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Central Asia Metals PLC Proposed acquisition of -42-

22 Sep 2017 6:01 am

Deferred tax is recognized applying the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial information. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit. Deferred tax is determined using income tax rates that have been enacted or substantially enacted by the financial statement date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.

Deferred tax assets are recognized to the extent that it is probable that future taxable profit (or reversing deferred tax liabilities) will be available against which the temporary differences can be utilized. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
   2.16     Employees Benefits 
   a)         Pension 

SASA, in the normal course of business, makes payments on behalf of its employees for pensions, health care, employment and personnel tax which are calculated on the basis on gross salaries and wages according to the legislation. SASA makes these contributions to the Governmental health and retirement funds as well to private retirement funds. The cost of these payments is charged to the income statement in the same period as the related salary cost.

SASA does not operate any other pension scheme or post-retirement benefits plan and consequently, has no obligation in respect of pensions.
   b)         Termination benefits 

Termination benefits are payable whenever an employee's employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. SASA recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.
   c)         Retirement benefits and jubilee awards 

Pursuant to the Labour law prevailing in the Republic of Macedonia, SASA is obliged to pay retirement benefits in an amount equal to two average monthly salaries, at their retirement date. According to the Collective agreement, SASA is also obliged to pay jubilee anniversary awards that correspond to the total number of years of service of the employee. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. In addition, SASA is not obligated to provide further benefits to current and former employees.

Retirement benefit obligations arising on severance pay are stated at the present value of expected future cash payments towards the qualifying employees. These benefits have been accrued by an independent actuary in accordance with the prevailing rules of actuarial mathematics. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to income over the employees' expected average remaining working lives.
   2.17     Borrowings 

Borrowings are recognised initially at fair value. Borrowings are subsequently carried at amortised cost; any difference between the proceeds and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
   2.18     Leases 

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
   2.19     Revenue 

Revenue is derived principally from the sale of metal concentrate and is measured at the fair value of consideration received or receivable, after deducting discounts, volume rebates, value added tax and other sales taxes. A sale is recognised when the significant risks and rewards of ownership have passed. This is when title and insurance risk have passed to the customer and the goods have been delivered to a contractually agreed location.

Sales of metal concentrate are stated at their invoiced amount which is net of treatment and refining charges. Sales of metal concentrate are determined based on the market price from the LME at the date of sale. Sales are not provisionally priced.

Revenues from the sale of material by-products are included within revenue. Where a by-product is not regarded as significant, revenue will be credited against the cost of sales. Revenue from services is recognised as services are rendered and accepted by the customer. Amounts billed to customers in respect of shipping and handling activities are classified as revenue where SASA is responsible for freight. In situations where SASA is acting as an agent, amounts billed to customers are offset against the relevant costs.
   3.         Financial risk management 
   3.1       Financial risk factors 

SASA does not apply hedge accounting for its financial instruments, all gains and losses are recognized in the income statement. SASA is exposed in particular to risks from movements in exchange rates and market prices that affect its assets and liabilities, credit risk and liquidity risk. Financial risk management aims to limit these market risks through ongoing operational and finance activities.
   (i)         Market risk 

Market risk is defined as the 'risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices' and includes interest rate risk, currency risk and other price risk. The majority of the revenues of SASA are generated in USD and the remaining part mainly in MKD.

Expenses incurred by SASA are primarily in MKD, followed by EUR and USD and the residual amounts in Swedish Krona ("SEK"). As a result, SASA's objective is to minimize the level of its financial risk in MKD terms. For the presentation of market risks in accordance with IFRS 7 a sensitivity analyses is prepared below to show the effects of hypothetical changes of the relevant risk variables on profit or loss and owner's equity. The periodic effects are determined by relating the hypothetical changes in the risk variables to the balance of financial instruments at the balance sheet date. The balance at the balance sheet date is representative for the year as a whole.

Commodity prices, primarily lead and zinc, are key revenue drivers for SASA. The prices for lead and zinc can fluctuate widely and are affected by various factors beyond SASA's control. The main driver for metal price fluctuations is the supply and demand balance but other factors such as exchange rates, interest rates or speculative activities and the change in global economies can impact price levels and volatility too. To anticipate the full extent of the impact of any driver for commodity prices market developments is impossible management believes that is taking all the necessary measures to support the sustainability and growth of SASA's business in the current circumstances. Nevertheless, future market fluctuations cannot be predicted with accuracy. SASA does not currently hedge interest commodity price exposure. Any hedging activity requires approval of SASA's Board of Directors. SASA will not hold or issue derivative instruments for speculation.

Commodity price sensitivity

SASA is affected by the volatility of certain commodities. Its operating activities require the ongoing sales of Pb and Zn and processing of ore. The following table shows the effect of metal prices on SASA's financial results:
 
                                                                                            Change       Effect        Effect 
                                                                                              in           on         on profit 
                                                                                             metal      financial       before 
                                                                                            prices      position         tax 
                                                                                           --------   ------------  ------------ 
                                                                                                           USD           USD 
 2015...................................................................................    100 USD     3,921,567     3,147,221 
   (100) 
     USD                                                                                               (4,083,591)   (3,147,332) 
 
                                                                                               100 
  2014...................................................................................      USD      4,372,513     3,760,884 
   (100) 
     USD                                                                                               (4,553,168)   (3,760,884) 
 

Foreign exchange risk

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September 22, 2017 02:01 ET (06:01 GMT)

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