IONICS, INC. AND SUBSIDIARIES · majority-owned subsidiary, Ionics EMS, Inc. (IEMS). Net assets with a book value of =530 million as of April 30, 1999 were transferred to IEMS under

IONICS, INC. AND SUBSIDIARIES ________________________________________

(Company’s Full Name)

Circuit Street, Light Industry and Science Park of the Philippines-I, Bo. Diezmo, Cabuyao City, Laguna, Philippines ________________________________________

(Company’s Address)

(049) 508 - 1111 _________________________________________

(Telephone Number)

2018/12/31 _________________________________________

(Fiscal Year Ending) (month & day)

Annual Audited Financial Statements (SRC Form 17-A)

________________________________________________ Form Type

________________________________________________

Amendment Designation (if applicable)

_________________________________________ Period Ended Date

__________________________________________

Secondary License Type and File Number

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IONICS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS SEC FORM 17-A

Page

PART I - BUSINESS AND GENERAL INFORMATION

Item 1 Business 5 Item 2 Properties 12 Item 3 Legal Proceedings 12 Item 4 Submission of Matters to a Vote of Security Holders 12

PART II - OPERATIONAL AND FINANCIAL INFORMATION

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

13

Item 6 Management’s Discussion and Analysis or Plan of Operation

15

Item 7 Financial Statements 18 Item 8 Changes in and Disagreements With Accountants on

Accounting and Financial Disclosure

26 PART III - CONTROL AND COMPENSATION INFORMATION

Item 9 Directors and Executive Officers of the Issuer 27 Item 10 Executive Compensation 32 Item 11 Security Ownership of Certain Beneficial

Owners and Management

33 Item 12 Certain Relationships and Related Transactions 35

PART IV - CORPORATE GOVERNANCE

Item 13 Corporate Governance 37 PART V - EXHIBITS AND SCHEDULES

Item 14 a. Exhibits and Reports on SEC Form 17-C 38 b. Reports on SEC Form 17-C (Current Report) 38

SIGNATURES 39 INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES INDEX TO EXHIBITS

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

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

OF THE CORPORATION CODE OF THE PHILIPPINES 1. For the fiscal year ended December 31, 2018

2. SEC Identification Number 107432 3. BIR Tax Identification No. 000-124-671-000 4. Exact name of issuer as specified in its charter IONICS, INC. 5. Province, Country or other jurisdiction of incorporation or organization Laguna, Philippines 6. Industry Classification Code: (SEC Use Only) 7. Circuit Street, Light Industry and Science Park of the Philippines-I, 4025

Bo. Diezmo, Cabuyao City, Laguna, Philippines Address of principal office Postal Code

(049) 508-1111 and Fax Number (049) 508-1111 loc. 309 Issuer's telephone number, including area code 9. In 1996, the Company changed its principal place of business from Makati, Metro Manila to

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

Title of Each Class Number of Shares of Common Stock Outstanding and Amount of Debt Outstanding

Common P=1.00 par value per share, with 857,974,992 issued shares and 837,130,992 outstanding shares (net of 20,844,000 shares of treasury stock)

11. Are any or all of these securities listed on a Stock Exchange? Yes [ x ] No [ ]

If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Common

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12. Check whether the issuer:

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

Yes [ x ] No [ ]

(b) has been subject to such filing requirements for the past ninety (90) days. Yes [ x ] No [ ] 13. Based on the closing price at the Philippine Stock Exchange on December 31, 2018 at US$0.032

per share, the Company’s common shares held by non-affiliates as of December 31, 2018 would have a current market price of US$15,589,649.

14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of

the Code subsequent to the distribution of securities under a plan confirmed by a court or the Commission.

Yes [ x ] No [ ]

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PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business Ionics, Inc. and Subsidiaries (The Group) Ionics, Inc. (the Parent Company)

The Parent Company was incorporated in the Philippines on September 10, 1982 and started commercial operations in July 1987 to engage in electronic manufacturing services business. In September 1999, the Parent Company transferred its primary manufacturing business to a majority-owned subsidiary, Ionics EMS, Inc. (IEMS). Net assets with a book value of P=530 million as of April 30, 1999 were transferred to IEMS under a tax-free exchange for shares of stock of IEMS. Accordingly, the Parent Company ceased to be a manufacturing company and amended its primary purpose from that of a manufacturing entity to that of a holding company. In relation to the voluntary delisting of IEMS from the official list of Singapore Exchange Securities Trading Limited (Singapore Exchange), the Parent Company acquired an additional 104,801,455 shares or 6.72% ownership over IEMS. Ionics EMS, Inc. (IEMS) IEMS was incorporated on September 21, 1999 to take over the electronic manufacturing services business of the Parent Company. Certain assets and liabilities of the Parent Company were transferred to IEMS in a restructuring exercise that took effect on May 1, 1999. Its operations include printed circuit board assembly, box build assembly (finished product assembly), disk drive, magnetic head assembly, compact disk read-write assembly, systems and subsystems assembly, as well as design and testing services. On February 25, 2000, IEMS offered its shares of stock to the public and became a public company listed in the Singapore Exchange. In accordance with the Singapore Exchange Listing Rule 1311, IEMS gave notice to the Singapore Exchange on March 4, 2008 that it has recorded: (a) pre-tax losses for the three most recently completed consecutive financial years; and (b) an average daily market capitalization of less than SGD$40.00 million over the last 120 days on which trading was not suspended for a full market day. Pursuant to the said listing rule, IEMS was notified of inclusion on the Watch-list effective March 5, 2008. On March 02, 2010, IEMS and the Parent Company jointly announced the proposed voluntary delisting of IEMS from the official list of Singapore Exchange pursuant to Rules 1307 and 1309 of the Listing Manual of the SGX-ST. Subsequently, SGX-ST confirmed that the last day of trading was June 8, 2010 and the closing date was June 15, 2010. On June 23, 2010, the Company was officially delisted from the SGX-ST.

On August 12, 2010, the Board of Directors approved to set-up a company in the United States which shall serve as a full service design and prototyping house in Silicon Valley. Ionics Properties, Inc. (IPI) IPI was incorporated on July 8, 1997 primarily to own the land, buildings, houses, apartments and other structures of whatever kind of the Ionics Group of Companies. IPI started commercial operations in January 1998. Ionics Circuits, Limited (ICL) Formerly Rising Moon Limited, ICL was incorporated in the Cayman Islands on July 5, 2000 with limited liability. On February 14, 2001 Rising Moon changed its corporate name to ICL.

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On March 22, 2005, the company registered address is Scotia Centre, 4th floor, George Town, Grand Cayman, Cayman Islands. Iomni Precision, Inc. (Iomni) Iomni was incorporated in the Philippines on June 20, 2000 primarily to manufacture and sell high-precision plastic products, parts, and injection molds and related products of every kind and description, and other disposition of plastic parts and related products, for its own account as principal or in a representative capacity. The company registered office address is No. 14 Mountain Drive, Light Industry and Science Park of the Philippines II, Brgy. La Mesa, Calamba City, Laguna. As of December 31, 2007, Iomni was 70% owned by the Parent Company. On January 20, 2008, the Parent Company acquired the remaining 30% of Iomni, thus it became a wholly-owned subsidiary.

Synertronix, Inc. (SI) SI was registered with the Securities and Exchange Commission on May 10, 1990, to manufacture, purchase or otherwise acquire, buy and sell retail and wholesale, assemble, produce, or otherwise dispose of, and generally deal in components, parts and devices of all kinds and types used in connection with electronic and electrical machinery, appliances and equipment including but not limited to capacitors, semi-conductors, condensers and transformers for export abroad and for constructive exports to local companies. SI started commercial operations in June 1998. On August 15, 2003, the Parent Company decided to discontinue the operations of SI. On July 2, 2014, the Parent Company decided to sell the land and building of SI. Ionics Products Solutions, Inc. (IPSI) IPSI, is a domestic corporation incorporated under the laws of the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on March 11, 2015. IPSI is established primarily to manufacture, purchase or otherwise acquire, buy and sell, both retail and wholesale, assemble, produce components, parts, apparatus and devices of all kinds and types used in connection with electronic and electronical machinery, appliances and equipment for export abroad and for sale in the territory of the Philippines. On October 6, 2016, the SEC approved IPSI’s proposed increase in authorized capital stock and, accordingly, the P=11.75 million deposit for future stock subscription received by IPSI from Ionics, Inc. (II), its parent company, in 2015 was applied against its outstanding subscription. As a result, the IPSI became 100% owned by II as of December 31, 2016. IPSI’s registered office address is at Circuit Street, Light Industry and Science Park of the Philippines-I, Bo. Diezmo, Cabuyao City, Laguna, Philippines. Line of Business

The Group is a total one-stop shop Electronics Manufacturing Services (EMS) provider. It has been the EMS solutions provider to some of the world’s biggest Original Equipment Manufacturers (OEM) for over 39 years.

There are basically two general categories of electronics manufacturers or assemblers in the region: the Original Equipment Manufacturer (OEM) and the Contract Electronics Manufacturer (CEM). OEMs are companies who are leaders in PC, Computer Peripherals, Telecommunications, Consumer Electronics, Automotive, Industrial and Medical Equipment.

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On the other hand, CEMs are firms involved in the production of electronic items similar to those produced by OEMs. These firms are basically independent, third party manufacturers or assemblers which do not have any corporate affiliations with their respective customers. CEMs therefore undertake subcontracting work only, and generally provide labor and manufacturing overhead as their basic inputs in the assembly of electronic products. The Group is essentially a CEM. Most of the Group’s “end” products, therefore, are components and sub-assembly which are eventually used as inputs for the finished products of its customers. The Group can accommodate most types of electronic manufacturing and assembly projects. Customers provide the specifications and blue print or prototype of a component or product that they want to be manufactured or assembled and the Group delivers the finished item. The Group provides “On Consignment” or “Turnkey” manufacturing arrangements to its clients. Under an “On Consignment” arrangement, the Group furnishes labor and manufacturing overhead inputs, while the product design and raw or input materials are provided by the customer. Under the “Turnkey” arrangement, the Group provides all production inputs for its clients. The product design, however, is still provided and owned by the client. In 2002, one of the Group’s subsidiaries had successfully offered design services to its customer and also added an Original Design Manufacturer (ODM) component to its business line. Products

The following is a brief description of the primary products produced by the Group: • Telecommunication Products

� Wireless broadband products � Wired telecom products � Fiber Optics - Synchronous Optical Networks � Infrastructure and Backplanes � WiFi based RFID Tags � Telephone Ring Generators � Satellite Receivers and LONB’s � Service Gateways � Optical Network Pole Cabinets � Two-way handheld Radios � WiFi Modules � Mobile Phone SIM’s for Roaming

• Automotive Products

� GPS Navigation System � RF Tuners � Vehicle Security Systems � Electronic Dashboards � Engine Sensors � Engine Starters � Car Antenna Control System � Automotive Multi-Media Device � Automotive Headline cooling systems

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• Computer Products / Peripherals � Micro Drives � Motherboards � PCBA for HDD and Optical Drives � CD-RW and DVD-RW Optical Drives � Flip Chip on Flex for HDD � Adaptive PFC Power Supplies � Headless Computers � Radio Repeaters � Main Boards for Projectors � Power Supplies for Projectors � Sub-Assemblies for Printers � RMA Services

• Consumer Products � E-Books � Personal Media Player � USB Drives � DVD Players and Recorders � Recorder / One Touch Media Upload Converter � Home Speaker Systems � IPOD Docking Units � GPS for SLR Cameras and Golf � Electronic Ballasts � Electronics Fishing Devices � Digipass Security Tool � Display Signages � Electronically Controlled Chemical Dispensers � High Fidelity Sound Systems � TV Tuners for Tablets � Gaming Assemblies � Overhead Projector � Home Automation Controllers � Cellphone Security � Electronic Keylocks � RFID Systems for petroleum distribution � Tap payment devices for gas stations � Label writers � Cellphone sub-assemblies � Smart Plugs � Smart Home IoT controls

• Industrial Products

� Agricultural Tags � IoT based Building and Street Lighting Controls

• Medical Products

� Telehealth devices � Hair growth enhancing helmet � IoT based medicine bottle cap monitor � IoT based transformer monitoring device

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• Plastic Products � Enclosures � Sub-assemblies for Printers, Copiers and Optical Drives � Concentrators for Solar Cells � High Voltage Connectors for X-Ray � Automotive Plastics - Air Intake manifold & Fuel Delivery Modules � Air Tight Wi-Fi Antenna Cover � Wiring Harness Protectors � Hayabusa

Information on export sales and the relative contribution of each segment (based on product line) to total sales are fully disclosed in Note 30 to Audited Consolidated Financial Statements.

Significant Customers

The top five customers collectively account for 60.86%, 64.60% and 68.64% of the Group’s sales in 2018, 2017 and 2016, respectively. The Group anticipates that concentration of business in major customers will continue in the foreseeable future, although the Group’s management started new relationships with other customers. One customer accounted for approximately 20.77%, 22.38% and 22.42% of net sales in 2018, 2017 and 2016, respectively. Contracts with the customers are on a continuing basis and the Group has been in business with them for many years. Distribution Method

The bulk of the Group’s products are intermediate products which are shipped to the customers’ manufacturing plants in Asia, North America and Europe for incorporation or further assembly into the final finished products.

Competition, Status of New Products and Business Risk The Group competes with other electronic manufacturers both domestic and foreign. The market for PCBA and the other product lines of the Group are subject to normal price, service, and quality competition. Among the Group’s top competition are from the following:

� Flextronics � Jabil � Sanmina-SCI � Venture � IMI � EMS � Tsukiden � Cirtek Advance Technologies and Solutions, Inc � Automated Technology Phil Inc

While the traditional PC peripheral business has driven to build IEMS’ strength in the telecommunications, automotive, electronics and medical and consumer product lines, IEMS has shifted its resources and established more flexible and adaptable manufacturing platforms so it can readily shift production into various products and components on the same production floor. IEMS will continue its profitable growth path; it plans to grow more in global sales and marketing, to focus on telecommunication, automotive, medical and Internet of Things (IoT). There is no publicly-announced new product that will require material amount of the resources of the Group.

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The following are the major risks that the Group has: 1. Credit Risk 2. Liquidity Risk 3. Market Risk Details of the above risks were fully discussed in Note 4 of the Audited Consolidated Financial Statements. The Group has a Risk Management Committee which conducts meetings on a quarterly basis to discuss and analyze these major risks and decide on the measures on how to manage these risks.

Sources and Availability of Raw Materials The customers under a consignment arrangement supply the bulk of raw material components needed in the manufacturing of their products. However, in response to global competition, the Group started building up its raw materials inventory for turnkey transactions. Among the principal suppliers of the Group are the following:

� BK Technologies, Inc. � Avnet Asia Pte. Ltd. � Rotakorn Electronics AB � Arrow Electronics Asia(S) Pte. Ltd � WPG South Asia PTE. Ltd. � Avnet Silica � Future Electronics Inc. � Le Champ (S.E.A.) Pte. Ltd. � GS Technology Pte., Ltd. � Senju Solder (Phils.) Inc.

The Group has entered into non-cancellable purchase commitments with its suppliers. Purchases of raw materials and supplies are based on ordinary purchase transactions covered by a purchase order.

Sales The Group’s revenue is purely from export sales except for IPI which derives its revenue from the lease of properties. Amounts of revenue, profitability, and identifiable assets attributable to the Group’s operations for 2018, 2017, and 2016 are as follows:

(In ‘000 US Dollars) 2018 2017 2016 Export sales 54,710 52,499 48,356 Income from Operation 4,806 4,339 3,036 Total Assets 71,491 68,742 58,383

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The following tables below show the percentage of sales and net assets per geographical area for the last three years: a. Revenue

2018 2017 2016 Asia 59.28% 55.12% 62.89% Europe 28.14% 32.05% 22.48% North America 12.58% 12.83% 14.63% 100.00% 100.00% 100.00%

b. Net Assets

2018 2017 2016 Asia 95.18% 97.35% 96.66% North America 2.91% 2.65% 3.34% Europe 1.91% − − 100.00% 100.00% 100.00%

See related discussion on Note 30 of the Audited Consolidated Financial Statements. Transaction with and/or Dependence on Related Parties The Group has no significant transactions that are dependent on related parties except for the transactions discussed in Item 12 of this report and in Note 24 of the Audited Consolidated Financial Statements. Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements, or Labor Contracts, including Duration Not applicable to the Group. Need for Any Governmental Approval of Principal Products or Services

None

Effect of Existing or Probable Governmental Regulations on the Business None Estimate of Amount Spent for Research and Development Activities of the Last Completed Fiscal Year None

Cost and Effects of Compliance with Environmental Laws

IEMS’ plants are located in industrial parks with a centralized water treatment system.

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Employees As of December 31, 2018, the Group has a total of 2,075 employees consisting of sixty six (66) managers, five hundred two (502) administrative personnel and one thousand five hundred seven (1,507) factory workers. Aside from basic salaries, employees receive vacation and sick leave credits, transportation allowance, free medical and dental benefits, group insurance benefits and funeral assistance. There is no existing collective bargaining agreement or labor union in the Group.

Debt Issues Not applicable to the Group. Investment Company Securities Not applicable to the Group.

Item 2. Properties

As of December 31, 2018 the Group’s manufacturing, design and prototyping operations are conducted in the following plants: The EMS-2 Plant is located at the Light Industry and Science Park of the Philippines-II (LISP II) in Calamba City, Laguna and has an area of 1,375 square meters. The property is leased from Iomni from January 16, 2019 to January 15, 2020. The EMS-5 and EMS-6 Plants are located at the LISP-I in Cabuyao City, Laguna and have an aggregate area of 9,035 square meters. The land and the building thereon are owned by the Parent Company. The plants are leased to IEMS subject to yearly renewal at the rate of US$4.73 per square meter with an annual escalation rate of 5% for EMS-5 and EMS-6. The plant of Iomni is also located in LISP-II in Calamba City, Laguna. It has an aggregate total area of 10,893.15 square meters of covered factory building and paved open space. The land is leased from a non-related third party from January 16, 2016 to January 31, 2021. Ionics EMS (USA), Inc. is located at 3215 La Mesa Drive San Carlos, CA 94070, USA.

Item 3. Legal Proceedings

As of December 31, 2018, there are no materials pending legal proceedings to which the Parent Company or any of its subsidiaries is a party or of which any of their properties is a subject.

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

There were no matters submitted to a vote of security holders for the fourth quarter of 2018.

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PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Registrant’s Common Equity and Related Stockholder Matter

(Amounts in US Dollar) (Amounts in PhP) HIGH LOW HIGH LOW Latest price as of March 31, 2019 0.034 0.033 1.76 1.71

2018 First Quarter 0.047 0.044 2.45 2.30 Second Quarter 0.043 0.042 2.32 2.22 Third Quarter 0.035 0.034 1.90 1.85 Fourth Quarter 0.032 0.030 1.68 1.56 2017

First Quarter 0.030 0.030 1.52 1.49 Second Quarter 0.033 0.032 1.69 1.6 Third Quarter 0.036 0.035 1.85 1.8 Fourth Quarter 0.045 0.043 2.25 2.17 2016 First Quarter 0.064 0.061 2.93 2.82 Second Quarter 0.050 0.049 2.36 2.32 Third Quarter 0.045 0.045 2.20 2.16 Fourth Quarter 0.032 0.031 1.58 1.54

The Parent Company’s common stock is listed in the Philippine Stock Exchange. The number of shareholders of record as of December 31, 2018 is 862 holding a total of 837,130,992 outstanding common shares.

The following were the top 20 stockholders based on the number of shares held and percentage to total shares outstanding as of March 31, 2019:

Class of

Securities

Name

No. of Shares

%

Common AQUA HOLDINGS, INC. 335,153,100.00 40.04 Common PCD NOMINEE CORP 324,339,589.00 38.74 Common SIGUION REYNA,

LEONARDO* 75,006,000.00 8.96

Common PCD NOMINEE CORP 28,630,061.00 3.42 Common QUA, LAWRENCE C. 20,102,760.00 2.40 Common IONICS PROPERTIES, INC. 14,059,000.00 1.68 Common QUA, RAYMOND C. 8,562,350.00 1.02 Common QUA, LAWRENCE C. 7,352,000.00 0.88 Common QUA, MELITON C. 6,497,362.00 0.78 Common CHUA, CECILIA Q. 5,584,412.00 0.67 Common CEDILLA, MA. ASUNCION Q. 4,640,616.00 0.55 Common DY, VIRGINIA JUDY Q. 1,033,603.00 0.12 Common GELI, BENJAMIN S. 470,000.00 0.06 Common YANG, TEH MIN. 466,000.00 0.06 Common TELENGTAN BROTHERS & 400,000.00 0.05

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SONS INC. Common UY, ABETO A. 250,000.00 0.03 Common VILLONCO &/OR THELMA V.

MABANTA, ROMEO. 100,000.00 0.01

Common LIONG HEE, QUE. 100,000.00 0.01 Common DY, ARSENIA C. 99,000.00 0.01 Common YU-FEI, LAI. 84,000.00 0.01 *deceased

Dividends per Share 2018 None 2017 None

2016 None

Description of Any Restriction that Limits the Payment of Dividends on Common Shares

Dividends shall be declared at such time and in such percentage as the Board of Directors may determine, but no dividends shall be declared or paid except from the surplus profits arising from its business nor shall any dividends be declared that will impair the capital of the Parent Company.

Recent Sales of Unregistered or Exempt Sales

There are no recent sales of unregistered or exempt securities, including any recent issuance of securities constituting an exempt transaction.

Description of Registrant’s Securities

The registrant has an authorized capital stock of 1,000,000,000 shares with par value of PhP1.00 per share. The issued and outstanding shares as of December 31, 2018 are 837,130,992. No transfer of stock or interests which will reduce the ownership of Filipino citizens to less than the required percentage of the capital stock as provided by existing laws shall be allowed or permitted to be recorded in the books of the Parent Company.

Debt Securities

There are no issuances of debt securities.

Stock Options

There are no issuances of stock options.

Securities Subject to Redemption or Call There are no issuances of securities subject to redemption or call.

Warrants

There are no issuances of warrants.

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Market Information for Securities Other Than Common Equity

There is no material information relating to securities other than the Parent Company’s common equity.

Other Securities

There are no issuances of other securities.

Item 6. Management Discussion and Analysis or Plan of Operation Management Plan for the Year 2019 Ionics EMS, Inc. (IEMS)

IEMS continues to be bullish with the prospect of 2019.

With its stable current portfolio of clients, it looks forward to marketing more focusedly to tap significant players in the fields of automotive, telecommunication, medical sectors and especially in the IoT in which good strides have been with a number of companies pertinent to their smart product applications.

The SMT lines have been added and manufacturing footprint expanded to accommodate customers ready to get started.

The Human Resources have taken measures to automate its processes and services and technical training curricular will be digitised in keeping with the contemporary learning platform for continuing improvements.

While IEMS has adequate capital for expansion, its Parent Company will support with additional requirements when called for. Iomni Precision, Inc. (Iomni)

Growing the topline and improving the bottomline with consistent quality and excellence are the set goals for 2019.

Other than mold fabrication and injection molding, sub-module assembly is one of the projects in the pipeline to expand Iomni's service portfolio.

As the competency and extensive experiences in managing the automotive accounts is established, the company seeks to increase its business share in the medical and other sectors.

Diligent monitoring of costs and continuing improvements via Kaizen for enhanced efficiency and effectiveness remain to be the determined thrust. Ionics Properties, Inc. (IPI)

The fluctuations in the rental business need to be factored into the 2019 scenario. Some of the lease contracts will expire within varying quarters.

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A major operating subsidiary is aiming to use one or two of the facilities while there are several inquiries to lease the third. In this regard, it is likely for the financials to be impacted in these transitions.

As of filing date, the management of the Group is not aware of: a) any significant expenditures for product research and development; b) any expected significant change in number of employees; c) any known trends, events or uncertainties that have or are reasonably likely to have a material

impact on the registrant’s short term or long term liquidity; d) any event that will trigger direct or contingent financial obligation that is material to the Group,

including any default or acceleration of an obligation; e) any material off-balance sheet transactions, arrangements, obligations (including contingent

obligations), and other relationships of the Group with unconsolidated entities or other persons created during the reporting period;

f) any known trends, events or uncertainties that have or that are reasonably expected to have a material impact on the net sales or revenues or income from continuing operations; and

g) any seasonal aspects that had a material effect on the financial condition or results of operations. Sources of liquidity are expected from the Group’s internal cash flow from the results of operations and from the Group’s external borrowings. Below are the consolidated key financial ratios for the years ended December 31, 2018 and 2017.

December 31, 2018 December 31, 2017 Revenue Growth 4.01% 8.18% Gross Profit Margins 14.76% 15.51% Net Income Margins 7.41% 6.63% Return on Equity 8.29% 7.97% Current Ratio 2.70:1 2.27:1 Leverage Ratio (1.47:1) 14.83:1 Debt-to-Equity Ratio 0.40:1 0.50:1 Asset-to-Equity Ratio 1.40:1 1.50:1 Interest Coverage Ratio 15.65:1 22.12:1

1. Revenue Growth

The revenue growth is the Group’s increase in revenue for a given period. Revenue growth is computed by deducting prior year revenue from current year revenue and dividing it by revenue of the prior year. The result is expressed in percentage.

2. Gross Profit Margin

The gross profit margin reflects the management’s policies related to pricing and production efficiency. This is computed by dividing gross profit by net sales. The result is expressed in percentage.

3. Net Income Margin

Net income margin is the ratio of the Group’s net income after tax for a given period. This is computed by dividing net income by net sales. The result is expressed in percentage.

4. Return on Equity

The return on equity is the ratio of the Group’s net income to stockholders’ equity. This is computed by dividing net income by total stockholders’ equity. The result is expressed in percentage. This measures the management’s ability to generate returns on their investments.

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5. Current Ratio

The current ratio is the ratio of the Group’s current resources and its current obligations. This is computed by dividing current assets by current liabilities. The result is expressed in ratio.

6. Leverage Ratio Leverage ratio shows the balance that the Group’s management has struck between forces of risk versus cost. This is computed by dividing net debt by the sum of total equity and net debt.

7. Debt-to-Equity Ratio The debt-to-equity ratio indicates the relative proportion of equity and debt used to finance the Group’s assets. This is computed by dividing total liabilities by equity.

8. Asset-to-Equity Ratio Asset-to-equity ratio shows the relationship of the total assets of the Group to the portion owned by shareholders. This is computed by dividing total assets by equity.

9. Interest Coverage Ratio Interest coverage ratio is the ratio of the Group’s ability to meet its interest payments. This is computed by dividing the sum of income before income taxes and finance costs by the finance costs.

As of filing date, the management of the Group is not aware of:

a) any known trends, demands, commitments, events or uncertainties that will have a

material impact on the issuer’s liquidity; b) any events that will trigger direct or contingent financial obligation that is material to the

Group, including any default or acceleration of an obligation; c) all material off-balance sheet transactions, arrangements, obligations (including contingent

obligations), and other relationships of the Group with unconsolidated entities or other persons created during the reporting period;

d) any material commitments for capital expenditures, the general purpose of such commitments and the expected sources of funds for such expenditures;

e) any known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales/ revenues/ income from continuing operations;

f) any significant elements of income or loss that did not arise from the issuer’s continuing operations; and

g) any seasonal aspects that had a material effect on the financial condition or results of operations.

The causes for any material change from period to period which shall include vertical and horizontal analysis of any material item were disclosed in pages 18 to 24 of this report.

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Financial Performance 2018 CONSOLIDATED RESULTS OF OPERATIONS Consolidated sales increased by 4% from US$52.50 million in 2017 to US$54.71 million this year, the increase in sales was attributable to the increase in customer order during the year. Gross profit slightly increased to US$8.46 million in 2018 from US$8.55 million in 2017. Operating expenses decreased from US$4.21 million in 2017 to US$3.65 million in 2018 due to lower commission expense and no impairment loss on AFS investment in 2018 due to the adoption of PFRS 9 as discussed in Note 2 of Audited Financial Statements. With the foregoing, the Group reported a consolidated net income attributable to equity holders of the Parent Company amounting to US$4.17 million and US$3.58 million for year ended December 31, 2018 and 2017, respectively. The summarized revenues and net income (losses) of the Group for the year ended December 31, 2018 are as follows:

(In US Dollars) COMPANY REVENUE NET INCOME (LOSS) Parent Company 507,021 (78,708) IEMS 51,972,678 2,374,432 IPI 2,498,272 1,926,943 ICL − 12,460 Iomni 2,930,374 25,329 Synertronix − (505) IPSI 199,534 5,199 TOTAL 58,107,879 4,265,150 Reclass/Eliminating entries (806,069) (21,050) Consolidated 57,301,810 4,244,100

CONSOLIDATED FINANCIAL POSITION As of December 31, 2018, the consolidated assets of the Group amounted to US$71.49 million which is US$2.75 million higher than the December 31, 2017 figure of US$68.74 million. The increase in the Group’s total assets was due to the increase in inventories and cash and cash equivalents.

Current ratio decreased to 270% in 2018 from 227% in 2017 due to decrease in bank loan payable and accounts payable and accrued expenses, while debt-to-equity ratio decreased from 50% in 2017 to 40% in 2018. At the end of December 31, 2018, the Group’s long-term debt decreased to US$0.78 million from US$1.89 million in 2017.

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INDIVIDUAL RESULT OF OPERATIONS Ionics, Inc. (the “Parent Company”) The Parent Company reported a net loss of US$0.10 million and US$0.25 million in December 31, 2018 and 2017, respectively. Impairment loss on the investment in Synertronix was recognized in 2018. There was no dividend income receive during the period. The individual performance of the subsidiaries for the year ended December 31, 2018 is as follows: Ionics EMS (“IEMS”) The IEMS has registered an increase in revenue of US$51.973 million in 2018 from US$49.589 million in 2017. Gross profit slightly increased by US$0.03 million from US$5.74 million in 2017 to US$5.77 million in the same period of 2018. Operating expense and other expenses slightly decreased by US$0.02 million from US$2.96 million in 2017 to US$2.94 million in 2018. With the foregoing, IEMS reported a 7% increase in net income from US$2.22 million in 2017 to US$2.37 million in 2018. Ionics Properties, Inc. (“IPI”) IPI, the subsidiary engaged in real estate holdings remained profitable with net income of US$1.93 million in 2018 and 2017. Ionics Circuits, Limited (“ICL”) ICL, the offshore investment subsidiary reported a net income of US$0.01 million in 2018 from a net loss of US$0.26 million in 2017, due to reversal of impairment loss to other comprehensive income in compliance with PFRS 9. Synertronix, Inc. (“SI”) SI reported a net loss of US$$0.001 million in 2018 from net income of US$0.019 million in 2017. Iomni Precision, Inc. (“Iomni”) Iomni’s sales in 2018 decreased to US$2.78 million from US$3.09 million in 2017. Iomni reported a gross income of US$0.22 million and US$0.25 in 2018 and 2017, respectively. Operating expenses amounted to US$0.18 million and US$0.23 million in 2018 and 2017 respectively.

With the foregoing, the Company’s performance resulted to a net income of US$0.03 million and US$0.008 million in 2018 and 2017, respectively. 2017 CONSOLIDATED RESULTS OF OPERATIONS Consolidated sales increased by 9% from US$48.36 million in 2016 to US$52.50 million this year. With the continuing increase in consignment business, gross profit increased to US$8.55 million in 2017 from US$6.79 million in 2016.

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Operating expenses increased from US$3.75 million in 2016 to US$4.21 million in 2017. Further, fixed selling expenses has increased to reinforce the sales team of the operating subsidiary. With the foregoing, the Group reported a consolidated net income attributable to equity holders of the Parent Company amounting to US$3.58 million and US$2.802 million for year ended December 31, 2017 and 2016, respectively. The summarized revenues and net income (losses) of the Group for the year ended December 31, 2017 are as follows:

(In US Dollars) COMPANY REVENUE NET INCOME (LOSS) Parent Company 487,890 (245,043) IEMS 49,568,907 2,216,485 IPI 2,516,216 1,928,416 ICL - (254,740) Iomni 3,239,491 7,548 Synertronix - 19,062 IPSI - (25,464) TOTAL 55,812,504 3,646,340 Reclass/Eliminating entries (740,791) (65,619) Consolidated 55,071,713 3,580,645

CONSOLIDATED FINANCIAL POSITION As of December 31, 2017, the consolidated assets of the Group amounted to US$68.74 million which is US$10.36 million higher than the December 31, 2016 figure of US$58.38 million. The increase in the Group’s total assets was due to the increase in receivables, inventories, property, plant and equipment and advance payment to suppliers reported under prepayments and other current assets.

Current ratio decreased to 227% in 2017 from 304% in 2016 due to increase in accounts payable and accrued expenses, while debt to equity ratio decreased from 36% in 2016 to 50% in 2017. At the end of December 31, 2017, the Group’s long-term debt has increased to US$1.89 million from US$1.06 million in 2016 due to acquisition of machinery and equipment thru equipment loan from a foreign financial institution. INDIVIDUAL RESULT OF OPERATIONS Ionics, Inc. (the “Parent Company”) The Parent Company reported a net loss of US$0.25 million and US$4.18 million in December 31, 2017 and 2016, respectively. Impairment loss on the investment in Iomni was recognized in 2017. There was no dividend income receive during the period. The individual performance of the subsidiaries for the year ended December 31, 2017 is as follows: Ionics EMS (“IEMS”) IEMS has registered an increase in revenue to US$49.59 million in 2017 from US$45.72 million in 2016. With the continuing increase in consignment business, gross profit increased to US$5.74 million in 2017 from US$4.39 million in 2016. This has translated into a 53% increase in net income to US$2.22 million in 2017 from US$1.45 million in 2016.

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Operating expense and other expenses increased by US$0.29 million from US$2.73 million in 2016 to US$3.02 million in 2017 due to impairment of receivable. With the foregoing, the Group reported a net income of US$2.22 million in 2017 from a net income of US$1.45 million in 2016. Ionics Properties, Inc. (“IPI”) IPI, the subsidiary engaged in real estate holdings remained profitable with increase net income of US$1.93 million in 2017 from US$1.94 million in 2016, due to additional lease contract with the existing Lessee. Ionics Circuits, Limited (“ICL”) ICL, the offshore investment subsidiary reported a net loss of US$0.26 million in 2017 from a net income of US$0.16 million in 2016, this was due to impairment of investments in Pacific Synergies IV. Synertronix, Inc. (“SI”) SI reported a net income of US$$0.019 million in 2017 from US$0.001 million in 2016. Iomni Precision, Inc. (“Iomni”) Iomni’s sales in 2017 increased to US$3.09 million from US$2.66 million in 2016 due to increase in customer order. Iomni reported a gross income of US$0.25 million in 2017 as compared to a gross loss of US$0.15 million in 2016. Operating expenses amounted to US$0.23 million and US$0.19 million in 2017 and 2016 respectively.

With the foregoing, the Company’s performance resulted to a net income of US$0.008 million and a net loss US$0.36 million in 2017 and 2016, respectively. 2016 CONSOLIDATED RESULTS OF OPERATIONS 2016 is another challenging year for the Group. On the topline, revenue from telecommunication and automotive products significantly dropped but the increasing consignment business has mitigated the impact of the dropped in turnkey sales to the bottom line. Consolidated sales dropped by 24% from US$63.746 million in 2015 to US$48.356 million this year. Despite the 24% decreased in sales, consolidated net income slightly dropped from US$2.925 million in 2015 to US$2.849 million in 2016. The Group’s rental income increased by US$0.171 million or 7.15% from US$2.395 million in 2015 to US$2.567 million in 2016 due to rental rate on additional space in one of the existing facility. The Group reported a gross income of US$6.785 million in 2016 from US$6.373 million in 2015. Operating expenses increased from US$3.024 million in 2015 to US$3.749 million in 2016. Management prudence call to provided impairment of Goodwill in a subsidiary amounting to US$0.217 million and receivable from a customer amounting to US$0.160 million in 2016. Further, fixed selling expenses has increased to reinforce the sales team of the operating subsidiary.

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The summarized revenues and net income (losses) of the Group for the year ended December 31, 2016 are as follows:

(In US Dollars) COMPANY

REVENUE

NET INCOME (LOSS)

Parent Company 477,567 (4,177,158)* IEMS 45,869,403 1,446,239 IPI 2,527,023 1,943,684 ICL 226,098 162,449 Iomni 2,802,893 (356,582) Synertronix 5 (983) TOTAL 51,902,989 (982,351) Reclass/Eliminating entries (607,989) 1,819,317* Consolidated 51,295,000 2,801,668

*Including Parent Company take up of impairment loss on investment and advances to Iomni and Synertronix which was eliminated in the consolidation.

CONSOLIDATED FINANCIAL POSITION As of December 31, 2016, the consolidated assets of the Group amounted to US$58.383 million which is US$1.036 million lower than the December 31, 2015 figure of US$59.419 million. The decrease in the Group’s total assets was due to decrease in receivables and inventories due to lower sales. Current ratio improved to 304% in 2016 from 250% in 2015 while debt to equity ratio improved from 49% in 2015 to 37% in 2016. For the year ended December 31, 2016, the Group has continuously improved its cash position from the cash flows generated from operations. At the end of December 31, 2016, the Group’s long-term debt has increased to US$1.057 million from US$1.024 million in 2015 due to acquisition of machinery and equipment thru equipment loan from a foreign financial institution. INDIVIDUAL RESULT OF OPERATIONS The individual performance of the subsidiaries for the year ended December 31, 2016 is as follows: Ionics EMS (“IEMS”) IEMS turnover decreased by US$15.115 million or 24.85% from US$60.835 million in 2015 to US$45.720 million in 2016. Consistent with its move in 2015 to expand its consignment business and prudently manage overhead and indirect cost, and despite the 25% dropped in sales, gross profit increased by US$0.048 million from US$4.340 million in 2015 to US$4.388 million in the same period of 2016. Other income decreased from US$0.23 million in 2015 to US$0.10 million in 2016 due to lower foreign exchange gain. Operating expenses increased from US$2.58 million in 2015 to US$2.70 million in 2016 due to impairment of receivables and increase in fixed selling expense to reinforce its sales team. With the foregoing, IEMS reported a net income of US$1.45 million in 2016 from a net income of US$1.65 million in 2015.

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Ionics Properties, Inc. (“IPI”) IPI, the subsidiary engaged in real estate holdings remained profitable with increase net income of US$ 1.944 million in 2016 from US$1.870 million in 2015, due to additional lease contract with the existing Lessee. Ionics Circuits, Limited (“ICL”) ICL, the offshore investment subsidiary reported a net income of US$0.162 million in 2016 from a net loss of US$0.152 million in 2015, due to equity take up in the net income of investment in an associate. Synertronix, Inc. (“SI”) SI reported a net loss for the year ended December 31, 2016 of US$$0.001 million from US$0.009 million in 2015. Iomni Precision, Inc. (“Iomni”) Iomni, the plastic injection molding unit, has experience a decrease in sales from US$2.964 million in 2015 to US$2.657 million in 2016. Iomni, reported a net loss of US$0.149 million in 2015 to US$0.357 million in 2016. Below is the summary of Balance Sheet Accounts with more than 5% increase (decrease)

December 31 2018 2017

% % ASSETS

Cash and Cash Equivalents 65 (24) Receivable (26) 38 Contract Assets 100 N/A Inventories 14 47 Prepayments and Other Current Assets (12) 48 Available-for-sale Investments 46 (12) Property, Plant and Equipment - net (16) 37 Investment Properties - net N/A (5) Deposit and Others N/A (9) Deferred Tax Assets 57 (20)

LIABILITIES

Accounts Payable and Other Liabilities N/A 38 Bank and Finance Lease Obligations (23) 267 Income Tax Payable (37) 103 Contract Liabilities (7) (55) Security Deposits N/A 12 Net Pension Liabilities (19) N/A

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2018 Cash and cash equivalents increased due to cash flows generated from operations. Receivables decreased due to significant collections from customer. Contract assets increased due to impact of PFRS 9. Inventories increased as a result of increasing customer order. The decrease in prepayments and other current assets was attributable to the decrease in advance payment to suppliers for material ordering. AFS investments increase was due to additional investment to an Investee Company. Property and equipment decreased due to depreciation for the period. Deferred tax assets increased due to tax adjustments related to straight line valuation of rental income. The decrease in contract liabilities was due to application of advance payments against receivable. Bank loans and finance lease liability decreased due to payments made during the year. The decrease in income tax payable was due to payments of income tax during the year. Net pension liabilities decreased due to number of eligible members who reached the normal retirement age. 2017 The decrease in cash was primarily due to acquisition of machineries and equipment and raw materials. Receivables increased due to sales to a new customer. Inventories increased as a result of increasing customers order. The increase in prepayments and other current assets was attributable to advance payment made to suppliers in line with the increase in purchase of materials. AFS investments decrease due to impairment of investment in Pacific Synergies IV. Property and equipment increased due to acquisitions made during the period to invest the plant’s capacity. Deposits and Others decreased due to foreign currency exchange revaluation and a refund of deposit from a utility company. Deferred tax assets decrease due to tax adjustments related to straight line valuation of rental income. The increase in accounts payable and accrued expenses is attributable to the purchase of raw materials. The decrease in advances from customer was due to application of advance payments against receivable. Bank loans and finance lease liability increased due to acquisition of machine under finance lease. The increase in income tax payable was due to increase in income tax for the period. The increase in security deposits was due to additional deposit made by one of its lessee. 2016 Cash and cash equivalents increased due to cash flows generated from operations. Decrease in receivables was due to significant collections from customers and lower customer demands. The decreased in inventories was attributable to the decline in the forecasted sales of turnkey accounts which results to lower inventory purchases. Decrease in Prepayments and other current assets was due to decrease in advances to suppliers which are also related to decline in turnkey projects. Property, plant and equipment increased due to additional acquisition of machineries and equipment. Deferred tax asset increase due to tax adjustments. Goodwill decreased due to the impairment loss recognized during the year. Accounts payable and accrued expenses decreased due to controlled purchases in response to lower turnkey projects. Bank and finance lease increased due to availment of equipment loan during the year. Advances from customers decreased due to lower sales volume for the year. The decrease in security deposits was due to reclassification to unearned rent income account. Item 7. Financial Statements The Group’s consolidated financial statements and schedules listed in the accompanying Index to Financial Statements and Supplementary Schedules (page 68) are filed as part of this Form 17-A 1. General Notes to Financial Statements:

See Audited Consolidated Financial Statements.

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Assets subject to lien and restriction on sales of assets: Not applicable to the Group. Restriction which limits the availability of Retained Earnings for dividend declaration: See related discussion on Note 2 of the Audited Consolidated Financial Statements. Commitments and Contingent Liabilities: See related discussion on Leases under Note 25 of the Audited Consolidated Financial Statements. Material Related Party Transactions which affect the Financial Statements: The Parent Company has no significant related party transactions with its subsidiaries, affiliates and stockholders that affect the Financial Statements except for the matters discussed in Note 24 to the Audited Consolidated Financial Statements. Bonus, Profit Sharing and Other Similar Plans: The Group has car plan for the employees and profit sharing for its BOD and Management. Interest Cost: IEMS paid interest on bank loans and financial institution.

2. Subsidiaries

As of December 31, 2018, the details of investments and advances to subsidiaries are as follows:

Subsidiaries % owned Investment Advances ICL 100 US$2,579,265 US$- Iomni 100 1,886,156 500,000 IPI 100 1,535,578 - IPSI 100 99,416 - IEMS 97 36,969,459 10,563,655

3. Cash and Cash Equivalents

Out of the total cash and cash equivalents of US$16,482,591 as of December 31 2018, US$4,590,807 is peso-denominated. This represents savings deposit and current accounts in local banks.

4. Accounts Receivable - Others

Receivable from customers other than sales US$1,226,713 Rent receivable 175,591 Advances to officers and employees 111,908 Claims against SSS and other government agencies 37,209 Others 131,635

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5. Inventories

Inventories increased due to increasing customer orders.

6. Property, Plant and Equipment As of December 31, 2018, the Group has no equipment that is still under installation as discussed in Note 13 to the Audited Consolidated Financial Statements.

7. General and Administrative Expenses - Please see schedule in page 46. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1. External Audit Fees and Services

(a) Audit and Audit - Related Fees

The Auditing firm of Sycip Gorres Velayo & Co. (SGV) has been the external auditor of the Company since 1992. The Auditing partner-in-charge of the accounts of the Company for the financial year ended December 31, 2018 is Ms. Dhonabee B. Señeres who took office after her appointment at the May 20, 2016 stockholders’ meeting of the Company. Audit fee for Ionics, Inc. in 2018 is forty thousand six hundred twenty-eight dollars (US$40,628) and forty one thousand one hundred seventy two dollars (US$41,172) in 2017. The fees are generally based on the complexity of the issues involved, the work to be performed, the special skills required to complete the work, the experience level of the team members and most importantly, the ability to provide the auditors’ report expressing an opinion on the financial statements of the Company.

(b) There are no assurance and related services by the external auditor that are reasonably related to the performance of the audit or review of the Company’s financial statements.

(c) All Other Fees (d) Any additional services that the Company may request will be the subject of a

separate written arrangement.

(e) The Audit Committee’s approval policies and procedures for the above services The Audit Committee heard the reports of the External Auditor and validated the financial reports prepared by Management.

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

Disclosure

There are no changes in, and no disagreements with, the registrant’s accountants on any accounting and financial disclosure during the two most recent fiscal years or any subsequent interim period.

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PART III - CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Registrant

The Executive Officers of the Registrant

Position

Name

Term Period Served

Age

Citizenship

Director, Chairman and President

Lawrence C. Qua

1 year

35

72

Filipino

Director -Independent Alfredo de R. Borja 1 year 15 74 Filipino Director -Independent Amelia B. Cabal 1 year 8 71 Filipino Director Meliton C. Qua 1 year 25 77 Filipino Director Diana P. Aguilar 1 year 3 55 Filipino Director Raymond Ma. C. Qua 1 year 29 68 Filipino Director Virginia Judy Q. Dy 1 year 24 78 Filipino Director Cecilia Q. Chua 1 year 11 66 Filipino Director Monica Siguion Reyna

Villonco

1 year 8 65 Filipino Director Guillermo D. Luchangco 1 year 25 79 Filipino Director Lilia B. De Lima 1 year 2 78 Filipino Corporate Secretary Manuel R. Roxas 1 year 26 69 Filipino Asst. Corporate Secretary

Pola Lia Celina L. Lamarca

1 28 Filipino

Vice President Judy C. Qua 68 Filipino Vice President Ronan R. Andrade 48 Filipino AVP Internal Audit Cesar G. Caubalejo 52 Filipino

Directors serve for a term of one (1) year and until the election and qualification of his successor.

The following are the Chairman and members of the Corporate Governance Committee for the year 2018 - 2019:

Alfredo de Borja Chairman

Amelia B. Cabal Member Lilia B. De Lima Member

The following individuals were nominated to the Board of Directors of the Company for the ensuing year, and have been approved for election by the Corporate Governance Committee at its meeting on 14 March 2018:

1. Lawrence C. Qua

- Chairman of the Board

2. Alfredo R. de Borja

- Member (Independent)

3. Amelia B. Cabal


4. Diana P. Aguilar

- Member

5. Virginia Judy Q. Dy

- Member

6. Guillermo D. Luchangco

- Member

7. Meliton C. Qua

- Member

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8. Raymond C. Qua

- Member

9. Lilia B. De Lima


10.Cecilia Q. Chua

- Member

11. Monica Siguion Reyna Villonco

- Member

Nominated as independent directors are Mr. Alfredo R. de Borja, Ms. Amelia B. Cabal, and Ms. Lilia B. De Lima. The nominees for independent directors were advised of SEC Memorandum Circular No. 5, Series of 2017 on the requirement of Certificate of Qualification of Independent Directors. The Independent Directors were likewise advised of SEC Memorandum Circular No. 15, Series of 2017 on the term limits for Independent Directors. None of the independent directors have served beyond the maximum cumulative term of nine (9) years.

All the independent directors were nominated by Aqua Holdings, Inc. None of the independent directors are subject to any trust arrangement or other contract or agreement with Aqua Holdings, Inc. Lawrence C. Qua, 72, is the founding Chairman and Chief Executive Officer (CEO) of Ionics, Inc. and Subsidiaries, consisting of Ionics EMS, Inc., Ionics Properties Inc., Iomni Precision Inc., and Ionics Circuits Inc. He is also the Chairman and Director of Aqua Holdings, Inc. He is, further, a director and member of the investment committee of ICCP Venture Partners, Inc. and a director of various companies engaged in retailing and property development. He has been a trustee of the Semiconductor & Electronics Industry of the Philippines Inc. since its organization. He served as a board trustee of the Graduate Business School of De la Salle University for three years. Mr. Qua graduated from De La Salle University with a Bachelor of Science degree in Mechanical Engineering. Alfredo De Borja, 74, has been an independent director of Ionics, Inc. since 2004 and an independent director of Ionics EMS, Inc. since 2007. He is the incumbent President and Director of Makiling Ventures, Inc., a real estate development company, and President and Director of E. Murio, Inc., a furniture manufacturer and exporter. He is also a director of Investment Capital Corp. of the Phil. (ICCP), ICCP Venture Partners, Inc. (where he is Chairman of the Investment Company), ICCP Management Corp, Pueblo de Oro Development Corp., Regatta Properties, Inc., Science Park of the Philippines (SPPI), Cebu Light Industrial Park, Inc., Ionics, Inc., Ionics EMS, Inc., and Araneta Properties, Inc., both listed companies with the Philippine Stock Exchange; and Philippine Coastal Storage & Pipeline Corp. He has also served as board director of a number of companies including First Metro Investment Corp., SPI, Alsons Power, Alsons Cement, Iligan Cement, Manila Memorial Park, Philcom, Shopwise, and Republic Glass. He was the President of Gervel, Inc. from 1973 to 1986; Director and Chairman of the Executive Committee of First Metro Investment Co. from 1978 to 1983; Director and Vice President of Iligan Cement Corp. from 1973 to 1977; Professional Lecturer of the University of the Philippines-Graduate School of Business Administration from 1971 to 1974; Executive Assistant to the Vice President of Philippine Long Distance Telephone Co. from 1970 to 1973; and Executive Assistant to the Vice President of Investment Manager, Inc. from 1966 to 1968. He holds a Master of Business Administration degree from Harvard University and a Bachelor of Science in Economics from the Ateneo de Manila University. Amelia B. Cabal, 71, is an independent director of Ionics, Inc. and Ionics EMS, Inc. She is likewise an independent director of Deutsche Regis Partners, Inc. Ms. Cabal served as a member of the External Audit Committee of the International Monetary Fund, and of the board of directors of Metropolitan Bank and Trust Company from 2009 to 2011. She was

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previously a part of SGV as Vice Chairman and Head of Financial Markets Practice up to 2006 and as a Senior Adviser on Regulatory Matters and Financial Markets from 2006 to 2009. Presently, Ms. Cabal is the Chairman of the External Audit Committee of the International Monetary Fund; a member of the board of directors of Philippine Savings Bank; and the Bank Supervisor for Metrobank China (Ltd.)

Meliton C. Qua, 77, held key positions in several companies which included the Philippine Bank of Communications as Senior Vice President; Citibank N.A., as Vice President; Bancnet as Director and Aqua Holdings, Inc. as Director. Mr. Qua has been a director of Ionics, Inc. since 1985. He received his Bachelor of Science degree in Business Administration from De La Salle University, Philippines.

Lilia B. De Lima 78, Filipino, is an independent director of Ionics, Inc. and Ionics EMS, Inc. She is currently a director of AC Industrial Technology Holdings, Inc. In 2017, she served as an independent advisory board member of the Rizal Commercial Banking Corporation and was also a member of the board of directors of Science Park of the Philippines and RFM Science Park of the Philippines. Since 1981 until 2016, Atty. de Lima has been in government service, holding high positions in various government instrumentalities such as the Department of Trade and Industry, National Amnesty Commission, Cagayan Economic Zone Authority, Zamboanga Economic Zone Authority, PHIVIDEC Industrial Authority, and the Philippine Economic Zone Authority. Atty. de Lima was awarded the Ramon Magsaysay Laureat in 2017 for her service as Director General of the Philippine Economic Zone Authority for 21 years. She was also a recipient of other various awards such as the Presidential Medal of Merit, awarded to her by former Presidents Benigno Aquino III and Gloria Macapagal Arroyo, The Order of the Rising Sun, Gold and Silver Star, which is the highest award given to a non-head of state by the Government of Japan for bringing hundreds of Japanese investors to the Philippines, People of the Year Award given by Peoples Asia Magazine, and Excellence in Public Service Award, which was awarded to Ms. de Lima five times by BIZNEWS ASIA. She attained her Bachelor of Laws from the Manuel L. Quezon University in 1965, and her Doctor of Laws LLD (Honoris Causa) from the same university in 2014. She passed the Philippine Bar Exams in 1966.

Raymond Ma. C. Qua, 68, has been a member of the Board of Directors of Ionics, Inc. since 1985 and holds the position of Treasurer and Senior Vice President. He is also a director of Ionics EMS, Inc. Previously, he was the Senior Vice President and General Manager of Synertronix, Inc. and the Vice President for Administration of Ionics, Inc. Mr. Qua is presently affiliated with various organizations and 14 associations serving as head, ranking officer or member. Mr. Qua received his Bachelor of Science degree in Commerce from De La Salle University, Philippines. Virginia Judy Q. Dy, 78, has been a member of the Board of Directors of Ionics, Inc. since 1991. In the last seven years, she is connected with Aqua Holdings, Inc. as director. She is also the Finance Director of DVPRO Solutions, Inc. from 2001 to the present. Previous corporate affiliations include Philippine Commercial and International Bank as Branch Manager, Insular Bank of Asia & America as Branch Manager, Ladtek Corporation/Interphase Development System as Accounting Manager and the International Corporate Bank as Branch Manager. Ms. Dy received her Bachelor of Science in Commerce degree from the Assumption Convent and is a Certified Public Accountant, having passed the government board exams in 1963. Cecilia Q. Chua, 66, was a director of Ionics, Inc. from 1997 to 2000 and from 2007 up to the present. She is the Treasurer of B-Pack Corporation, Vice President of CQ B-Pack Corporation and has been the Purchasing Manager of Ionics Ems, Inc. since 1985. Previous corporate affiliations include Complex Electronics Corporation, Interphase Development Corporation, Ladtek Corporation and Pimeco.

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Monica Siguion-Reyna Villonco, 65, is the Chairman of Lowe Philippines, where she has served as a director since 2002. She also served as the editor-in-chief of Town & Country Philippines from 2007-2010. Ms. Villonco is the incumbent President of Whitespace, Inc. and Datascope Communications (Phils.), Inc. Ms. Villonco is a member of the Board of Governors of the Philippine National Red Cross. She is also a member of the board of directors of Provident Plans International Corp. and Sa Aklat Sisikat Foundation; She was a member of the Film Rating Board from 1998 to 2002; and a board member of CCP Tanghalang Pilipino from 1988-1990.

Guillermo D. Luchangco, 79, has been a member of the Board of Directors of Ionics, Inc. since 1991. He is the Chairman and Chief Executive Officer of the ICCP Group, whose members include, among others, Investment & Capital Corporation of the Philippines, whose principal activities are in investment banking; ICCP Venture Partners Inc., which is in venture capital; Science Park of the Philippines, Inc., a developer of industrial parks; and Pueblo de Oro Development Corporation, a developer of residential and township projects; and Manila Exposition Complex, Inc., the owner of the World Trade Center Metro Manila. Before founding ICCP in 1988, he served as Vice Chairman and President of Republic Glass Corporation, a publicly-listed company. Between 1969 and 1980, Mr. Luchangco worked with the SGV, the Philippines’ leading auditing and consulting firm. He rose to the position of Managing Director and Regional Coordinator for management services. Mr. Luchangco serves on a number of Boards, including the following publicly-listed companies in the Philippine Stock Exchange: Phinma Corporation, Globe Telecom, Inc., Ionics, Inc, and Roxas & Co., Inc. He holds a Master of Business Administration degree from the Harvard Business School and a Bachelor of Science degree in Chemical Engineering (magna cum laude) from De La Salle University, Philippines. Manuel R. Roxas, 69, Filipino, has been the Company’s Corporate Secretary for the past seventeen (17) years. His professional experience covers general corporate law practice as counsel to various companies engaged in banking, investments, pharmaceuticals, shipping, and manufacturing. Atty. Roxas received his Bachelor of Science degree in Economics from the University of Pennsylvania in 1970 and Bachelor of Laws degree from the University of the Philippines in 1975. His other professional affiliations include: Roxas de los Reyes Laurel Rosario & Leagogo as Partner, Tax Management Association of the Philippines as past President, President Manuel A. Roxas Foundation, Inc., Mother Rosa Memorial Foundation, Inc. as Secretary, the Integrated Bar of the Philippines, Philippine Bar Association, and the Wharton Club of the Philippines as member. Pola Lia Celina L. Lamarca, 28, Filipino, is the Company’s Assistant Corporate Secretary. Atty. Lamarca is an associate lawyer at Roxas de los Reyes Laurel Rosario & Leagogo Law Offices. She received her Bachelor of Arts degree in Political Science from the University of the Philippines-Diliman in 2012, and her Juris Doctor degree from the University of the Philippines College of Law in 2016. She is a member of the Integrated Bar of the Philippines.

Judy C. Qua, 68, Filipino, is the Company’s Vice President for Business Development and Corporate Affairs. She is also the Executive Assistant to the Chairman and CEO on special assignments. She is concurrently the President and Chief Operating Officer of Iomni Precision, Inc. She was the Executive Director for Finance of IONOTE Ltd., the joint venture facility of Ionics EMS, Inc. and NOTEAB of Sweden in China. Prior to joining the Ionics, Inc., she was in college teaching, advertising and marketing practice, data management, and was a consulting resource for Ionics in people management and corporate communications. Ms. Qua is a transformational psychologist, a professional lecturer, a certified faculty for the American Management Association and the Swedish-based CELEMI management simulation learning systems, and an author of four (4) books on life essays. She

31

is the lecturer-facilitator of The Second Wind Mind Works neurodynamics course. She holds a Master of Arts degree in Social and Industrial Psychology from the Ateneo de Manila University and a Master of Business Administration degree from Kellogg-HKUST Business School of Northwestern University. Ronan Andrade, 48, is the Vice President for Finance/Chief Finance Officer. He graduated from San Beda College in 1991 and passed the Certified Public Accountant Board Examination in the same year. He worked with SGV in audit division from 1992 to 1998, starting as an audit staff member until he became audit supervisor. He joined Ionics in 1999 as Senior Manager for Finance and became Assistant Vice President and Acting Finance Head of the Company, prior to his transfer to Internal Audit as Vice President. In 2007, Mr. Andrade was appointed as Vice President for Finance. Cesar G. Caubalejo, 52, is the Assistant Vice President for Internal Audit. He graduated from the University of the Philippines at Tacloban City, Leyte in 1988 with a degree in Bachelor in Business Administration Major in Accounting. He is a Certified Public Accountant and a Certified Fraud Examiner. He worked and started his career with SGV in 1988 until his resignation from the firm as a Senior Director under the Business Risk Services in December 2008. During his stint with SGV, he was assigned to work in other countries such as US, France, Vietnam, Cambodia, Laos, Malaysia and Kingdom of Saudi Arabia. He also worked for a year (1997) as a group controller in one of the diversified companies in the Philippines. He is a member of Philippine Institute of Certified Public Accountants, and Philippine Chapters of Association of Certified Fraud Examiners and Institute of Internal Auditors. He joined Ionics EMS, Inc. on January 5, 2009. The Directors of the Company are elected at the annual stockholders’ meeting to hold office until the next succeeding annual meeting and until their respective successors have been elected. Messrs. Lawrence C. Qua, Meliton C. Qua, Raymond C. Qua, Virginia Judy Q. Dy and Cecilia Q. Chua, all of whom are directors of the Company, are all related within the second degree of consanguinity. Mrs. Judy C. Qua, the Company’s Vice President for Business Development, is the spouse of the President/Chairman/Chief Execuive Officer, Mr. Lawrence C. Qua. No director has transacted with the Group in his/her personal capacity. None of the directors were involved, during the past five years and up to the date hereof, in any bankruptcy petition filed by or against any business of which a director was a general partner or executive officer either at the time of the bankruptcy or within two years to that time; nor was any director convicted by final judgment in a criminal proceeding, domestic or foreign, or was subject to a criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses; or was subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking services; or was found by a domestic or foreign court of competent jurisdiction (in a civil action), the commission or comparable foreign body, or a domestic or foreign exchange or electronic marketplace or self-regulatory organization, to have violated a securities or commodities law.

None of the directors has informed the Group that he/she intends to oppose any action to be taken by the Group at the meeting.

32

While all of the employees are valued, none are expected to contribute more significantly than the others to the business of the Company.

Item 10. Executive Compensation.

The following table summarizes the compensation of the five (5) highest paid executive officers of the Group and the aggregate compensation of all officers and directors as a group for the last two completed calendar years, and the estimated aggregate compensation of the said officers and directors for the present calendar year.

SUMMARY COMPENSATION TABLE Annual Compensation

Year Salary Others* Chief Executive Officer and four (4) most highly compensated executive officers

2019

(estimate)

2018

2017

$ 482,882.00

$ 438,984.00

$ 407,122.00

$ 88,685.00

$ 80,623.00

$ 60,100.00

All officers and directors as a group unnamed

2019 (estimate)

2018

2017

$ 724,654.00

$ 658,776.00

$ 746,387.00

$ 207,880.00

$ 188,982.00

$ 176,998.00

*Others -includes per diem of directors The following are the CEO and four (4) most highly compensated executive officers of the Group (i.e. on a consolidated basis): 1. Mr. Lawrence C. Qua. is the Chairman of the Board of Directors, the Chief Executive

Officer and the President of the Company. 2. Raymond C. Qua is the Senior Vice President, Treasurer and Compliance Officer 3. Mr. Ronan R. Andrade is the Vice President for Finance. 4. Mr. Cesar G. Caubalejo is the Assistant Vice President of Internal Audit. 5. Ms.Judy C. Qua is the Vice President for Corporate Affairs/Business Development. Directors who are not officers of the Company are entitled to a per diem of Fifteen Thousand Pesos (P=15,000.00) per regular meeting attended. The Chairman of the Board who is also the Chief Executive Officer of both Ionics and its subsidiary, IEMS, receives compensation on a monthly basis plus a percentage of net profit after tax before bonus. All other executive officers receive monthly compensation without, however, any entitlement to a percentage of the profits.

33

As of December 31, 2018, no executive officer of the Registrant is under employment contract. Item 11. Security Ownership of Certain Beneficial Owners and Management. As of December 31, 2018.

(a) Security Ownership of Certain Record and Beneficial Owner

Title of class

Name and address Of owner

Name of Beneficial Owner and

Relationship with Record Owner Citizenship

Number of Shares Held

Percent of class

Common Aqua Holdings, Inc. c/o Ionics EMS, Inc. Carmelray Industrial Park II, Bgy. Tulo, Calamba, Laguna Shareholder

Lawrence C. Qua, Meliton C. Qua,

Raymond C. Qua, Virginia Judy Q. Dy

(stockholders of Aqua Holdings, Inc.)

Filipino 335,153,100(R)

39.12%

Common Social Security System SSS Bldg., East Ave.,Diliman, Quezon CityShareholder

Republic of the

Philippines (represented by

Mr.Ibarra A. Malonzo)

Filipino 59,926,198 (R)

7.04%

Common Leonardo T. Siguion Reyna* 7 Tanguile Road, North Forbes Park Makati City Director

N/A Filipino 75,006,000 (R)

8.75%

*deceased

(b) Security Ownership of Management

Title of Class

Name of Beneficial Owner

Amount and Nature of Beneficial Ownership

Citizenship Percent of Class

Commo

n

Lawrence C. Qua Chairman/President/CEO

27,454,760

Direct

1,950,000 Indirect

Filipino

3.20%

0.23%

Common

Meliton C. Qua Director

6,497,362

Direct

Filipino

0.77%

Common

Guillermo D. Luchangco Director

19,620,000

Indirect

Filipino

2.34%

34

Common Alfredo R. de Borja Director

14,000 Direct

Filipino nil

Common

Diana P. Aguilar Director

1

Direct

Filipino

nil

Common

Virginia Judy Q. Dy Director

1,033,603

Direct

4,887,140 Indirect

Filipino

0.12%

0.58%

Common

Raymond C. Qua Director/SVP-Treasurer

8,562,350

Direct

Filipino

1.02%

Common

Cecilia Q. Chua Director

5,584,412

Direct

3,000 Indirect

Filipino

0.66%

nil

Common

Monica Siguion Reyna

Villonco Director

24,000 Direct

127,000 Indirect

Filipino

nil

0.02%

Common

Amelia B. Cabal Director

100

Direct

53,900 Indirect

Filipino

nil

Common

Lilia B. De Lima Director

50,000 Indirect

Filipino

nil

Common

Judy C. Qua VP- Business Development & Corporate Affairs

-0-

Filipino

-0-

Common

Manuel R. Roxas Corporate Secretary

14,500 Direct

Filipino

nil

35

Common

Pola Lia Celina L. Lamarca Assistant Corporate Secretary

-0-

Filipino

-0-

Common

Ronan R. Andrade VP - Finance

-0-

Filipino

-0-

Common

Cesar G. Caubalejo AVP- Internal Audit

-0-

Filipino

-0-

TOTAL 75,876,128 9.06%

(c) Voting Trust Holders of 5% or More There are no voting trust holders of 5% or more. (d) Changes in control

The Group has not entered into any arrangement which may result in a change in control of the Group.

Item 12. Certain Relationships and Related Transactions

The Group has no significant related party transactions with its stockholders, directors, officers and affiliated companies except for the following: (a) lease arrangements: • the Company leases two factory buildings to its subsidiary, Ionics EMS, Inc. as production

plant site V and VI for its manufacturing business. The rental rate was based on the prevailing and current market rates within the area and assumed no risks on the transactions.

• Ionics EMS, Inc. also entered into a lease agreement with IOMNI Precision, Inc., a wholly- owned subsidiary of Ionics, Inc. for its corporate office with an area of 1,375 square meters from January 16, 2018 to January 15, 2019. The rental rates was based on the current market rates and the rate of another tenant within the building.

(b) legal services The Company retains for legal services the law firms Siguion Reyna Montecillo& Ongsiako Law Offices, where Monica Siguion Reyna Villonco’s husband is a partner and Roxas de los Reyes Laurel Rosario & Leagogo Law Offices where the Corporate Secretary, Manuel R. Roxas, and the Assistant Corporate Secretary, Cria Marie L. Pasquil, are partner and associate lawyer, respectively. The Company believes that legal fees are reasonable for the services rendered.

(c) financial advisors

Investment and Capital Corporation of the Philippines (“ICCP”) is retained by the Company as its Financial Advisor. Guillermo D. Luchangco, who has been a director of the Company

36

since 1991, is Chairman and Chief Executive Officer of ICCP. The Company believes that the retainer fees are reasonable for the services rendered.

(d) acquisition of assets Ionics Properties, Inc. purchased a residential lot to Synertronix, Inc., an affiliate on 21 December 2017, with an area of 792 sq.m., situated in Barangay Javalera, General Trias, Cavite, covered by Transfer Certificate of Title (“TCT”) No. T-933871, issued by the Register of Deeds for Province of Cavite.

(e) acquisition of shares In December 21, 2017, Ionics Properties, Inc. purchased a share of stock of Eagle Ridge Golf & Country Club, Inc. to Synertronix, Inc., an affiliate.

37

PART IV – CORPORATE GOVERNANCE REPORT

This portion has been deleted pursuant to SEC Memorandum Circular No.5, Series of 2013. Item 13. Corporate Governance

a) Evaluation System The Compliance Officer is currently in-charge of evaluating the level of compliance of the Board of Directors and top-level management of the Corporation. The implementation of the Corporate Governance Scorecard allows the Company to properly evaluate compliance to the Manual.

b) Compliance Report

Measures are slowly being undertaken by the Company to fully comply with the adopted leading practices on good corporate governance and one of them is attending seminars by our Corporate Directors.

c) Deviations The Company is taking steps towards full compliance of its Corporate Governance Manual

d) Plan to improve

The Company continues to improve its Corporate Governance when appropriate and warranted, it its best judgment.

38

PART V - EXHIBITS AND SCHEDULES Item 14. Exhibits and Reports on SEC Form 17-C

(a) Exhibits - See accompanying Index to Exhibits (b) Reports to SEC via Form 17-C

1. March 16, 2018 – Announced the date and time of Annual Shareholders’ Meeting, approval

of the members of Board of Directors for 2018-2019 and approval of Equity Restructuring of Iomni Precision, Inc.

2. May 11, 2018 – Board of Directors of the Ionics, Inc. approved the amendment of Article II of the By-Laws of the Company regarding the Qualifications of a Director.

3. June 21, 2018 – Announced the results of the annual stockholders’ meeting and organizational meeting of Ionics, Inc. and Ionics Ems, Inc.

4. October 30, 2018 – Approval of SEC for the Amendment of Ionics, Inc. By-Laws. November 13, 2018 – Announced the approval of the Board of Directors of Ionics, Inc. for the Increase of Capital Stock of Ionics Properties, Inc., resignation of Assistant Corporate Secretary Ms.Stephanie Maree N. Dysangco and appointment of Ms.Pola Lia Celina L. Lamarca as the new Assistant Corporate Secretary of Ionics, Inc.

*SGVFS034159*

C O V E R S H E E Tfor

AUDITED FINANCIAL STATEMENTS

SEC Registration Number

1 0 7 4 3 2

C O M P A N Y N A M E

I O N I C S , I N C . A N D S U B S I D I A R I E S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province )

C i r c u i t S t r e e t , L i g h t I n d u s t r y

a n d S c i e n c e P a r k o f t h e P h i l i p

p i n e s - I , B o . D i e z m o , C a b u y a o

C i t y , L a g u n a , P h i l i p p i n e s

Form Type Department requiring the report Secondary License Type, If Applicable

A A F S C R M D N / A

C O M P A N Y I N F O R M A T I O N

Company’s Email Address Company’s Telephone Number Mobile Number

[email protected]

(049) 508-1111 0917-869-5688

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

862 06/18 2018/12/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

Name of Contact Person Email Address Telephone Number/s Mobile Number

RONAN R. ANDRADE [email protected] (049) 508-1111 0917-869-5688

CONTACT PERSON’s ADDRESS

No.14 Mountain Drive, Light Industry and Science Park II Brgy. La Mesa, Calamba, LagunaNOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission withinthirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commissionand/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.

*SGVFS034159*

INDEPENDENT AUDITOR’S REPORT

The Board of Directors and StockholdersIonics, Inc. and SubsidiariesCircuit Street, Light Industry and Science Park of the Philippines-IBo. Diezmo, Cabuyao City, Laguna, Philippines

Opinion

We have audited the consolidated financial statements of Ionics, Inc. and its subsidiaries (the Group),which comprise the consolidated statements of financial position as at December 31, 2018 and 2017, andthe consolidated statements of comprehensive income, consolidated statements of changes in equity andconsolidated statements of cash flows for each of the three years in the period ended December 31, 2018,and notes to the consolidated financial statements, including a summary of significant accountingpolicies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidatedfinancial performance and its consolidated cash flows for each of the three years in the period endedDecember 31, 2018 in accordance with Philippine Financial Reporting Standards (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 Consolidated Financial Statements section of our report. We are independent of the Group inaccordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics)together with the ethical requirements that are relevant to our audit of the consolidated financialstatements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

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

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

*SGVFS034159*

- 2 -

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

Adoption of PFRS 15, Revenue from Contracts with Customers

Effective January 1, 2018, the Group adopted the new revenue recognition standard, PFRS 15, Revenuefrom Contracts with Customers, using the modified retrospective approach. The adoption of PFRS 15resulted to significant changes in the Group’s revenue recognition policies, process and procedures. TheGroup recognized transition adjustment which increased the retained earnings as of January 1, 2018 byUS$0.15 million, resulting from the change in timing of revenue recognition from contracts withcustomers. The adoption of PFRS 15 is significant to our audit because this involves application ofsignificant management judgment in determining whether the timing of satisfaction of performanceobligation occurs at a point in time or over time. The Group has applied the cost incurred approach indetermining the measure of progress towards complete satisfaction of performance obligation.

The disclosures related to the adoption of PFRS 15 are included in Note 2 to the consolidated financialstatements.

Audit Response

We obtained an understanding of the Group’s process in implementing the new revenue recognitionstandard. We reviewed the PFRS 15 accounting policies and contract analysis prepared by management.We obtained sample contracts and reviewed whether the accounting policies considered the five-stepmodel and cost requirements of PFRS 15. We checked whether the Group’s timing of revenue recognitionis based on when the performance occurs and control of the related goods or services is transferred to thecustomer. For the transition adjustment, we tested management’s calculation through recalculation andtesting of inputs used, including the cost incurred and gross profit margins. We obtained an understandingof the Group’s cost accumulation process and performed test of relevant controls. For selected samples,we tested the cost incurred by comparing against the cost information in the production cost worksheet,which includes raw materials issued to production, labor and overhead cost incurred. Furthermore, wetested the gross profit margins by comparing the price used to the agreed sales price and performing trendanalysis. We also reviewed the disclosures related to the transition adjustments based on the requirementsof PFRS 15.

Valuation of Raw Materials Inventories

The carrying value of the Group’s raw materials inventories as of December 31, 2018 amounted toUS$13.74 million and accounts for 19% of its total consolidated assets as of the same date. The Group’sinventories are carried at lower of cost or net realizable value (NRV). This is significant to our auditbecause the Group is operating in an industry characterized by rapid technological change, short-termcustomer commitments, and constant changes in demand. These factors increase the risk of inventoryobsolescence and decreases in value of the Group’s raw materials inventories.

Disclosures related to this matter are provided in Notes 2, 3 and 10 to the consolidated financialstatements.


*SGVFS034159*

- 3 -

Audit Response

We obtained an understanding, evaluated the design and tested the controls over the Group’s inventorymanagement, including procurement and issuance to production, and inventory aging process. On asampling basis, we tested the acquisition cost shown in the raw materials listing against the supportingdocuments such as purchase invoice. We agreed the cost used in the NRV listing against the inventorylisting and the current selling price used against the latest selling price invoiced to the sampled customers.We also tested the costs to complete and costs to sell used in the NRV listing against the actual historicalcost. We performed inventory count observations, reviewed the aging of raw materials inventories andtested selected long-outstanding inventory items or those related to end-of-life products. We alsoreviewed management’s plan to recover these sampled inventories (e.g., to be applied against outstandingcustomer advances, customer contracts with buy-back provisions and related forecasted demand).

Other Information

Management is responsible for the other information. The other information comprises the informationincluded in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Reportfor the year ended December 31, 2018, but does not include the consolidated financial statements and ourauditor’s report thereon. The SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A andAnnual Report for the year ended December 31, 2018 are expected to be made available to us after thedate of this auditor’s report.

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

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

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

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

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

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


*SGVFS034159*

- 4 -

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

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s reportthat includes 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 consolidated 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 consolidated financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk ofnot detecting a material misstatement resulting from fraud is higher than for one resulting from error,as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override ofinternal 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 Group’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 Group’s ability to continue as a going concern. Ifwe conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up tothe date of our auditor’s report. However, future events or conditions may cause the Group to ceaseto continue as a going concern.

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

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

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.


*SGVFS034159*

- 5 -

We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.

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

The engagement partner on the audit resulting in this independent auditor’s report isDhonabee B. Señeres.

SYCIP GORRES VELAYO & CO.

Dhonabee B. SeñeresPartnerCPA Certificate No. 97133SEC Accreditation No. 1196-AR-2 (Group A), October 18, 2018, valid until October 17, 2021Tax Identification No. 201-959-816BIR Accreditation No. 08-001998-98-2018, February 2, 2018, valid until February 1, 2021PTR No. 7332614, January 3, 2019, Makati City

March 13, 2019


*SGVFS034159*

IONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION(Amounts in Thousands)

December 31

2018

2017(As restated -

Note 2)

ASSETS

Current AssetsCash and cash equivalents (Notes 4, 5, 6 and 7) US$16,483 US$9,961Receivables (Notes 3, 4, 5 and 8) 11,642 15,710Contract assets (Notes 2, 4, and 9) 1,302 ̶Inventories (Notes 2, 3 and 10) 13,742 12,057Prepayments and other current assets (Note 2) 983 1,113

Total Current Assets 44,152 38,841

Noncurrent AssetsFinancial assets at fair value through other

comprehensive income (FVOCI) (Notes 2, 4, 5 and 11) 3,330 −Available-for-sale investments (Notes 2, 5 and 11) − 2,287Investments in associates (Notes 3 and 12) 730 731Property, plant and equipment (Notes 3 and 13) 17,809 21,164Investment properties (Notes 3 and 14) 5,017 5,249Deferred tax assets - net (Notes 3 and 27) 33 21Other noncurrent assets (Notes 2, 4 and 5) 420 449

Total Noncurrent Assets 27,339 29,901US$71,491 US$68,742

LIABILITIES AND EQUITY

Current LiabilitiesAccounts payable and other liabilities (Notes 4, 5, 6 and 15) US$9,715 US$9,609Advances from customers (Notes 2 and 16) − 1,311Contract liabilities (Notes 2 and 9) 1,219 −Current portion of bank loans and finance lease liabilities

(Notes 4, 5, 6, 17 and 25) 5,299 6,040Income tax payable 120 189

Total Current Liabilities 16,353 17,149

Noncurrent LiabilitiesNet pension liabilities (Notes 3 and 29) 2,169 2,679Bank loans and finance lease liabilities - net of current portion

(Notes 4, 5, 6, 17 and 25) 778 1,890Deferred tax liabilities (Notes 2 and 27) 254 −Other noncurrent liabilities (Notes 4, 5, 6 and 15) 737 1,155

Total Noncurrent Liabilities 3,938 5,724Total Liabilities US$20,291 US$22,873

(Forward)

*SGVFS034159*

December 31

2018

2017(As restated -

Note 2)

Equity Attributable to the Equity Holders of the ParentCompany (Note 6)

Capital stock (Note 18) US$17,633 US$17,633Additional paid-in capital (Notes 18 and 31) 9,072 9,072Retained earnings (Notes 2 and 18) 26,097 21,556Other comprehensive income:

Unrealized losses on available-for-sale investments(Notes 2, 11 and 22) − (361)

Unrealized losses on financial assets at FVOCI (Notes 2 and 11) (40) −Exchange differences (Notes 12 and 14) 895 904Other reserves (Note 29) (455) (838)

Adjustment to non-controlling interests (Note 31) (943) (943)Treasury shares (Note 18) (1,365) (1,365)

50,894 45,658Non-controlling interests (Note 2) 306 211

Total Equity 51,200 45,869US$71,491 US$68,742

See accompanying Notes to Consolidated Financial Statements.

*SGVFS034159*

IONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Thousands, Except Earnings per Share)

Years Ended December 312018 2017 2016

REVENUERevenue from contracts with customers (Notes 2 and 30) US$54,710 US$52,499 US$48,356Rental income (Notes 14, 25 and 30) 2,591 2,592 2,567

57,301 55,091 50,923COST OF SALES AND RENTAL SERVICESCost of sales (Notes 2 and 20) 48,439 46,154 43,791Cost of rental services (Notes 14, 21 and 25) 402 392 347

48,841 46,546 44,138GROSS PROFIT 8,460 8,545 6,785OPERATING EXPENSES (Note 22) 3,654 4,206 3,749OTHER INCOME (EXPENSES)Share in net earnings (losses) of associates (Notes 12 and 30) 8 (12) 40Finance costs (Notes 17 and 23) (319) (173) (131)Others - net (Notes 11, 12 and 19) 177 (8) 238

(134) (193) 147

INCOME BEFORE INCOME TAX 4,672 4,146 3,183PROVISION FOR INCOME TAX (Notes 26 and 27) 428 492 334

NET INCOME 4,244 3,654 2,849

OTHER COMPREHENSIVE INCOME (LOSS)Items that may be reclassified to profit or loss:

Exchange differences (Notes 12, 14 and 29) (9) (23) 381Reversal of unrealized gain on available-for-sale investments (179) −

Unrealized loss transferred from equity to profit or loss(Note 11) − − 56

Fair value gain (loss) on available-for-sale financial assets(Note 11) − 34 (39)

Items that may not be reclassified to profit or loss:Fair value gain on financial assets at fair value through other

comprehensive income (Note 11) 544 − − Remeasurement gains (losses) on retirement plan

(Notes 3 and 29) 396 71 (90)931 (97) 308

TOTAL COMPREHENSIVE INCOME US$5,175 US$3,557 US$3,157

NET INCOME ATTRIBUTABLE TO:Equity holders of the Parent Company (Note 28) US$4,166 US$3,581 US$2,802Non-controlling interests 78 73 47

US$4,244 US$3,654 US$2,849

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:Equity holders of the Parent Company US$5,084 US$3,483 US$3,113Non-controlling interests 91 74 44

US$5,175 US$3,557 US$3,157

BASIC/DILUTED EARNINGS PER SHARE (Note 28)For net income for the year attributable to ordinary equity holders of

the Parent Company US$0.0051 US$0.0044 US$0.0034See accompanying Notes to Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(Amounts in Thousands)

Attributable to the equity holders of the Parent Company

Additional

UnrealizedLosses onFinancial Adjustment to

Capital Paid-in Retained Assets Non-Controlling Exchange Other Treasury Non-Stock Capital Earnings at FVOCI Interests Differences Reserves Shares Controlling

(Note 18) (Note 18) (Notes 2 and 18) (Note 11) (Note 31) (Notes 12 and 14) (Note 29) (Note 18) Total Interests Total

For the Year Ended December 31, 2018

Balances at beginning of year,as previously presented US$17,633 US$9,072 US$21,556 (US$361) (US$943) US$904 (US$838) (US$1,365) US$45,658 US$211 US$45,869

Effect of adoption of new standards(Note 2) − ̶ 375 (223) ̶ ̶ ̶ ̶ 152 4 156

Balances at beginning of year,as restated 17,633 9,072 21,931 (584) (943) 904 (838) (1,365) 45,810 215 46,025

Net income − − 4,166 − − − − − 4,166 78 4,244Other comprehensive income (loss) − − − 544 − (9) 383 − 918 13 931Total comprehensive income (loss) − − 4,166 544 − (9) 383 − 5,084 91 5,175Balances at end of year US$17,633 US$9,072 US$26,097 (US$40) (US$943) US$895 (US$455) (US$1,365) US$50,894 US$306 US$51,200


Balances at beginning of year US$17,633 US$9,072 US$17,975 (US$216) (US$943) US$927 (US$908) (US$1,065) US$42,475 US$137 US$42,612Net income − − 3,581 − − − − − 3,581 73 3,654Other comprehensive income (loss) − − − (145) − (23) 70 − (98) 1 (97)Total comprehensive income (loss) − − 3,581 (145) − (23) 70 − 3,483 74 3,557Reacquisition of the Parent Company’s

own share (Note 18) − − − − − − − (300) (300) − (300)Balances at end of year US$17,633 US$9,072 US$21,556 (US$361) (US$943) US$904 (US$838) (US$1,365) US$45,658 US$211 US$45,869


Balances at beginning of year US$17,633 US$9,072 US$15,173 (US$233) (US$1,000) US$546 (US$805) (US$602) US$39,784 US$134 US$39,918Net income − − 2,802 − − − − − 2,802 47 2,849Other comprehensive (loss) − − − 17 − 381 (87) − 311 (3) 308Total comprehensive income (loss) − − 2,802 17 − 381 (87) − 3,113 44 3,157Adjustment to noncontrolling interest − − − − 57 − (16) − 41 (41) −Reacquisition of the Parent Company’s

own share (Note 18) − − − − − − − (463) (463) − (463)Balances at end of year US$17,633 US$9,072 US$17,975 (US$216) (US$943) US$927 (US$908) (US$1,065) US$42,475 US$137 US$42,612


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IONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Thousands)


CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax US$4,672 US$4,146 US$3,183Adjustments for:

Depreciation and amortization(Notes 13, 14, 20, 21 and 22) 4,715 4,099 3,075

Finance costs (Notes 17, 23 and 25) 319 173 131Loss (gain) on disposal of property, plant and equipment

(Note 19) (4) 3 66Share in net losses and earnings of associates (Note 12) (8) 12 (40)Interest income (Notes 7 and 19) (78) (45) (15)Movement in net pension liabilities (Note 29) (114) 167 129

Impairment of available-for-sale investments(Notes 11 and 22) − 223 56

Impairment loss on goodwill (Note 22) − − 217Dividend income (Notes 11 and 19) − − (4)

Gain on dilution of interest in investment in associate(Note 12) − − (163)

Operating income before working capital changes 9,502 8,778 6,635Changes in working capital:Decrease (increase) in:

Receivables 4,080 (4,326) 2,728Contract assets (Note 2) 584 − −Inventories (Note 2) (3,407) (3,847) 3,447Prepayments and other current assets 130 (391) 214Other noncurrent assets 29 35 7

Increase (decrease) in:Accounts payable and other liabilities 71 2,640 (3,742)Advances from customers (Note 2) − (1,578) (727)Contract liabilities (92) − −Other noncurrent liabilities (418) 181 (5)

Net cash generated from operations 10,479 1,492 8,557Income taxes paid (512) (391) (351)Interest received 66 43 12Net cash provided by operating activities 10,033 1,144 8,218

(Forward)

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CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of property and equipment US$4 US$49 US$–Acquisitions of:

Property and equipment (Notes 13 and 17) (940) (5,591) (3,787)Investment properties (Note 14) (116) − (372)

Financial assets at fair value throughother comprehensive income (Note 11) (250) − −

Available-for-sale investments (Note 11) − − (110)Partial return of available-for-sale investments (Note 11) − 78 217Additional investments in associates (Note 12) − (174) –Dividends received from available-for-sale investments

(Notes 11 and 19) − − 4Net cash used in investing activities (1,302) (5,638) (4,048)

CASH FLOWS FROM FINANCING ACTIVITIESAvailments (Note 4):

Commercial loans 9,954 4,000 −Bank loans 83 −

Payments (Note 4):Commercial loans (9,954) − −Finance lease (1,856) (2,074) (645)Bank loans (80) (136) (111)Interests on bank loans and finance lease (356) (179) (91)

Reacquisition of Parent Company’s own shares (Note 18) − (300) (463)Net cash provided by (used in) financing activities (2,209) 1,311 (1,310)

NET INCREASE (DECREASE) IN CASH AND CASHEQUIVALENTS 6,522 (3,183) 2,860

CASH AND CASH EQUIVALENTS AT BEGINNING OFYEAR 9,961 13,144 10,284

CASH AND CASH EQUIVALENTS AT END OF YEAR(Note 7) US$16,483 US$9,961 US$13,144


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IONICS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Amounts in Thousands, Except Par Value per Share and Earnings per Share)

1. Corporate Information and Status of Operations

Ionics, Inc. (the Parent Company) is a domestic corporation incorporated under the laws of thePhilippines and registered with the Securities and Exchange Commission (SEC) in September 1982with a corporate life of 50 years. The Parent Company started commercial operations in July 1987and engaged in electronic manufacturing services business. In September 1999, the Parent Companytransferred its primary manufacturing business to a majority owned subsidiary, Ionics EMS, Inc.(EMS), which was subsequently listed in the Singapore Exchange Securities Trading Limited(Singapore Exchange). Consequently, the Parent Company’s primary purpose was amended from amanufacturing company to a holding company.

The principal activities of the Parent Company and its subsidiaries (collectively, the Group) aredescribed in Notes 2 and 30.

The Parent Company is listed in the Philippine Stock Exchange.

The Parent Company’s principal place of business is at Circuit Street, Light Industry and Science Parkof the Philippines-I, Bo. Diezmo, Cabuyao City, Laguna, Philippines.

The consolidated financial statements were approved and authorized for issue by the Board ofDirectors (BOD) on March 13, 2019.

2. Summary of Significant Accounting Policies

Basis of PreparationThe consolidated financial statements have been prepared on a historical cost basis, except forfinancial assets at fair value through other comprehensive income (FVOCI) in 2018 and available-for-sale (AFS) investments in 2017 which have been measured at fair value.

The Parent Company’s functional currency and the Group’s presentation currency is the United States(US) Dollar ($). All amounts are rounded to the nearest thousand US$ (US$000), unless otherwiseindicated.

The following table shows the functional currency of the Parent Company and its subsidiaries:

Entity Functional CurrencyIonics, Inc. (the Parent Company) US DollarIonics EMS, Inc. (EMS) US DollarIonics Circuits, Limited (ICL) US DollarIonics Properties, Inc. (IPI) US DollarIomni Precision, Inc. (Iomni) US DollarIonics EMS (USA), Inc. (USA) US DollarSynertronix, Inc. (SI) Philippine PesoIonics Products Solutions, Inc. (IPSI) Philippine Peso

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For consolidation purposes, the financial statements of SI and IPSI were translated to US Dollarsusing the prevailing closing rate as of the reporting date for the consolidated statement of financialposition accounts and the weighted average rate for the reporting period for profit or loss accounts.The foreign currency exchange differences arising from translation are taken to the line item“Exchange differences” in other comprehensive income.

Statement of ComplianceThe consolidated financial statements of the Group have been prepared in accordance with PhilippineFinancial Reporting Standards (PFRSs). PFRSs include Philippine Financial Reporting Standards,Philippine Accounting Standards and Interpretations issued by the Philippine InterpretationsCommittee (PIC).

Basis of ConsolidationThe consolidated financial statements comprise the financial statements of the Parent Company andthe following wholly and majority owned subsidiaries as at December 31, 2018 and 2017:

SubsidiariesCountry

of Incorporation Principal ActivityEffective Percentage

of OwnershipICL Cayman Islands Investing 100%IPI Philippines Leasing 100Iomni Philippines Manufacturing 100SI Philippines Manufacturing 100IPSI Philippines Retailing 100EMS Philippines Manufacturing 97

USA United States of America Manufacturing 97

Following the SEC’s approval of IPSI’s increase in authorized capital stock, the deposit for futurestock subscription received by IPSI from the Parent Company in 2015 was applied against itsoutstanding subscription in 2017. As a result, IPSI became 100% owned by the Parent Company asof December 31, 2018 and 2017.

Control is achieved when the Group is exposed, or has rights to variable returns from its involvementwith the investee and has the ability to affect those returns through its power over the investees.Specifically, the Group controls an investee if and only if the Group has:

∂ Power over the investee (i.e., existing rights that give it the current ability to direct the relevantactivities of the investee);

∂ Exposure, or rights, to variable returns from its involvement with the investee; and,∂ The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Groupconsiders all relevant facts and circumstances in assessing whether it has power over an investee,including:

∂ The contractual arrangement with the other holders of the investee;∂ Rights arising from other contractual arrangements; or,∂ The Group’s voting rights and potential voting rights.

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The Group re-assesses whether or not it controls an investee if facts and circumstances indicate thatthere are changes to one or more of the three elements of control. Consolidation of a subsidiarybegins when the Group obtains control over the subsidiary and ceases when the Group loses controlof the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed ofduring the year are included in the consolidated financial statements from the date the Group gainscontrol until the date the Group ceases to control the subsidiary.

All intra-group balances, transactions, income and expenses, including unrealized profits, areeliminated in full upon consolidation. A change in the ownership interest of a subsidiary, without aloss of control, is accounted for as an equity transaction.

If the Group loses control over subsidiary, it derecognized the related assets (including goodwill),liabilities, noncontrolling interest and other components of equity while any resultant gain or loss isrecognized in profit or loss. Any investment retained is recognized at fair value.

The financial statements of the subsidiaries are prepared in the same reporting year as the ParentCompany, using consistent accounting policies.

Non-Controlling InterestsNon-controlling interests represent the portion of profit or loss and net assets not held by the Groupand are presented separately in the consolidated statement of comprehensive income and withinequity in the consolidated statement of financial position, separately from the Parent Company’sequity (see accounting policy on Business Combinations).

Any equity instruments issued by a subsidiary that are not owned by Ionics, Inc. are non-controllinginterests.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equityholders of Ionics, Inc. and to the non-controlling interests, even if this results in the non-controllinginterests having a deficit balance. When necessary, adjustments are made to the financial statementsof subsidiaries to bring their accounting policies in line with the Group’s accounting policies.

As of December 31, 2018 and 2017, the Group has non-controlling interests pertaining to EMS. Thepercentage of equity held by non-controlling interests in 2018 and 2017 is 3.28%.

Changes in Accounting Policies and DisclosuresThe accounting policies adopted in the preparation of the Group’s consolidated financial statementsare consistent with those of the previous financial year, except for the adoption of the following newand amended accounting pronouncements which became effective January 1, 2018.

The nature and impact of each new standard and amendment are described below:

∂ PFRS 15, Revenue from Contracts with Customers

PFRS 15 supersedes PAS 11, Construction Contracts, and 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.

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PFRS 15 requires entities to exercise judgment, taking into consideration all of the relevant factsand circumstances when applying each step of the model to contracts with customers. Thestandard also specifies the accounting for the incremental costs of obtaining a contract and thecosts directly related to fulfilling a contract. In addition, the standard requires extensivedisclosures.

The Group adopted PFRS 15 using the modified retrospective method and elected to apply thismethod only to those contracts that were not completed at the date of initial application(January 1, 2018).

The cumulative effect of initially applying PFRS 15 is recognized at the date of initial applicationas an adjustment to the opening balance of retained earnings. Therefore, the comparativeinformation was not restated and continues to be reported under PAS 18 and relatedInterpretations.

The effects of the adoption of PFRS 15 on the consolidated financial statements as ofJanuary 1, 2018 are as follow:

ReferenceIncrease

(Decrease)Contract assets (a) US$1,886Inventories (b) (1,722)Advances from customers (a) (1,311)Contract liabilities (a) 1,311Deferred tax liabilities (c) 8Retained earnings (a),(b),(c) 152Non-controlling interests in the statements of financial position (c) 4

Set out below are the amounts by which each financial statement line item is affected as of andfor the year ended December 31, 2018 as a result of adoption of PFRS 15.

Consolidated Statement of Financial Position

Reference

As reportedunder

PFRS 15

Balancesunder

PAS 18Increase

(Decrease)AssetsContract assets (a) US$1,302 US$− US$1,302Inventories (b) 13,742 14,937 (1,195)

US$15,044 US$14,937 US$107

LiabilitiesAdvances from customers (a) US$− US$1,219 (US$1,219)Contract liabilities (a) 1,219 − 1,219Deferred tax liabilities (c) 5 − 5

1,224 1,219 5EquityRetained earnings (a),(b),(c) 26,097 25,998 99Non-controlling interests in

balance sheet (c) 306 303 3US$27,627 US$27,520 US$107

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Consolidated Statement of Comprehensive Income

ReferenceAs reported

under PFRS 15Balances

under PAS 18Increase

(Decrease)Sales (a) US$54,710 US$55,294 (US$584)Cost of sales (b) 48,418 48,946 (528)Provision for deferred tax (c) (3) − (3)Total net income 4,244 4,297 (53)Net income attributable to the

Parent Company 4,166 4,218 (52)Share of non-controlling interest (c) 78 79 (1)Basic earnings per share 0.0051 0,0051 −

(a) Timing of revenue recognition

Prior to the adoption of PFRS 15, the Group recognized revenue from sale of goods uponshipment of packaged electronic products or when the packaged electronic products are acceptedby the customer, depending on the specific agreement with each customer, title and risk ofownership have been transferred to the customer, the price to be paid by the customer is fixed ordeterminable, and the recoverability is reasonably assured. Moreover, receivables are recognizedonly when the Group has a present unconditional right to payment.

Under PFRS 15, the Group assessed that revenue from manufacturing services shall berecognized over time. For turnkey contracts, revenue is recognized over time since the productscreated have no alternative use to the Group considering that manufacturing services areperformed only based on customer purchase order or scheduling agreement, and the Group hasright to payment for performance completed to date, including the related profit margin, in caseof termination for reasons other than the Group’s failure to perform as promised. Forconsignment contracts, revenue is recognized over time as services are rendered, since thecustomer simultaneously receives and consumes the benefits as the Group performs.

Upon adoption of PFRS 15, the Group recognizes contract assets when revenue is earned frommanufacturing of goods as receipt of consideration is conditional on successful completion ofservices, while contract liabilities are recognized upon receipt of advances from customers forfuture manufacturing services.

The Group records advance payment from customers as “Contract liabilities.” Before theadoption of PFRS 15, the Group records the advance collections for manufacturing of goods as“Advances from customers” in the statement of financial position.

As of January 1, 2018, the Group recognized contract assets amounting to US$1.89 million, withthe corresponding adjustments in retained earnings, and reclassified advances from customers tocontract liabilities amounting to US$1.31 million.

As of December 31, 2018, PFRS 15 increased contract assets by US$1.30 million, sales byUS$0.58 million and contract liabilities by US$1.22 million.

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(b) Cost recognition

Before the adoption of PFRS 15, cost of sales is recognized when the related sales have beenrecognized, which includes all materials and supplies used, direct labor and overhead costsrelated to production.

Upon adoption of PFRS 15, the Group determined that the input method is the appropriatemethod in measuring progress for revenue recognized as overtime because there is a directrelationship between the Group’s effort (i.e., actual cost incurred) and the transfer of service orgoods to the customer. As of January 1, 2018, the Group’s inventories decreased byUS$1.72 million, with the corresponding adjustments in retained earnings.

This also resulted to decrease in inventories by US$1.20 million and cost of sales increased byUS$0.53 million as of and for the year ended December 31, 2018.

Upon adoption of PFRS 15, work-in-process and finished goods amounted to nil as ofDecember 31, 2018.

(c) Other adjustments

In addition to the adjustments described above, other items of the consolidated financialstatements such as deferred taxes, non-controlling interests and retained earnings were adjustedaccordingly. Adoption of the PFRS 15 resulted to increase in deferred tax liabilities and non-controlling interests by US$0.008 million and US$0.004 million, respectively, as at January 1,2018.

Retained earnings increased by US$0.15 million and US$0.10 million as of January 1, 2018 andDecember 31, 2018, respectively, as the impact of (a) timing of revenue recognition and (b) costrecognition discussed above.

The Group does not have significant separate performance obligations wherein the transactionprice needs to be allocated as of December 31, 2018.

∂ PFRS 9, Financial Instruments

PFRS 9, Financial Instruments, replaces Philippine Accounting Standards (PAS) 39, FinancialInstruments: Recognition and Measurement, for annual periods beginning on or after January 1,2018, bringing together all three (3) aspects of the accounting for financial instruments:classification and measurement; impairment and hedge accounting.

The Group applied PFRS 9 using the modified retrospective approach, with an initial applicationdate as of January 1, 2018. As allowed under the transition provisions of the standard, the Grouphas not restated comparative information for the years ended December 31, 2017 andJanuary 1, 2017. Therefore, the comparative information for 2017 is reported under PAS 39 andis not comparable to the information presented in 2018. The differences arising from theadoption of PFRS 9 have been recognized directly in retained earnings as of January 1, 2018.

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

ReferenceIncrease

(Decrease)Total adjustment on equity:

Retained earnings (a) US$223Other comprehensive income (a) (223)

US$−(a) Classification and measurement

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

A financial asset can only be measured at amortized cost if both of the following are satisfied:∂ Business model: the objective of the business model is to hold the financial asset for the

collection of the contractual cash flows∂ Contractual cash flows: the contractual cash flows under the instrument relate solely to

payments of principal and interest

The assessment of the Group’s business model was made as of the date of initial application(January 1, 2018). The assessment of whether contractual cash flows on debt instruments aresolely comprised of principal and interest was made based on the facts and circumstances asat the initial recognition of the assets.

The classification and measurement requirements of PFRS 9 did not have a significant impactto the Group. All financial assets held at amortized costs under PAS 39 continues to bemeasured at amortized costs and are classified and measured as debt instruments at amortizedcost beginning January 1, 2018. Also, the adoption of PFRS 9 did not have a material impacton the Group’s operating, investing, and financing cash flows. The following are the changesin the classification of the Group’s financial assets:

∂ Cash and cash equivalents, receivables and other noncurrent financial assets(i.e., deposits reported under “Other noncurrent assets” account) classified as loans andreceivables as at December 31, 2017 are held to collect contractual cash flows and giverise to cash flows representing solely payments of principal and interest. These arecontinued to be carried as financial assets at amortized cost under PFRS 9 beginningJanuary 1, 2018.

∂ Investments in golf/club shares and equity investments in non-listed companies classifiedas AFS financial assets as at December 31, 2017 are classified as financial assets atFVOCI beginning January 1, 2018. The Group elected to classify irrevocably its quotedand unquoted equity investments under this category as it intends to hold theseinvestments for the foreseeable future. The cumulative impairment losses previouslyrecognized under PAS 39 for equity investments measured at FVOCI was transferredfrom retained earnings to OCI. As a result, a cumulative catch-up adjustment was madeas of January 1, 2018 resulting to a decrease in OCI and an increase in retained earningsof US$0.22 million.

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In summary, upon the adoption of PFRS 9, the Group had the following required or electedreclassifications for financial assets as at January 1, 2018:

PAS 39carrying value

PFRS 9 measurement categoryAmortized

cost FVOCIPAS 39 measurement categoryLoans and receivables

Cash and cash equivalents US$9,961 US$9,961 US$−Receivables* 15,568 15,568 −

AFS financial assetsInvestments in equity

instruments designated atFVOCI 2,287 − 2,287

*Excludes nonfinancial assets amounting to US$0.142 million.

The Group has not designated any financial assets or liabilities at FVPL. The adoption has noimpact on the classification and measurement for the Group’s financial liabilities.

(b) Impairment

The adoption of PFRS 9 has fundamentally changed the Group’s accounting for impairmentlosses for financial assets by replacing PAS 39’s incurred loss approach with aforward-looking expected credit loss (ECL) approach. PFRS 9 requires the Group torecognize an allowance for ECLs for all debt instruments not held at FVPL and contractassets.

ECLs are based on the difference between the contractual cash flows due in accordance withthe contract and all cash flows that the Group expects to receive. The shortfall is thendiscounted at an appromixation to the asset’s original effective interest rate. The expectedcash flows will include cash flows from the sale of collateral held or other creditenhancements that are integral to the contractual term.

The Group applied the simplified approach or a provision matrix and recorded lifetimeexpected losses on all trade and nontrade receivables and contract assets. The Group uses aprovision matrix which is based on historical observed default rate or losses and adjusted byforward-looking estimates. Primary drivers like macroeconomic indicators of qualitativefactors such as forward-looking data on inflation and gross domestic product (GDP) rateswere added to the expected losses calculation to reach a forecast supported by bothquantitative and qualitative data points.

The key inputs in the model include the Group’s definition of default, historical data of three(3) years for the origination and default date. The Group considers trade receivables, otherreceivables from customers and contract assets in default when contractual payments are 150days past due. However, in certain cases, the Group may also consider a receivable to be indefault when internal or external information indicates that the Group is unlikely to receivethe outstanding contractual amounts in full before taking into account any creditenhancements made by the Group.

The probability of default is applied to the estimate of the loss arising in default which isbased on the difference between the contractual cash flows due and those that the Groupwould expect to receive. For purposes of calculating loss given default, accounts aresegmented based on geographical location of customers.

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For the Group’s cash and cash equivalents and refundable deposits measured at amortizedcost, the general approach for measuring expected credit losses was applied.

For refundable deposits, ECLs are recognized in two stages. For credit exposures for whichthere has not been a significant increase in credit risk since initial recognition, ECLs areprovided for expected credit losses that result from default events that are possible within thenext 12 months (a 12-month ECL). For those credit exposures for which there has been asignificant increase in credit risk since initial recognition, a loss allowance is required forcredit losses expected over remaining life of the exposure, irrespective of the timing ofdefault (a lifetime ECL).

For cash and cash equivalents, the Group applies the low credit risk simplification. Theprobability of default and loss given defaults are publicly available and are considered to below credit risk investments. It is the Group’s policy to measure ECLs on such instruments ona 12-month basis. However, when there has been a significant increase in credit risk sinceorigination, the allowance will be based on the lifetime ECL. To estimate the ECL, theGroup uses the ratings published by a reputable rating agency.

There is no transition adjustment in relation to the impairment of the Group’s financial assetsas of January 1, 2018 and no impairment loss was recognized resulting from the adoption ofthe ECL approach.

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

The amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and theaccounting where a modification to the terms and conditions of a share-based paymenttransaction changes its classification from cash-settled to equity-settled. Entities are required toapply the amendments to: (1) share-based payment transactions that are unvested or vested butunexercised as of January 1, 2018, (2) share-based payment transactions granted on or afterJanuary 1, 2018 and to (3) modifications of share-based payments that occurred on or afterJanuary 1, 2018. Retrospective application is permitted if elected for all three amendments and ifit is possible to do so without hindsight.

The amendments are not applicable to the Group as the Group does not have share-basedtransaction.

∂ 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)

The amendments clarify that an entity that is a venture capital organization, or other qualifyingentity, may elect, at initial recognition on an investment-by-investment basis, to measure itsinvestments in associates and joint ventures at fair value through profit or loss. They also clarifythat if an entity that is not itself an investment entity has an interest in an associate or jointventure that is an investment entity, the entity may, when applying the equity method, elect toretain the fair value measurement applied by that investment entity associate or joint venture tothe investment entity associate’s or joint venture’s interests in subsidiaries.

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This election is made separately for each investment entity associate or joint venture, at the laterof the date on which (a) the investment entity associate or joint venture is initially recognized; (b)the associate or joint venture becomes an investment entity; and (c) the investment entityassociate or joint venture first becomes a parent. Retrospective application is required.

The amendments did not have any impact on the Group’s consolidated financial statements.

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

The amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investmentproperty and there is evidence of the change in use. A mere change in management’s intentionsfor the use of a property does not provide evidence of a change in use. Retrospective applicationof the amendments is not required and is only permitted if this is possible without the use ofhindsight.

Since the Group’s current practice is in line with the clarifications issued, the amendments did nothave any effect on the consolidated financial statements.

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

The interpretation clarifies that, in determining the spot exchange rate to use on initial recognitionof the related asset, expense or income (or part of it) on the derecognition of a non-monetary assetor non-monetary liability relating to advance consideration, the date of the transaction is the dateon which an entity initially recognizes the nonmonetary asset or non-monetary liability arisingfrom the advance consideration. If there are multiple payments or receipts in advance, then theentity must determine the date of the transaction for each payment or receipt of advanceconsideration. Retrospective application of this interpretation is not required.

Since the Group’s current practice is in line with the clarifications issued, the interpretation didnot have any effect on the consolidated financial statements.

∂ Philippine Interpretation Committee (PIC) Question and Answer (Q&A) 2018-15, PAS 1 -Classification of Advances to Contractors in the Nature of Prepayments: Current vs. Noncurrent

Upon the adoption of PIC Q&A 2018-15, advances to contractors and suppliers that have beenpreviously presented under current assets were reclassified to noncurrent assets. Before theadoption of the PIC Q&A 2018-15, the classification of the Group is based on the timing ofapplication of these advances against billings and on the actual realization of such advances basedon the determined usage or realization of the asset to which it is intended for (e.g., inventory,investment property, property, plant and equipment).

The Group adopted the PIC Q&A 2018-15 starting January 1, 2018. The impact of adoption isapplied retrospectively, which resulted to the decrease in the other current assets and increase inother noncurrent assets by US$0.07 million as of December 31, 2017.

The adoption of the PIC did not result to an increase in cash flows from operating activities.

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Future Changes in Accounting PoliciesThe standards and interpretations that are issued (and expected to reasonably apply to the Group), butnot yet effective, up to date of the issuance of the Group’s consolidated financial statements are listedbelow. The Group intends to adopt these new and amended standards and Philippine Interpretationsof International Financial Reporting Interpretations Committee (IFRIC) when they become effective.The Group will consider the effects on the consolidated financial statements as these becomeeffective and applicable.

Effective beginning on or after January 1, 2019

∂ Amendments to PFRS 9, Prepayment Features with Negative Compensation

Under PFRS 9, a debt instrument can be measured at amortized cost or FVOCI, provided that thecontractual cash flows are ‘solely payments of principal and interest on the principal amountoutstanding’ (the SPPI criterion) and the instrument is held within the appropriate business modelfor that classification. The amendments to PFRS 9 clarify that a financial asset passes the SPPIcriterion regardless of the event or circumstance that causes the early termination of the contractand irrespective of which party pays or receives reasonable compensation for the earlytermination of the contract. The amendments should be applied retrospectively and are effectivefrom January 1, 2019, with earlier application permitted.

The amendments are not expected to have any significant impact on the consolidated financialstatements.

∂ 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. The standard includes tworecognition exemptions for lessees - leases of ‘low-value’ assets (e.g., personal computers) andshort-term leases (i.e., leases with a lease term of 12 months or less). At the commencement dateof a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) andan asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the leaseliability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events(e.g., a change in the lease term, a change in future lease payments resulting from a change in 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.

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.

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

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PFRS 16 is effective for annual periods beginning on or after January 1, 2019. Early applicationis permitted, but not before an entity applies PFRS 15. A lessee can choose to apply the standardusing either a full retrospective or a modified retrospective approach. The standard’s transitionprovisions permit certain reliefs.

The Group is currently assessing the impact of adopting PFRS 16.

∂ 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, Investments in Associates and Joint Ventures.

The amendments should be applied retrospectively and are effective from January 1, 2019, withearly application permitted. Since the Group currently does not have such long-term interests inits associate and joint venture, the amendment is not expected to have an impact on itsconsolidated financial statements.

∂ 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 and does not apply to taxes or levies outside thescope of PAS 12, nor does it specifically include requirements relating to interest and penaltiesassociated with uncertain tax treatments.

The interpretation specifically addresses the following:

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

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

credits and tax rates; and,∂ 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 uncertain tax treatments. The approach that better predicts the resolution ofuncertainty should be followed.

This interpretation is not expected to have significant impact to the Group.

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∂ 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 Group but mayapply 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. These amendments are not relevant tothe Group because dividends declared by the Group do not give rise to tax obligations underthe current tax laws.

∂ 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 earlier application permitted.

The Group is currently assessing the impact of adopting the amendments to PAS 23.

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Effective beginning on or after January 1, 2020

∂ 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 the definitionof outputs. The amendments also add guidance to assess whether an acquired process issubstantive and add illustrative examples. An optional fair value concentration test is introducedwhich permits a simplified assessment of whether an acquired set of activities and assets is not abusiness.

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 Group.

∂ 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.

Deferred effectivity

∂ 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, Business Combinations. Any gain or lossresulting from the sale or contribution of assets that does not constitute a business, however, isrecognized only to the extent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council postponed the original effectivedate of January 1, 2016 of the said amendments until the International Accounting StandardsBoard has completed 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.

Significant Accounting Policies

Current versus Noncurrent ClassificationThe Group presents assets and liabilities in consolidated statement of financial position based oncurrent and noncurrent classification.

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An asset is current when:

∂ Expected to be realized or intended to be sold or consumed in normal operating cycle;∂ Held primarily for the purpose of trading;∂ Expected to be realized within 12 months after reporting date; or∂ Cash or cash equivalent, unless restricted from being exchanged or used to settle a liability for at

least 12 months after reporting date.

All other assets are classified as noncurrent.

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 12 months after reporting date; or∂ There is no unconditional right to defer the settlement of the liability for at least 12 months after

reporting date.

The Group classifies all other liabilities as noncurrent.

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

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investmentsthat are readily convertible to known amounts of cash with original maturities of three (3) months orless from the date of acquisition and that are subject to an insignificant risk of changes in value.

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 to the Group.

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 nonfinancial asset takes into account a market participant’s ability togenerate economic benefits by using the asset in its highest and best use or by selling it to anothermarket participant that would use the asset in its highest and best use.

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

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All assets and liabilities for which fair value is measured or disclosed in the consolidated financialstatements are categorized within the fair value hierarchy, described as follows, based on the lowestlevel input that is significant to the fair value measurement as a whole:

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

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

measurement is unobservable

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

Recognition and Measurement of Financial Instruments (Effective January 1, 2018)Date of recognitionThe Company recognizes a financial asset or a financial liability in the statement of financial positionwhen it becomes a party to the contractual provisions of the instrument. Purchases or sales offinancial assets that require delivery of assets within the time frame established by regulation orconvention in the marketplace are recognized on the settlement date. Settlement date is the date thatthe Company commits to purchase or sell an asset.

Financial assetsa. Initial recognition

Financial assets are classified, at initial recognition, as either subsequently measured at amortizedcost, at FVOCI, or at FVPL.

The classification of financial assets at initial recognition depends on the financial asset’scontractual cash flow characteristics and the Group’s business model for managing them. TheCompany initially measures a financial asset at its fair value plus, in the case of a financial assetnot at fair value through profit or loss, transaction costs. Trade receivables are measured at thetransaction price determined under PFRS 15. Refer to the accounting policies on Revenue fromcontracts with customers.

In order for a financial asset to be classified and measured at amortized cost or at FVOCI, it needsto give rise to cash flows that are ‘solely payments of principal and interest’ (SPPI) on theprincipal amount outstanding. This assessment is referred to as the ‘SPPI test’ and is performedat an instrument level.

The Group’s business model for managing financial assets refers to how it manages its financialassets in order to generate cash flows. The business model determines whether cash flows willresult from collecting contractual cash flows, selling the financial assets, or both.

As of December 31, 2018, the Group’s financial assets comprise of financial assets at amortizedcost.

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b. Subsequent measurement - Financial assets at amortized costFinancial assets are measured at amortized cost if both of the following conditions are met:

∂ the asset is held within the Group’s business model, the objective of which is to hold assets inorder to collect contractual cash flows; and,

∂ the contractual terms of the instrument give rise on specified dates to cash flows that are solelypayments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest methodand are subject to impairment. Gains and losses are recognized in profit or loss when the asset isderecognized, modified or impaired.

As of December 31, 2018, the Group classified cash and cash equivalents, receivables (excludingadvances to managers and employees), and refundable deposits (reported under “other noncurrentassets” account) as financial assets at amortized cost.

c. Subsequent measurement - Financial assets designated at fair value through OCI with norecycling of cumulative gains and losses upon derecognition (equity instruments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments asequity instruments designated at fair value through OCI when they meet the definition of equityunder PAS 32, Financial Instruments: Presentation and are not held for trading. Theclassification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends arerecognized as other income in the consolidated statement of income when the right of paymenthas been established, except when the Group benefits from such proceeds as a recovery of part ofthe cost of the financial asset, in which case, such gains are recorded in OCI. Equity instrumentsdesignated at fair value through OCI are not subject to impairment assessment.

As of December 31, 2018, the Group elected to classify irrevocably its quoted, proprietarygolf/club shares and non-listed equity investments under this category.

Financial liabilitiesa. Initial recognition

Financial liabilities are classified, at initial recognition, either as financial liabilities at FVPL,loans and borrowings, payables, or as derivatives designated as hedging instruments in aneffective hedge, as appropriate.

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

As of December 31, 2018, the Group’s financial liabilities comprise of financial liabilities atamortized cost.

b. Subsequent measurement - Other financial liabilitiesAfter initial recognition, other financial liabilities are subsequently measured at amortized costusing the effective interest method.

Gains and losses are recognized under the “Other income (expense)” account in the consolidatedstatement of comprehensive income when the liabilities are derecognized or impaired, andthrough the “Finance costs” account when the gains and losses are amortized.

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This accounting policy applies to the accounts payable and other liabilities and bank loans andfinance lease liabilities that meet the above definition (other than liabilities covered by otheraccounting standards, such as pension liabilities, income tax payable, and other statutoryliabilities).

Impairment of Financial Assets (Effective January 1, 2018)The Group recognizes an allowance for ECLs for all debt instruments not held at FVPL. ECLs arebased on the difference between the contractual cash flows due in accordance with the contract andall the cash flows that the Group expects to receive, discounted at an approximation of the originaleffective interest rate (EIR). The expected cash flows will include cash flows from the sale ofcollateral held or other credit enhancements that are integral to the contractual terms.

For trade receivables, other receivables, and contract assets, the Group applies a simplified approachin calculating ECLs. Therefore, the Group does not track changes in credit risk, but insteadrecognizes a loss allowance based on lifetime ECLs at each reporting date. The Group hasestablished a provision matrix that is based on its historical credit loss experience, adjusted forforward-looking factors specific to the debtors and the economic environment.

The Group uses a provision matrix which is based on historical observed default rate or losses andadjusted by forward-looking estimate. Primary drivers like macroeconomic indicators of qualitativefactors such as forward-looking data on inflation and changes in gross domestic product (GDP) rateswere added to the expected losses calculation to reach a forecast supported by both quantitative andqualitative data points.

The key inputs in the model include the Group’s definition of default, historical data of three (3) yearsfor the origination, and default date. The Group considers trade receivables in default whencontractual payments are 150 days past due. However, in certain cases, the Group may also considera receivable to be in default when internal or external information indicates that the Group is unlikelyto receive the outstanding contractual amounts in full before taking into account any creditenhancements made by the Group.

The probability of default is applied to the estimate of the loss arising in default which is based on thedifference between the contractual cash flows due and those that the Group would expect to receive.For purposes of calculating loss given default, accounts are segmented based on geographical locationof customers.

Definition of default and credit-impaired financial assetsThe Group defines a financial instrument as in default, which is fully aligned with the definition ofcredit-impaired, when it meets one or more of the following criteria:

Quantitative criteriaThe customer receives a follow up communication from management and does not continue thepayments and management performs account analysis to determine action steps to recover fromdefaulted customer (i.e., charging of interest, implementing buyback provision, etc.).

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Qualitative criteriaThe customer meets unlikeliness to pay criteria, which indicates the customer is in significantfinancial difficulty. These are instances where:a. The customer is experiencing financial difficulty or is insolventb. The customer is in breach of financial covenant(s)c. An active market for that financial assets has disappeared because of financial difficultiesd. Concessions have been granted by the Group, for economic or contractual reasons relating to thee. customer’s financial difficultyf. It is becoming probable that the customer will enter bankruptcy or other financial reorganization

The criteria above have been applied to the financial instruments held by the Group and are consistentwith the definition of default used for internal credit risk management purposes. The defaultdefinition has been applied consistently throughout the Group’s expected loss calculation.

For the Group’s cash and cash equivalents and refundable deposits measured at amortized cost, thegeneral approach for measuring expected credit losses was applied.

For refundable deposits, ECLs are recognized in two stages. For credit exposures for which there hasnot been a significant increase in credit risk since initial recognition, ECLs are provided for expectedcredit losses that result from default events that are possible within the next 12-months (a 12-monthECL). For those credit exposures for which there has been a significant increase in credit risk sinceinitial recognition, a loss allowance is required for credit losses expected over remaining life of theexposure, irrespective of the timing of default (a lifetime ECL).

For cash and cash equivalents, the Group applies the low credit risk simplification. The probability ofdefault and loss given defaults are publicly available and are considered to be low credit riskinvestments. It is the Group’s policy to measure ECLs on such instruments on a 12-month basis.However, when there has been a significant increase in credit risk since origination, the allowancewill be based on the lifetime ECL. To estimate the ECL, the Group uses the ratings published by areputable rating agency.

Financial Instruments (Prior to Adoption of PFRS 9)Date of recognitionThe Group recognizes a financial asset or a financial liability in the consolidated statement offinancial position when it becomes a party to the contractual provisions of the instrument. Purchasesor sales of financial assets that require delivery of assets within the time frame established byregulation or convention in the marketplace are recognized on the trade date, i.e., the date that theGroup commits to purchase or sell the asset. The Group determines the classification of its financialliabilities at initial recognition.

Initial recognitionAll financial instruments are initially measured at fair value. Except for financial instruments atFVPL, the initial measurement of financial instruments includes transaction costs. The Groupclassifies its financial assets in the following categories: financial assets at FVPL, held-to-maturity(HTM) investments, AFS investments, and loans and receivables. Financial liabilities are classifiedinto financial liabilities at FVPL and other financial liabilities.

The classification depends on the purpose for which the investments were acquired and whether theyare quoted in an active market. Management determines the classification of its investments at initialrecognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

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The Group has no designated financial asset and liability at FVPL and HTM investments as ofDecember 31, 2017.

Subsequent measurementThe subsequent measurement of financial instruments depends on their classification as follows:

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments andfixed maturities that are not quoted in an active market. After initial measurement, loans andreceivables are carried at amortized cost using the effective interest rate (EIR) method less allowancefor impairment losses. Amortized cost is calculated by taking into account any discount or premiumon acquisitions and fees or costs that are an integral part of the EIR method. The EIR amortization isincluded in the interest income in profit or loss. Receivables are recognized and carried at originalinvoice amount less allowance for any uncollectible amounts.

The Group’s loans and receivables include cash and cash equivalents, receivables (excludingadvances to managers and employees), and refundable deposits (included under other noncurrentassets) as of December 31, 2017.

AFS investmentsAFS investments are those which are designated as such or do not qualify to be categorized asdesignated as FVPL, HTM or loans and receivables. They are purchased and held indefinitely, andmay be sold in response to liquidity requirements or changes in market conditions. AFS investmentsalso include investments in unquoted equity instruments, where the Group’s ownership interest is lessthan 20% or where control is likely to be temporary. These are initially recorded at cost being the fairvalue of the investment at the time of acquisition, inclusive of direct acquisition charges associatedwith the investment.

After initial measurement, AFS investments are subsequently measured at fair value. The Group isprecluded from measuring the instrument at fair value if the range of reasonable fair value estimatesis significant and the probabilities of the various estimates cannot be reasonably assessed.

The unrealized gains and losses arising from the fair valuation of AFS investments are recognizedunder other comprehensive income. Investments in unquoted equity instruments are subsequentlycarried at cost due to the unpredictable nature of future cash flows and the lack of other suitablemethod for arriving at a reliable fair value.

When an AFS investment is disposed of, the cumulative gain or loss previously under the othercomprehensive income is recognized in the current operations. The losses arising from impairment ofsuch investments are recognized as ‘Provision for impairment losses’ in the profit or loss.

As of December 31, 2017, the Group has quoted and unquoted equity securities classified as AFSinvestments.

Other financial liabilitiesOther financial liabilities pertain to financial liabilities that are not held for trading or not designatedas FVPL upon inception of the liability. These include liabilities arising from operations.

After initial measurement, accounts payable and similar financial liabilities not qualified as and notdesignated as FVPL, are subsequently measured at amortized cost using the EIR method. Amortizedcost is calculated by taking into account any discount or premium on the issue and fees that are anintegral part of the EIR.

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The other financial liabilities of the Group include accounts payable and other liabilities(excluding nonfinancial liabilities), bank loans and finance lease liabilities, and security deposits(included under other noncurrent liabilities) as of December 31, 2017.

Impairment of Financial Assets (Prior to Adoption of PFRS 9)The Group assesses at each reporting date whether there is objective evidence that a financial asset ora group of financial assets is impaired. A financial asset or a group of similar financial assets isdeemed to be impaired if, and only if, there is objective evidence of impairment as a result of one ormore events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) andthat loss event (or events) has an impact on the estimated future cash flows of the financial asset orthe group of similar financial assets that can be reliably estimated. Evidence of impairment mayinclude indications that the customer or a group of customers is experiencing significant financialdifficulty, default or delinquency in interest or principal payments, the probability that they will enterbankruptcy or other financial reorganization and when observable data indicate that there ismeasurable decrease in the estimated future cash flows, such as changes in arrears or economicconditions that correlate with defaults.

Loans and receivablesFor financial assets carried at amortized cost, which include cash and cash equivalents, receivablesand refundable deposits, the Group first assesses whether objective evidence of impairment existsindividually for financial assets that are individually significant, or collectively for financial assetsthat are not individually significant.

If the Group determines that no objective evidence of impairment exists for an individually assessedfinancial asset, whether significant or not, it includes the asset in a group of financial assets withsimilar credit risk characteristics and collectively assesses them for impairment. Assets that areindividually assessed for impairment and for which an impairment loss is, or continues to be,recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss ismeasured as the difference between the assets carrying amount and the present value of estimatedfuture cash flows (excluding future expected credit losses that have not yet been incurred). Thepresent value of the estimated future cash flows is discounted at the financial assets original EIR.

If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the currentEIR.

The carrying amount of the asset is reduced through the use of an allowance account and the amountof the loss is recognized in profit or loss. Interest income continues to be accrued on the reducedcarrying amount and is accrued using the rate of interest used to discount the future cash flows for thepurpose of measuring the impairment loss. The interest income is recorded in profit or loss. Loans,together with the associated allowance, are written off when there is no realistic prospect of futurerecovery and all collateral has been realized or has been transferred to the group. If, in a subsequentyear, the amount of the estimated impairment loss increases or decreases because of an eventoccurring after the impairment was recognized, the previously recognized impairment loss isincreased or reduced by adjusting the allowance account and crediting ‘Recovery of impairmentlosses’ or debiting ‘Provision for impairment losses’ in profit or loss.

AFS investmentsFor AFS investments, the Group assesses at each reporting date whether there is objective evidencethat a financial asset or group of similar financial assets is impaired.

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In case of equity investments classified as AFS, objective evidence would include a significant orprolonged decline in the fair value of the investments below its cost. Where there is evidence ofimpairment, the cumulative loss, measured as the difference between the acquisition cost and thecurrent fair value, less any impairment loss on that financial asset, is removed from othercomprehensive income and charged to operations.

Impairment losses on equity investments are not reversed through the current income. Increases anddecreases in fair value subsequent to impairment are recognized directly in other comprehensiveincome.

Investments in equity instruments that do not have a quoted market price in an active market andwhose fair value cannot be reliably measured shall be measured at cost subject to impairment.Evidence of impairment may include indications that the probability that the other party will enterbankruptcy or other financial reorganization and when observable data indicate that there ismeasurable decrease in the estimated future cash flows, such as changes in arrears or economicconditions that correlated with defaults.

If there is an objective evidence that an impairment loss has occurred on an unquoted equityinstruments that is not carried at fair value because the fair value cannot be measured reliably, theamount of the loss is measured as the difference between the asset’s carrying amount and the presentvalue of the estimated future cash flows discounted at the current market rate of return for a similarfinancial asset.

Derecognition of Financial InstrumentsFinancial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financialassets) is derecognized when:

∂ the rights to receive cash flows from the asset have expired;∂ the Group 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 Group has transferred substantially all the risks andrewards of the asset, or (b) the Group has neither transferred nor retained substantially all therisks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its right to receive cash flows from an asset or has entered into apass-through arrangement, and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control of the asset, the asset is recognized to the extent of theGroup’s continuing involvement in the asset.

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

Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged or cancelledor has expired. When an existing financial liability is replaced by another from the same lender onsubstantially different terms, or the terms of an existing liability are substantially modified, such anexchange or modification is treated as a derecognition of the original liability and the recognition of anew liability and the difference in the respective carrying amounts is recognized in profit or loss.

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Offsetting of Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount reported in the consolidatedstatement of financial position if, and only if, there is a currently enforceable legal right to offset therecognized amounts and there is an intention to settle on a net basis, or to realize the asset and settlethe liability simultaneously. The Group assesses that it has a currently enforceable right of offset ifthe right is not contingent on a future event, and is legally enforceable in the normal course ofbusiness, event of default, and event of insolvency or bankruptcy of the Group and all of thecounterparties.

Inventories (Upon Adoption of PFRS 15)Inventories are valued at the lower of cost and net realizable value (NRV). Costs of purchased rawmaterials, spare parts and supplies are stated at invoice value determined using the FIFO method.NRV is the estimated selling price in the ordinary course of business, less estimated costs ofcompletion and marketing costs.

In determining the NRV, the Group considers factors such as the aging and future demand of theinventory, contractual arrangements with customers and the Group’s ability to redistribute inventoryto other products or return inventory to suppliers. In the event that NRV is lower than cost, thedecline shall be recognized as part of cost of sales in profit or loss.

Inventories (Prior to Adoption of PFRS 15)Inventories are valued at the lower of cost and net realizable value (NRV). Cost of finished goodsand work-in-process inventories include direct materials, labor costs and a proportion ofmanufacturing overhead costs based on normal capacity, and is determined using thefirst-in, first-out (FIFO) method. Costs of purchased raw materials, spare parts and supplies are statedat invoice value determined using the FIFO method. NRV is the estimated selling price in theordinary course of business, less estimated costs of completion and marketing costs.

In determining the NRV, the Group considers factors such as the aging and future demand of theinventory, contractual arrangements with customers and the Group’s ability to redistribute inventoryto other products or return inventory to suppliers.

Prepayments and Other AssetsPrepaid expenses are amounts paid in advance for goods and services that are yet to be delivered andfrom which future economic benefits are expected to flow to the Group within its normal operatingcycle or within 12 months from end of reporting period. These are measured at amortized cost lessany impairment loss.

Other assets pertain to resources controlled by the Group as a result of past events and from whichfuture economic benefits are expected to flow to the Group. If assets are expected to be realizedwithin 12 months from balance sheet date, these are classified as current. Otherwise, these areclassified as noncurrent.

Investment in AssociatesThe Group’s investment in associates is accounted for under the equity method of accounting. Anassociate is an entity in which the Group has significant influence. Significant influence is the powerto participate in the financial and operational policy decisions of the investee, but is not control orjoint control over those polices. The considerations made in determining significant influence aresimilar to those necessary to determine control over subsidiaries.

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Under the equity method, the investment in associates is carried in the consolidated statement offinancial position at cost plus post-acquisition changes in the Group’s share in the net assets of theassociate.

The Group’s share in the results of operations of the associate is reflected in profit or loss. Wherethere has been a change recognized directly in the equity of the associate, the Group recognizes itsshare of any changes and discloses this, when applicable, in other comprehensive income.

The Group recognizes its share of the losses of the associate until its share of losses equals its interestin the associate. Once the Group’s investment is reduced to zero, additional losses are provided for,and a liability is recognized to the extent the Group has incurred legal or constructive obligations ormade payments on behalf of the associate.

The reporting dates of the associate and the Group are identical and the associates’ accountingpolicies conform to those used by the Group for like transactions and events in similar circumstances.

Property, Plant and EquipmentProperty, plant and equipment, except for land and construction in progress, are carried at cost lessaccumulated depreciation and amortization and any impairment in value. The initial cost of propertyand equipment comprises its purchase price, including import duties, taxes and any directlyattributable costs of bringing the asset to its working condition and location for its intended use.Subsequent replacement costs of parts of the property and equipment are capitalized when therecognition criteria are met. Significant refurbishments and improvements are capitalized when it canbe clearly demonstrated that the expenditures have resulted in an increase in future economic benefitsexpected to be obtained from the use of an item of property and equipment beyond the originallyassessed standard of performance. Costs of repairs and maintenance are charged as expense whenincurred.

Land is measured at cost less accumulated impairment losses recognized.

Depreciation and amortization is computed using the straight-line method over the followingestimated useful life (EUL) of each type of asset:

YearsMachineries and equipment 5-7Building and building improvements 5-30Tools and other equipment 5Plant water and airconditioning systems 5-15Furniture, fixtures and equipment 5Transportation equipment 5

The cost of the leasehold improvements is amortized over the lease term or EUL of the improvementsof seven (7) years, whichever is lower.

The EUL and the depreciation and amortization methods are reviewed at each financial year-end toensure that the period and the methods of depreciation and amortization are consistent with theexpected pattern of economic benefits from items of property, plant and equipment.

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The carrying values of property, plant and equipment are reviewed for impairment when events orchanges in circumstances indicate that the carrying values may not be recoverable. If any suchindication exists and where the carrying values exceed the estimated recoverable amounts, the assetsor cash generating units are written down to their recoverable amounts (see Accounting Policy onImpairment of Nonfinancial Assets).

Construction-in-progress are stated at cost and shall be depreciated using the straight-line methodwhen the development is completed or the assets are ready for their intended use.

An item of property, plant 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 profit or loss in the year the asset is derecognized and the cost and the relatedaccumulated depreciation and amortization and any impairment in value, are removed from theaccounts.

Investment PropertiesInvestment properties are measured initially at cost, including transaction costs. The carrying amountincludes the cost of replacing part of an existing investment property at the time that cost is incurredif the recognition criteria are met; and excludes the costs of day-to-day servicing of an investmentproperty.

Subsequent to initial recognition, investment properties, except for land, are carried at cost lessaccumulated depreciation and amortization and any impairment in value. Land is carried at cost lessimpairment in value, if any.

Expenditures incurred after the investment properties have been put into operation, such as repairsand maintenance costs, are normally charged to operations in the period in which the costs areincurred.

Depreciation is calculated on a straight-line basis using the remaining useful lives from the time ofacquisition of the investment properties as follows:

YearsBuilding 30Building improvements 5 - 7

The EUL and the depreciation and amortization methods are reviewed at each financial year-end toensure that the period and the methods of depreciation and amortization are consistent with theexpected pattern of economic benefits from items of investment properties.

Investment properties are derecognized when either they have been disposed of, or when theinvestment property is permanently withdrawn from use and no future economic benefit is expectedfrom its disposal. Any gains or losses on the retirement or disposal of an investment property arerecognized in profit or loss in the year of retirement or disposal.

Transfers are made to or from investment properties when, and only when, there is a change in useevidenced by ending of owner-occupation, commencement of an operating lease to another party orending of construction or development. Transfers are made from investment properties to inventorieswhen, and only when, there is a change in use evidenced by commencement of owner-occupation orcommencement of development with a view of sale.

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For a transfer from investment property to owner-occupied property, the deemed cost for subsequentaccounting is the fair value at the date of change in use. If owner-occupied property becomes aninvestment property, the Group accounts for such property in accordance with the policy stated underproperty, plant and equipment up to the date of change in use.

Business CombinationsBusiness combinations are accounted for using the acquisition method. The cost of an acquisition ismeasured as the aggregate of the consideration transferred, measured at fair value as at the acquisitiondate and the amount of any non-controlling interest in the acquiree. For each business combination,the acquirer measures the non-controlling interest in the acquiree either at fair value or at theproportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensedand included in administrative expenses.

Changes in the Parent Company's ownership interest in a subsidiary that do not result in a loss ofcontrol are accounted for as equity transactions, i.e., transactions with owners in their capacity asowners.

In such circumstances, the carrying amounts of the controlling and non-controlling interests shall beadjusted to reflect the changes in their relative interests in the subsidiary. Any difference between theamount by which the non-controlling interests are adjusted and the fair value of the consideration paidor received shall be recognized directly in equity and attributed to the owners of the Parent Company.

GoodwillGoodwill is initially measured at cost being the excess of the cost of the business combination overthe Group’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingentliabilities.

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 Group’s cash generating units that are expected to benefitfrom the synergies of the combination, irrespective of whether other assets or liabilities of theacquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit isdisposed of, the goodwill associated with the operation disposed of is included in the carrying amountof the operation when determining the gain or loss on disposal of the operation. Goodwill disposed ofin this circumstance is measured based on the relative values of the operation disposed of and theportion of the cash-generating unit retained.

The goodwill of the Group came from its acquisition of the remaining 30% share in Iomni.

Impairment of Nonfinancial AssetsProperty, plant and equipment and investment propertiesThe Group assesses at each reporting date whether there is an indication that an asset may beimpaired. If any such indication exists, the Group makes an estimate of the asset’s recoverableamount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair valueless costs to sell and its value-in-use and is determined for an individual asset, unless the asset doesnot generate cash inflows that are largely independent of those from other assets or groups of assets.Where the carrying amount of an asset exceeds its recoverable amount, the asset is consideredimpaired and is written down to its recoverable amount.

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In assessing value-in-use, the estimated future cash flows are discounted to their present value using apre-tax discount rate that reflects current market assessments of the time value of money and the risksspecific to the asset. Impairment losses of continuing operations are recognized in profit or loss inthose expense categories consistent with the function of the impaired asset.

An impairment loss is charged to operations in the year in which it arises, unless the asset is carried ata revalued amount, in which case the impairment loss is charged to the revaluation increment of thesaid asset.

An assessment is made at each reporting date as to whether there is any indication that previouslyrecognized impairment losses may no longer exist or may have decreased. If such indication exists,the recoverable amount is estimated. A previously recognized impairment loss is reversed only ifthere has been a change in the estimates used to determine the asset’s recoverable amount since thelast impairment loss was recognized. If that is the case, the carrying amount of the asset is increasedto its recoverable amount. That increased amount cannot exceed the carrying amount that would havebeen determined, net of depreciation, had no impairment loss been recognized for the asset in prioryears. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, inwhich case, the reversal is treated as a revaluation increase. After such reversal, the depreciationcharge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residualvalue, on a systematic basis over its remaining useful life.

GoodwillThe Group assesses whether there are any indicators that goodwill is impaired at each reporting date.Goodwill is tested for impairment annually as at December 31 and when circumstances indicate thatthe carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of the cash-generatingunits, to which the goodwill relates. An impairment loss is recognized when the recoverable amountof the cash-generating units is less than their carrying amount. Impairment losses relating to goodwillcannot be reversed in subsequent periods.

Investments in associatesAfter application of the equity method, the Group determines whether it is necessary to recognize anadditional impairment loss on the Group’s investments in associates. The Group determines at eachreporting date whether there is any objective evidence that investment in associate is impaired. If thisis the case, the Group calculates the amount of impairment being the difference between the fair valueof the investment in associate and the acquisition cost and recognizes the amount in profit or loss.

Foreign Currency-denominated Transactions and TranslationTransactions in foreign currencies are recorded using the exchange rate at the date of transactions.Foreign exchange gains or losses arising from foreign currency transactions and revaluationadjustments of foreign currency assets and liabilities are credited to or charged against currentoperations. Monetary assets and liabilities denominated in foreign currencies are translated using theforeign exchange rate prevailing at reporting date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated usingthe exchange rates on the dates of the initial transactions. Non-monetary items measured at fair valuein a foreign currency are translated using the exchange rate at the date when the fair value wasdetermined.

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Exchange DifferencesAs of the reporting date, the assets and liabilities of the Group are translated into the presentationcurrency of the Group at the rate of exchange ruling at the reporting date and their statement ofincome accounts are translated at the weighted average exchange rates for the year. The exchangedifferences arising on the translation are recognized in the statement of comprehensive income andreported as a separate component of equity as “Exchange differences.”

EquityCapital stock is measured at par value for all shares issued and outstanding. When the Group issuesmore than one class of stock, a separate account is maintained for each class of stock and the numberof shares issued. When the shares are sold at premium, the difference between the proceeds and thepar value is credited to “Additional paid-in capital” account.

Direct costs incurred related to equity issuance, such as underwriting, accounting and legal fees,printing costs and taxes are chargeable to “Additional paid-in capital” account. If additional paid-incapital is not sufficient, the excess is charged against retained earnings.

Retained earnings represent accumulated earnings of the Group and any adjustments arising fromapplication of new accounting standards, policies or correction of errors applied retrospectively, lessdividends declared. The individual accumulated earnings of the subsidiaries and accumulated equityearnings from associates included in the consolidated retained earnings are available for dividenddeclaration when these are likewise declared as dividends by the subsidiaries and associates asapproved by their respective BOD.

Retained earnings are further restricted for the payment of dividends to the extent of the cost ofcommon shares held in treasury and the undistributed earnings of the subsidiaries and associates.

Other Comprehensive Income (OCI)OCI are items of income and expense that are not recognized in the profit or loss for the year inaccordance with PFRSs.

Treasury Shares and Shares Held by SubsidiaryOwn equity instruments which are reacquired (treasury shares) by the Parent Company or thesubsidiaries are recognized at cost and deducted from equity. No gain or loss is recognized in theprofit or loss on the purchase, sale, issuance or cancellation of the company’s own equityinstruments. Any difference between the carrying amount and the consideration, if reissued, isrecognized in additional paid-in capital.

Earnings Per ShareBasic earnings per share (EPS) is computed by dividing net income for the year attributable toordinary equity holders of the Parent Company by the weighted average number of common sharesissued and outstanding during the year, after giving retrospectively adjustment to any stock dividenddeclared or stock split made during the year.

Diluted earnings per share is calculated by dividing the net income attributable to commonshareholders by the weighted average number of common shares outstanding during the year adjustedfor the effects of any dilutive potential common shares.

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Revenue Recognition (Upon adoption of PFRS 15 beginning January 1, 2018)a) Revenue from contracts with customersThe Group is in the business of providing electronic manufacturing and other related services tovarious customers. Revenue from contracts with customers is recognized when control of the goodsor services are transferred to the customer at an amount that reflects the consideration to which theGroup expects to be entitled in exchange for those goods or services. The Group has concluded that itis the principal in its revenue arrangements because it controls the goods or services beforetransferring them to the customer.

Manufacturing of goodsThe Group provides manufacturing services in accordance with the customer’s specifications. TheGroup promises to provide a combined performance obligation comprised of non-distinct goods orservices, which include issuance of materials to production, assembly, testing and packaging.

Contracts with customers are generally classified as turnkey or consignment. In a turnkey contractthe Group procures the materials and provides the assembly services to the customer. In aconsignment contract, the Group only provides assembly services to the customer.

For turnkey contracts, revenue is recognized over time since the products created have no alternativeuse to the Group and the Group has right to payment for performance completed to date, including therelated profit margin, in case of termination for reasons other than the Group’s failure to perform aspromised.

For consignment contracts, revenue is recognized over time as services are rendered since thecustomer simultaneously receives and consumes the benefits as the Group performs.

The Group determined that the input method is the appropriate method in measuring progress forrevenue recognized as over time because there is a direct relationship between the Group’s effort(i.e., actual cost incurred) and the transfer of service or goods to the customer. For both turnkey andconsignment contracts, payment of the transaction price is due 30 to 90 days upon billing.

The Group considers whether there are other promises in the contract that are separate performanceobligations to which a portion of the transaction price needs to be allocated (e.g., customer optionsthat provide material rights to customers, warranties). In determining the transaction price, the Groupconsiders the effects of variable consideration, the existence of significant financing components,noncash consideration and consideration payable to customer, if any.

Subcontracting servicesFor goods that transfer of control has been passed to the buyer at the time when the performanceobligation has been satisfied, revenues are recognized at a point in time. The performance obligationis generally satisfied upon delivery of the goods to the customer. Payment of the transaction price isdue 30 to 60 days upon delivery. Sales are measured at the fair value of the consideration received,excluding discounts and returns.

Variable considerationIf the consideration in a contract includes a variable amount, the Group estimates the amount ofconsideration to which it will be entitled in exchange for transferring the goods to the customer. Thevariable consideration is estimated at contract inception and constrained until it is highly probablethat a significant revenue reversal in the amount of cumulative revenue recognized will not occurwhen the associated uncertainty with the variable consideration is subsequently resolved.

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Significant financing componentThe Group’s contracts with its customers are short-term in nature. Using the practical expedient inPFRS 15, the Group does not adjust the promised amount of consideration of the effects of asignificant financing component if it expects, at contract inception, that the period between thetransfer of the promised good or service to the customer and when the customer pays for that good orservice will be one year or less.

b) Contract balancesContract assetsContract asset represents the entity’s right to payment for services already transferred to a customer ifthat right to payment is conditional on something other than the passage of time. Contract assets arereclassified as a receivable when the entity’s right to payment is unconditional.

Contract liabilitiesA contract liability is the amount of consideration paid by the customers or if the entity has a right toconsideration that is unconditional, before the good or service is transferred to the customer. Thisrepresents the obligation to the transfer goods or services to a customer for which consideration hasbeen received.

c) Cost to obtain a contractThe Group pays sales commission to its marketing agents for each contract that they obtain. TheGroup has elected to apply the optional practical expedient for costs to obtain a contract which allowsthe Group to immediately expense sales commissions (included under operating expenses) becausethe amortization period of the asset that the Group otherwise would have used is one (1) year or less.

Revenue Recognition (Prior to Adoption of PFRS 15)Revenue is recognized to the extent that it is probable that the economic benefits will flow to theGroup and the revenue can be reliably measured. Regardless of when the payment is being made,revenue is measured at fair value of the consideration received or receivable, taking into accountcontractually defined terms of payment and excluding taxes or duty. The Group assesses its revenuerecognition arrangements against specific criteria in order to determine if it is acting as principal oragent. The Group has concluded that it is acting as a principal in all its arrangements.

The following specific recognition criteria must also be met before revenue is recognized:

SalesRevenue from sales is recognized upon shipment of packaged electronic products or when thepackaged electronic products are accepted by the customer, depending on the specific agreement witheach customer, title and risk of ownership have been transferred to the customer, the price to be paidby the customer is fixed or determinable and the recoverability is reasonably assured.

Generally, there are no formal customer acceptance requirements or future obligations related tomanufacturing services. If such requirements exist, revenue is recognized at the time such provisionsor requirements are completed and obligations are already fulfilled.

Bill and hold sales‘Bill and hold’ sale pertains to a transaction in which delivery is delayed at the buyer’s request, butthe buyer takes title and accepts billing.

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Revenue is recognized when the buyer takes title, provided:∂ it is probable that delivery will be made;∂ the item is on hand, identified and ready for delivery to the buyer at the time the sale is

recognized;∂ the buyer specifically acknowledges the deferred delivery instructions; and,∂ the usual payment terms apply.

Revenue is not recognized when there is simply an intention to acquire or manufacture the goods intime for delivery.

Rental incomeRental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms of ongoing leases.

Interest incomeInterest income is recognized as interest accrues taking into account the effective yield on the asset.Interest income is included in the “Others” account in profit or loss.

Costs and ExpensesCosts and expenses encompass losses as well as those expenses that arise in the course of the ordinaryactivities of the Group. Cost and expenses are generally measured at the amount paid or payable.

The following specific recognition criteria must also be met before costs and expenses arerecognized:

Cost of salesCost of sales includes all expenses associated with the sale of goods. This includes all materials andsupplies used, direct labor and overhead costs related to production. Such costs are recognized whenthe related sales have been recognized.

Cost of rental servicesCost of rental services includes all direct expenses associated with operating leases. This includesdepreciation, real property taxes, repairs and maintenance and salaries and wages related to themaintenance of investment properties. Such costs are recognized when incurred.

Operating expensesOperating expenses constitute costs which are directly related to selling, advertising and delivery ofgoods to customers and costs of administering the business. These are recognized when incurred.

Advances from Customers (Prior to Adoption of PFRS 15)This account pertains to advances received from the customers to be used by the Group to purchaseraw materials and cover aging inventories. Advances from customers are recognized when cash isreceived and is measured at cost.

LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance of thearrangement and requires an assessment of whether the fulfillment of the arrangement is dependenton the use of a specific asset or assets and the arrangement conveys a right to use the asset, even ifthat right is not explicitly specified in an arrangement.

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Operating lease - Group as a lesseeLeases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognized as an expense in profit or losson a straight-line basis over the lease term.

Operating lease - Group as a lessorLeases where the Group does not transfer substantially all the risks and benefits of ownership of theassets are classified as operating leases. Collections of operating lease payments are recognized as anincome in profit or loss on a straight-line basis over the lease term.

Initial direct costs incurred in negotiating operating leases are added to the carrying amount of theleased asset and recognized over the lease term on the same basis as the rental income. Contingentrents are recognized as revenue in the period in which they are earned.

Finance lease - Group as a lesseeLeases where the lessor transfers substantially all the risks and benefits of ownership of the leaseditem, are capitalized at the inception of the lease at fair value of the leased property or, if lower, at thepresent value of the minimum leased payments. Lease payments are apportioned between the financecharges and reduction of the lease liability so as to achieve a constant rate of interest on the remainingbalance of the liability. Finance charges are charged directly against income.

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

Employee BenefitsThe net defined benefit liability or asset 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, adjusted for anyeffect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present valueof any economic benefits available in the form of refunds from the plan or reductions in futurecontributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

Defined benefit costs comprise the following:

∂ Service costs∂ Net interest on the net defined benefit liability or asset∂ Remeasurements of net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized whenplan amendment or curtailment occurs.

These amounts are calculated periodically by independent qualified actuary.

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

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Remeasurements comprising actuarial gains and losses, return on plan assets and any change in theeffect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income (OCI) in the period in which they arise.Remeasurements are not reclassified to profit or loss in subsequent periods. All remeasurementsrecognized in OCI account “Remeasurement gains (losses) on retirement plan” are not reclassified toanother equity account in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Group, nor can they be paid directly tothe Group. Fair value of plan assets is based on market price information. When no market price isavailable, the fair value of plan assets is estimated by discounting expected future cash flows using adiscount rate that reflects both the risk associated with the plan assets and the maturity or expecteddisposal date of those assets (or, if they have no maturity, the expected period until the settlement ofthe related obligations). If the fair value of the plan assets is higher than the present value of thedefined benefit obligation, the measurement of the resulting defined benefit asset is limited to thepresent value of economic benefits available in the form of refunds from the plan or reductions infuture contributions to the plan.

The Group’s right to be reimbursed of some or all of the expenditure required to settle a definedbenefit obligation is recognized as a separate asset at fair value when and only when reimbursement isvirtually certain.

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

A liability and expense for a termination benefit is recognized at the earlier of when the entity can nolonger withdraw the offer of those benefits and when the entity recognizes related restructuring costs.Initial recognition and subsequent changes to termination benefits are measured in accordance withthe nature of the employee benefit, as either post-employment benefits, short-term employee benefits,or other long-term employee benefits.

Employee leave entitlementEmployee entitlements to annual leave are recognized as a liability when they are accrued to theemployees. The undiscounted liability for leave expected to be settled wholly within 12 months afterthe end of the annual reporting period is recognized for services rendered by employees up to the endof the reporting period.

Borrowing CostsBorrowing costs are capitalized if these are directly attributable to the acquisition, construction orproduction of a qualifying asset. Capitalization of borrowing costs commences when the activities forthe asset’s intended use are in progress and expenditures and borrowing costs are being incurred.Borrowing costs are capitalized until the assets are ready for their intended use. These includeinterest charges and other related financing charges incurred in connection with the borrowing offunds. Other borrowing costs are expensed as incurred.

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Income TaxesCurrent income taxCurrent income tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to taxation authorities. Tax rates and tax laws used to computethe amount are those that are enacted or substantively enacted at the reporting date.

Deferred income taxDeferred income tax is determined, using the balance sheet liability method, on all temporarydifferences at the reporting date between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, with certainexceptions. Deferred income tax assets are recognized for all deductible temporary differences,carryforward of unused tax credits from the excess of minimum corporate income tax (MCIT) overthe regular corporate income tax (RCIT), and unused net operating loss carryover (NOLCO), to theextent that it is probable that sufficient taxable income will be available against which the deductibletemporary differences and carryforward of unused tax credits from MCIT and unused NOLCO can beutilized. Deferred income tax, however, is not recognized on temporary differences that arise fromthe initial recognition of an asset or liability in a transaction that is not a business combination and, atthe time of the transaction, affects neither the accounting income nor taxable income.

Deferred income tax liabilities are not provided on nontaxable temporary differences associated withinvestments in domestic subsidiaries and associates. With respect to investments in foreignsubsidiaries and associates, deferred income tax liabilities are recognized, except where the timing ofthe reversal of the temporary difference can be controlled and it is probable that the temporarydifference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to theextent that it is no longer probable that sufficient taxable income will be available to allow all or partof the deferred tax assets to be utilized. Deferred income tax assets and liabilities are measured at thetax rates that are applicable to the period when the asset is realized or the liability is settled, based ontax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognized in OCI or directly in equity is recognized in the statement ofcomprehensive income and statement of changes in equity and not in profit or loss. Deferred taxassets and deferred tax 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 taxation authority.

ProvisionsProvisions are recognized when the Group has a present obligation (legal or constructive) as a resultof a past event and 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.

ContingenciesContingent liabilities are not recognized in the consolidated financial statements but are disclosedunless the possibility of an outflow of resources embodying economic benefits is remote. Contingentassets are not recognized but are disclosed in the consolidated financial statements when an inflow ofeconomic benefits is probable.

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Segment ReportingA segment is a distinguishable component of the Group that is engaged in providing products orservices (business segment) and is subject to risks and rewards that are different from other segments.The BOD is the chief operating decision maker. Segment assets and liabilities reported are those assetsand liabilities included in measures that are used by the BOD.

Events after the Reporting PeriodPost-yearend events that provide additional information about the Group’s position at the reportingdate (adjusting events) are reflected in the consolidated financial statements. Post-yearend events thatare not adjusting events are disclosed in the notes when material to the consolidated financialstatements.

3. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the accompanying consolidated financial statements in compliance with PFRSsrequires management to make judgments, estimates and assumptions that affect the reported amountsof assets, liabilities, income and expenses and disclosure of contingent assets and contingentliabilities, at the reporting date. The judgments, estimates and assumptions used in the consolidatedfinancial statements are based on management’s evaluation of relevant facts and circumstances as ofthe date of the Group’s consolidated financial statements. Actual results could differ from suchestimates.

Judgments, estimates and assumptions are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to bereasonable under the circumstances.

JudgmentsIn the process of applying the Group’s accounting policies, management has made the followingjudgments, apart from those involving estimations, which have the most significant effect on theamounts recognized in the consolidated financial statements:

Revenue from contracts with customers

∂ Identifying contracts with customersGenerally, a valid and approved Manufacturing Service Agreement (MSA), tooling and sourcingagreements, customer forecast, and/or customer purchase order will be in place before the Groupprovides services or manufacture goods for the customers. The Group is not obligated to transferany goods or provide services until the customer submits a Purchase Order under the MSA,respectively. The Purchase Order creates the enforceable rights and obligations and is thereforeevaluated together with the MSA for revenue recognition in accordance with PFRS 15.

∂ Determining the timing of revenue recognitionThe Group assessed that revenue from manufacturing of goods shall be recognized over time orpoint in time. For turnkey contracts wherein the products created have no alternative use to theGroup and the Group has right to payment for performance completed to date, including therelated profit margin, in case of termination for reasons other than the Group’s failure to performas promised, revenue is recognized over time. For consignment contracts, revenue is recognizedover time as services are rendered since the customer simultaneously receives and consumes thebenefits as the Group performs. For subcontracting services, goods are transferred at a point intime since performance obligation is generally satisfied upon delivery of the goods to thecustomer.

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∂ Determining the measure of progress for revenue recognized over timeThe Group measures progress towards complete satisfaction of the performance obligation usingan input method (i.e., costs incurred). Management believes that this method provides a faithfuldepiction of the transfer of goods or services to the customer because the Group providesintegration service to produce a combined output and each item in the combined output may nottransfer an equal amount of value to the customer.

Determination of functional currencyThe Group has revenue and costs and expenses denominated in various currencies, mainly in U.S.Dollar, Philippine Peso and Japanese Yen. The Group determines the functional currency based oneconomic substance of underlying circumstances relevant to the Group. The functional currency hasbeen determined to be the U.S. dollar since its revenues and expenses are substantially denominatedin U.S. dollar.

Operating lease classification - Group as a lessorThe Group has entered into commercial property leases on its investment property portfolio. A leaseis classified as a finance lease if it transfers substantially all the risks and rewards incidental toownership.

The following indicators, individually or in combination, would normally lead to a lease beingclassified as a finance lease:

∂ the lease does transfer ownership of the asset to the lessees by the end of the lease term;∂ the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower

than the fair value at the date the option becomes exercisable for it to be reasonably certain, at theinception of the lease, that the option will be exercised;

∂ the lease term is for the major part of the economic life of the asset even if title is not transferred;∂ at the inception of the lease, the present value of the minimum lease payments amounts to at least

substantially all of the fair value of the leased asset; and,∂ the leased assets are of such a specialized nature that only the lessee can use them without major

modifications.

For all lease agreements, the Group determined that no indicators exist to consider the leasecommitments as a finance lease. The Group retains all the significant risks and rewards of ownershipof these properties and therefore, all leases are accounted for as operating leases (see Note 25).

Operating lease classification - Group as a lesseeThe Group has entered into commercial property leases. The Group has determined, based on theterms and conditions of the lease agreements and finance lease indicators previously set forth, that ithas not acquired all the significant risks and rewards of ownership of the leased properties and soaccounts for the contracts as operating leases (see Note 25).

Finance lease classification - Group as a lesseeThe Group leases certain machineries and equipment and has determined, based on an evaluation ofthe terms and conditions of the agreements, that the lessor transfers substantially all the risk andbenefits incidental to ownership of the leased properties to the Group, thus, the Group recognizesthese leases as finance leases (see Note 25).

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Impairment of nonfinancial assetsThe Group reviews its nonfinancial assets for impairment. This includes considering certainindicators of impairment such as the following:∂ Significant or prolonged decline in the fair value of the asset;∂ Increase in market interest rates or other market rates of return on investments have increased

during the period, and those increases are likely to affect the discount rate used in calculating theasset’s value-in-use and decrease the asset’s recoverable amount materially;

∂ Significant underperformance relative to expected historical or projected future operating results;∂ Significant changes in the manner of use of the acquired assets or the strategy for overall

business;∂ Significant negative industry or economic trends; or∂ Significant changes with an adverse effect that have taken place in the technological, market,

economic or legal environment where the Group operates.

Management believes that no impairment indicator exists for the Group’s nonfinancial assets.

The carrying value of investments in associates of the Group amounted to US$0.73 million as ofDecember 31, 2018 and 2017 (see Note 12). The carrying values of the Group’s property, plant andequipment amounted to US$17.81 million and US$21.16 million as of December 31, 2018 and 2017,respectively (see Note 13). The carrying values of the Group’s investment properties amounted toUS$5.02 million and US$5.25 million as of December 31, 2018 and 2017, respectively (see Note 14).

Significant influence over ICCP SBI Venture Partners (Hong Kong) Limited (ISVP-HK)The Group assessed that it has significant influence over ISVP-HK despite having ownership interestof below 20%. Management assessed that it has the power to participate in the financial andoperating policy decisions of ISVP-HK through its representation in ISVP-HK’s BOD. Accordingly,ISVP-HK is accounted for as an associate (see Note 12).

Estimates and AssumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date, that have a significant risk of causing material adjustment to the carrying amounts ofassets and liabilities within the next financial year are discussed below:

Provision for impairment losses on receivables and contract assetsUpon adoption of PFRS 9, the Group used a provision matrix to calculate ECLs for receivables andcontract assets. The provision rates are based on days past due for groupings of various customersegments that have similar loss patterns.

The provision matrix is initially based on the Group’s historical observed default rates. The Groupcalibrates the matrix to adjust the historical credit loss experience with forward-looking informationsuch as inflation and changes in GDP rates. At every reporting date, the historical observed defaultrates are updated and changes in the forward-looking estimates are analyzed.

The assessment of the correlation between historical observed default rates, forecast economicconditions, and ECL is a significant estimate. The amount of ECLs is sensitive to changes incircumstances and of forecast economic conditions. The Group’s historical credit loss experience andforecast of economic conditions may also not be representative of customer’s actual default in thefuture.

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In addition to provision matrix as collective impairment assessment, the Group also performs specificassessment against individually significant receivables which can be specifically identified asrequiring a specific allowance, have a greater risk of default than when originally granted throughreview of receivable’s age and status. Judgment by management is required in the estimation of theamount and timing of future cash flows when determining the level of allowance required. Suchestimates are based on assumptions about a number of factors and actual results may differ, resultingin future changes to the allowance.

Before adoption of PFRS 9, the Group reviews its receivable portfolio to assess impairment annuallybased on the factors that affect the collectability of the account. The Group reviews the age and statusof receivables and identifies accounts that are to be provided with allowance on a continuous basis.Judgment by management is required in the estimation of the amount and timing of future cash flowswhen determining the level of allowance required. Such estimates are based on assumptions about anumber of factors and actual results may differ, resulting in future changes to the allowance.

In addition to specific allowance against individually significant receivables, the Group also makes acollective impairment allowance against exposures which, although not specifically identified asrequiring a specific allowance, have a greater risk of default than when originally granted. Theamount and timing of recorded expenses and reversal for any period would differ if the Group madedifferent judgments or utilized different estimates.

An increase in the allowance account for impairment would increase recorded operating expenses anddecrease current assets and otherwise for reversals.

As of December 31, 2018 and 2017, allowance for impairment losses on receivables amounted toUS$0.95 million and US$0.52 million in 2018 and 2017, respectively (see Note 8).

Provision for inventory obsolescenceThe Group reviews its inventory levels to assess impairment at least on a quarterly basis. Thesemiconductor industry is characterized by rapid technological change, short-term customercommitments and rapid changes in demand. Impairment losses are provided on excess and obsoleteinventory based on regular reviews of inventories on hand, and the latest forecasts of product demandand product requirements from customers. If actual market conditions or customer’s productdemands are less favorable than those forecasted, additional impairment loss is recognized. Anincrease in allowance for inventory obsolescence would increase recorded cost of sales and decreasecurrent assets.

In 2018, the Group recognized provision for inventory obsolescence amounting to US$0.01 million(nil in 2017 and 2016). No provision for inventory obsolescence was recognized in 2018, 2017 and2016. The Group’s allowance for inventory obsolescence amounted to US$0.29 million andUS$0.28 million as of December 31, 2018 and 2017, respectively. The carrying values of inventoriesof the Group amounted to US$13.74 million and US$12.06 million as of December 31, 2018 and2017, respectively (see Note 10).

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Valuation of unquoted equity investments designated as financial assets at FVOCI (AFS investmentsprior to adoption of PFRS 9)Valuation of unquoted investments is normally based on one of the following:∂ recent arm’s length market transactions;∂ current fair value of other instruments that is substantially the same;∂ the expected cash flows discounted at current rates applicable for investments with similar terms

and risk characteristics; or,∂ other valuation models.

The determination of cash flows and discount factors for unquoted equity investments requiressignificant estimation. In valuing the Group’s financial assets at FVOCI at fair value in compliancewith PFRS 9, management applied judgment in selecting the valuation technique and usedassumptions in estimating future cash flows from its equity instruments considering the informationavailable to the Group.

As of December 31, 2018 and 2017, the Group’s unquoted equity investments amounted toUS$3.30 million and US$2.24 million, respectively (see Note 11).

Estimation of net pension liabilitiesThe cost of defined benefit pension plans as well as the present value of the pension obligation aredetermined using actuarial valuations.

The actuarial valuation involves making various assumptions. These include the determination of thediscount rates, future salary increases and mortality rates. Due to the complexity of the valuation, theunderlying assumptions and its long-term nature, defined benefit obligations are highly sensitive tochanges in discount rate and future salary increase rate assumptions. All assumptions are reviewed ateach reporting date. While the Group believes that the assumptions are reasonable and appropriate,significant differences between actual experiences and assumptions may materially affect the cost ofemployee benefits and related obligations.

The net pension liabilities as at December 31, 2018 and 2017 amounted to US$2.17 million andUS$2.68 million, respectively (see Note 29).

Recognition of deferred tax assetsThe Group reviews the carrying amounts of deferred tax assets at each reporting date and reduces thedeferred tax assets to the extent that it is no longer probable that sufficient future taxable income willbe available to allow all or part of the deferred tax assets to be utilized. Significant managementjudgment is required to determine the amount of deferred tax assets that can be recognized, basedupon the likely timing and level of future taxable income together with future tax planning strategies.

The Group did not recognize certain deferred tax assets on temporary differences and carry forwardbenefits of NOLCO and MCIT on certain subsidiaries as of December 31, 2018 and 2017 sincemanagement believes that it may not be reasonably probable that sufficient taxable profit tax will beavailable against which the deductible temporary differences can be utilized.

As of December 31, 2018 and 2017, the Group recognized deferred tax assets amounting toUS$0.03 million (see Note 27).

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4. Financial Risk Management Objectives and Policies

Risk Management StructureAll policy directions, business strategies and management initiatives emanate from the BOD whichstrives to provide the most effective leadership for the Group. For this purpose, the BOD convenes inquarterly meetings and in addition, is available to meet in the interim should the need arises.

The Group has adopted internal guidelines setting forth matters that require BOD approval. Underthe guidelines, all new investments, any increase in investment in business and subsidiary and anydivestments require BOD approval.

The normal course of the Group’s business exposes it to a variety of financial risks such as credit risk,liquidity risk and market risks which include equity price risk and foreign currency risk exposures.

The Group has various financial assets such as cash and cash equivalents, receivables (excludingadvances to managers and employees), financial assets at FVOCI, and refundable deposits. TheGroup’s principal financial liabilities consist of accounts payable and other liabilities (excludingnonfinancial liabilities), bank loans and finance lease liabilities, and security deposits (included under“Other noncurrent liabilities”). The main purpose of these financial liabilities is to raise funds for theGroup’s operations.

Credit RiskCredit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform itsobligations during the life of the transaction. This includes the risk of non-payment by banks andcustomers, failed settlement of transactions and default on contracts. Management has a credit policyin place and the exposures to these credit risks are monitored on an ongoing basis.

The Group’s credit risk management involves entering into arrangements only with counterpartieswith acceptable credit standing and that are duly approved by the BOD.

Trade receivables, other receivables from customers and contract assetsThe Group’s trade receivables and other receivables from customers and contract assets are monitoredon a regular basis. An impairment analysis is performed at each reporting date using a provisionmatrix to measure expected credit losses. The provision rates are based on days past due of thecustomer with loss pattern. The calculation reflects the probability-weighted outcome and reasonableand supportable information that is available at the reporting date about past events, currentconditions and forecasts of future economic conditions

The provision matrix is initially based on the Group’s historical observed default rates. The Groupwill calibrate the matrix to adjust the historical credit loss experience with forward-lookinginformation.

Generally, trade receivables, and other receivables from customers and contract assets are written-offwhen deemed unrecoverable and are not subject to enforcement activity. The maximum creditexposure to credit risk at the reporting date is the carrying value of each class of financial assets.

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Rent receivablesCredit risk arising from rental income from leasing properties is primarily managed through a tenantselection process. Prospective tenants are evaluated on the basis of payment track record and othercredit information. In accordance with the provisions of the lease contracts, the lessees are requiredto deposit with the Group security deposits and advance rentals which helps reduce the Group’s creditrisk exposure in case of defaults by the tenants. For existing contracts, the Group has put in place amonitoring and follow-up system. Receivables are aged and analyzed on a continuous basis tominimize credit risk associated with these receivables.

Other financial assetsCredit risk from balances with banks and financial institutions is managed in accordance with theGroup’s policy. Investments of surplus funds are made only with approved counterparties and withincredit limits assigned to each counterparty. Counterparty limits are reviewed and approved by theBOD, and are updated when necessary.

The Group does not hold any collateral from its customers thus, the carrying amounts of cash andcash equivalents and refundable deposits approximate the Group’s maximum exposure to credit risk.No other financial assets carry a significant exposure to credit risk.

Cash and cash equivalents are placed in various banks. Material amounts are held by banks whichbelong to top five (5) banks in the country. The rest are held by local banks that have good reputationand low probability of insolvency. These are considered to be low credit risk investments.

Concentration of credit riskThe Group has concentration of credit risk due to sales to significant customers. One customeraccounted for approximately 20.54%, 22.38% and 22.42% of net sales in 2018, 2017 and 2016,respectively. The Group’s top five customers accounted for approximately 60.86%, 64.60% and68.04% of its net sales in 2018, 2017 and 2016, respectively. In 2018, the financial assets of theGroup are more concentrated to the telecom, banks and financial intermediaries and computerperipherals which accounted for 85.33% of the total financial assets. In 2017, it is more concentratedto the telecom, banks and financial intermediaries and consumer electronics which accounted for83.27% of the total financial assets.

An industry sector analysis of the Group’s exposure to credit risk is as follows:

2018 2017Banks and financial intermediaries US$16,473 US$9,948Telecommunications (Telecom) 5,861 8,761Computer peripherals 3,008 2,525Consumer electronics 2,886 2,853Automotive 364 712Real estate 176 327Others* 930 768Total US$29,698 US$25,894*Excludes nonfinancial assets amounting to US$0.087 million and US$0.142 million as of December 31, 2018 and 2017, respectively

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The following tables below summarize the credit quality of the Group’s financial assets (gross ofallowance for impairment losses) as at December 31:

2018

Neither Past Due nor Individually ImpairedPast Due

but not IndividuallyMinimal Risk Average Risk High Risk Impaired Impaired Total

Cash and cash equivalents* US$16,473 US$− US$− US$− US$− US$16,473Receivables

Trade receivables 6,981 − − 3,105 728 10,814Other receivables from customers 872 − − 138 216 1,226

Rent receivables 176 − − − − 176SSS claims receivables 37 − − − − 37

Advances to managers and employees** 25 − − − − 25

Others 99 − − 122 5 226Contract assets 1,302 − − − − 1,302Other noncurrent assets

Refundable deposits 368 − − − − 368US$26,333 US$− US$− US$3,365 US$949 US$30,647

*Excludes cash on hand amounting to US$0.010 million**Excludes nonfinancial assets amounting to US$0.087 million

2017

Neither Past Due nor Individually ImpairedPast Due

but not IndividuallyMinimal Risk Average Risk High Risk Impaired Impaired Total

Cash and cash equivalents* US$9,948 US$− US$− US$− US$− US$9,948Receivables

Trade receivables 9,885 − − 3,494 458 13,837 Other receivables from customers 561 − − 1,196 55 1,812

Rent receivables 228 − − − − 228SSS claims receivables 22 − − − − 22

Advances to managers andemployees** 13 − − − − 13

Others*** 47 − − 122 5 174Other noncurrent assets

Refundable deposits 378 − − − − 378US$21,082 US$− US$− US$4,812 US$518 US$26,412

*Excludes cash on hand amounting to US$0.013 million** Excludes nonfinancial assets amounting to US$0.076 million***Excludes nonfinancial assets amounting to US$0.066 million

The Group classifies credit quality risk as follows:

Minimal risk - accounts with a high degree of certainty in collection, where counterparties haveconsistently displayed prompt settlement practices, and have little to no instance of defaults ordiscrepancies in payment.

Average risk - active accounts with minimal to regular instances of payment default, due toordinary/common collection issues, but where the likelihood of collection is still moderate to high asthe counterparties are generally responsive to credit actions initiated by the Group.

High risk - accounts with low probability of collection and can be considered impaired based onhistorical experience, where counterparties exhibit a recurring tendency to default despite constantreminder and communication, or even extended payment terms.

The Group maintains cash with various financial institutions that management believes to be of highcredit quality. The Group’s policy is to invest with financial institution from which it has outstandingloans and loan facilities.

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The tables below show the analysis of receivables that are past due but not impaired as atDecember 31:

2018<30

days30-60days

61-90days

91-120days

121-150days

>150days Total

Trade receivables US$1,550 US$1,071 US$303 US$19 US$162 US$− US$3,105Other receivables from

customers 72 26 32 5 3 − 138Others 3 − − − 15 104 122

US$1,625 US$1,097 US$335 US$24 US$180 US$104 US$3,365

2017<30

days30-60days

61-90days

91-120days

121-150days

>150days Total

Trade receivables US$1,956 US$933 US$250 US$31 US$28 US$296 US$3,494Other receivables from

customers 89 740 43 1 38 285 1,196Others − 2 − 8 8 104 122

US$2,045 US$1,675 US$293 US$40 US$74 US$685 US$4,812

Applying the expected credit risk model did not result in the recognition of an impairment loss for allfinancial assets at amortized cost in 2018.

Liquidity RiskLiquidity risk is the risk of not being able to meet funding obligations such as the repayment ofliabilities or payment of asset purchases. Short-term and long-term funding are obtained to financecash requirements for capital expenditures and operations. Amount of credit lines are obtained fromdesignated banks duly approved by the BOD. Surplus funds are placed with reputable banks to whichthe Group has outstanding loans and loan facilities. The Group’s policy is to regularly monitor itsliquidity requirements and its compliance with lending covenants, to ensure that it maintainssufficient reserves of cash and highly liquid marketable securities and adequate committed lines offunding from major financial institutions to meet the short and long-term liquidity requirements of theGroup.

The tables below show the maturity profile of the financial assets and financial liabilities, based on itsinternal methodology that manages liquidity based on remaining contractual maturities:

2018

On demandLess than3 months

3 to 12months

1 to 5years

More than5 years Total

Financial assetsCash and cash equivalents US$11,983 US$4,500 US$− US$− US$− US$16,483Receivables1 3,365 8,188 − 2 − 11,555Contract assets − 1,302 − − − 1,302Refundable deposits2 − − − 368 − 368

15,348 13,990 − 370 − 29,708Financial liabilitiesAccounts payable and other

liabilities3 2,601 6,552 − − − 9,153Bank loans and finance

lease liabilities4 − 2,416 2,960 776 2 6,154Security deposits5 − − − 236 275 511

2,601 8,968 2,960 1,012 277 15,818Liquidity gap US$12,747 US$5,022 (US$2,960) (US$642) (US$277) US$13,890

1Excludes nonfinancial assets amounting to US$0.087 million2Included under noncurrent assets3Excludes nonfinancial liabilities amounting to US$0.338 million4Including future interest payable amounting to US$0.077 million5Included under accounts payable and other liabilities and other noncurrent liabilities

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2017

On demandLess than3 months

3 to 12months

1 to 5years

More than5 years Total

Financial assetsCash and cash equivalents US$7,461 US$2,500 US$− US$− US$− US$9,961Receivables1 4,812 10,584 172 − − 15,568Refundable deposits2 − − − 378 − 378

12,273 13,084 172 378 − 25,907Financial liabilitiesAccounts payable and other

liabilities3 3,156 6,123 9 − − 9,288Bank loans and finance

lease liabilities4 − 712 5,507 1,888 3 8,110Security deposits5 − − − 182 306 488

3,156 6,835 5,516 2,070 309 17,886Liquidity gap US$9,117 US$6,249 (US$5,344) (US$1,692) (US$309) US$8,021

1Excludes nonfinancial assets amounting to US$0.142 million.2Included other noncurrent assets3Excludes nonfinancial liabilities amounting to US$0.340 million4Including future interest payable amounting to US$0.180 million5 Included under accounts payable and other liabilities and other noncurrent liabilities

Market RiskMarket risk is the risk of loss to future earnings, to fair value or future cash flows of a financialinstrument as a result of changes in its price, caused by changes in interest rates, equity prices andforeign currency exchange rates and other market factors.

Foreign currency riskForeign currency risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in foreign exchange rates. The Group is exposed to currency riskprimarily through purchases that are denominated in a currency other than the functional currency ofthe Group. The currency giving rise to this risk is primarily Philippine Peso (P=) and Japanese Yen(¥). It is the Group’s policy not to trade in derivative contracts.

In addition, the Group believes that its profile of foreign currency exposure on its assets and liabilitiesis within conservative limits in the type of business in which the Group is engaged.

The table below details the Group’s exposure at the reporting date to currency risk arising fromforecasted transactions or recognized assets or liabilities denominated in a currency other than thefunctional currency of the Group.

Philippine Peso

2018 2017

In US DollarIn Philippine

Peso In US DollarIn Philippine

PesoCash US$4,591 P=241,385 US$901 P=44,972Receivables 790 41,526 661 33,020AFS investments − − 687 34,298Financial assets at FVOCI 721 37,910 − −Refundable deposits 217 11,402 225 11,249

6,319 332,223 2,474 123,539Less: Accounts payable and other

liabilities 2,178 114,514 2,070 103,374Net exposure arising from recognized

assets and liabilities US$4,141 P=217,709 US$404 P=20,165

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Japanese yen

2018 2017

In US DollarIn Japanese

Yen In US DollarIn Japanese

YenGross exposure arising from

recognized liabilities US$− ¥− (US$66) (¥7,400)

The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilitiesfollow:

Currency Source 2018 2017Philippine Peso Philippine Dealing & Exchange Corp.

closing rate US$0.019019 US$0.020028Japanese Yen Bangko Sentral ng Pilipinas (BSP)

closing rate ¥0.009011 ¥0.008859

Sensitivity analysisThe following table indicates the approximate change in the Group’s income (loss) before income taxin response to reasonably possible changes in the foreign exchange rates to which the Group hassignificant exposure at the reporting date:

2018 2017Changes in foreign currency exchange

ratesPhilippine Peso 5.04% (5.04%) 0.42% (0.42%)Japanese Yen 1.72% (1.72%) 3.28% (3.28%)

Effect on income before taxPhilippine Peso US$209 (US$209) US$2 (US$2)Japanese Yen − − (3) 3

The Group based the percentage of increase and decrease in foreign exchange rate on percentagechange of the foreign exchange rates as of the reporting date and year-end forecasted closing rate for2018 from third-party forecast.

Other than the potential impact on income (loss) before income tax, there is no significant effect onequity.

The sensitivity analysis has been determined assuming that the change in foreign currency exchangerates has occurred at the reporting date and has been applied to each of the Group entities’ exposureto currency risk for financial instruments in existence at that date, and that all other variables, interestrates in particular, remain constant. The Group does not expect the impact of the volatility on othercurrencies to be material.

The stated changes represent management’s assessment of reasonably possible changes in foreigncurrency exchange rates over the period until the next annual reporting date. Results of the analysisas presented in the above table represent the effects on Group’s income (loss) before income taxmeasured in the respective functional currencies, translated into US dollars at the exchange rate rulingat the reporting date for presentation purposes.

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Changes in liabilities arising from financing activities for the years ended:

December 31, 2018Finance Lease

(Note 17)Bank Loan

(Note 17)Commercial

Loan (Note 17) TotalBalance at beginning of year US$3,733 US$197 US$4,000 US$7,930Availments − 83 9,954 10,037Payments (1,856) (80) (9,954) (11,890)Balance at end of year US$1,877 US$200 US$4,000 US$6,077

December 31, 2017Finance Lease

(Note 17)Bank Loan

(Note 17)Commercial

Loan (Note 17) TotalBalance at beginning of year US$1,991 US$172 US$− US$2,163Availments 3,816 161 4,000 7,977Payments (2,074) (136) − (2,210)Balance at end of year US$3,733 US$197 US$4,000 US$7,930

5. Fair Value Measurement

The Group’s financial instruments consist of cash and cash equivalents, receivables (excludingadvances to managers and employees), refundable deposits (included under other noncurrent assets),financial assets at FVOCI (AFS investments in 2017), accounts payable and other liabilities(excluding nonfinancial liabilities), bank loans and finance lease liabilities and security deposits(included under other noncurrent liabilities).

The following table sets forth the fair value hierarchy of the Group’s assets and liabilities:

December 31, 2018

Fair value measurement using

Carryingvalue Total

Quotedprices in

activemarkets(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

Assets measured at fair value:Financial assets at FVOCI

(Note 11) US$3,330 US$3,330 US$28 US$125 US$3,177

Assets for which fair values aredisclosed:

Other noncurrent assetsRefundable deposits 368 368 − − 368

US$3,698 US$3,698 US$28 US$125 US$3,545Liabilities for which fair values

are disclosed:Finance lease liabilities (Note 17) US$1,877 US$1,848 US$− US$− US$1,848Bank loans (Note 17) 200 200 − − 200Other liabilities

Security deposits 511 499 − − 499US$2,588 US$2,547 US$− US$− US$2,547

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December 31, 2017

Fair value measurement using

Carryingvalue

Total

Quotedprices in

activemarkets

(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

Assets measured at fair valueAFS investments* (Note 11) US$139 US$139 US$47 US$92 US$−

Assets for which fair valuesare disclosed

Other noncurrent assetsRefundable deposits 378 378 − − 378

US$517 US$517 US$47 US$92 US$378Liabilities for which fair

values are disclosed:Finance lease liabilities

(Note 17) US$3,733 US$3,762 US$− US$− US$3,762Bank loans (Note 17) 197 197 − − 197Other liabilities

Security deposits 488 488 − − 488US$4,418 US$4,447 US$− US$− US$4,447

*Excluding unquoted AFS investments carried at cost less impairment amounting to US$2.148 million.

The fair values of cash and cash equivalents, receivables, accounts payable and other liabilities andcommercial loans (included under “Bank loans and finance lease liabilities”) approximate theirrespective carrying values due to the short-term maturities of these instruments.

The estimated fair values of refundable deposits, finance lease liabilities, bank loans, and securitydeposits represents the present value of the amount of estimated future cash flows expected to becollected or paid derived using the incremental borrowing rate of the Group for a similar loan.

The estimated fair values of finance lease liabilities represent the present value of the amount ofestimated future cash flows expected to be collected or paid derived using the applicable rates rangingfrom 5.57% to 6.85% in 2018 and 1.37% to 4.19% in 2017. As of December 31, 2018 and 2017, thefair values of the Group’s lease liabilities amounted to US$1.85 million and US$3.76 million and thecarrying values amounted to US$1.88 million and US$3.73 million. This is included within Level 3of the hierarchy.

For quoted equity investments, the fair value of financial assets is determined using the market pricesof the listed shares and the price of the most recent transaction for non-listed shares. Prior to adoptionof PFRS 9, where the fair value of unquoted equity securities could not be reliably determined, theAFS investment is carried at cost, subject to impairment. Under PFRS 9, unquoted investments aremeasured using market approach on its comparable underlying investments with significantunobservable inputs within Level 3 category (see Note 3).

Financial assets at FVOCI measured at fair value based on the quoted market bid prices are includedwithin the Level 1 of the fair value hierarchy.

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The fair values of proprietary golf/club shares measured at FVOCI (AFS investments in 2017) isdetermined by using the market price of the proprietary golf /club shares and is included in Level 2 ofthe hierarchy.

The fair values of the non-listed equity investments categorized within Level 3 of the fair valuehierarchy have been estimated using the comparable company valuation multiples technique. Themarket approach is applied using significant unobservable inputs such as quoted prices of thecomparable companies under the real estate industries and lack of marketability discount rangingfrom 10% to 30%. Factors such as revenue growth and earnings before interest, taxes, depreciationand amortization depreciation are considered on the selection of comparable companies. Increase inquoted prices and decrease in lack of marketability discount increase the value of the investments andvice versa.

In 2018 and 2017, there were no transfer between Level 1 and Level 2 of the fair value hierarchy, andno transfer into and out of the Level 3 category.

6. Capital Management

The Group’s primary objective in managing capital is to provide returns for shareholders and benefitsfor other stakeholders, by pricing products and services commensurately with the level of risk and bysecuring access to finance at a reasonable cost.

The Group monitors capital using a leverage ratio, which is net debt divided by the sum of totalequity and net debt. Net debt includes bank loans, security deposits and accounts payable and otherliabilities less cash and cash equivalents. The Group’s policy is for its leverage ratio not to exceed75%. The management continues to monitor and improve on areas of customers’ terms to adherewith the policy of leverage ratio.

The leverage ratio as at December 31, 2018 and 2017 follows:

2018 2017Current liabilitiesAccounts payable and other liabilities* US$9,377 US$9,269Current portion of bank loans and finance lease

liabilities 5,299 6,04014,676 15,309

Noncurrent liabilitiesSecurity deposits - net of current portion** 287 467Bank loans and finance lease liabilities - net of

current portion 778 1,8901,065 2,357

Total debt 15,741 17,666Less cash and cash equivalents 16,483 9,961Net debt (742) 7,705Equity 51,200 45,869Total equity and net debt US$50,458 US$53,574Leverage ratio -1.47% 14.38%*Excluding nonfinancial liabilities amounting to US$ 0.338 million and US$0.340 million as of December 31, 2018 and 2017, respectively.** Included under other noncurrent liabilities.

The Group has no externally imposed capital requirements as of December 31, 2018 and 2017.

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7. Cash and Cash Equivalents

This account consists of:

2018 2017Cash on hand US$10 US$13Cash in banks 11,973 7,448Cash equivalents 4,500 2,500

US$16,483 US$9,961

Cash in banks and cash equivalents earn interest at the respective bank deposit rates. Interest incomeearned on cash and cash equivalents amounted to US$0.08 million, US$0.05 million andUS$0.02 million in 2018, 2017 and 2016, respectively (see Note 19).

8. Receivables

This account consists of:2018 2017

Trade receivables US$10,814 US$13,837Other receivables from customers 1,226 1,812Rent receivables 176 228Advances to managers and employees 112 89SSS claims receivables 37 22Others 226 240

12,591 16,228Less allowance for impairment losses 949 518

US$11,642 US$15,710

Trade and other receivables related to customers are due within 30-90 days from the date of billing.

Below is the movement of the allowance for impairment losses based on individual impairment (nilfor collective impairment):

Lifetime ECL credit impaired2018

Tradereceivable

Other receivablesfrom customers Others Total

Balance at beginning of year US$458 US$55 US$5 US$518New financial assets

originated (Note 22) 270 169 − 439Financial assets

derecognized (Note 22) − (8) − (8)Balance at end of year US$728 US$216 US$5 US$949

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2017

Trade receivableOther receivables

from customers Others TotalBalance at beginning of year US$151 US$55 US$5 US$211Provisions (Note 22) 307 − − 307Balance at end of year US$458 US$55 US$5 US$518

9. Contract Balances


December 31,2018

January 1, 2018(Note 2)

Contract assets US$1,302 US$1,886Contract liabilities 1,219 1,311

Contract assets are initially recognized for revenue earned from manufacturing of goods as receipt ofconsideration is conditional on successful completion of the services. When goods are shipped orgoods are received by the customer, depending on the corresponding agreement with the customers,the amounts recognized as contract assets are reclassified to trade receivables. Payments arereceived from customers depending on the credit terms.

In 2018, the Group assessed that there are no expected credit losses on contract assets.

Contract liabilities include short-term advances received for future manufacturing services.

The Group applied the practical expedient under PFRS 15 on the disclosure of information about thetransaction price allocated to remaining performance obligations given the customer contracts haveoriginal expected duration of one (1) year or less.

10. Inventories

2018 2017At NRV (Notes 2 and 20):

Finished goods US$− US$73Work-in-process − 421

− 494At cost:

Raw materials 12,975 9,474Spare parts and supplies 767 871Finished goods (Notes 2 and 20) − 206Work-in-process (Notes 2 and 20) − 1,012

13,742 11,563US$13,742 US$12,057

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The related cost of inventories at NRV follows:

2018 2017Raw materials US$285 US$284Finished goods (Note 2) − 84Work-in-process (Note 2) − 517

US$285 US$885

In 2017 and 2016, the Group recognizes a write-down whenever the NRV of finished goods andwork-in-process inventories is lower than its cost. Inventory write-down for finished goods amountedto US$0.02 million and US$0.01 million in 2017 and 2016, respectively (nil in 2018), while thewrite-down recognized for work-in-process amounted to US$0.08 million and US$0.11 million in2017 and 2016, respectively (nil in 2018).

As of December 31, 2018 and 2017, allowance for inventory obsolescence on raw materialsamounted to US$0.29 million and US$0.28 million, respectively. Raw materials written-offamounted to US$0.005 million and US$0.002 million in 2017 and 2016, respectively (nil in 2018).

As at December 31, 2018, work-in-process and finished goods amounted to nil due to adoption ofPFRS 15 (see Note 2).

11. Financial Assets at Fair Value through Other Comprehensive Income (FVOCI) and Available-for-Sale (AFS) Investments

Financial assets at FVOCIAs of December 31, this account consists of:

2018Quoted

Balance at beginning of year US$47Fair value loss during the year (19)Balance at end of year 28

UnquotedBalance at beginning of year 2,240Additional investments 250Fair value gain during the year 812Balance at end of year 3,302

US$3,330

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AFS investmentsAs of December 31, this account consists of:

2017Quoted

Balance at beginning of year US$63Fair value loss during the year (16)Balance at end of year 47

UnquotedBalance at beginning of year US$2,670Fair value gain during the year 50Impairment loss during the year (Note 22) (223)Reversal of unrealized gain (179)Partial return of capital (78)Balance at end of year 2,240

US$2,287

The Group’s investments at FVOCI include investment listed in US NASDAQ stock market,investments in golf shares and other nonlisted companies which are not held for trading and which theGroup has irrevocably designated at FVOCI.

The movements in net unrealized losses on financial assets at FVOCI and AFS investments follows:

2018 2017Balance at beginning of year (US$361) (US$216)Impact of adoption of PFRS 9 (Note 2) (223) −Balance at beginning of year, as restated (584) (216)Reversal of unrealized gain on AFS investments − (179)Fair value gain 544 34Balance at end of year (US$40) (US$361)

As discussed in Note 2, prior to the adoption of PFRS 9 beginning January 1, 2018, these investmentsare classified as available-for-sale financial assets and measured at fair value, similarly as they weremeasured as financial assets at FVOCI under PFRS 9. Upon adoption of PFRS 9, the cumulativeimpairment losses previously recognized under PAS 39 for equity instruments measured at FVOCIwas transferred from retained earnings to OCI under “Unrealized losses on financial assets atFVOCI” account.

In 2017, the Group redeemed portion of its investment in Beacon Property Ventures, Inc. amountingto US$0.08 million (nil in 2018).

In 2017, the Group has also recognized reversal of unrealized gain on AFS investment amounting toUS$0.18 million in its investments in Pacific Synergies.

In 2016, the Group made investments in TuneIn, Inc. and The Palms Country Club amounting toUS$0.09 million and US$0.01 million, respectively, and recognized impairment loss on itsinvestments in TiVo Corp. amounting US$0.06 million due to prolonged decline in its market value(see Note 22).

The Group recognized dividends from Tech Venture II, Ltd. amounting to US$0.004 million in 2016(nil in 2018 and 2017; see Note 19).

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12. Investments in Associates


2018 2017Acquisition costBalances at beginning of year US$580 US$406Additions − 174Balances at end of year 580 580Accumulated equity in net earningsBalances at beginning of year 244 256Share in net earnings (losses) 8 (12)Balances at end of year 252 244Equity in cumulative translation adjustment (102) (93)Net book values US$730 US$731

Country ofIncorporation and

BusinessEffective Percentage

OwnershipICCP Ventures, Inc. (IVI) Philippines 24%ICCP Ventures Partners, Inc. (IVPI) Philippines 30%Tech Ventures Partners, Ltd. (TVPL) Cayman Islands 30%ICCP SBI Venture Partners (Hong Kong) Limited

(ISVP-HK) Hong Kong 19%

Share in net earnings of the investee in 2018 and 2016 amounted to US$0.01 million andUS$0.04 million, respectively and share in net losses in 2017 amounted to US$0.01 million.

In 2016, ICL’s equity interest in ISVP-HK (formerly ICCP Ventures Partners, Inc. (Hong Kong, Ltd.)was reduced from 29% to 19% since ICL has not participated in the right issuance of ISVP-HK inApril 2016. As a result of this dilution, the Group recognized gain on dilution amounting toUS$0.16 million (see Note 19).

Below are the summarized financial information relating to the Group’s investment in associates:

2018IVI IVPI TVPL ISVP-HK Total

Current assets US$378 US$1,855 US$675 US$563 US$3,471Noncurrent assets − 590 1,675 − 2,265

Total assets US$378 US$2,445 US$2,350 US$563 US$5,736Current liabilities US$61 US$1,041 US$308 US$1,539 US$2,949Noncurrent liabilities − 1,267 − − 1,267 Total liabilities US$61 US$2,308 US$308 US$1,539 US$4,216Revenues US$1 US$36,020 US$118 US$375 US$36,514Costs and expenses − 35,174 17 789 35,980Net income (loss) / Total

comprehensive income (loss) US$1 US$846 US$101 (US$414) US$534*Gross profit (loss), net income (loss), and total comprehensive income (loss) are all the same amount

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Current assets US$103 US$1,569 US$997 US$665 US$3,334Noncurrent assets 295 566 1,574 10 2,445

Total assets US$398 US$2,135 US$2,571 US$675 US$5,779Current liabilities US$62 US$452 US$47 US$1,227 US$1,788Noncurrent liabilities − 1,498 543 3 2,044

Total liabilities US$62 US$1,950 US$590 US$1,230 US$3,832Revenues US$1 US$803 US$255 US$127 US$1,186Costs and expenses 4 798 57 918 1,777Net income (loss) / Total

comprehensive income (loss)* (US$3) US$5 US$198 (US$791) (US$591)*Gross profit (loss), net income (loss), and total comprehensive income (loss) are all the same amount


Current assets US$403 US$1,487 US$1,375 (US$620) US$2,645Noncurrent assets − 361 822 − 1,183

Total assets US$403 US$1,848 US$2,197 (US$620) US$3,828Current liabilities US$63 US$676 US$371 US$57 US$1,167Noncurrent liabilities − 992 − − 992

Total liabilities US$63 US$1,668 US$371 US$57 US$2,159Revenues US$29 US$884 US$1,145 (US$749) US$1,309Costs and expenses 8 869 466 77 1,420Net income (loss)* US$21 US$15 US$679 (US$826) (US$111)Other comprehensive loss − 6 (456) − (450)Total comprehensive income (loss) US$21 US$21 US$223 (US$826) (US$561)*Gross profit (loss) and net income (loss) are all the same amount

The reconciliation of the net assets of the associates to the carrying amounts of the investments inassociates recognized in the consolidated financial statements follows:


Net asset of associate attributable to common shareholders US$317 US$137 US$2,042 (US$976) US$1,520Proportionate ownership in the

associate 24% 30% 30% 19%Share in net identifiable asset US$76 US$41 US$613 US$− US$730Carrying values US$76 US$41 US$613 US$− US$730


Net asset of associate attributable tocommon shareholders US$336 US$185 US$1,981 (US$555) US$1,947

Proportionate ownership in theassociate 24% 30% 30% 19%

Share in net identifiable asset US$81 US$56 US$594 US$− US$731Carrying values US$81 US$56 US$594 US$− US$731

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13. Property, Plant and Equipment

The rollforward analyses of this account follows:

2018

Land

Machineriesand

Equipment

Building,Building

Improvementsand LeaseholdImprovements

Toolsand Other

Equipment

PlantWater andAircondi-

tioningSystems

Furniture,Fixtures and

Equipment

Transpor-tation

EquipmentConstruction-

in Progress TotalCostBalances at beginning

of year US$1,925 US$33,772 US$7,693 US$7,038 US$1,429 US$263 US$268 US$57 US$52,445Additions − 716 20 247 26 3 − − 1,012Disposals − (444) − (76) − (1) (5) − (526)Balances at end of

year 1,925 34,044 7,713 7,209 1,455 265 263 57 52,931Accumulated

depreciationBalances at beginning

of year − 18,558 6,709 4,423 1,224 251 116 − 31,281Depreciation and

amortization(Notes 20 and 22) − 3,109 274 822 104 5 53 − 4,367

Disposals − (444) − (76) − (1) (5) − (526)Balances at end of

year − 21,223 6,983 5,169 1,328 255 164 − 35,122Net book values US$1,925 US$12,821 US$730 US$2,040 US$127 US$10 US$99 US$57 US$17,809

2017

Land

Machineriesand

Equipment

Building,Building

Improvementsand LeaseholdImprovements

Toolsand Other

Equipment

PlantWater andAircondi-

tioningSystems

Furniture,Fixtures and

Equipment

Transpor-tation

EquipmentConstruction-

in-Progress TotalCostBalances at beginning

of year US$1,919 US$30,726 US$7,659 US$5,735 US$1,388 US$259 US$191 US$304 US$48,181Additions 6 8,103 34 1,273 12 4 79 57 9,568Disposals − (5,061) − (241) − − (2) − (5,304)Reclassifications − 4 − 271 29 − − (304) −Balances at end of year 1,925 33,772 7,693 7,038 1,429 263 268 57 52,445Accumulated

depreciationBalances at beginning

of year − 21,153 6,435 3,864 1,026 245 74−

32,797Depreciation and

amortization(Notes 20 and 22) − 2,465 274 769 178 6 44 − 3,736

Disposals − (5,061) − (189) − − (2) − (5,252)Reclassifications − 1 − (21) 20 − − − −Balances at end of year − 18,558 6,709 4,423 1,224 251 116 − 31,281Net book values US$1,925 US$15,214 US$984 US$2,615 US$205 US$12 US$152 US$57 US$21,164

Construction-in-progress pertains to design cost incurred in 2017 for the construction of new plant.

The Group entered into financing agreements to acquire machinery and equipment and service carsamounting to nil and US$0.08 million in 2018, US$3.82 million and US$0.16 million in 2017, andUS$1.64 million and US0.12 million in 2016, respectively. Carrying amount of leased assetsamounted to US$1.88 million, US$3.73 million and US$2.98 million as of December 31, 2018, 2017and 2016, respectively (see Note 17).

The unpaid acquisition of property and equipment amounted to US$0.07 million and US$3.98 millionas of December 31, 2018 and 2017, respectively (see Note 17).

The cost of fully depreciated machinery and equipment still in use amounted to US$22.03 million andUS$20.92 million as of December 31, 2018 and 2017, respectively.

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Depreciation of property, plant and equipment included in the cost of sales and operating expensesamounted to US$4.24 million and US$0.12 million, respectively in 2018, US$3.54 million andUS$0.19 million, respectively in 2017, and US$2.60 million and US$0.14 million, respectively in2016 (see Notes 20 and 22).

14. Investment Properties

The rollforward analyses of this account follows:

2018

Land BuildingBuilding

Improvements TotalCostBalances at beginning of year US$2,390 US$5,295 US$3,905 US$11,590Additions − − 116 116Balance at end of year 2,390 5,295 4,021 11,706Accumulated DepreciationBalances at beginning of year − 2,798 3,537 6,335Depreciation (Note 21) − 180 168 348Balances at end of year − 2,978 3,705 6,683Exchange Reserves (6) − − (6)Net Book Values US$2,384 US$2,317 US$316 US$5,017

2017

Land BuildingBuilding

Improvements TotalCostBalances at beginning and end of year US$2,390 US$5,295 US$3,905 US$11,590Accumulated DepreciationBalances at beginning of year − 2,619 3,353 5,972Depreciation (Note 21) − 179 184 363Balances at end of year − 2,798 3,537 6,335Exchange Reserves (6) − − (6)Net Book Values US$2,384 US$2,497 US$368 US$5,249

The Group obtained an appraisal report from Royal Asia Corporation, a third-party appraiser, as ofMarch 2016. Based on the appraisal report, the fair values of land and depreciable investmentproperties, amounted to US$3.28 million and US$5.13 million, respectively. Management believesthat the fair values as of December 31, 2018 are not materially different from that of March 2016.

The fair values of the land and depreciable investment properties were arrived at using the SalesComparison approach and Cost approach, respectively, which are included under the Level 3 of thefair value hierarchy. In the Sales Comparison approach, fair value is based on sales and listings ofcomparable properties registered within the vicinity. Factors such as price per square meter, location,size and shape of lot and bargaining allowance identified as significant unobservable inputs weretaken into consideration to estimate the fair value of the property.

In the Cost approach, an estimate is made of the cost of construction of the replaceable properties atcurrent prices in accordance with the prevailing market prices for materials, labor, overhead and allother attendant costs associated with its acquisition, installation and construction in place.Adjustments, which include consideration of cost to cure improvements to become marketable, aswell as market resistance factors, are then made to reflect depreciation resulting from physicaldeterioration plus any functional and economic obsolescence that may exist to arrive at a reasonablevaluation.

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Rent income earned from the investment properties amounted to US$2.59 million in 2018 and 2017and US$2.57 million in 2016 (see Note 25).

Cost of rental services from investment properties amounted to US$0.40 million, US$0.39 millionand US$0.35 million in 2018, 2017 and 2016, respectively (see Note 21).

Depreciation of investment properties included under cost of rental services amounted toUS$0.35 million, US$0.36 million and US$0.33 million in 2018, 2017 and 2016 (see Note 21).

15. Accounts Payable and Other Liabilities


2018 2017Trade payables US$6,472 US$6,966Accrued expenses 2,034 1,731Unearned rent income (Note 25) 686 710Security deposit (Note 25) 511 488Non-trade payables 50 46Others 699 823

10,452 10,764Less noncurrent portion of unearned rent and

security deposits 737 1,155US$9,715 US$9,609

Accrued expenses consist of:

2018 2017Accrued salaries, wages and other benefits US$723 US$505Accrued sales commission 320 257Accrued utilities 317 364Accrued professional fees 135 118Accrued handling charges 121 135Accrued rent 86 46Accrued direct materials 26 14Others 306 292

US$2,034 US$1,731

Trade payables are amounts primarily due to suppliers which are noninterest-bearing and arenormally settled on 15 to 90-day terms. The foregoing accrued expenses and other financial liabilitiesare non-interest bearing and are normally settled within one (1) year.

Other accrued expenses mainly include other contracted labor and accrued interest.

Other payables mainly include withholding taxes which are normally settled within a year.

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16. Advances from Customers

The account represents advance payments for raw material purchases amounting to US$1.31 millionas of December 31, 2017.

This will be applied against future invoices and covers the cost of aging inventories of the Group.

As at December 31, 2018, advances from customers amounted to nil due to PFRS 15 adoption(see Note 2). These advances form part of contract liabilities.

17. Bank Loans and Finance Lease Liabilities


2018 2017Finance lease liabilities

Current US$1,230 US$1,968Noncurrent 647 1,765

Bank loansCurrent 69 72Noncurrent 131 125

Commercial loansCurrent 4,000 4,000

US$6,077 US$7,930

Current US$5,299 US$6,040Noncurrent 778 1,890

US$6,077 US$7,930

The Group entered into short-term and long-term loan arrangements with foreign and domesticfinancial institutions for its various working capital and capital expenditures requirements.

Bank loans:∂ In 2018 and 2017, the Group entered into credit loan agreements with local banks for the car

loan fleet financing of certain employees with payment terms ranging from three (3) to five (5)years amounting to US$0.08 million and US$0.16 million, respectively. As of December 31,2018 and 2017, the outstanding balance of car loans amounted to US$0.20 million. These loansare subject to monthly interest rates ranging from 0.63% to 0.83% in 2018, 2017 and 2016.

Commercial loans:∂ In 2018, EMS applied for credit facilities with a third party bank for a four (4)-month short-term

loan up to US$4.00 million, with a monthly interest of 0.29%, three (3)-month short-term loanup to P=150.00 million with a monthly interest of 0.33%, domestic bills purchase line up toP=10.00 million and importers loan line up to US$4.50 million. Collections from a certain projectamounting to US$10.00 million shall be deposited to the bank. The loans are covered byunregistered real estate mortgage over an affiliate’s properties in Laguna for P=255.00 million(US$4.85 million as of December 31, 2018).

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On April 2018, EMS paid its outstanding loan as of December 31, 2017 amounting toUS$4.00 million. In the same year, EMS made its drawdown totaling to US$9.95 million for afour (4)-month short-term loan, US$4.0 million of which remains outstanding as of December31, 2018 and will mature in April 2019.

There are no debt covenants related to these loans.

Finance lease (see Note 25):∂ On July 22, 2015, EMS entered into a three (3)-year financing agreement to acquire machinery

and equipment with a supplier amounting to US$1.39 million. This is subject to 1.49% semi-annual interest which matured on July 14, 2018.

∂ On June 15, 2016, EMS entered into another three (3)-year financing agreement with the samesupplier amounting to US$1.64 million. This is subject to 0.70% quarterly interest and willmature on June 30, 2019.

∂ On March 29, 2017, EMS entered into another three (3)-year financing agreement with the samesupplier amounting to US$1.66 million. This is subject to 1.10% quarterly interest and willmature on May 31, 2020.

∂ On August 29, 2017, EMS entered into another three (3)-year financing agreement with asupplier amounting to US$2.16 million. This is subject to 1.09% quarterly interest and willmature on August 31, 2020.

In 2018, 2017 and 2016, interests and other financing costs arising from the above bank loans andfinance lease liabilities as included under “Finance costs” in the consolidated statements ofcomprehensive income, amounted to US$0.32 million, US$0.17 million and US$0.13 million,respectively (see Note 23).

18. Equity

Capital StockThe Parent Company’s capital stock consists of 1,000,000,000 authorized common stock atP=1.00 par value per share, with 857,974,992 issued shares amounting to P=857.97 million(US$17.63 million) as of December 31, 2018 and 2017. The Parent Company has additional paid-incapital amounting to P=800.00 million (US$9.07 million) as of December 31, 2018 and 2017.

In 2017, the Parent Company acquired additional treasury shares amounting to US$0.30 million (nilin 2018). As of December 31, 2018 and 2017, the Parent Company has 20,844,000 treasury sharesamounting to P=36.94 million (US$1.00 million).

In 2012, IPI, a wholly-owned subsidiary of the Ionics, Inc., acquired 14,059,000 shares of the Ionics,Inc. with a cost of US$0.37 million. This is presented as treasury shares in the consolidatedstatements of financial position as at December 31, 2018 and 2017.

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The Parent Company’s track record of capital stock is as follows:

Numberof Shares

RegisteredIssue/

Offer PriceDate of

Approval

Number ofHolders asof Yearend

At January 1, 1995 137,500,000Add (deduct)

Public offering additional issuance 34,375,000 P=17 June 21, 1995Stock dividends 171,875,000 June 28, 1996Stock dividends 85,937,496 May 23, 1997Treasury shares (1,400,000) December 31, 2000Stock dividends 428,287,496 December 31, 2012

December 31, 2013 856,574,992 1,051Add: Movement − (159)December 31, 2014 856,574,992 892Add: Movement − (10)December 31, 2015 856,574,992 882Add: Movement (10,254,000) May 20, 2016 (8)December 31, 2016 846,320,992 874Movement (9,190,000) May 20, 2016 (8)December 31, 2017 837,130,992 866Movement − (4)December 31, 2018 837,130,992 862

Retained EarningsThe Parent Company's retained earnings available for dividend declaration amounted toUS$12.05 million, US$11.83 million and US$11.67 million as of December 31, 2018, 2017 and 2016,respectively.

The unappropriated retained earnings include accumulated equity in undistributed net earnings of theconsolidated subsidiaries and associates amounting to US$13.62 million and US$9.43 million as ofDecember 31, 2018 and 2017, respectively. These are not available for dividend declaration untildeclared by the BOD of the respective subsidiaries.

The retained earnings is also restricted from dividend distribution to the extent of the cost of treasuryshares.

19. Others - Net


2018 2017 2016Foreign currency exchange

gains (loss) - net US$134 (US$5) US$143Interest income (Note 7) 78 45 15Bank charges (51) (56) (88)Gain (loss) on sale of property

and equipment 4 (3) (66)Gain on dilution of interest in

investment in associate(Note 12) − − 163

Dividend income from AFS(Note 11) − − 4

Miscellaneous 12 11 67US$177 (US$8) US$238

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20. Cost of Sales


2018 2017 2016Raw materials and supplies used US$29,815 US$30,799 US$28,811Salaries, wages and benefits

(Notes 24 and 29) 9,923 8,775 7,877Depreciation and amortization

(Note 13) 4,243 3,544 2,599Occupancy cost and utilities

(Note 25) 2,927 3,083 2,930Handling and freight charges 436 552 545Other expenses 1,095 690 1,039Total manufacturing cost 48,439 47,443 43,801Work-in-process (Notes 2 and 10)

Beginning − 296 254Ending − (1,433) (296)

Cost of goods manufactured 48,439 46,306 43,759Finished goods (Notes 2 and 10)

Beginning − 127 159Ending − (279) (127)

US$48,439 US$46,154 US$43,791

Pension expense included in the salaries, wages and benefits account amounted toUS$0.28 million in 2018, US$0.32 million in 2017 and US$0.31 million in 2016 (see Note 29).

21. Cost of Rental Services


2018 2017 2016Depreciation (Note 14) US$348 US$363 US$334Taxes and licenses 4 10 8Other expenses 50 19 5

US$402 US$392 US$347

Other expenses include occupancy cost and utilities and insurance.

22. Operating Expenses


2018 2017 2016General and administrative expenses US$2,604 US$2,872 US$2,679Selling expenses 1,050 1,334 1,070

US$3,654 US$4,206 US$3,749

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General and administrative expenses consist of the following:

2018 2017 2016Salaries and benefits US$1,210 US$1,256 US$1,336Impairment and write off of receivables

(Note 8) 439 307 159Professional fees 275 283 228Occupancy cost and utilities (Note 25) 184 259 234Depreciation and amortization

(Notes 13 and 14) 101 171 128Insurance 57 60 60Taxes and licenses 15 15 4Impairment loss on AFS investment

(Note 11) − 223 56Impairment loss on goodwill (Note 3) − − 217Other expenses 323 298 257

US$2,604 US$2,872 US$2,679

Other expenses mainly include repairs and maintenance, contracted services and representationexpenses.

Selling expenses consist of the following:

2018 2017 2016Sales commission and agent’s

professional fee US$612 US$781 US$688Salaries and benefits 309 437 272Depreciation and amortization (Notes 13

and 14) 23 21 14Other expenses 106 95 96

US$1,050 US$1,334 US$1,070

Selling expenses include sales commissions paid to foreign agents, which is based on 10% ofconversion cost and 1-3% of material costs.

Agent’s professional fees includes legal, audit, actuarial valuation fee among others.

Pension expense included in the salaries, wages and benefits account amounted to US$0.01 million in2018, 2017 and 2016 (see Note 29).

Other expenses account includes supplies, taxes and licenses, membership dues, insurance expenseamong others.

23. Finance Costs

This account consists of:2018 2017 2016

Interest on long-term bank loans(Note 17) US$242 US$130 US$67

Other finance costs 77 43 64US$319 US$173 US$131

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24. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control theother party or exercise significant influence over the other party in making financial and operatingdecisions. Parties are also considered to be related if they are subject to common control or commonsignificant influence. Related parties may be individuals or corporate entities.

There are no transactions with related parties outside of the Group in 2018, 2017 and 2016.

The key management personnel of the Group include executives and directors. The summary ofcompensation of the key management personnel included in “salaries, wages, and benefits” accountunder cost of sales and operating expenses in the consolidated statements of comprehensive incomefollows:

2018 2017 2016Short-term employee benefits US$1,034 US$968 US$743Executive officers’ compensation 439 407 355Directors’ remuneration 357 348 339Post-employment benefits 62 67 58

US$1,892 US$1,790 US$1,495

25. Leases

The following are the lease agreements with third parties:

Iomni Precision, Inc. (Iomni) - as a Lessee∂ Iomni leases a parcel of land and a factory building from a third-party lessor. The lease is for a

period of 10 years starting January 15, 2001. On September 6, 2011, the parties entered into anagreement to renew the lease contract for a period of five (5) years commencing onJanuary 16, 2011. The lease covers the same property with a 5% annual escalation clausebeginning January 16, 2013.

On February 23, 2016, the parties entered into an agreement to renew the lease contract for aperiod of five (5) years and 15 days commencing on January 16, 2016. The lease covers the sameproperty with a monthly rental subject to a 5% annual escalation beginning February 1, 2018.

Total rent expense charged to cost of goods sold and operating expenses amounted toUS$0.18 million and US$0.03 million in 2018 and US$0.19 million and US$0.03 million in 2017and US$0.20 million and US$0.04 million in 2016, respectively (see Notes 20 and 22).

As of December 31, 2018 and 2017, Iomni’s future minimum rental payments on non-cancellableleases are as follow:

2018 2017Within one year US$317 US$331After one year but not more than five years 661 691

US$978 US$1,022

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Iomni Precision, Inc. - as a Lessor∂ In 2016, Iomni leased out an office space to a third party for a period of three (3) years starting on

February 16, 2016 until February 15, 2019, subject to 5% annual escalation. The lease may berenewed for an additional term of two years at the option of the lessee.

∂ In 2017, Iomni leased out another office spaces to another third party for a period starting onAugust 1, 2017 until September 30, 2018. In August 2018, the parties entered into an agreementto renew the contract until September 30, 2019, with a 5% increase in monthly rate.

Iomni recognized rental income amounting to US$0.08 million in 2018 and 2017 andUS$0.07 million in 2016.

Iomni recognized related cost of rental services arising from the leased properties amounting toUS$0.10 million in 2018 and 2017 and US$0.11 million in 2016 (see Note 21).

Iomni’s future minimum lease receivables under non-cancellable operating leases as ofDecember 31, 2018 and 2017 are as follows:

2018 2017Within one year US$20 US$154After one year but not more than five years – 12

US$20 US$166

Ionics Properties, Inc. (IPI) - as a Lessor∂ IPI leased out its two-storey building with a total floor area of 4,640 sq.m. to a third party which

commenced in December 2009. In 2013, the contract was renewed with a term of three (3) years.

In December 2016, the lease contract was renewed until March 31, 2020 and is subject to annualescalation clause. IPI recognized rental income pertaining to this lease amounting to US$0.23million in 2018 and 2017 and US$0.22 million in 2016.

∂ In October 2004, IPI entered into a 10-year non-cancellable lease with a third-party, for the rentof its three-storey factory with a total floor area of 14,550 sq.m. The lease agreement providesfor the payment of three months advance rental and three months security deposit which is basedon the current month’s rental rate.

In 2014, the contract was renewed for another 10 years to commence on October 1, 2014 up toSeptember 30, 2024.

IPI recognized rental income pertaining to this lease amounting to US$1.55 million in 2018, 2017and 2016.

∂ In November 2015, IPI entered into a 3-year non-cancellable lease with a third party for the rentof its two-storey building with a total floor area of 3,938 sq.m. The lease contract covered periodfrom November 2015 to November 2018 and is subject to 5% escalation. The lease contractended on November 2018.

IPI recognized income pertaining to lease amounting to US$0.21 million in 2018, 2017 and 2016.

∂ In 2013, IPI entered into a five-year lease contract with a third party for the rent of its buildingwith an area of 7,432 sq.m. The lease commenced on September 15, 2013 and shall continue fora period of five (5) years, until September 14, 2018.

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The lease agreement provides for a three-month security deposit and three-month advance rental.

In September 2018, the parties entered into an agreement to extend the lease contract fromSeptember 15, 2018 to March 31, 2019. IPI recognized rental income pertaining to this leaseamounting to US$0.52 million in 2018, 2017 and 2016.

The carrying values of security deposit amounted to US$0.51 million and US$0.49 million as ofDecember 31, 2018 and 2017, respectively (see Note 15). Amortization of discount on securitydeposit recognized under “Other expense” amounted to US$0.02 million in 2018, 2017 and 2016,respectively.

Unearned income amounted to US$0.69 million and US$0.71 million as of December 31, 2018 and2017, respectively (refer to Note 15). The amortization of unearned income recognized under “Rentincome” amounted to US$0.02 million in 2018 and 2017, respectively.

IPI recognized related cost of rental services arising from the leased properties amounting toUS$0.30 million in 2018, US$0.29 million 2017 and US$0.24 million in 2016 (see Note 21).

IPI’s future minimum lease receivables under non-cancellable operating leases as ofDecember 31, 2018 and 2017 follow:

2018 2017Within one year US$1,688 US$2,309After one year but not more than five years 6,216 6,507More than five years 1,165 2,590

US$9,069 US$11,406

Ionics EMS, Inc. (EMS) - Finance lease - as a LesseeIn 2015, EMS entered into a three (3) year lease agreements to finance its acquisition of equipment asdiscussed in Note 17. Total interest expense recognized on this lease amounted to US$0.14 million,US$0.12 million and US$0.13 million in 2018, 2017 and 2016, respectively (see Note 23). The futureminimum rental payments pertaining to this finance lease are as follows:

2018 2017Within one year US$1,230 US$1,968After one year but not more than five years 646 1,949

US$1,876 US$3,917

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26. Registrations with the Philippine Economic Zone Authority (PEZA)

EMS, Iomni and IPI are all PEZA-registered. Their registrations entitle them to certain incentivesand privileges including a lower corporate income tax rate subject to certain provisions andlimitations of Republic Act (RA) 7916 and each subsidiary’s registration agreement with PEZA.

Ionics EMS, Inc.

Product Line Date of RegistrationType ofRegistration

Income Tax Holiday (ITH)/ GrossIncome Tax Incentive

1. Buddee Smart Plug fabrication March 21, 2018 Inclusion Gross income tax incentive startingMarch 21, 2018

2. Manufacture of PCBA for Panasoniccooling fan for automotive headlamp

August 22, 2018 Inclusion Gross income tax incentive startingAugust 22, 2018

3. Manufacture of PCBA for fan motor forservers (Inlet Portion)

July 24, 2017 Inclusion Gross income tax incentive startingJuly 24, 2017

4. Manufacture of LCD and touch panel formobile phone

February 14, 2017 New Project Four year ITH starting February2017

5. Server repair and UpgradeJanuary 30, 2017 New Project Gross income tax incentive starting

January 2017

6. Manufacture of T-Mark 340 ACDecember 29, 2016 New Project Gross income tax incentive starting

September 2016

7. Manufacture of Afimilk TagJuly 28, 2016 New Project Gross Income tax incentive starting

July 2016

8. Manufacture of Nano Nozzle ReaderJuly 28, 2016 New Project Gross Income tax incentive starting

July 2016

9. Manufacture of PCBA for PrinterFebruary 15, 2016 New Project Gross income tax incentive starting

February 2016

10. Manufacture of QuantumFebruary 15, 2016 New Project Gross income tax incentive starting

February 2016

11. WI butlerMarch 21, 2016 New project

Four year ITH starting March 2016

12. Electronic Door Lock SystemMarch 21, 2016 New project

Four year ITH starting March 2016

13. LCD Projector w/ Power SupplyJuly 06, 2015 New project

Four year ITH starting July 2015

14. Manufacture of tracking deviceOct. 07, 2014 New Project Gross Income tax incentive starting

Oct 2014

15. Manufacturing of light cure deviceMay 08, 2014 New Project Gross Income tax incentive starting

March 201416. Portable/mobile two-way radio

communication equipmentJuly 23, 2013 New project Gross Income tax incentive starting

July 2013

17. XR3 Universal VSAT Transceiver*September 27, 2012 New project

Four-year ITH starting June 2012

18. Mobile Display Device*June 22, 2012 New project

Four-year ITH starting Dec 200919. Dual Port Gigabit Ethernet Bypass

Adapter*May 31, 2011 New project Three-year ITH starting

June 2011

20. Pole Cabinets*March 31, 2011 New project Four-year ITH starting

June 2011

21. Video Conference System*March 1, 2011 New project Three-year ITH starting

March 2011

22. Optical Network Terminal*February 15, 2010 New project Four-year ITH starting

March 2010

23. Manufacturing of Plug Computer*October 28, 2009 New project Four-year ITH starting

December 200924. Electronic Communicator and Controller

Module (ECCM)*May 13, 2009 New project Four-year ITH starting

March 200925. Digipass Security Software for Microsoft

pocket PC*April 27, 2009 New project Four-year ITH starting

March 2009

26. Re-manufacture of Mobile Phones*November 28, 2008 New project Four-year ITH starting

December 2008

27. PV-Max Master*March 13, 2008 New project Four-year ITH starting

May 2008

28. T2 Wi-Fi Tag*March 16, 2009 New project Four-year ITH starting

October 2008

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Product Line Date of RegistrationType ofRegistration

Income Tax Holiday (ITH)/ GrossIncome Tax Incentive

29. Optics Telecommunication*November 28, 2005 New project Four-year ITH starting

January 2006

30. ROHS Flex Cable Assembly*October 13, 2005 New project Four-year ITH starting

October 2005

31. RF Tuners and Amplifiers*May 23, 2005 New project Four-year ITH starting

June 2005

32. Power Controller of Beard Trimmer withSaft NiCD and Sanyo NiMH Re-chargeable Battery*

December 09, 2004 New project

Four-year ITH startingDecember 2004

33. Wireless Broadband Access Unit*May 11, 2004 New project Four-year ITH starting

May 2004

34. Power Over LAN Assembly*September 30, 2003 New project Three-year ITH starting

October 2003

35. Electronic Car Dashboard Assembly*June 12, 2003 New project Four-year ITH starting

June 2003

36. Design and Development* July 28, 2003 New projectFour-year ITH startingJuly 2003

37. Hi-Focus Asymmetrical Digital SubscriberLine (ADSL) Broadband Access System* September 21, 2000 New project

Four-year ITH startingOctober 2000

*ITH incentives for these product lines have already expired as of December 31, 2018. Gross income from product lines with expiredregistration are subjected to the 5% gross income tax from the date ITH incentive has expired.

Gross income from product lines with expired registration are subjected to the 5% gross income taxfrom the date ITH incentive has expired. The above registrations also entitle the Group to otherincentives which include, among others, the duty-free importation of raw materials and capitalequipment.

Iomni Precision, Inc.

Product Line/Registered Activities Date of Registration

Income Tax Holiday (ITH)/Gross Income Tax (GIT)

Incentive1. Manufacture of re-writable compact disk (CD) drive

mechanical loader assembly*October 17, 2000 Four-year ITH starting October

20002. Plastic injection molding of high precision plastic

parts and assembly*September 17, 2001 Four-year ITH starting

September 20013. Fabrication of molds, dies, and printing of plastic

parts*March 28, 2003 Four-year ITH starting March

20034. Manufacture of main base M, main frame and tray

disc*August 12, 2005 Four-year ITH starting August

20055. Manufacture of plastic parts and assembly of super

solar cell*September 24, 2007 Four-year ITH starting

September 20076. Lease out activity July 12, 2013 GIT Incentive

*ITH incentive for these product lines have already expired as of December 31, 2018. Gross income from these product linesare now being subjected to the 5% gross income tax from the date ITH incentive has expired.

Ionics Properties, Inc.IPI is registered with PEZA as an Ecozone Facilities Enterprise pursuant to the provisions ofR.A. No. 7916. The registration entitles IPI to certain incentives and privileges including exemptionfrom payment of any and all local government imposts, fees, licenses or taxes and a gross income taxof 5% subject to certain provisions and limitations of R.A. 7916 and IPI’s registration agreement withPEZA.

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27. Income Taxes

Provision for income tax consists of:

2018 2017 2016Current US$446 US$487 US$336Deferred (18) 5 (2)

US$428 US$492 US$334

Current income tax provision pertains to gross income tax (GIT) of IPI, ITH, GIT and RCIT of EMSIomni, and RCIT of the Parent Company.

The components of the Group’s net deferred tax assets and net deferred tax liabilities are as follows:

Net deferred tax assets:

2018 2017Deferred income tax assets on:

Advance rental US$31 US$31MCIT 7 −

38 31Deferred income tax liabilities on:

Straight-line recognition of rental income − (1)Unrealized foreign exchange gain (5) (9)

(5) (10)US$33 US$21

Deferred tax liabilities:

Upon adoption of PFRS 15, the Group recognized deferred tax liabilities amounting toUS$0.005 million as of December 31, 2018 (nil as of December 31, 2017; refer to Note 2).

The Group recognized deferred tax liability in OCI which pertains to income tax effect of unrealizedgain on financial assets at FVOCI recognized in OCI amounting to US$0.25 million.

The Group did not recognize certain deferred tax assets of certain subsidiaries since managementbelieves that it may not be reasonably probable that taxable profit will be available against which thedeductible temporary differences, NOLCO and MCIT can be utilized.

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The components of the temporary differences and NOLCO and MCIT for which where deferred taxassets were not recognized by the Group follow:

2018 2017Pension liabilities US$2,169 US$2,679Unamortized excess of contribution over the

normal cost 327 368Allowance for inventory obsolescence 285 284Allowance for impairment loss 949 518Straight-line recognition of rent expense 340 336NOLCO 106 168MCIT − 27Others 596 189

The NOLCO can be carried forward as a deduction against taxable income as follows:

Year Incurred Amount Used/Expired Balance Expiry Date2015 US$118 (US$118) US$− December 31, 20182016 76 − 76 December 31, 20192017 30 − 30 December 31, 2020

US$224 (US$118) US$106

The Group has the following excess MCIT over regular corporate income tax:

Year Incurred Amount Used/Expired Balance Expiry Date2015 US$9 (US$9) US$− December 31, 20182016 9 (2) 7 December 31, 2019

US$18 (US$11) US$7

Reconciliation of the statutory income tax rate to the effective income tax rate follows:

2018 2017 2016Statutory income tax rate 30.00% 30.00% 30.00%Tax effect of: Movement in unrecognized

deferred tax assets 4.35% 1.01% (4.46%) Loss (income) from operations

subject to lower preferential ratewithout NOLCO (14.88%) (20.26%) (35.57%)

Income from operations underITH - net (14.35%) (5.74%) (6.72%)

Others 4.04% 6.86% 27.24%Effective income tax rate 9.16% 11.87% 10.49%

Under R.A. No. 7916 on Special Zones and PEZA, a PEZA-registered enterprise is exempt fromnational and local taxes. In lieu of the said national and local taxes, 5% of the gross income earnedby all businesses and enterprises within the ecozone shall be remitted to the local and nationalgovernment.

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The Group did not recognize deferred tax liability for all temporary differences associated withinvestments in subsidiaries as the Group assessed that it is able to control the timing of the reversal ofthe temporary difference and it is probable that the temporary difference will not reverse in theforeseeable future.

28. Earnings Per Share

Earnings per share amounts attributed to ordinary equity holders of the Parent Company werecomputed as follows (amounts in thousands, except earnings per share):

2018 2017 2016Net income attributable to

ordinary equity holders of theParent Company US$4,166 US$3,581 US$2,802

Weighted average number ofissued common shares 857,975 857,975 857,975

Less treasury shares (Note 18) 34,903 34,903 25,713Weighted average number of

outstanding common shares 823,072 823,072 832,262Basic/diluted earnings per share US$0.0051 US$0.0044 US$0.0034

There were no potential dilutive shares in 2018, 2017 and 2016.

29. Net Pension Liabilities

The Group has a funded, noncontributory defined benefit pension plan covering all qualifiedemployees. Benefits are based on the employee’s years of service and final plan salary. The trustfund, to cover the pension obligation, is administered by a trustee bank under the supervision of theBoard of Trustees of the plan. The Board of Trustees (BOT) is responsible for investment strategy ofthe plan.

Under the existing regulatory framework, R.A. No. 7641 requires a provision for retirement pay toqualified private sector employees in the absence of any retirement plan in the entity, providedhowever, that the employee’s retirement benefits under any collective bargaining andother agreements shall not be less than those provided under the law. The Group’s retirement planmeets the minimum retirement benefit specified under R.A.7641.

The law does not require minimum funding of the plan.

The Group has no transaction either directly or indirectly through its subsidiaries or with itsemployees’ retirement benefit fund.

The components of retirement costs included in “Salaries, wages and benefits” account under cost ofsales and operating expenses in the consolidated statements of comprehensive income are as follow:

2018 2017 2016Current service cost US$198 US$212 US$204Net interest cost 99 124 115

US$297 US$336 US$319

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The amount of remeasurement gains (losses) on retirement plan recognized under othercomprehensive income are as follow:

2018 2017 2016Defined benefit obligation US$433 US$68 (US$87)Plan assets (37) 3 (3)

US$396 US$71 (US$90)

The amount included in the consolidated statements of financial position arising from the Group’sobligation in respect of its defined benefit plan is as follows:

2018 2017Present value of defined benefit obligation US$2,556 US$3,074Fair value of plan assets (387) (395)

US$2,169 US$2,679

Changes in the present value of the defined benefit obligation are as follow:

2018 2017Balance at beginning of year US$3,074 US$2,949Current service cost 198 212Interest cost 136 132Benefits paid (263) (140)Remeasurement (gains) losses arising from:

Experience adjustments (111) 32Changes in financial assumptions (319) (76)Changes in demographic assumptions (3) (24)

Effect of changes in foreign exchange rates (156) (11)Balance at end of year US$2,556 US$3,074

Changes in the fair value of plan assets are as follow:

2018 2017Balance at beginning of year US$395 US$366Interest income 37 8Return on assets excluding amount included in net

interest cost (37) 3Contributions 275 159Benefits paid (263) (140)Effect of changes in foreign exchange rates (20) (1)Balance at end of year US$387 US$395

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The movements in the net pension liabilities recognized in the consolidated statements of financialposition follow:

2018 2017Balance at beginning of year US$2,679 US$2,583Retirement cost 297 336Remeasurement gains (396) (71)Contributions (275) (159)Effect of changes in foreign exchange rates (136) (10)Balance at end of year US$2,169 US$2,679

The Group’s plan assets are comprised of cash, investment in equity instruments, debt instrument-government and other bonds and other assets. The Retirement Trust Fund assets are valued by thefund manager at fair value using the mark-to-market valuation.

The fair value of plan assets by each class is as follows:

2018 2017Cash in banks US$140 US$89Investment in equity securities 8 10Investment in Government Securities

Fixed rate treasury notes 155 212Retail treasury bonds 80 81

235 293Other receivables

Interest receivable 4 3US$387 US$395

The composition of the fair value of the trust fund follows:

Investment in government securities - includes investment in Philippine Retail Treasury Bonds(RTBs) and Fixed Rate Treasury Notes (FXTNs);

Cash in banks - includes savings and time deposits with Bangko Sentral ng Pilipinas (BSP);

Investment in equity securities - includes investment in common shares traded in the Philippine StockExchange (PSE);

Others - includes accrued interest on fixed income securities and special deposit account in BSP.

As at December 31, 2018 and 2017, the Fund has no investments in the securities (debt or equity) ofany related party.

The plan assets do not include any of the Group’s own equity instruments nor any property occupiedby, or other assets used by the Group.

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The principal assumptions used in determining pension obligation for the defined benefit plan are asfollows:

2018 2017 2016Retirement age 60 - 65 60 - 65 60 - 65Average remaining working life 11 - 18 11 - 18 11 - 18Discount rate

Beginning of year 5% 5% 5%End of year 7% 5% 5%

Salary increase rateBeginning of year 3.5% - 5% 3.5% - 5% 3.5% - 5%End of year 3.5% - 5% 3.5% - 5% 3.5% - 5%

The following sensitivity analysis that follows has been determined based on reasonably possiblechanges of the assumption occurring as of the end of the reporting period, assuming that all otherassumptions were held constant.

It should be noted that the changes assumed to be reasonably possible at the valuation date are opento subjectivity, and do not consider more complex scenarios in which change other than thoseassumed may be deemed to be more reasonable.

2018 2017

Assumptions Changes

Increase (decrease) in presentvalue of defined benefit

obligation Changes

Increase (decrease) in presentvalue of defined benefit

obligationDiscount rate +1.0% (US$218) +1.0% (US$219)

-1.0% 259 -1.0% 260

Future salaryincrease rate

+1.0% US$280 +1.0% US$282-1.0% (240) -1.0% (241)

The BOT of the Plan ensures that its plan assets are readily available to service the pension obligationdue. This is done by ensuring that its assets are easily disposable and can easily be converted to cash.However, in the event a benefit claim arises and the Retirement Fund is insufficient to pay the claim,the shortfall will then be due and payable by the Group to the Retirement Fund.

The table below shows the maturity profile of the undiscounted pension payments as ofDecember 31:

2018Less than

1 year1 to 5years

5 to 10years

10 to 15years

15 to 20years

More than20 years

Normal retirement US$759 US$18 US$247 US$454 US$2,001 US$4,792Other than normal retirement 147 608 803 829 662 840

US$906 US$626 US$1,050 US$1,283 US$2,663 US$5,632

2017Less than

1 year1 to 5years

5 to 10years

10 to 15years

15 to 20years

More than20 years

Normal retirement US$938 US$28 US$217 US$450 US$2,025 US$5,251Other than normal retirement 158 590 749 817 695 910

US$1,096 US$618 US$966 US$1,267 US$2,720 US$6,161

The Group expects to contribute to the pension plan amounting to US$0.56 million in 2019.

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30. Segment Information

The primary segment reporting format of the Group is by business segments as the Group’s risks andrates of return are affected predominantly by differences in the goods produced. Secondary segmentreporting information is reported geographically.

The operating businesses are organized and managed separately according to the nature of theproducts and services provided, with each segment representing a strategic business unit that offersdifferent products and serves different markets.

The computer peripherals segment provides world-class design, build, ship, and logistics services totop computer equipment companies. The Group has been providing a broad range of serviceofferings to customers in the desktop personal computer (PC), peripheral, server, notebook PC, andstorage devices industries.

The telecom segment specializes in the manufacture and delivery of carrier and enterprise-classcommunications equipment, as well as wireless, optical networking, wire line transmission, andenterprise networking equipment.

The Group works with the world’s leading telecommunications equipment companies, along with itsTL9000 certification, to face the demand and manufacturing challenges of a fluctuating andtime-critical market segment.

The automotive segment understands and delivers to satisfy customers’ unique manufacturingrequirements. The automotive industry demands advanced technologies, high-end materials, andadvanced manufacturing processes and quality systems. The Group has experience in Product PartApproval Processes (PPAPs), Process Failure Mode & Effects Analysis (PFMEA) and Design FailureMode & Effects Analysis (DFMEA), and is ISO/TS 16949 certified.

The consumer electronics segment also provides design, build, ship and logistics services for itscustomers in the digital media devices, digital television capture and audio products industries. Theconsumer electronics segment builds the capability to serve these customers with every element thatis required to deliver real products to the marketplace.

The real estate segment generates income from rentals of the Group’s buildings, including warehouseand factory area, and building improvements to third party lessees within the PEZA economic zone.

The revenues from major customers under the telecom industry amounted to US$15.80 million,US$14.52 million and US$20.90 million in 2018, 2017 and 2016, respectively. Total revenues fromthese customers exceed 10% of the total revenues of the Group.

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The Group’s segment information as of and for the years ended December 31, 2018, 2017 and 2016,which present income and losses, revenues and certain assets and liabilities attributed to each businesssegment, are summarized in the following tables:

2018

ComputerPeripherals Telecom Automotive

ConsumerElectronics Real Estate Others

Adjustmentsand

Eliminations TotalRevenue from contracts

with customers US$18,271 US$17,227 US$1,276 US$16,650 US$− US$1,479 (US$193) US$54,710Rental income − 147 − − 2,498 559 (613) 2,591Income (loss) from

operations 1,728 870 (182) 266 2,033 79 12 4,806Foreign exchange gain

(loss) - net 102 20 1 18 6 (13) − 134Non-controlling interests − − − − − − (78) (78)Income tax (116) (118) (2) (70) (115) (7) − (428)Equity in net earnings − − − − − 17 (9) 8Interest - net (113) (93) (2) (77) 5 39 − (241)Miscellaneous - net (11) − − (28) − − − (39)Gain on sale of

property and equipment − − − 4 − − − 4Net income (loss) US$1,590 US$679 (US$185) US$113 US$1,929 US$115 (US$75) US$4,166Identifiable assets US$12,328 US$15,657 US$1,026 US$12,081 US$12,293 US$46,840 (US$37,878) US$62,347Unallocated assets − − − − − 9,144 − 9,144Total assets US$12,328 US$15,657 US$1,026 US$12,081 US$12,293 US$55,984 (US$37,878) US$71,491Identifiable liabilities US$102 US$2,297 US$95 US$523 US$1,292 US$4,403 (US$19,146) (US$10,434)Unallocated liabilities − − − − − 30,725 − 30,725Total liabilities US$102 US$2,297 US$95 US$523 US$1,292 US$35,128 (US$19,146) US$20,291Capital expenditures US$342 US$186 − US$104 US$93 US$403 US$− US$1,128Depreciation US$2,806 US$842 − US$553 US$281 US$233 US$− US$4,715

2017



Adjustmentsand

Eliminations TotalSales US$15,827 US$20,097 US$2,944 US$12,719 US$− US$1,069 (US$157) US$52,499Rental income − 120 − − 2,516 540 (584) 2,592Income (loss) from

operations 1,675 803 (139) 152 2,038 (208) 18 4,339Foreign exchange gain

(loss) – net 12 (22) 4 (2) − 3 − (5)Dividend income − − − − − − − −Non-controlling interests − − − − − − (73) (73)Income tax (150) (151) (6) (60) (102) (23) − (492)Equity in net losses − − − − − (22) 10 (12)Interest - net (48) (70) (1) (18) (7) 16 − (128)Miscellaneous - net (6) (20) (3) (12) − (4) − (45)Loss on sale of

property and equipment − (3) − − − − − (3)Net income (loss) US$1,483 US$537 (US$145) US$60 US$1,929 (US$238) (US$45) US$3,581Identifiable assets US$14,361 US$19,872 US$1,897 US$9,699 US$10,518 US$46,285 (US$38,688) US$63,944Unallocated assets − − − 4,195 − 603 − 4,798Total assets US$14,361 US$19,872 US$1,897 US$13,894 US$10,518 US$46,888 (US$38,688) US$68,742Identifiable liabilities US$37 US$2,593 US$143 US$351 US$1,298 US$31,018 (US$46,503) (US$11,063)Unallocated liabilities − − − − − 33,936 − 33,936Total liabilities US$37 US$2,593 US$143 US$351 US$1,298 US$64,954 (US$46,503) US$22,873Capital expenditures US$5,223 US$1,057 US$60 US$2,772 US$169 US$287 US$− US$9,568Depreciation US$2,625 US$567 US$41 US$249 US$384 US$233 US$− US$4,099

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2016



Adjustmentsand

Eliminations TotalSales US$15,466 US$24,954 US$2,600 US$4,649 US$− US$708 (US$21) US$48,356Rental income − 96 − − 2,521 508 (558) 2,567Income (loss) from

operations 1,715 (52) (276) (221) 2,000 (4,058) 3,928 3,036Foreign exchange gain

(loss) - net 121 17 (7) 7 − 5 − 143Dividend income − − − − − 4 − 4Non-controlling interests − − − − − − (47) (47)Income tax (141) (81) (6) (3) (103) − − (334)Equity in net earnings − − − − − 59 (19) 40Gain (loss) on sale of property

and equipment − (66) − − − − − (66)Gain on dilution of interest in

investment in associate − − − − − 163 − 163Interest - net (52) (20) 1 1 (47) 1 − (116)Miscellaneous - net 44 (55) (3) (8) 1 (21)Net income (loss) US$1,687 (US$257) (US$291) (US$224) US$1,850 (US$3,825) US$3,862 US$2,802Identifiable assets US$11,296 US$15,078 US$1,992 US$3,174 US$9,002 US$46,664 (US$39,288) US$47,918Unallocated assets − − − 9,441 − 1,024 − 10,465Total assets US$11,296 US$15,078 US$1,992 US$12,615 US$9,002 US$47,688 (US$39,288) US$58,383Identifiable liabilities US$40 US$3,401 US$249 US$365 US$1,892 US$30,776 (US$46,846) (US$10,123)Unallocated liabilities − − − − − 25,894 − 25,894Total liabilities US$40 US$3,401 US$249 US$365 US$1,892 US$56,670 (US$46,846) US$15,771Capital expenditures US$3,956 US$498 US$15 US$112 US$- US$925 US$− US$5,506Depreciation US$1,903 US$425 US$22 US$96 US$15 US$614 US$− US$3,075

The Group’s geographical markets refer only to the initial destination of the products. The Group’sproducts are intermediate products which are shipped to the customers’ plants for incorporation orfurther assembly into the final finished products. All assets of the Group, except for equityinvestments and assets attributed to the subsidiaries, ICL and Ionics-EMS (USA), respectively, arelocated in the Philippines.

The BOD analyzes cash flows as a consolidated level.

The Group’s geographical segments are based on the location of the Group’s assets. Sales to externalcustomers disclosed in the geographical segments are based on the geographical location of itscustomers.

The following tables represent the Group’s total revenue and certain assets based on the Group’sgeographical segment:

Segment Revenue

2018 2017 2016Asia US$33,967 US$31,457 US$32,974Europe 16,125 16,875 10,874North America 7,209 6,759 7,075

US$57,301 US$55,091 US$50,923

Segment Assets

2018 2017 2016Asia US$68,047 US$66,835 US$55,839North America 2,080 1,907 2,544Europe 1,369 − −

US$71,491 US$68,742 US$58,383

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*SGVFS034159*

Revenue from Contracts with CustomersRevenues from contracts with customers are further disaggregated by type, product type and timing ofrevenue recognition, as management believes it best depicts how the nature, amount, timing anduncertainty of revenue and cash flows are affected by economic factors.

The following table presents revenue by type:

2018Manufacturing of goods US$54,510Subcontracting services 200Revenue from contracts with customers US$54,710

The following table presents revenue from contracts with customer per timing of revenue recognitionfor each reportable segment:

2018Revenue

recognizedover time

Revenuerecognized atpoint in time Total

Computer peripherals US$18,034 US$− US$18,034Telecom 17,011 − 17,011Consumer electronics 15,171 200 15,371Automotive 2,815 − 2,815Others 1,479 − 1,479Revenue from contracts with customers US$54,510 US$200 US$54,710

31. Acquisition of Additional Shares of a Subsidiary

On February 25, 2000, EMS offered its shares of stock to the public and became publicly listed in theSingapore Exchange. On September 25, 2009, Philippine SEC approved EMS’ equity restructuring,which ultimately offset its remaining deficit and improved its debt to equity ratio. Low daily turnoverand low daily market capitalization prompted EMS to reconsider its continued listing in the SingaporeExchange.

On September 25, 2009, Philippine SEC approved EMS’ equity restructuring. The equityrestructuring resulted to issuance of common and preferred shares to the Parent Company, whichconsequently increased the ownership of EMS by 15%. The non-controlling interests were adjustedto reflect the increase in ownership in the amount of US$0.13 million.

On March 2, 2010, the Parent Company and EMS jointly announced the proposed voluntary delistingof EMS from the Singapore Exchange. In compliance with the delisting proposal, the ParentCompany offered to purchase the common shares issued to the non-controlling shareholders of EMS.In 2010, the Parent Company acquired an additional 104,801,455 shares or 6.72% ownership of EMSfor a total consideration of US$1.17 million.

The difference between the amount by which the non-controlling interests were adjusted and theconsideration paid to the non-controlling shareholders amounted to US$0.64 million. The transactioncosts of US$0.23 million incurred in relation to the equity transaction was recognized directly inequity.

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*SGVFS034159*

32. Other Matters

Ionics Properties, Inc. (IPI)

On May 12, 2016, the BOD and shareholders approved the proposed increase in IPI’s authorizedcapital stock from 100,000,000 shares to 750,000,000 common shares with a par value of P=1.00 pershare and to declare stock dividends amounting to P=180.00 million in support of the said increase. Asof March 13, 2019, IPI is in the process of securing the necessary regulatory approvals to effect theincrease in authorized capital stock and issuance of stock dividends.

Retained earnings available for declaration as dividends amounted to US$9.11 million andUS$7.15 million as of December 31, 2018 and 2017, respectively.

Iomni Precision, Inc. (Iomni)

Iomni’s authorized capital stock consists of 200,000,000 shares at P=1.00 (US$0.021) per share as ofDecember 31, 2018 and 2017.

On March 14, 2018, the Board approved Iomni’s equity restructuring to offset its deficit amounting toUS$6.07 million as of December 31, 2016 against its additional paid-in capital subject to approval ofstockholders and Philippine SEC.

The proposed restructuring should be the following:

∂ The decrease of its authorized capital stock from P=200,000,000 to P=60,000,000 by reducing itspar value per share from P=1.00 to P=0.30; and

∂ The conversion of advances in the peso equivalent of US$250,000 to additional paid-in capital

The resulting reduction surplus together with the existing additional paid-in capital will then beutilized to wipe out the existing deficit of Iomni.

As of March 13, 2019, Iomni is in the process of completing the requirements to be submitted to SECupon filing of application for equity restructuring.

*SGVFS034159*

INDEPENDENT AUDITOR’S REPORTON SUPPLEMENTARY SCHEDULES

The Board of Directors and StockholdersIonics, Inc. and SubsidiariesCircuit Street, Light Industry and Science Park of the Philippines-IBo. Diezmo, Cabuyao City, Laguna, Philippines

We have audited in accordance with Philippine Standards on Auditing, the consolidated financialstatements of Ionics, Inc. and its subsidiaries (the Group) as at December 31, 2018 and 2017 and for eachof the three years in the period ended December 31, 2018 and have issued our report thereon datedMarch 13, 2019. Our audits were made for the purpose of forming an opinion on the basic consolidatedfinancial statements taken as a whole. The schedules listed in the Index to the Consolidated FinancialStatements and Supplementary Schedules are the responsibility of the Group’s management. Theseschedules are presented for purposes of complying with Securities Regulation Code Rule 68, as Amended(2011), and are not part of the basic consolidated financial statements. These schedules have beensubjected to the auditing procedures applied in the audit of the basic consolidated financial statementsand, in our opinion, fairly state, in all material respects, the information required to be set forth therein inrelation to the basic consolidated financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Dhonabee B. SeñeresPartnerCPA Certificate No. 97133SEC Accreditation No. 1196-AR-2 (Group A), October 18, 2018, valid until October 17, 2021Tax Identification No. 201-959-816BIR Accreditation No. 08-001998-98-2018, February 2, 2018, valid until February 1, 2021PTR No. 7332614, January 3, 2019, Makati City

March 13, 2019

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


IONICS, INC. AND SUBSIDIARIESSUPPLEMENTARY INFORMATION AND DISCLOSURES REQUIRED ONSRC RULE 68, AS AMENDED (2011)DECEMBER 31, 2018(Amounts in Thousands)

Below are the additional information and schedules required by SRC Rule 68, as Amended (2011), thatare relevant to the Group. This information is presented for purposes of filing with the SEC and is notrequired part of the basic financial statements. All values are rounded to the nearest thousand (US$000)except when otherwise indicated.

Schedule A. Financial Assets

Below is the schedule of financial assets at FVOCI of the Group as of December 31, 2018:

Name of issuing entity and association of eachissue

%Ownership

Number of Shares ofPrincipal Amount of

Bonds and NotesAmount Shown in the

Balance SheetFinancial Assets at FVOCI

Quoted:Rovi Corporation N/A 4,037 US$28

Unquoted:Sta. Elena Golf Course N/A 1 95Manila Southwoods Golf and

Country Club N/A 1 19The Palms Country Club N/A 1 11Pacific Synergies IV 6.08% − 548Beacon Property Ventures,Inc. 10.00% 36,000,000 1,401Tech Ventures III 9.99% − 881Export and Industry Bank N/A 16,000 −Philippine Long Distance Telephone

Company - Communications andEnergy Ventures, Inc. N/A 8,000 2

Tech Ventures II 10.74% − − TuneIn, Inc. − − 95 ICCP SBI Pacific Synergies, L.P 8.16% − 250

3,302US$3,330

The Group's quoted investments are valued at the latest market price available while unquotedinvestments are measured using significant unobservable inputs in accordance with PFRS 13.

Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Partiesand Principal Stockholders (other than related parties)

The Group has no amount receivable from directors, officers, employees, and principal stockholders(other than related parties) other than those arising from purchase subject to usual terms, for ordinarytravel and expense advances and for other such items arising in the ordinary course of business, fromwhom an aggregate indebtedness of more than P=100,000 or one percent of total assets, whichever is lesseris owed in 2018.

- 2 -

Schedule C. Amounts Receivable from Related Parties which are Eliminated Duringthe Consolidation of Financial Statements

Below is the schedule of receivable with related parties, which are eliminated in the consolidatedfinancial statements as of December 31, 2018:

Debtor Volume of Transactions Receivables TermsIonics EMS, Inc. Purchases of goods US$− US$− Noninterest-bearing;

no impairmentIntercompany advances − 14,964Rental expense 507 −

Iomni Precision, Inc. Intercompany advances 700 200 Noninterest-bearing;with impairment

US$1,207 US$15,164

The rollforward of receivables with related parties is as follows:

DebtorBeginning

Balance AdditionsCollection/Impairment Current Noncurrent

EndingBalance

Trade receivablesIonics EMS, Inc. US$− US$− US$− US$− US$− US$−

Advances to relatedpartiesIonics EMS, Inc. 15,464 − (500) 14,964 − 14,964Synertronix, Inc. 8 − (8) − − −Iomni Precision, Inc. 200 − − 200 − 200

Rent receivablesIonics EMS, Inc. − 507 (507) − − −

US$15,672 US$507 (US$1,015) US$15,164 US$− US$15,164

Intercompany transactions pertain to advances made by Ionics, Inc. to its subsidiaries in support for theirworking capital requirements.

Schedule D. Intangible Asset

As of December 31, 2018, the Group has no intangible assets.

Schedule E. Long-term Debt

Below is the schedule of long-term debt of the Group:

Type of Obligation

Amountauthorized by

indenture Current Noncurrent TotalBank loans Not applicable US$69 US$131 US$200Commercial loan Not applicable 4,000 − 4,000Finance lease Not applicable 1,230 647 1,877

US$5,299 US$778 US$6,077

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Schedule F. Indebtedness to Related Parties (Long-Term Loans from Related Companies)

As of December 31, 2018, the Group has no long-term loans from related companies.

Schedule G. Guarantees of Securities of Other Issuers

As of December 31, 2018, the Group has no guaranteed securities by other issuers.

Schedule H. Capital Stock

Number of shares held by*

Title of issue

Numberof shares

authorized*

Number ofshares issued

andoutstanding*

Numberof shares

reserved foroptions,

warrants,conversion and

other rights Affiliates

Directors,Officers

andEmployees Others

Common Stock 1,000,000 837,131 − 349,212 75,828 412,091*In thousands

IONICS, INC. AND SUBSIDIARIESGROUP STRUCTURE

Below is a map showing the relationship between and among the Group, ultimate parent company andsubsidiaries as of December 31, 2018:

IONICS, INC.Ultimate Parent Company

IonicsEMS, Inc.

Parent Company97%

Ionics EMS(USA), Inc.Subsidiary

100%

Tech VenturePartners, Inc.

Associate30%

ICCP Ventures,Inc.

Associate24%

ICCP VenturePartners, Inc.

Associate30%

IomniPrecision,

Inc.Subsidiary

100%

IonicsProperties,

Inc.Subsidiary

100%

Ionics Circuits, Ltd.

Subsidiary100%

Synertronix,Inc.

Non-operatingSubsidiary

100%

ICCP SBIVenture Partners(Hong Kong), Ltd.

Associate19%

IonicsProducts

Solutions, Inc.Subsidiary

100%

IONICS, INC. AND SUBSIDIARIESSUPPLEMENTARY SCHEDULE REQUIRED UNDERSECURITIES REGULATION CODE RULE 68, AS AMENDED (2011)DECEMBER 31, 2018

Philippine Securities and Exchange Commission (SEC) issued the amended Securities Regulation CodeRule SRC Rule 68 and 68.1 which consolidates the two separate rules and labeled in the amendment as“Part I” and “Part II”, respectively. It also prescribed the additional schedule requirements for largeentities showing a list of all effective standards and interpretations under Philippine Financial ReportingStandards (PFRS).

Below is the list of all effective PFRS, Philippine Accounting Standards (PAS) and PhilippineInterpretations of International Financial Reporting Interpretations Committee (IFRIC) as ofDecember 31, 2018:

PHILIPPINE FINANCIAL REPORTING STANDARDSAND INTERPRETATIONSEffective as of December 31, 2018 Adopted

NotAdopted

NotApplicable

Philippine Financial Reporting StandardsPFRS 1 First-time Adoption of Philippine Financial

Reporting Standards

PFRS 2 Share-based Payment

Amendments to PFRS 2, Classification andMeasurement of Share-based PaymentTransactions

PFRS 3 Business Combinations

PFRS 4 Insurance Contracts

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

PFRS 5 Non-current Assets Held for Sale andDiscontinued Operations

PFRS 6 Exploration for and Evaluation of MineralResources

PFRS 7 Financial Instruments: Disclosures

PFRS 8 Operating Segments

PFRS 9 Financial Instruments

PFRS 10 Consolidated Financial Statements

PFRS 11 Joint Arrangements

PFRS 12 Disclosure of Interests in Other Entities

PFRS 13 Fair Value Measurement

PFRS 14 Regulatory Deferral Accounts

PFRS 15 Revenue from Contracts with Customers

- 2 -


NotAdopted

NotApplicable

Philippine Accounting Standards

PAS 1 Presentation of Financial Statements

PAS 2 Inventories

PAS 7 Statement of Cash Flows

PAS 8 Accounting Policies, Changes in AccountingEstimates and Errors

PAS 10 Events after the Reporting Period

PAS 12 Income Taxes

PAS 16 Property, Plant and Equipment

PAS 17 Leases

PAS 19 Employee Benefits

PAS 20 Accounting for Government Grants andDisclosure of Government Assistance

PAS 21 The Effects of Changes in Foreign ExchangeRates

PAS 23 Borrowing Costs

PAS 24 Related Party Disclosures

PAS 26 Accounting and Reporting by RetirementBenefit Plans

PAS 27 Separate Financial Statements

PAS 28 Investments in Associates and Joint Ventures

Amendments to PAS 28, Measuring anAssociate or Joint Venture at Fair Value(Part of Annual Improvements to PFRSs2014 - 2016 Cycle)

PAS 29 Financial Reporting in HyperinflationaryEconomies

PAS 32 Financial Instruments: Presentation

PAS 33 Earnings per Share

PAS 34 Interim Financial Reporting

PAS 36 Impairment of Assets

PAS 37 Provisions, Contingent Liabilities andContingent Assets

PAS 38 Intangible Assets

PAS 39 Financial Instruments: Recognition andMeasurement

- 3 -


NotAdopted

NotApplicable

PAS 40 Investment Property

Amendments to PAS 40, Transfers ofInvestment Property

PAS 41 Agriculture

Philippine Interpretations

PhilippineInterpretationIFRIC-1

Changes in Existing Decommissioning,Restoration and Similar Liabilities


Members’ Shares in Co-operative Entitiesand Similar Instruments


Determining whether an Arrangementcontains a Lease


Rights to Interests arising fromDecommissioning, Restoration andEnvironmental Rehabilitation Funds


Liabilities arising from Participating in aSpecific Market—Waste Electrical andElectronic Equipment


Applying the Restatement Approach underPAS 29 Financial Reporting inHyperinflationary Economies


Interim Financial Reporting and Impairment


Service Concession Arrangements


PAS 19 - The Limit on a Defined BenefitAsset, Minimum Funding Requirements andtheir Interaction


Hedges of a Net Investment in a ForeignOperation


Distributions of Non-cash Assets to Owners


Extinguishing Financial Liabilities withEquity Instruments

- 4 -


NotAdopted

NotApplicable


Stripping Costs in the Production Phase of aSurface Mine


Levies


Foreign Currency Transactions and AdvanceConsideration

PhilippineInterpretationSIC-7

Introduction of the Euro


Government Assistance - No SpecificRelation to Operating Activities


Operating Leases - Incentives


Income Taxes - Changes in the Tax Status ofan Entity or its Shareholders


Evaluating the Substance of TransactionsInvolving the Legal Form of a Lease


Service Concession Arrangements:Disclosures


Intangible Assets - Web Site Costs

Standards tagged as “Not applicable” have been adopted by the Group but have no significant coveredtransactions for the year ended December 31, 2018.

IONICS, INC. AND SUBSIDIARIESFINANCIAL SOUNDNESS INDICATORS

Below are the financial ratios that are relevant to the Group for the years ended December 31, 2018 and2017:

Financial ratios 2018 2017Liquidity ratios:Current ratio Current assets

Current liabilities 2.70:1 2.27:1

Quick asset ratio Current assets - inventories andprepayments and

other current assetsCurrent liabilities 1.72:1 1.50:1

Leverage ratio Net debtNet debt and equity (1.47:1) 14.83:1

Debt-to-equity ratio Total debtTotal equity 0.40:1 0.50:1

Asset-to-equity ratio Total assetsTotal equity 1.40:1 1.50:1

Profitability ratios:Interest rate coverage ratio Income before income tax and

finance costsFinance Costs 15.65:1 22.12:1

Revenue Growth (Decline) *CY revenue - **PY revenue**PY revenue 4.01% 8.18%

Gross Profit Margins Gross profit***Revenue 14.76% 15.51%

Profit Margins Gross profit - operating expenses***Revenue 8.39% 7.88%

Net Income Margins Net income***Revenue 7.41% 6.63%

Return on Equity Net incomeTotal stockholder’s equity 8.29% 7.97%

*CY - current year**PY - prior year***Revenue includes sales and rental income

IONICS, INC.RECONCILIATION OF RETAINED EARNINGS AVAILABLEFOR DIVIDEND DECLARATIONDECEMBER 31, 2018(Amounts in Thousands)

Unappropriated retained earnings, beginning US$12,133Adjustments:

Equity in net income of associate and subsidiaries −

Unappropriated retained earnings, as adjusted, beginning US$12,133

Net income based on the face of the audited financial statements (80)

Less: Non-actual/unrealized income, net of taxEquity in net income of associate and subsidiaries −Unrealized foreign exchange gain - net (except attributable to cash) −Unrealized actuarial gain −Fair value adjustments (M2M gains) −Fair value adjustment of investment property −Adjustment due to deviation from PFRS/GAAP - gain −Other unrealized gains or adjustments to retained earnings

Gain from recovery of impairment −

Add: Non-actual lossesDepreciation on revaluation increment, after tax −Adjustment due to deviation from PFRS/GAAP - loss −Loss on fair value adjustment of investment property −

Net loss actual/realized (80)Add (less):

Dividend declarations during the period −Treasury shares −

Unappropriated retained earnings, as adjusted, ending US$12,053

IONICS, INC. AND SUBSIDIARIESINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

AND SUPPLEMENTARY SCHEDULESSEC FORM 17-A

CONSOLIDATED FINANCIAL STATEMENTS

Statement of Management’s Responsibility for Consolidated Financial Statements

Report of Independent Auditor’s Report

Consolidated Statements of Financial Position as at December 31, 2018 and 2017

Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016

Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016

Notes to Consolidated Financial Statements

SUPPLEMENTARY SCHEDULES

Report of Independent Auditor’s on Supplementary Schedules

Schedules Required under SRC Rule 68-EA. Financial AssetsB. Amounts Receivable from Directors, Officers, Employees, Related Parties, and

Principal Stockholders (Other than Related Parties)C. Amounts Receivable from Related Parties which are Eliminated during the

Consolidation of Financial StatementsD. Intangible AssetsE. Long-term DebtF. Indebtedness to Related Parties (Long-Term Loans from Related Companies)G. Guarantees of Securities of Other IssuersH. Capital Stock

Group Structure

Schedule of all the effective standards and interpretations under PFRS as of December 31, 2018

Schedule of Financial Soundness Indicators

Schedule of Reconciliation of Retained Earnings Available for Dividend Declaration

Documents

IONICS, INC. AND SUBSIDIARIES · majority-owned subsidiary, Ionics EMS, Inc. (IEMS). Net assets with a book value of =530 million as of April 30, 1999 were transferred to IEMS under