separate asset but only when the reimbursement is virtually certain. The expenserelating to any provision is presented in the statement of comprehensive income, net of anyreimbursement.

ContingenciesContingent liabilities are not recognized in the financial statements but are disclosed in the notesunless the possibility of an outflow of resources embodying economic benefits is remote. Contingentassets are not recognized in the financial statements but are disclosed in the notes to financialstatements when an inflow of economic benefits is probable.

Events After the Reporting PeriodPost year-end events that provide additional information about the Company’s financial position atthe end of reporting period (adjusting events), if any, are reflected in the Company’s financialstatements. Post year-end events that are not adjusting events are disclosed in the notes to thefinancial statements when material.

4. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the financial statements in compliance with PFRS requires management to makejudgments, estimates and assumptions that affect certain reported amounts and disclosures. Inpreparing the financial statements, management has made its best estimates and assumptions ofcertain amounts, giving due consideration to materiality. Judgments, estimates and assumptions usedin the accompanying financial statements are based upon management’s evaluation of relevant factsand circumstances as of the date of the financial statements. Actual results could differ from thoseestimates, and such estimates will be adjusted accordingly. Estimates and assumptions includeexpectations of future events that are believed to be reasonable under the circumstances.

The Company believes that the following represent a summary of these significant judgments,estimates and assumptions, and the related impact and associated risks in the financial statements.

Judgments

Acquisition of a Group of Assets Qualified as a Business Combination. In applying the requirementsof PFRS 3, Business Combinations, an entity or an asset being acquired has to be assessed whether itconstitutes a business. In the assessment, it requires identification of inputs and processes applied tothese inputs to generate outputs or economic benefits. The group of logistics assets acquired asdiscussed in Note 1 is considered a business; hence, accounted for as a business combination.

Leases. As a lessee, the Company has various lease agreements in respect to certain equipment andproperties. Management evaluates whether significant risks and rewards of ownership of the leasedproperties are transferred to the Company (finance lease) or retained by the lessor (operating lease)based on PAS 17, Leases.

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Certain lease agreements are accounted for as operating leases. Total warehouse lease expenseamounted to P=238.9 million and P=214.9 million for the years ended December 31, 2018 and 2017,respectively (see Note 20). Other lease agreements are classified as finance lease, in which theCompany recognized lease assets and obligations. Total finance lease obligations amounted toP=29.3 million and P=58.3 million as at December 31, 2018 and 2017, respectively (see Note 17). Thecarrying value of the capitalized asset under finance lease amounted to P=24.5 million andP=56.1 million, net of accumulated depreciation amounting to P=11.3 million and P=8.2 million, as atDecember 31, 2018 and 2017, respectively (see Note 8).

Revenue Recognition applied starting January 1, 2018

The Company applied the following judgments that significantly affect the determination of theamount and timing of revenue from contracts with customers:

ƒ Identifying Performance ObligationsThe Company identifies performance obligations by considering whether the promised goods orservices in the contract are distinct goods or services. A good or service is distinct when thecustomer can benefit from the good or service on its own or together with other resources that arereadily available to the customers and the Company’s promise to transfer the good or service tothe customer is separately identifiable.

The Company assesses performance obligations as a series of distinct services that aresubstantially the same and have the same pattern of transfer if: i) each distinct service in the seriesare transferred over time; and, ii) the same method of progress will be used (i.e., units of delivery)to measure the entity’s progress towards complete satisfaction of the performance obligation.

For freight forwarding and trucking services, the Company assessed that the performanceobligation are for the transport of goods from one point to another point within the Philippines.The duration of routes generally from one (1) day to four (4) days.

For warehousing services, the services rendered generally cover performance of storage servicesfor warehouse management and use of space in Company-occupied warehouses for warehouserental or space rental. The performance obligations are different and are assessed as a separatedistinct performance obligation.

ƒ Determining the Timing of Recognition of RevenueThe Company concluded that performance obligation from warehouse management, freightforwarding, trucking and other services are to be recognized over time. As a result, revenue is tobe recognized when the Company transfers control of the services over time, based on the extentof progress towards completion of the performance obligation at the end of the reporting periodas proportion of the total services to be provided, because the customer receives and uses thebenefits simultaneously. The selection of the method to measure progress towards completionrequires judgement.

ƒ Determining Whether the Company is Acting as a Principal or an AgentThe Company assesses its revenue arrangements against the following criteria to determinewhether it is acting as a principal or an agent:∂ whether the Company has primary responsibility for providing the services;∂ whether the Company has discretion in establishing prices; and,∂ whether the Company bears the credit risk.

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If the Company has determined it is acting as a principal, revenue is recognized on a gross basiswith the amount remitted to the other party being accounted as part of costs and expenses. If theCompany, however, has determined it is acting as an agent, only the net amount retained isrecognized as revenue.

The Company assessed its revenue arrangement and concluded that it is acting as principal in allarrangements.

Impairment of Financial Assets applied starting January 1, 2018

Identifying Business Model upon Adoption of PFRS 9. The Company determined that its portfolio isclassified as amortized cost with the business model’s objective is to hold to collect the financialassets to ensure sufficient funding to support operations and project implementation. This includescash and cash equivalents, trade and other receivables and loan receivables.

Definition of Default and Credit-Impaired Financial Assets. The Company considers a financial assetin default, which is fully aligned with the definition of credit-impaired, when contractual paymentsare more than 60 to 120 days past due. However, in certain cases, the Company may also consider afinancial asset to be in default when internal or external information indicates that the Company isunlikely to receive the outstanding contractual amounts in full before taking into account any creditenhancements held by the Company.

Estimates and Assumptions

Purchase Price Allocation in a Business Combination and Goodwill. The Company accounts for theacquired businesses using the acquisition method which requires extensive use of accountingjudgments and estimates to allocate the purchase price to the fair market values of the acquiree’sidentifiable assets and liabilities and contingent liabilities, if any, at the acquisition date. Anydifference in the purchase price and the fair values of the net assets acquired is recorded as eithergoodwill, a separate account in the statement of financial position, or gain on bargain purchase in thestatement of comprehensive income. Thus, the numerous judgments made in estimating the fair valueto be assigned to the acquiree’s assets and liabilities can materially affect the Company’s financialposition and performance.

The Company’s acquisition of the Sellers’ logistics businesses and assets resulted in the recognitionof goodwill. The carrying value of the goodwill amounted to P=1,366.4 million as atDecember 31, 2018 and 2017 (see Notes 1 and 10).

Determination of Fair Value of Financial Instruments. Entities are required to disclose for each classof financial assets and liabilities the fair value of that class of assets and liabilities in a way thatpermits it to be compared with the corresponding carrying amount in the Company’s statement offinancial position, which requires the use of accounting judgment and estimates. Significantcomponents of fair value measurement are determined using verifiable objective evidence(i.e., interest rates, volatility rates), and timing and amount of changes in fair value would differ withthe valuation methodology used. Any changes in fair value of these financial assets and liabilitieswould affect the disclosures made by management.

The fair value of the Company’s financial assets and liabilities are disclosed in Note 27 to thefinancial statements, particularly Note 12 for equity instruments at FVOCI.

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Estimating Useful Lives of Property and Equipment. The useful life of each of the Company’sproperty and equipment is estimated based on the period over which the property and equipment isexpected to be available for use. The estimated useful lives of the property and equipment arereviewed periodically and are updated if expectations differ from previous estimates due to physicalwear and tear, technical or commercial obsolescence and legal or other limits on the use of theproperty and equipment. In addition, the estimation of the useful lives of property and equipment arebased on the collective assessment, internal technical evaluation and experience with similar assets.It is possible, however, that future results of operations could be materially affected by changes in theestimates brought about by changes in factors mentioned above. The amounts and timing of recordedexpenses for any period would be affected by changes in these factors and circumstances. Areduction in the estimated useful lives of the property and equipment would increase the recordedexpenses and decrease the noncurrent assets.

There are no changes in the useful life of property and equipment in 2018 and 2017. The carryingvalues of property and equipment as at December 31, 2018 and 2017 are disclosed in Note 8 to thefinancial statements.

Estimating Useful Lives of Intangible Assets. Intangible assets are amortized over their expecteduseful lives using the straight-line method of amortization. At a minimum, the amortization periodand the amortization method for an intangible asset are reviewed at least at each financial year-end.Changes in the expected useful life or the expected pattern of consumption of future economicbenefits embodied in the asset are accounted for by changing the amortization period or method, asappropriate, and treated as changes in accounting estimates. The amortization expense on intangibleassets is recognized in the statements of comprehensive income.

The carrying values of intangibles as at December 31, 2018 and 2017 are disclosed in Notes 9 and 10to the financial statements.

Impairment of Nonfinancial Assets. Impairment review is performed when certain impairmentindicators are present. Determining the face value of assets requires the estimation of cash flowsexpected to be generated from the continued use and ultimate disposition of such assets.

While it is believed that the assumptions used in the estimation of fair values reflected in the financialstatements are appropriate and reasonable, significant changes in those assumptions may materiallyaffect the assessment of recoverable values and any resulting impairment loss could have a materialimpact on the results of operations.

No impairment loss was recognized by the Company on its property and equipment, software cost,investment in and advances to subsidiaries and intangibles excluding goodwill for the years endedDecember 31, 2018 and 2017.

Impairment of Goodwill. Goodwill is subject to annual impairment test. This requires an estimationof the value in use of CGUs to which the goodwill is allocated. Estimating the value in use requiresthe Company to estimate the expected future cash flows from the CGU and to choose a suitablediscount rate in order to calculate the present value of those cash flows.

Impairment of goodwill amounting to nil and P=324.2 million was recognized for the years endedDecember 31, 2018 and 2017, respectively (see Notes 10 and 21). The carrying value of goodwillamounted to P=1,366.4 million as at December 31, 2018 and 2017 (see Note 10).

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Determination of Impairment of Trade Receivables applied starting January 1, 2018. To complywith the requirements of PFRS 9, the Company adopted the simplified approach and calculates ECLbased on lifetime expected credit losses which considers the historical credit loss experience, adjustedfor forward-looking factors specific to the customer and the economic environment. ECL is thedifference between the contractual cash flows due in accordance with the contract and all the cashflows that the Company expects to receive.

Inputs, assumptions and estimation techniques used in the simplified approach. The Company usesthe simplified approach in measuring the expected credits losses from its trade receivables. Tocapture the effect of changes to the economic environment in the future, the computation ofProbability of Default (PD), Loss Given Default (LGD) and ECL, incorporates forward-lookinginformation; assumptions on the path of economic variables that are likely to have an effect on therepayment ability of the Company’s counterparties. The starting point for the projections ofeconomic variables is based on management’s view, which underlies the plan to deliver theCompany’s strategy and ensures it has sufficient capital over the medium term. Management’s viewcovers a core set of economic variables required to set the strategic plan.

These three components are multiplied together and adjusted for forward-looking economic factors(i.e. GDP, inflation and unemployment).

The Company recognized provision for ECL amounting to P=214.8 million for the year endedDecember 31, 2018. The carrying amount of receivables amounted to P=601.8 million as atDecember 31, 2018 (see Notes 6 and 21).

Determination of Impairment of Trade Receivables applied until December 31, 2017. The amount ofallowance is evaluated by management on the basis of factors that affect the collectability of theaccounts. In these cases, it uses judgment based on all available facts and circumstances, including,but not limited to, the length of our relationship with the customer and the customer’s credit statusbased on third party credit reports and known market factors, to record specific reserves for customersagainst amounts due in order to reduce the receivables to amounts that is expected to collect. Thesespecific reserves are re-evaluated and adjusted as additional information received affects the amountsestimated.

In addition to specific allowance against individually significant receivables, the Company also assessa collective impairment allowance against credit exposures of the customer which were groupedbased on common credit characteristics, which, although not specifically identified as requiring aspecific allowance, have a greater risk of default than when the receivables were originally granted tocustomers. This collective allowance is based on historical loss experience using various factors,such as historical performance of the customers within the collective group, deterioration in themarkets in which the customers operate, and identified structural weaknesses or deterioration in thecash flows of customers.

Total provision for doubtful accounts for trade and other receivables amounting to P=6.9 million wasrecognized for the year ended December 31, 2017. The carrying amount of receivables amounted toP=1,166.3 million as at December 31, 2017 (see Notes 6 and 21).

Realizability of Deferred Tax Assets. The Company reviews its deferred tax assets at each reportingdate and reduces their carrying amounts to the extent that it is no longer probable that sufficienttaxable profit will be available to allow all or part of the deferred tax assets to be utilized. TheCompany’s assessment of the recognition of deferred tax assets is based on the projected taxableincome in the following years. Unrecognized deferred tax assets are reassessed at each reporting dateand are recognized to the extent that it has become probable that future taxable profit will allow thedeferred tax assets to be recovered.

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Unrecognized deferred tax assets as at December 31, 2018 and 2017 are disclosed in Note 23 to thefinancial statements.

5. Cash and Cash Equivalents

This account consists of:

2018 2017Short-term deposits P=490,042,103 P=–Cash in banks 285,493,471 94,843,903Petty cash 929,150 796,150

P=776,464,724 P=95,640,053

Cash in banks earn interests at the prevailing bank deposit rates.

Short-term deposits are deposits with original maturities of more than three months to one year fromdates of acquisition and earn interest at the prevailing short-term deposits rates.

Interests earned from cash and cash equivalents amounted to P=11.5 million and P=0.6 million, gross offinal tax, for the years ended December 31, 2018 and 2017, respectively.

6. Trade and Other Receivables

This account consists of:

2018 2017Trade receivables

Third parties P=555,975,855 P=473,301,536Related parties (Note 18) 51,606,519 –

Accrued receivablesThird parties 106,441,164 409,524,191Related parties (Note 18) 9,915,997 –

Due from related parties (Note 18) 61,608,000 253,520,368Receivable from employees 7,880,570 5,906,594Others

Third parties 7,723,657 –Related parties (Note 18) 22,361,496 –

823,513,258 1,142,252,689Less allowance for ECL/doubtful accounts (221,693,941) (6,922,956)

P=601,819,317 P=1,135,329,733

Trade receivables and accrued receivables are noninterest-bearing and are generally with settlementterms of 60 to 120 days.

Accrued receivables pertain to freight forwarding, warehousing and trucking services rendered butnot yet billed.

Receivable from employees are subject to liquidation, generally within one month.

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Other receivables pertain to claims from entities in which the Company engaged to transactions otherthan its ordinary business activity such as sale of assets and claims for damages.

The movement in the Company’s allowance for ECL as of December 31, 2018 and allowance fordoubtful accounts as of December 31, 2017 are as follows:

2018Trade - Third

PartiesReceivable from

EmployeesTotal

Balance at January 1, 2018 P=6,922,956 P=– P=6,922,956Provision for ECL (see Note 21) 212,431,774 2,339,211 214,770,985Balance at December 31, 2018 P=219,354,730 P=2,339,211 P=221,693,941

2017Trade - Third

PartiesBalance at January 1, 2017 P=–Provisions for doubtful accounts (see Note 21) 6,922,956Balance at December 31, 2017 P=6,922,956

7. Other Current Assets

This account consists of:

2018 2017Input VAT - net P=208,736,850 P=32,774,858Prepayments 19,529,254 26,758,222Advances to lessors 13,329,632 17,937,692Creditable withholding taxes 63,422,330 19,211,635Current portion of refundable deposits

(Notes 12 and 24) 19,814,022 9,092,457P=324,832,088 P=105,774,864

Input VAT- net represents the excess of input VAT from the Company’s purchases over output VATfrom its sales.

Prepayment pertains to future rental expense paid in advance by the Company.

To facilitate the acquisition of certain heavy and transportation equipment under finance lease, theCompany advanced certain payments to the supplier for the account of the lessor. The amountadvanced will be paid by the lessor to the Company within a year.

Creditable withholding taxes represent amounts withheld by the Company’s customers and to bededucted from the Company’s income tax payable.

Current portion of refundable deposits represent the portion of security deposits paid for by theCompany on its operating leases whose terms will end within a year (see Note 24).

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8. Property and Equipment

Movements in this account for the years ended December 31, 2018 and 2017 are summarized below:

2018

LandWarehouseEquipment

LeaseholdImprovement

HeavyEquipment

TransportationEquipment

Computerand Office

EquipmentConstruction

in Progress TotalCostsBeginning balances P=– P=155,505,371 P=82,926,612 P=10,931,000 P=68,053,985 P=27,953,770 P=81,302,637 P=426,673,375Additions 1,251,367,081 19,990,746 42,969,255 – 10,930,125 13,773,236 54,004,951 1,393,035,394Disposal – (5,192,500) – (10,931,000) (27,800,098) – – (43,923,598)Reclassification – 28,212,783 27,005,006 – – 1,000 (55,218,789) –

1,251,367,081 198,516,400 152,900,873 – 51,184,012 41,728,006 80,088,799 1,775,785,171Accumulated DepreciationBeginning balances – 32,231,072 19,877,084 4,832,993 11,925,377 5,888,453 – 74,754,979Depreciation

(Notes 20 and 21) – 29,829,173 36,967,131 479,194 12,699,750 11,178,260–

91,153,508Disposal – (4,170,889) – (5,312,187) (9,951,000) – – (19,434,076)

– 57,889,356 56,844,215 – 14,674,127 17,066,713 – 146,474,411Net Book Value P=1,251,367,081 P=140,627,044 P=96,056,658 P=– P=36,509,885 P=24,661,293 P=80,088,799 P=1,629,310,760

2017

WarehouseEquipment

LeaseholdImprovement

HeavyEquipment

TransportationEquipment

Computerand OfficeEquipment

Constructionin Progress Total

CostsBeginning balances P=87,834,215 P=57,263,126 P=33,725,240 P=31,997,976 P=10,419,404 P=9,415,797 P=230,655,758Additions 67,671,156 22,407,040 – 37,348,152 15,883,108 78,595,292 221,904,748Disposal – (1,800,748) (22,794,240) (1,292,143) – – (25,887,131)Reclassification – 5,057,194 – – 1,651,258 (6,708,452) –

155,505,371 82,926,612 10,931,000 68,053,985 27,953,770 81,302,637 426,673,375Accumulated DepreciationBeginning balances 10,078,727 6,836,291 2,160,480 1,239,089 576,131 – 20,890,718Depreciation

(Notes 20 and 21) 22,152,345 14,316,323 5,141,889 10,834,687 5,312,322 – 57,757,566Disposal – (1,275,530) (2,469,376) (148,399) – – (3,893,305)

32,231,072 19,877,084 4,832,993 11,925,377 5,888,453 – 74,754,979Net Book Value P=123,274,299 P=63,049,528 P=6,098,007 P=56,128,608 P=22,065,317 P=81,302,637 P=351,918,396

On July 17, 2018, the Company acquires a 202,000 square meter land in Southern Luzon for a totalpurchase price of P=1,034.3 million which is intended for developing and managing distribution centerthat will further expand their operation in the succeeding years. In addition, on December 19, 2018,the Company acquires a 277,857 square meter land in Northern Luzon for a total purchase priceP=217.1 million for the same purpose of developing and managing distribution center. As atDecember 31, 2018, the Company is in the process of application with the Department of AgrarianReform (DAR) for the land use conversion of the acquired land from agricultural to commercial.

Construction in progress account as at December 31, 2018 and 2017 mainly pertains to costs incurredfor the ongoing assembly of warehouse equipment, office equipment and construction of leaseholdimprovements.

The carrying values of property and equipment under finance lease amounted to P=24.5 million andP=56.1 million as at December 31, 2018 and 2017, respectively (see Note 17).

As at December 31, 2018 and 2017, there are no contractual commitments for acquisitions ofproperty and equipment.

Gain on sale of property and equipment amounted to P=2.8 million and nil in 2018 and 2017,respectively.

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9. Software Cost

2018 2017Cost

Balance at beginning of year P=1,918,931 P=341,027Additions 4,393,654 1,577,904Balance at end of year 6,312,585 1,918,931

Accumulated AmortizationBalance at beginning of year 113,676 113,676Amortization (Note 21) 1,086,019 –Balance at end of year 1,199,695 113,676

Net Book Value P=5,112,890 P=1,805,255

10. Goodwill and Intangibles

The carrying values of goodwill and other intangibles acquired through business combination are asfollows:

2018 2017Customer contracts:

Cost (Note 1) P=59,826,356 P=79,768,474Amortization (Note 21) (19,942,118) (19,942,118)

39,884,238 59,826,356Goodwill:

Beginning balance 1,366,383,244 1,690,551,500Impairment (Note 21) – (324,168,256)Ending balance 1,366,383,244 1,366,383,244

P=1,406,267,482 P=1,426,209,600

The customer contracts are amortized over the useful life of 4.58 years starting June 2016.

In assessing the impairment for goodwill, the Company compares the carrying amounts of theunderlying assets against their recoverable amounts (the higher of the assets’ fair value less costs ofdisposal and their value in use).

In the assessment of the recoverable amount, the value in use was calculated based on cash flowprojections as per the most recent financial budgets and forecasts, which management believes arereasonable and are management’s best estimates of the ranges of economic conditions that will existover the forecast period. The average forecast period used in the computation is an eight-year periodand a five-year period for the years ended December 31, 2018 and 2017, respectively. The cashflows beyond the eight-year period and the five-year period were extrapolated using a 5% and 4%growth rate, respectively, that is the same as long-term average growth rate for the industry and thediscount rate used was 12% and 11% in 2018 and 2017, respectively. It was concluded that the fairvalue less costs of disposal did not exceed the value in use. As a result of the analysis, the Companyrecognized an impairment charge of nil and P=324.2 million in 2018 and 2017, respectively(see Note 21).

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11. Investments in and Advances to Subsidiaries

Investments in subsidiaries are accounted for under the cost method. Details of the Company’ssubsidiaries as at December 31, 2018 and 2017 are as follows:

Subsidiaries Date incorporated Ownership interest2018 2017 2018 2017

PremierLogistics, Inc. (PLI) September 8, 2016 100.0% 90.0% P=306,372,140 P=252,000,000MetroPac Trucking Company,

Inc. (MTCI)July 28, 2016 100.0% 100.0% 95,559,118 63,537,622

PremierTrucking, Inc. (PTI) September 8, 2016 100.0% 100.0% 87,146,691 63,537,622TruckingPro, Inc. (TPI) September 8, 2016 100.0% 100.0% 86,603,954 63,537,622OneLogistics, Inc. (OLI) September 8, 2016 100.0% 100.0% 5,000,000 5,000,000

P=580,681,903 P=447,612,866

The movements in costs of investments and advances for the years ended December 31, 2018 and2017 are as follows:

2018 2017Acquisition cost of investment:

Balance at beginning of yearPLI P=10,000,000 P=2,499,995MTCI 63,537,622 2,499,995PTI 63,537,622 2,499,995TPI 63,537,622 2,499,995OLI 5,000,000 2,499,995

Additions:PLI 54,372,140 7,500,005MTCI 32,021,496 61,037,627PTI 23,609,069 61,037,627TPI 23,066,332 61,037,627OLI – 2,500,005

Application of advances into capital stockof a subsidiary

211,000,000 –

549,681,903 205,612,866Advances to subsidiaries for future stock

subscription (Note 18):Balance at beginning of year

PLI 242,000,000 –Additional advances to PLI* – 242,000,000Application of advances into capital stock

of PLI (211,000,000) –31,000,000 242,000,000

P=580,681,903 P=447,612,866*Investment in PLI includes reclassification of P=31.0 million which was previously presented in duefrom related parties under “Trade and other receivables” in the statement of financial position as atDecember 31, 2017.

Investment in and Advances to PLIOn September 8, 2016, the PLI was incorporated with an authorized capital stock ofP=10,000,000, divided into 10,000,000 common shares at a par value of P=1.0 per share. On the samedate, 25% of the authorized capital stock or P=2.5 million has been subscribed and paid for by theCompany in cash.

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On May 16, 2017, the shareholders and BOD of PLI resolved and approved the subscription andissuance of their remaining authorized capital stock to the Company amounting to P=7.5 million.

On October 26, 2017, the Company’s BOD approved the increase of the Company’s authorizedcapital stock from P=10,000,000 divided into 10,000,000 common shares with a par value ofP=1.00 per share to P=500,000,000 divided into 500,000,000 common shares with a par value ofP=1.00 per share. Subsequently, the Company made advances to PLI amounting P=242.0 millionintended for future stock subscription of the 242,000,000 shares of the increase in authorized capitalstock. These were temporarily classified as advances to a subsidiary pending approval by the SEC ofthe increase in capital stock.

On September 10, 2018, PLI’s application for the increase in its authorized capital stock wasapproved by the SEC. Subsequently, on December 5, 2018, the Company purchased the28,000,000 shares from a shareholder for a purchase price of P=30.0 million. On the same date, PLIalso issued a total of 211,000,000 new common shares to the Company at a subscription price ofP=1.00 per share for an aggregate subscription price of P=211.0 million. Subscriptions made by theCompany amounting P=211.0 million have been settled by way of application of the advances made toPLI in 2017.

On December 1, 2018, the Company entered into a loan agreement with PLI amounting toP=173.1 million for the purpose of financing PLI’s working capital requirements and other capitalexpenditure requirements (see Note 18). The loan is non-interest bearing and was initially recognizedat the aggregate present value of P=148.7 million as these will be repaid at the end of the two-yearterm. The difference of the nominal amount and the present value of the loans amounting toP=24.4 million were recognized as additional investment in PLI.

Investments in MTCI, PTI and TPIMTCI, PTI and TPI purchased several trucks in 2017 for its trucking operations. The truckingservices started partially in October 2017 based on the availability of LTFRB certification. All trucksbecame operational by mid-2018.

In 2017, the Company entered into a loan agreement with its trucking subsidiaries amounting toP=230.0 million each or a total of P=690.0 million for the purpose of financing the trucking businessand other capital expenditures (see Note 18). The loans are non-interest bearing and were initiallyrecognized at the aggregate present value of P=521.9 million as these will be repaid at the end of thefive-year term. The difference of the nominal amount and the present value of the loans amounting toP=168.1 million were recognized as additional investment in MTCI, PTI and TPI.

On May 16, 2017, the respective shareholders and BODs of MTCI, PTI and TPI resolved andapproved the subscription and issuance of additional shares to MMI amounting to P=5.0 million each.

On May 16, 2018, the Company entered into another loan agreement with its trucking subsidiariesamounting P=118 million, P=85 million and P=87 million for MTCI, PTI and TPI, respectively, for thesame purpose of financing the trucking business and other capital expenditures (see Note 18). Theloans are non-interest bearing and were initially recognized at the present value of P=86.0 million,P=61.9 million and P=63.4 million, for MTCI, PTI and TPI respectively, as these will be repaid at theend of the five-year term. The difference of the nominal amount and the present value of the loansamounting to P=32.0 million, P=23.1 million and P=23.6 million were recognized as additionalinvestment in MTCI, PTI and TPI.

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As at December 31, 2018 and 2017, the related interest accretion on the loans amounted toP=38.6 million and P=0.20 million, respectively, which was presented as “Interest income” in theCompany’s statements of comprehensive income.

Investment in OLIOn May 16, 2017, the shareholders and BOD of OLI resolved and approved the subscription andissuance of additional shares to MMI amounting to P=2.5 million.

OLI has not yet started operations as at December 31, 2018.

12. Equity Instruments at FVOCI

In 2017, the Company made deposits to a third party for the Company’s potential expansionopportunities amounting to P=400.0 million (see Note 13). On August 3, 2018, the Companycompleted its acquisition of a 12% stake in each of the following companies: Airfreight 2100, Inc.(AF 2100), Air2100, Inc. (Air21), GO21, Inc. (GO21), Integrated Waste Management, Inc. (IWMI)and Waste and Resource Management, Inc. (WARM). The Company classified its investment asequity instruments at FVOCI.

As at December 31, 2018, the Company recorded its investments at its fair value amounting toP=100.4 million. A loss on fair value changes amounting to P=299.6 million included under“Remeasurement loss in fair value of unquoted equity investments” account in the statement ofcomprehensive income.

13. Other Noncurrent Assets

This account consists of:

2018 2017Deferred input VAT P=110,752,800 P=155,236,663Advance rentals (Note 24) 19,632,358 22,612,293Noncurrent portion of refundable deposits

(Notes 7 and 24)16,695,426 26,974,623

Deferred rent expense (Note 24) 2,336,809 4,179,162Deposits (Note 12) – 400,000,000

P=149,417,393 P=609,002,741

Refundable deposits pertains to security deposits for operating leases entered into by the Company asa lessee (see Note 24).

The difference of the fair value at initial recognition and the notional amount of refundable depositsis recognized as deferred rent expense and amortized on a straight line basis over the lease terms.Accretion of interest pertaining to refundable deposits amounted to P=1.7 million and P=0.7 million in2018 and 2017, respectively, and recognized under “Interest income” in the statements ofcomprehensive income.

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Advance rentals represent advance rental payments made by the Company to be applied in the lastmonth of the lease agreement. These advance rentals relate to lease agreements with lease terms of3 to 5 years (see Note 24).

14. Trade Payables and Other Current Liabilities

This account consists of:

2018 2017Trade payables

Third parties P=619,283,785 P=26,139,991Related parties (Note 18) 147,993,807 198,537,424

Accrued expensesThird parties 108,550,046 328,654,213Related parties (Note 18) 12,928,058 –

Due to related parties (Note 18) – 90,500,000Escrow payable (Note 1 and 18) – 39,895,271Statutory payables 66,651,829 15,611,998Current portion of customers’:

Refundable deposits (Note 24) 18,201,988 4,481,000Advance rent (Note 24) – 4,481,000

Due to employees 1,002,182 –Advances from customers 504,349 370,750

P=975,116,044 P=708,671,647

Trade payables are noninterest-bearing and are settled within a 30 to 90 day terms.

Accruals are noninterest-bearing and are normally settled within one year.

Statutory payables pertain to taxes payable, SSS payable, Philhealth payable, Pag-ibig payable andother mandatory payables.

Customers’ refundable deposits pertain to security deposits from operating leases with customerswhich are refundable at the end of the lease term (see Note 24).

Customers’ advance rentals represent advance rental payments made by the lessees to be applied inthe last month of the lease term.

Due to employees represents unclaimed benefits which are due and demandable.

Advances from customers pertain to cash advances made by the customers for the services to beprovided by the Company.

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15. Loans

Long-term LoansAs at December 31, this account consists of:

2018 2017Cost P=1,065,631,579 P=760,000,000Less unamortized debt issue costs 2,935,050 –

1,062,696,529 760,000,000Less current portion of long-term loans (net of

unamortized debt issue costs) 259,876,344 154,000,000Noncurrent portion P=802,820,185 P=606,000,000

The unamortized debt issue costs incurred in connection with the availment of long-term loanamounting to P=2.94 million and nil as at December 31, 2018 and 2017, respectively, were deductedagainst the long-term loan.

The movement in debt issue costs in 2018 is as follows:

2018Balance at beginning of the year P=–Debt issue costs incurred during the year 3,825,800Amortization during the year (890,750)Balance at the end of the year P=2,935,050

*Included under “Interest expense” in the account in the statement of comprehensive income.

Term Loan FacilityChina Banking Corporation (CBC) - P=1.0 Billion Term Loan FacilityOn September 12, 2017, the Company entered into Term Loan Agreement with CBC for partiallyfinancing the trucking business and other capital expenditures of the Company. The loan facility hasan aggregate amount of P=1.0 billion with an availability period of one year. The interest rate is(i) 5-year PDST-R2 Benchmark plus interest spread of 100 basis points p.a. or (ii) floor rate of 5%per annum whichever is higher. The principal amount of the loan shall be amortized in equalquarterly amortization while interest is paid quarterly in arrears on the outstanding principal amountof the loan. Under the loan agreement, beginning on the second anniversary of the loan, MMI’sconsolidated audited financial statements are required to maintain a net debt-to-equity ratio notexceeding 70:30 and debt service coverage ratio (DSCR) set at a minimum of 1.1x.

As at December 31, 2018 and 2017, the outstanding principal balance of this loan amounted toP=782.8 million and P=760.0 million, respectively.

Security Bank Corporation (SBC) - P=300.0 Million Term Loan FacilityOn April 20, 2018, the Company entered into Term Loan Agreement with SBC for the purpose offinancing the capital expenditures of the Company. The loan facility has an aggregate amount ofP=300.0 million with an availability period of one year. The interest rate is 5-year PDST-R2Benchmark plus interest spread of 100 basis points p.a.. The principal amount of the loan shall beamortized in equal quarterly amortization while interest is paid quarterly in arrears on theoutstanding principal amount of the loan. Under the loan agreement, beginning on the secondanniversary of the loan, MMI’s consolidated audited financial statements are required to maintain anet debt-to-equity ratio not exceeding 70:30 and debt service coverage ratio (DSCR) set at aminimum of 1.1x.

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In 2018 and 2017, total principal repayments made relative to Company’s long-term loans amountedto P=204.4 million and P=10.0 million, respectively.

Total interest expense recognized on long-term loans amounted to P=59.7 million and P=8.30 million in2018 and 2017, respectively.

Short-term LoansAs at December 31, 2018, the Company has outstanding short-term loans of P=300.0 million,P=150.0 million each, which was obtained thru a promissory note to Mizuho Bank, Ltd. and Bank ofthe Philippine Islands (BPI) on October 9, 2018 with a maturity date of January 7, 2019, and onNovember 16, 2018 with a maturity date of February 4, 2019, respectively.

Year AmountLoan amount: P=300 millionNet proceed: P=300 million

Interest on principal amount is 5.5% per annum for 90 days as agreed by parties. In 2018, theCompany recognized interest expense on short-term loans amounting to P=4.8 million.

16. Other Noncurrent Liabilities

This account consists of:

2018 2017Retirement liability (Note 22) P=8,126,737 P=7,051,977Noncurrent portion of customers’:

Refundable deposits (Notes 13 and 24) 3,160,777 6,481,597Advance rent (Note 24) – 20,854,203

Deferred rent income 443,964 274,339P=11,731,478 P=34,662,116

Customers’ advance rent represent advance rental payments made by lessees to be applied in the lastmonth of the lease agreement.

Customers’ refundable deposits represent security deposits for operating leases entered into by theCompany as a lessor.

The difference of the fair value at initial recognition and the notional amount of customers’refundable deposits is recognized as deferred rent income and amortized on a straight line basis overthe lease terms. Accretion of interest pertaining to customer’s refundable deposits amounted toP=0.7 million and P=0.2 million in 2018 and 2017, respectively, and is recognized under “Interestexpense” in the statements of comprehensive income.

17. Finance Lease Liability

In October and November 2016, the Company entered into 5-year finance lease agreements for someof its heavy and transportation equipment that are used in its trucking services. These equipment arecapitalized and depreciated over their estimated useful life of 5 years.

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As at December 31, 2018 and 2017, the future minimum lease payments under finance lease liabilityand the present value of the net minimum lease payments follows:

2018 2017Gross contractual payments:Within one year P=8,957,145 P=15,020,984Later than one year but not later than five years 23,733,840 51,246,863Total future minimum lease payments 32,690,985 66,267,847Less imputed interest 3,399,011 7,961,960Present value of minimum lease payments P=29,291,974 P=58,305,887

The imputed interest rate used by the Company is 5.5%.

The analysis of the Company’s minimum lease payments on its net finance lease liability follow:

2018 2017Within one year P=7,410,382 P=11,961,388Later than one year but not later than five years 21,881,592 46,344,499

P=29,291,974 P=58,305,887

The Company pre-terminated some of its lease contract aggregating to P=22.4 million andP=20.7 million in 2018 and 2017, respectively.

Interest expense relating to the finance lease liability amounting to P=2.4 million and P=1.0 million forthe years ended December 31, 2018 and 2017, respectively, is recognized under “Interest expense” inthe statements of comprehensive income.

Periodic payments of the finance lease are secured by the financial lease facility obtained by theCompany with the bank.

The aggregate carrying values of the capitalized assets under finance lease amounted toP=24.5 million and P=56.1 million, net of accumulated depreciation of P=11.3 million andP=8.2 million, as at December 31, 2018 and 2017, respectively (see Note 8).

At the end of the lease term, the Company has the option to buy any or all of the units at P=1.00 each.During the lease term, the Company is not allowed to rent out the equipment items to any party norassign its rights under a contract without prior consent of the lessor.

Items of property and equipment under finance lease may be repossessed upon failure of theCompany to pay rentals and other amounts which may be payable by the Company to the lessor.

18. Related Party Transactions

Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, orare controlled by, or under common control with the Company, including holding companies,subsidiaries and fellow subsidiaries are related parties of the Company. Associates and individualsowning, directly or indirectly, an interest in the voting power of the Company that gives themsignificant influence over the enterprise, key management personnel, including directors and officersof the Company and close members of the family of these individuals and companies associated withthese individuals also constitute related parties. In considering each possible related entityrelationship, attention is directed to the substance of the relationship, and not merely the legal form.

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In the normal course of business, the Company engages in transactions with its related parties.Except for the advances from MLCI and acquisition payable to the Sellers, which shall be paidthrough the issuance of the Company’s common shares, all transactions are to be settled in cash(see Note 19).

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The following table provides the total amount of significant transactions with related parties in 2018 and 2017:

Company Revenue Other Income

EquipmentRentals

(Note 20)

PersonnelCost

(Note 20)Freight

(Note 20)

Repairs andMaintenance

(Note 20)Others

(Note 20)

Depositfor Future

StockSubscription

(Note 19)Intermediate ParentMLCI 2018 P=51,228,441 P=– (P=14,109,473) (P=232,396,036) P=– (P=1,082,342) (P=807,251) P=–

2017 – – – – – – – 408,800,000SubsidiariesPLI 2018 5,311,776 – – – – – – –

2017 1,634,630 – – – – – – –MTCI 2018 68,622,153 2,255,429 – – (70,113,137) – – –

2017 2,905,200 – – – – – – –PTI 2018 71,756,507 2,511,701 – – (75,657,581) – – –

2017 1,975,760 – – – – – – –TPI 2018 72,371,829 2,612,000 – – (74,341,264) – – –

2017 2,401,390 – – – – – – –Entities Controlled by a Shareholder and Key Management PersonnelBasic 2018 – – – – – – – –

2017 – – – (134,385,187) – – – –A1Move 2018 – – – – – – – –

2017 – – – (23,744,660) – – – –Philflash 2018 – – – – – – – –

2017 – – – 88,245 – – – –

2018 P=269,290,706 P=7,379,130 (P=14,109,473) (P=232,396,036) (P=220,111,982) (P=1,082,342) (P=807,251) P=–2017 8,916,980 – – (158,041,602) – – – 408,800,000

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The outstanding balances of receivables from/payables to related parties as at December 31, 2018 and 2017 are as follows:

Company

TradeReceivables

(Note 6)

AccruedIncome(Note 6)

OtherReceivables

(Note 6)Loans

Receivables

AccountsPayables(Note 14)

AccruedExpenses(Note 14)

EscrowPayable(Note 14)

Due fromRelated Parties

(Note 6)

Due to Related

Parties(Note 14) Terms and Conditions

Ultimate ParentMPIC 2018 P=– P=– P=– P=– P=– P=– P=– P=273,109 P=– On demand; noninterest-bearing;

unsecured; no impairment2017 – – – – – – – 3,015,327 –Intermediate ParentMLCI 2018 50,004,069 – – – (138,053,452) – – – – Due and demandable; noninterest-

bearing; unsecured; no impairment2017 – – – – – – – 195,933,228 (90,500,000)AffiliateLogisticsPro, Inc. (LPI) 2018 – – – – – – – 7,840 – On demand; noninterest-bearing;

unsecured; no impairment2017 – – – – – – – 7,840 –SubsidiariesPLI 2018 1,602,450 2,539,867 148,685,567 (482,906) (1,340,628) – 660,943 – Due and demandable; noninterest-

bearing; unsecured; no impairment2017 – – – – – – – 9,518,585 –MTCI 2018 2,252,429 273,503,943 (3,041,580) (4,925,259) – 2,361,990 – Due and demandable; noninterest-

bearing; unsecured; no impairment2017 – – – 172,867,884 – 2,972,027 –PTI 2018 2,511,701 22,361,496 253,528,401 (4,003,966) (3,477,874) – 6,724,566 – Due and demandable; noninterest-

bearing; unsecured; no impairment2017 – – – 172,867,883 – 2,201,260 –TPI 2018 2,612,000 244,941,997 (2,411,903) (3,184,297) – 22,528,372 – Due and demandable; noninterest-

bearing; unsecured; no impairment2017 – – – 172,867,884 – – – 2,488,510 –OLI 2018 – – – – – – – 813,185 – On demand; noninterest-bearing;

unsecured; no impairment2017 – – – – – – – 813,185 –Entities Controlled by a Shareholder and Key Management PersonnelSellers 2018 – – – – – – – – – On demand; noninterest-bearing;

unsecured;2017 – – – – – – (39,895,271) – –Basic 2018 – – – – – – – 28,237,995 – Noninterest-bearing; unsecured; no

impairment2017 – – – – (147,780,576) – – 36,570,406 –A1Move 2018 – – – – – – – – – Noninterest-bearing; unsecured; no

impairment2017 – – – – (49,443,721) – – – –Philflash 2018 – – – – – – – – – Noninterest-bearing; unsecured; no

impairment2017 – – – – (1,313,127) – – – –

2018 P=51,606,519 P=9,915,997 P=22,361,496 P=920,659,908 (P=147,993,807) (P=12,928,058) P=– P=61,608,000 P=–2017 – – – 518,603,651 (198,537,424) – (39,895,271) 253,520,368 (90,500,000)

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MLCIMLCI charged the Company for warehousing services, equipment rental, and repairs andmaintenance of the related equipment. The Company charged MLCI for various professional feesand other reimbursable expenses.

In 2018, the Company issued 409.3 million common shares at par value to MLCI which was settledthrough conversion of MLCI’s deposit for future stock subscription made in 2017 and 2016(see Note 19).

PLIPLI charged the Company for various expenses paid in behalf of the Company. The Companycharged PLI for the trucking services, warehouse rental, freight costs, purchase of software andvarious reimbursable expense.

On December 31, 2018, the Company and PLI entered in a loan agreement with an aggregate amountof P=173.1 million payable on December 31, 2020 for the purpose of financing its working capital andother capital expenditure requirements. The loan is non-interest bearing and was initially recognizedat the aggregate present value of P=148.7 million (see Note 11).

Trucking Subsidiaries (MTCI, PTI, TPI)MTCI, PTI, and TPI charged the Company for the trucking services, personnel costs and utilities.The Company charged MTCI, PTI, and TPI for the recruitment expenses and various reimbursableexpenses. In addition, the Company sold transportation equipment to PTI.

In 2017, the Company entered into loan agreements with its trucking subsidiaries amounting toP=230.0 million each for the purpose of financing the trucking business and other capital expenditures.The loans are non-interest bearing and were initially recognized at the aggregate present value ofP=521.9 million as these will be repaid at the end of the five-year term (see Note 11).

In 2018, additional loans have been granted to MTCI, PTI, and TPI amounting to P=87.0 million,P=118.0 million and P=85.0 million, respectively, for the same purpose of financing the truckingbusiness and other capital expenditures. The loans are non-interest bearing and were initiallyrecognized at the present value of P=86.0 million, P=61.9 million and P=63.4 million, for MTCI, PTI andTPI, respectively, as these will be repaid at the end of the five-year term (see Note 11).

LPIIn 2017, the Company paid various professional fees, registration fees and permits for LPI’sincorporation. These amounts is still outstanding as at December 31, 2018. LPI is a subsidiary ofMLCI.

SellersThe amount represents the Company’s unpaid portion of the purchase price related to the APA(see Note 1).

BasicPursuant to the APA between the Company and the Sellers, customer contracts executed by Basicwith its customers were novated to the Company. The security deposits and advance rental paymentsmade by the customers to Basic will be paid to the Company. The Company availed of Basic’sservices to operate the logistics business in various locations. Billings for the services include,among others, personnel costs and utilities.

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A1Move, Philflash and BasicLogThe Company availed of A1Move’s, Philflash’s and BasicLog’s services to operate the logisticsbusiness in various locations. Billings for the services include, among others, personnel costs andutilities.

Compensation of Key Management Personnel of the CompanyCompensation of key management personnel of the Company consists of short-term employeebenefits amounting to P=34.1 million and P=38.04 million for the years ended December 31, 2018 and2017, respectively.

19. Equity

2018 2017No. of Shares Amount No. of Shares Amount

Authorized common shares -P=1.00 par value 6,000,000,000 P=6,000,000,000 3,200,000,000 P=3,200,000,000

Common shares (issued andoutstanding) 3,961,550,676 P=3,961,550,676 3,040,623,714 P=3,040,623,714

Common StockOn September 1, 2015, the Company was incorporated with an authorized capital stock ofP=0.1 million divided into 0.1 million common shares with a par value of P=1.00 per share. On thesame date, 25% of the authorized capital stock or P=0.03 million has been subscribed and paid for bythe shareholders.

On October 6, 2015, the shareholders and BOD of the Company concurred and approved the increasein authorized capital stock to 15.0 million common shares with a par value of P=1.00 per share and wasapproved by the SEC on November 5, 2015. In 2015, P=4.2 million divided into 4.2 million commonshares have been subscribed and paid by MLCI.

Shares being held by the original subscribers amounting to P=0.03 million divided to 0.03 millioncommon shares were subsequently sold to MLCI through separate deeds of sale in 2015.

On May 19, 2016, the shareholders and BOD of the Company concurred and approved the increase inauthorized capital stock from 15.0 million common shares to 3,200.0 million common shares with apar value of P=1.00 and was approved by the SEC on October 6, 2016. In 2016, 1,700.0 millioncommon shares have been subscribed and paid by MLCI by way of cash at par value. Also, duringthe year, MLCI made advances to the Company intended for future stock subscription amounting toP=90.5 million.

On February 8, 2017, YHI subscribed and paid P=728.4 million in exchange of MMI shares as agreedin the APA (see Note 1). In 2017, the Company issued additional 608.0 million common shares toMLCI at a par value price of P=1.00 by way of cash.

On December 1, 2017, the shareholders and BOD of the Company concurred and approved theadditional increase in authorized capital stock from 3,200.0 million common shares to 6,000.0 millioncommon shares with a par value of P=1.00 and approved by the SEC on April 26, 2018. On the sameday, MLCI made advances amounting intended for future stock subscription amounting toP=318.8 million.

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On April 26, 2018, the Company’s application for the increase in its authorized capital stock wasapproved by the SEC. On this date, the Company issued 409.3 million common shares at par value toMLCI which was settled through conversion of their deposits for future stock subscription made in2017 and 2016. Also, during the year, MLCI subscribed to an additional 476.6 million commonshares of the Company at P=3.0 per share amounting to P=1,429.9 million. This capital infusion madeto the Company is to subsidize its project involving Mega Distribution Center (Mega DC).

On December 5, 2018, the Company issued a total of 35.0 million common shares to an individualshareholder at a subscription price of P=2.00 per share for an aggregate subscription price ofP=70.0 million which have been paid in cash.

Equity ReservesThis account is used to recognize the transaction costs incurred on issuance of capital stock such asdocumentary stamp taxes and SEC filing fees amounting to P=12.7 million and P=6.7 million for theyears ended December 31, 2018 and 2017, respectively.

20. Cost of Services

This account consists of:

2018 2017Freight P=266,538,697 P=149,901,419Warehouse rentals (Note 24) 238,911,762 214,853,643Personnel costs 232,545,363 295,049,802Depreciation (Note 8) 67,275,498 41,610,556Equipment rentals 51,004,507 37,257,708Utilities 28,850,027 25,954,223Transportation 13,956,862 7,520,088Service fees 12,996,370 11,733,533

P=912,079,086 P=783,880,972

21. Operating Expenses

This account consists of:

2018 2017Provision for ECL/doubtful accounts P=214,770,985 P=6,922,956Personnel costs (Note 22) 170,112,211 120,786,280Depreciation and amortization (Notes 8, 9 and 10) 44,906,147 36,089,128Security 38,951,079 30,484,471Repairs and maintenance 16,676,360 13,331,503Professional fees 13,287,725 10,229,612Taxes and licenses 10,748,505 9,518,528Rent 10,208,153 5,570,942Office supplies 9,087,828 8,690,391Communication 7,841,911 2,843,491Insurance 6,626,638 3,693,358

(Forward)

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2018 2017Claims expense P=6,496,570 P=6,719,406Software maintenance 5,751,907 –Research and consulting fee 4,077,582 –Travel expense 3,211,211 1,276,360Impairment loss (Note 10) – 324,168,256Others 39,146,071 16,332,239

P=601,900,883 P=596,656,921

Others consist of loss on early termination of lease, expense on trainings, utilities, representation andrecruitment expenses.

22. Retirement Benefits

The Company does not have a formal retirement plan. Employees who will qualify for retirementwill be paid the minimum retirement benefit under R.A. 7641. The Company provides for lump sumbenefits equivalent to 85% of monthly salary for every year of creditable service. The normalretirement age is 65 years old. However, an employee who attains the age of 60 years old with aminimum of 5 years of credited service and opts for an early retirement is entitled to benefitsdepending on the years of credited service.

The principal actuarial assumptions used to determine retirement benefits are as follows:

2018 2017Discount rate 7.31% 5.79%Salary increase rate 6.00% 6.00%

The discount rate represents the range of single weighted average discount rate used by the Companyin arriving at the present value of defined benefit obligation, service and interest cost components ofthe retirement cost. Assumptions regarding future mortality rate are based on the 2017 Philippine Inter-Company Mortality Study which provides separate rates for males and females.

Retirement benefits expense recognized in profit or loss are as follows:

2018 2017Current service cost P=4,518,172 P=5,846,259Interest expense 408,309 438,943

P=4,926,481 P=6,285,202

Remeasurement gain (loss) recognized in OCI is as follows:

2018 2017Beginning balance (P=766,775) P=–Amount recognized during the period 3,851,721 (766,775)Ending balance P=3,084,946 (P=766,775)

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Changes in present value of defined benefit obligation:

2018 2017Beginning of year P=7,051,977 P=–Current service cost 4,518,172 5,846,259Interest cost 408,309 438,943Changes in assumptions (3,851,721) 766,775

P=8,126,737 P=7,051,977

The Company does not maintain a fund for its retirement benefit obligation. While funding is not arequirement of law, there is a cash flow risk that the Company may be exposed to if severalemployees retire within the same year.

The average duration of the expected benefit payments at the end of the reporting period is17.54 years.

Shown below is the maturity analysis of the undiscounted benefit payments:

2018 2017Less than one year P=– P=–More than one year to five years 7,810,820 4,524,145More than five years to 10 years 19,469,544 13,648,564More than 10 years to 15 years 65,886,542 48,841,427More than 15 years to 20 years 28,659,096 28,724,926More than 20 years 87,605,513 79,258,498

The sensitivity analysis as at December 31, 2018 and 2017 below has been determined based onreasonably possible changes of each significant assumption on the defined benefit obligation as at theend of the financial reporting date, assuming all other assumptions were held constant:

Increase (Decrease) 2018 2017Discount rate +1% (P=772,534) (P=838,584)

-1% 890,814 978,247

Salary increase rate +1% 939,174 996,208-1% (826,216) (868,064)

23. Income Taxes

Current TaxThe Company is in tax loss position in 2018 and 2017.

The current provision for income tax for the years ended December 31, 2018 and 2017 amounting toP=2.3 million and P=0.1 million, respectively, represents final tax on interest income.

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Deferred TaxesThe deferred tax assets on the following deductible temporary differences were not recognized sincethe Company believes that there will be no sufficient taxable income in the future to allow all of thedeferred tax assets to be utilized.

2018 2017NOLCO P=250,420,216 P=136,255,461Allowance for doubtful accounts 66,508,182 2,076,887Accrued expenses 6,393,925 7,366,140Deferred rent expense 2,914,179 1,689,283Retirement liability 2,438,021 2,115,593

P=328,674,523 P=149,503,364

Deferred tax on pension liability included in other comprehensive loss amounted to P=3.9 million andP=0.2 million as at December 31, 2018 and 2017, respectively.

As at December 31, 2018 and 2017 NOLCO amounting to P=834.7 million and P=454.2 million,respectively, can be carried forward and claimed as deduction from regular taxable income asfollows:

Year IncurredExpiryYear

Balance as atJanuary 1,2018 Additions Expiration

Balance as atDecember 31, 2018

2018 2021 P=– P=394,603,598 P=– P=394,603,5982017 2020 396,013,981 – – 396,013,9812016 2019 44,116,476 – – 44,116,4762015 2018 14,054,413 – 14,054,413 –

P=454,184,870 P=394,603,598 P=14,054,413 P=834,734,055

The Company is not yet subject to Minimum Corporate Income Tax (MCIT) which is 2% of the grossincome. The imposition of MCIT begins on the fourth taxable year immediately following the year inwhich the Company commenced its business operations. In 2015, the Company was registered withthe BIR and has commenced business operations, and will be subject to MCIT in 2019.

The reconciliation between the benefit from income tax at the applicable statutory tax rate and theprovision for income tax as shown in the statements of comprehensive income for the years endedDecember 31, 2018 and 2017 is as follows:

2018 2017Benefit from income tax at statutory income

tax rate of 30% (P=60,015,536) (P=113,823,250)Adjustments for tax effects of: Movement in unrecognized deferred taxes 75,117,098 18,212,632 Transaction costs recognized in equity (2,100,000) (2,004,636) Nontaxable income (11,585,276) (49,959) Nondeductible expenses 2,035,034 97,845,626 Interest income subject to final tax (1,150,440) (60,138)Provision for income tax P=2,300,880 P=120,275

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Tax Reform for Acceleration and Inclusion Act (TRAIN)Republic Act (R.A.) No.10963 or the TRAIN was signed into law on December 19, 2017 and tookeffect January 1, 2018, making the new tax law enacted as of the reporting date. Although theTRAIN changes existing tax law and includes several provisions that will generally affect businesseson a prospective basis, the management assessed that the same will not have any significant impacton the financial statement balances as of the reporting date.

24. Commitments

The Company entered into various contracts for its normal operating transactions. The following arethe significant commitments involving the Company:

a. Warehouse Management Fee – Included in the APA are the novation of certain key servicecontracts of the Sellers with their respective customers. The Company also entered into newservice contracts with various customers during the year with periods from 2 to 5 years renewableupon mutual agreement. The warehouse management revenue earned by the Company amountedto P=539.9 million and P=624.5 million for 2018 and 2017, respectively.

b. Operating Lease Commitments - Company as Lessor – The Company has entered into variouslease agreements for warehouses with third parties with periods ranging from 2 to 5 yearscontaining renewal options. Upon inception of the lease, the lessees are required to pay securitydeposits and advance rentals aggregating to P=21.4 million and P=36.3 million which are includedin the “Trade payables and other current liabilities” and “Other noncurrent liabilities” in thestatements of financial position as at December 31, 2018 and 2017, respectively (see Notes 14and 16).

The warehouse rent revenue earned by the Company amounted to P=205.8 million andP=151.0 million for 2018 and 2017, respectively.

c. Operating Lease Commitments - Company as Lessee – The Company has entered into variouslease agreements for warehouses with periods ranging from 2 to 5 years renewable upon mutualagreement with the lessors. Pursuant to the agreement, the Company placed security deposits andadvance rentals aggregating to P=69.5 million and P=76.6 million which are included in the“Other current assets” and “Other noncurrent assets” in the statements of financial position as atDecember 31, 2018 and 2017, respectively (see Notes 7 and 13).

The annual warehouse rental expense charged to operations amounted to P=238.9 million andP=214.9 million for 2018 and 2017, respectively (see Note 20).

The schedule of future minimum lease payments under the lease agreements as follows:

2018 2017Within one year P=173,386,218 P=190,732,203Later than one year but not later than five years 420,445,920 319,034,174Later than five years 52,171,937 114,837,211

P=646,004,075 P=624,603,588

d. Finance Lease – The Company has entered into various lease agreements with banks for thepurchases of its transportation and warehouse equipment with interest rates ranging from 5% to7%. All finance lease agreements also has a period of 5 years from its inception (see Note 17).

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25. Supplemental Cash Flow Information

Changes in liabilities arising from financing activitiesMovement in the Company’s liabilities from financing activities are as follows:

January 1,2018 Additions*

Interestaccretion Payments

December 31,2018

Long-term loan P=760,000,000 P=506,174,200 P=890,750 (P=204,368,421) P=1,062,696,529Short-term loan – 470,000,000 – (170,000,000) 300,000,000Finance lease liability 58,305,887 – 2,364,918 (31,378,831) 29,291,974Interest liability 5,559,026 – 63,664,889 (56,677,706) 12,546,209Total liabilities from

financing activities P=823,864,913 P=976,174,200 P=66,920,557 (P=462,424,958) P=1,404,534,712*Additions to loans net of debt issue costs of P=3,825,800

January 1,2017 Additions Interest accretion Payments

December 31,2017

Loan payable P=– P=770,000,000 P=– (P=10,000,000) P=760,000,000Finance lease liability 49,219,569 39,339,884 981,672 (31,235,238) 58,305,887Interest liability – – 8,304,395 (2,745,369) 5,559,026Total liabilities from

financing activities P=49,219,569 P=809,339,884 P=9,286,067 (P=43,980,607) P=823,864,913

Non-cash investing activitiesThe following table shows the Company’s significant non-cash investing activity and correspondingtransaction amount for the years ended December 31, 2018 and 2017:

2018 2017Acquisition of land on credit (Note 8) P=530,454,773 P=–Conversion of deposits to equity instruments at

FVOCI (Note 13) 400,000,000 –Remeasurement of equity instruments at FVOCI

(Note 12) 299,570,853 –Discount on loans receivable recognized as

additional investment to subsidiaries (Note 11) 103,069,037 –Sale of property and equipment on account (Note 8) 27,265,928 –Acquisition of property and equipment under finance

lease (Note 8) – 39,339,884

26. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments consist mainly of cash in banks and trade and otherreceivables, trade payables and other current liabilities, excluding statutory payables, short-term andlong-term loan. The Company has other financial assets and financial liabilities such as refundabledeposits, loan receivables, subscription payable and finance lease liability which arise directly fromthe Company’s operations.

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The main risks arising from the Company’s financial instruments are liquidity risk and credit riskfrom its use of financial instruments. The Company’s BOD reviews and approves policies ofmanaging each of the risks and they are summarized below.

Liquidity RiskLiquidity risk is the risk of not meeting obligations as they become due because of an inability toliquidate assets or obtain funding. The Company’s objective is to maintain a balance betweencontinuity of funding and flexibility through the advances from and equity infusion of itsshareholders. The Company’s policy is to maintain a level of cash that is sufficient to fund itsmonthly cash requirements. Operating expenses and working capital requirements are sufficientlyfunded through cash advances and equity.

The tables below summarize the maturity profile of the Company’s financial assets and financialliabilities as at December 31, 2018 and 2017 based on contractual undiscounted payments:

2018

On Demand Within 1 Year 1 to 5 YearsMore Than

5 years TotalCash and cash equivalents* P=775,535,574 P=– P=– P=– P=775,535,574Trade and other receivables:

Trade receivables 179,979,755 427,602,619 – – 607,582,374 Accrued receivables – 116,357,161 – – 116,357,161

Due from related parties 61,608,000 – – – 61,608,000Receivable from employees 7,880,570 – – – 7,880,570Others 30,085,153 – – – 30,085,153

Other current assets:Advances to lessors 13,329,632 – – – 13,329,632Refundable deposits** – 14,951,415 21,118,264 3,027,266 39,096,945

Loans receivable** – – 889,302,819 – 889,302,8191,068,418,684 558,911,195 910,421,083 3,027,266 2,540,778,228

Trade payables and other currentliabilities***

Trade payables – 767,277,592 – – 767,277,592Accrued expenses – 121,478,104 – – 121,478,104Customers’ refundable deposits** – 18,201,988 3,160,777 – 21,362,765

Advances from customers – 504,349 – – 504,349Short-term debt – 300,000,000 – – 300,000,000Long-term loan** – 320,786,556 880,580,013 – 1,201,366,569Finance lease liability** – – 43,437,658 – 43,437,658

– 1,528,248,589 927,178,448 – 2,455,427,037Net Financial Assets (Liabilities) P=1,068,418,684 (P=969,337,394) (P=16,757,365) P=3,027,266 P=85,351,191*Excluding petty cash amounting to P=0.9 million as at December 31, 2018.**Gross of unamortized discount and including future interest payments.***Excluding statutory liabilities and advance rent as at December 31, 2018.

2017

On Demand Within 1 Year 1 to 5 YearsMore Than

5 years TotalCash* P=94,843,903 P=– P=– P=– P=94,843,903Trade and other receivables:

Trade receivables 364,283,251 109,018,285 – – 473,301,536Accrued receivables – 409,524,191 – – 409,524,191Due from related parties 253,520,368 – – – 253,520,368Receivable from employees 5,906,594 – – – 5,906,594

Other current assets:Advances to lessors 20,643,342 – – – 20,643,342

Refundable deposits** – 9,092,457 31,191,367 – 40,283,824Loans receivable** – – 690,000,000 – 690,000,000Total (Carried Forward) 739,197,458 527,634,933 721,191,367 – 1,988,023,758

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2017

On Demand Within 1 Year 1 to 5 YearsMore Than

5 years TotalTotal (Brought Forward) P=739,197,458 P=527,634,933 P=721,191,367 P=– P=1,988,023,758Trade payables and other current

liabilities***Trade payables – 224,677,415 – – 224,677,415Accrued expenses – 328,654,213 – – 328,654,213Escrow payable – 39,895,271 – – 39,895,271

Due to related parties – 90,500,000 – – 90,500,000Customers’ refundable deposits** – 4,481,000 6,752,517 – 11,233,517Advances from customers – 370,750 – – 370,750

Finance lease liability** – 15,020,984 51,246,863 – 66,267,847Long-term loan** – – 7,051,977 – 7,051,977

– 703,599,633 65,051,357 – 768,650,990Net Financial Assets (Liabilities) P=739,197,458 (P=175,964,700) P=656,140,010 P=– P=1,219,372,768*Excluding petty cash amounting to P=0.8 million as at December 31, 2017.**Gross of unamortized discount and including future interest payments.***Excluding statutory liabilities and advance rent as at December 31, 2017

As part of the liquidity strategy, the Company maintains sufficient cash to ensure that financialobligations will be met as they fall due. These are allocated to meet the Company’s short-termliquidity needs.

The Company’s liquidity and funding management process include the following:

∂ Managing the concentration and profile of debt maturities∂ Maintaining debt financing plans∂ Monitoring statement of financial position liquidity ratios against internal and regulatory

requirements

Credit RiskCredit risk is the risk that the Company will incur losses arising from counterparties that fail todischarge their contracted obligations. The Company manages and controls credit risk by settinglimits on the amount of risk that the Company is willing to accept for individual counterparties and bymonitoring exposures in relation to such limits. The Company transacts only with recognized, credit-worthy third parties. The credit risk arising from the financial assets of the Company are equal to thecarrying amount of these instruments.

The table below shows the maximum exposure of the Company’s financial assets after taking intoaccount any form of collaterals and credit enhancements as at December 31:

2018

Gross maximumexposure

(a)

Fair value andfinancial effect of

collateral or creditenhancement

(b)***Net exposure(c) = (a) – (b)

Financial asset at amortized costCash* P=775,535,574 P=3,557,295 P=771,978,279Trade and other receivables:

Trade receivables 607,582,374 – 607,582,374Accrued receivables 116,357,161 – 116,357,161

(Forward)

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2018

Gross maximumexposure

(a)

Fair value andfinancial effect of

collateral or creditenhancement

(b)***Net exposure(c) = (a) – (b)

Trade and other receivables:Due from related parties P=61,608,000 P=– P=61,608,000Receivable from employees 7,880,570 – 7,880,570Others 30,085,153 – 30,085,153

Other current assets:Advances to lessors 13,329,632 – 13,329,632Refundable deposits** 39,096,945 – 39,096,945

Loans receivable** 889,302,819 – 889,302,819P=2,540,778,228 P=3,557,295 P=2,537,220,933

*Excluding petty cash amounting to P=0.9 million as at December 31, 2018.**Gross of unamortized discount and including future interest payments.***After considering insurance on bank deposits for cash.

2017

Gross maximumexposure

(a)

Fair value andfinancial effect ofcollateral or credit

enhancement(b)***

Net exposure(c) = (a) – (b)

Loans and ReceivablesCash* P=94,843,903 P=3,064,288 P=91,779,615Trade and other receivables:

Trade receivables 473,301,536 – 473,301,536Accrued receivables 409,524,191 – 409,524,191Due from related parties 253,520,368 90,500,000 163,020,368Receivable from employees 5,906,594 – 5,906,594

Other current assets:Advances to lessors 20,643,342 – 20,643,342Refundable deposits** 40,283,824 – 40,283,824

Loans receivable** 690,000,000 – 690,000,000P=1,988,023,758 P=93,564,288 P=1,894,459,470

*Excluding petty cash amounting to P=0.8 million as at December 31, 2017.**Gross of unamortized discount and including future interest payments.***After considering insurance on bank deposits for cash and net effect of related party transactions and balances.

Shown below is the aging analysis of the Company’s receivables as at December 31:

Not Credit-impaired Credit-impaired TotalGross Carrying

AmountAllowance

for ECLGross Carrying

AmountAllowance

for ECLGross Carrying

AmountAllowance for

ECLDecember 31, 2018Cash and cash equivalents* P=775,535,574 P=– P=– P=– P=775,535,574 P=–Receivables:

Trade receivables 388,227,644 – 219,354,730 219,354,730 607,582,374 219,354,730Accrued receivables 116,357,161 – – – 116,357,161 –Due from related parties 61,608,000 – – – 61,608,000 –Receivable from employees 5,541,359 – 2,339,211 2,339,211 7,880,570 2,339,211Others 30,085,153 – – – 30,085,153 –

Other current assets:Advances to lessors 13,329,632 – – – 13,329,632 –Refundable deposits** 39,096,945 – – – 39,096,945 –

Loans receivable** 889,302,819 – – – 889,302,819 –P=2,319,084,287 P=– P=221,693,941 P=221,693,941 P=2,540,778,228 P=221,693,941

*Excluding petty cash amounting to P=0.9 million as at December 31, 2018.**Gross of unamortized discount and including future interest payments.

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Not Credit-impaired Credit-impaired TotalGross Carrying

AmountAllowance

for ECLGross Carrying

AmountAllowance

for ECLGross Carrying

AmountAllowance

for ECLJanuary 1, 2018Cash* P=94,843,903 P=– P=– P=– P=94,843,903 P=–Receivables:

Trade receivables 466,378,580 – 6,922,956 6,922,956 473,301,536 6,922,956Accrued receivables 409,524,191 – – – 409,524,191 –Due from related parties 253,520,368 – – – 253,520,368 –Receivable from employees 5,906,594 – – – 5,906,594 –

Other current assets:Advances to lessors 20,643,342 – – – 20,643,342 –Refundable deposits** 40,283,824 – – – 40,283,824 –

Loans receivable** 690,000,000 – – – 690,000,000 –P=1,981,100,802 P=– P=6,922,956 P=6,922,956 P=1,988,023,758 P=6,922,956

*Excluding petty cash amounting to P=0.8 million as at January 1, 2018.**Gross of unamortized discount and including future interest payments.

Set out below is the information about the credit risk exposure on the Company’s receivables:

Days past dueCurrent <30 31-60 61-90 91-360 >360 Total

December 31, 2018:Expected loss rate –% 1% 4% 13% 67% 39%Gross carrying amount P=241,097,486 P=99,918,280 P=39,666,667 P=56,965,170 P=215,542,933 P=170,322,722 P=823,513,258Loss allowance – 1,016,591 1,418,415 7,580,512 145,291,479 66,386,944 221,693,941

January 1, 2018:Expected loss rate – –% –% 11% –% –%Gross carrying amount P=485,359,623 P=43,678,282 P=42,028,189 P=62,499,349 P=217,178,253 P=322,508,993 P=1,173,252,689Loss allowance – – – 6,922,956 – – 6,922,956

The Company also assesses each financial asset based on its credit quality. With the exception of theimpaired portion and past due accounts, all of the Company’s financial assets are considered high-grade receivables since these are receivables from counterparties who are not expected to default insettling their obligations. These counterparties include reputable local and international banks andcompanies and the Philippine government. Other counterparties also have corresponding collectiblesfrom the Company for certain contracted services. The first-layer of security comes from theCompany’s ability to offset amounts receivable from these counterparties against payments due tothem.

Capital ManagementThe primary objective of the Company’s capital management is to ensure that the Company hassufficient funds in order to support its business, pay existing obligations and maximize shareholdervalue.

The Company manages its capital structure and makes adjustments to it in the light of economicconditions and the risk characteristics of its activities. In order to maintain or adjust the capitalstructure, the Company may adjust the amount of dividends paid to shareholders, obtain borrowingsfrom banks or related parties and issue new shares or sell assets to reduce debt.

The Company considers issued capital stock, additional paid-in capital as capital aggregating toP=4,949.8 million and P=3,040.6 million as at December 31, 2018 and 2017, respectively.

27. Financial Assets and Financial Liabilities

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

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The carrying amounts of the Company’s financial assets, except for the loans receivable, refundabledeposits and equity instruments at FVOCI and financial liabilities, except for the long-term loans,customers’ refundable deposits and finance lease liability, approximate their fair values as atDecember 31, 2018 and 2017.

The following tables provide the fair value measurement hierarchy of the Company’s asset andliability. Quantitative disclosure fair value measurement hierarchy for asset and liability as atDecember 31, 2018 and 2017 are as follows:

2018Fair Value Measurement Using

Date of ValuationCarrying

Value

QuotedPrices in

ActiveMarkets(Level 1)

SignificantObservable

Inputs(Level 2)

SignificantUnobservable

Inputs(Level 3)

Asset for which fair value is disclosedAmortized cost

Loans receivable December 31, 2018 P=920,659,908 P=– P=889,302,819 P=–Refundable deposits December 31, 2018 39,446,380 – 39,096,944 –

Asset measured at fair valueFinancial assets through OCI

Unquoted equity shares December 31, 2018 100,429,147 – – 100,429,147

Liabilities for which fair values aredisclosed

Long-term loan December 31, 2018 1,062,696,529 – 818,907,749 –Finance lease liability December 31, 2018 29,291,974 – 28,102,678 –Customers’ refundable deposits December 31, 2018 21,362,765 – 15,614,097 –

2017Fair Value Measurement Using

Date of Valuation Carrying Value

QuotedPrices in

Active Markets(Level 1)

SignificantObservable

Inputs(Level 2)

SignificantUnobservable

Inputs(Level 3)

Asset for which fair value is disclosedLoans receivable December 31, 2017 P=522,053,651 P=– P=522,053,651 P=–Refundable deposits December 31, 2017 36,067,080 – 32,455,153 –Liabilities for which fair values are disclosedLong-term loan December 31, 2017 760,000,000 – 778,560,909 –Finance lease liability December 31, 2017 58,305,887 – 53,118,984 –Customers’ refundable deposits December 31, 2017 10,962,597 – 10,926,673 –

The following methods and assumptions were used to measure fair value of each class of assets andliabilities for which it is practicable to estimate such value:

Loans receivable, refundable deposits, customer’s refundable deposits and finance lease liability.The estimated fair value are based on the discounted value of future cash flows using the prevailingPDST-R2 rates that are specific to the tenor of the instruments’ cash flows as at the reporting date.

Equity instruments at FVOCI. Equity instruments at FVOCI include interests in unlisted shares ofthree local logistics company (each at 12% equity interest) and two local waste managementcompanies (each at 12% equity interest). To estimate the fair value of the unquoted equity securities,the Company uses the guideline public company method. This valuation model is based on publisheddata regarding comparable companies’ quoted prices, earnings, revenues and EBITDA expressed as amultiple, adjusted for the effect of the non-marketability of the equity securities. The estimate isadjusted for the net debt of the investee, if applicable. Adjusted market multiple ranges 3 to 12 forthe logistics companies; and 4 to 6 for the waste management companies and discount for lack ofmarketability of 20%.

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Long-term debt. The fair value of interest-bearing fixed-rate loans is based on the discounted valueof expected future cash flows using the applicable rates for similar types of loans. Discount ratesused ranged from 5% to 6% in 2018 and 2017.

During the years ended December 31, 2018 and 2017, there were no transfers between Level 1 andLevel 2 fair value measurements and no transfers into and out of Level 3 fair value measurement

28. Supplementary Information Required Under Revenue Regulations (RR) No. 15-2010

On December 28, 2010, RR No. 15-2010 became effective and amended certain provisions ofRR No. 21-2002 prescribing the manner of compliance with any documentary and/or proceduralrequirements in connection with the preparation and submission of financial statements and incometax returns. Section 2 of RR No. 21-2002 was further amended to include in the Notes to FinancialStatements information on taxes, duties and license fees paid or accrued during the year in addition towhat is mandated by PFRS.

Below is the additional information required by RR No. 15-2010. This information is presented forpurposes of filing with the Bureau of Internal Revenue (BIR) and is not a required part of the basicfinancial statements.

The Company reported and/or paid the following types of taxes in 2018:

a. VAT

The Company is a VAT-registered company with output VAT declaration of P=175,415,633 forthe year ended December 31, 2018 based on the reflected as VATable receipts net of VAT ofP=1,461,796,942. VATable net receipts pertain to collected revenues from warehousemanagement, trucking services, warehouse rent, freight forwarding services and equipment rent.

The output VAT on the Company’s sales of services is based on the actual collections; hence,may not be equivalent of 12% of revenues presented in the statements of comprehensive income.

Input VATBeginning balance

Input tax carried over from previous period P=85,947,108Deferred input tax on capital goods exceeding P=1 million from the

previous year155,367,697

Current year’s domestic purchases/payments for: Purchase of capital goods not exceeding one million 812,518 Purchase of capital goods exceeding one million 2,238,566 Domestic purchase of goods other than capital goods 4,622,207 Domestic purchases of services 124,020,402

Others 121,872,330Total available input tax 494,880,828Less:

Deferred input tax on capital goods exceeding P=1 million for thesucceeding period

110,752,800

Input VAT applied against Output VAT 175,415,633Ending balance P=208,712,395

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b. Importations

The Company has no importations during the year and thus, did not pay or accrue any landed coston imports, customs duties and tariff fees.

c. Withholding Taxes

The details of total withholding taxes paid during the year amounted to:

Expanded withholding tax P=83,854,864Withholding tax on compensation 32,004,954Final withholding taxes 1,872,043Fringe benefits tax 769,197Other percentage taxes 748,817Total P=119,249,875

d. Taxes and Licenses

This account includes all other taxes, local and national, including documentary stamp tax (DST)and licenses and permit fees, lodged under the “Taxes and licenses” account under the “Operatingexpenses” section in the Company’s statement of comprehensive income.

The amount paid for taxes and licenses are as follows:

Documentary stamp taxes (DST)* P=13,077,604Business permits 8,344,155Others (include zonal fees, permits, etc.) 152,146Total P=21,573,905* Includes DST from shares of stocks charged to equity amounting to P=7.0 million, loans amounting to P=3.8 million andinsurance amounting to P=0.16 million.

e. Tax Assessments and Cases

There is no outstanding final assessment notice issued by the BIR nor settlement for deficiencytaxes during the year ended December 31, 2018. There is also no pending tax case, litigationand/or prosecution in courts or bodies outside the BIR as at December 31, 2018.