COVER SHEET al al a] sl 2 plate} |iiwioluls|ririile}s}| |i [wie slsl [ilwiolulsirielifal [slr] Jelalelulmielalyialn alulelzioin| leli|rly KRISTINE ANN CATINDIG-ONG 8635-0680 stot |sta ‘SEC Form 1740 a af September 30,2024 ole} [oly seany ea Ti Trae clrlo 156 Tobe accompshed by SEC Personnel concemed sTANPSSECURITIES AND EXCHANGE COMMISSION SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2) (b) THEREUNDER, 1, For the quarterly period ended September 30, 2021 2. Commission identification number 44852 3. BIR Tax Identification No, 000-421-957-000 4, D&L INDUSTRIES, INC. Exact name of issuer as specified in its charter 5. Metro Manila, Philippines Province, country or other jurisdiction of incorporation or organization 6, Industry Classification Code: (SEC Use Only) 7. 65 Calle Industria, Bagumbayan, Q.C. 1110 Address of issuer's principal office Postal Code 8. (02) 8635 0680 Issuer's telephone number, including area code 9. Not applicable Former name, former address and former fiscal year, if changed since last report 10, Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA Title of Bach Class Common Stock, PI par value No. of Shares of Common Stock Issued & Outstanding 7,142,857,990 Shares as of September 30, 2021 Amount of Debt Outstanding P7,450,000,000 as of September 30, 2021 11, Are any or all of the securities listed on a Stock Exchange? Yes W] No] yes, state the name of such Stock Exchange and the class/es of securities listed therein: Philippine Stock Exchange: A total of7,142,857.990 shares of common sock with par value of P100 cach, 12, Indicate by check mark whether the registrant: (2) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding twelve (12) months (or for such shorter period the registrant was required to file such reports) Yes) Not] (b) has been subject to such filing requirements for the past ninety (90) days. Yes (W] No [1PART I-FINANCIAL INFORMATION Item 1, Financial Statements. ‘The unaudited interim consolidated financial statements of D&L Industries, Inc. and its wholly- owned subsidiaries Oleo-Fats, Incorporated, First in Colours, Incorporated, D&L Polymer and Colours, Inc, Chemrez Technologies, Inc, Chemrez Product Solution Inc,, Aero-Pack Industries, Inc, Natura Aeropack Corporation, and D&L. Premium Foods Corp. (collectively, the “Company”) for the nine months ended September 30, 2021 and the comparative period in 2020 is attached to this 17-Q report, comprising of the following: 1.1 Consolidated Balance Sheets as at September 30, 2021 and December 31, 2020 (Annex A) 1.2 Consolidated Statements of Income and Retained Earnings for the period ended September 30, 2021 and September 30, 2020 (Annex B) 1.3. Consolidated Statements of Cash Flows for the period ended September 30, 2021 and September 30, 2020 (Annex C) 14 Consolidated Statements of Changes in Shareholders’ Equity for period ended September 30, 2021 and September 30, 2020 (Annex D) 1.5 Segment Revenue and Income Information for the period ended September 30, 2021 and September 30, 2020 (Annex E) 1.6 Other Segment Information as at September 30, 2021 and December 31, 2020 and for the period ended September 30, 2021 and September 30, 2020 (Annex F) ‘The foregoing unaudited interim consolidated financial statements were approved by the Audit Committee and the Board of Directors in their respective meetings held last August 10, 2021. Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations (Based on the Unaudited Consolidated Results for the Period Ended September 30, 2021) Business Overview ‘The Company is the holding company for a group of companies with interests in the customization, development, and manufacturing of food ingredients (Oleo-Fats, Incorporated), colorants, additives, and engineered polymers for plastics (D&L. Polymer and Colours, Inc, and First in Colours, Inc), aerosol products (Aero-Pack Industries, Inc), as well as manufacturing of oleochemicals, resins, and powder coating (Chemrez Technologies, Inc.). It also renders management and administrative services to subsidiaries and affiliate companies, The Company's registered office address and principal place of business is 65 Calle Industria Brgy. Bagumbayan, Quezon City. The Company is a publicly-listed company, which was officially listed in the Philippine Stock Exchange (PSE) on December 12, 2012. As of September 30, 2021, the Company is 61%-owned by Jadel Holdings Co, Inc. (JHI) and 10% directly owned by the Lao family. The public holds the remaining 29% of the shares outstanding, DAL’s major subsidiaries are as follows '* Food ingredients - The Company, through its subsidiary, Oleo-Fats, is the leading manufacturer of industrial fats and oils, specialty fats and oils, and specialty food ingredients in the Philippines. It serves local and international customers across the food and beverage industry including noodles and snack food manufacturers, dairy and culinary companies, food service companies, biscuits and confectionery manufacturers, and bakeries. To complement its food offerings, the Company also offers food safety solutions such as customized cleaning and sanitation systems and services. © Colorants and plastics additives - The Company, operating through its subsidiaries First in Colours, Inc, (FIC) and D&L Polymer and Colours, Inc. (DLPC), develops and manufacturesinnovative plastic solutions that make plastics aesthetically appealing, functional, and sustainable. The group's products are mainly classified as plastic colorants, additive masterbatches, and engineered polymers. Plastic colorants give plastics precise coloring and special effects mainly used for brand and product identification. Additive masterbatches add functional features to plastics such as higher processability, antimicrobial properties, and anti- static properties. Meanwhile, engineered polymers are plastic compounds that have improved mechanical and thermal properties that make them ideal for films, bottles, furniture, appliances, electronic and automotive parts, etc. Lastly, the group offers sustainable options such as compostable plastics, biodegradable plastics, bio-based plastics, recycled compounds, and upcycled materials; '® Oleochemicals, resins and powder coatings ~ The Company, through Chemrez Technologies, Inc (CTD. and its subsidiary Chemrez Product Solutions, Inc. (CPSI) focuses on developing, ‘manufacturing, and supplying the highest quality resins, oleochemicals, and specialty products that are green and cost-efficient, without sacrificing ethical standards. * Aerosols - The Company, operating through its subsidiary Aero-Pack Industries, Inc, is a full original design manufacturer (ODM) and original equipment manufacturer (OEM) that offers customized aerosols and non-aerosols products across different industries. Te Company offers a full turnkey solution from product formulation to design, packaging, production, and delivery to customers. It is the first and the biggest aerosols manufacturing company in the Philippines. Results of Operations Nine months ended September 30, 2021 versus September 30, 2020 ‘© D&L Industries’ strong recovery continued in the third quarter of 2021 (3Q21), with earnings growing 434% year-on-year to P768 million. This brings earnings for the first nine months of the year (9M21) to P2,163 million, +57% YoY. All segments posted significant recovery YoY with consolidated income already at pre-COVID level. Earnings before interest and taxes was higher by 38% YoY. ‘* 1n3Q21, all ofthe company’s business segments continued to show signs of recovery YoY. The High Margin Specialty Products (HMSP) side of the business, in particular, posted a 12% YoY recovery in volume. This is despite the reimposition of a new round of ECQ, MECQand Alert Level 4 restrictions from August 6 to end September in Metro Manila and, Jockdowns in various forms in nearby provinces. ECQ and MECQ are considered as the strictest quarantine classifications. * Even under the reintroduced limitations, the company's business segments were all permitted by guidelines to operate at maximum capacity. As the country moved towards a more granular approach to lockdowns and movement restrictions, other provinces ‘outside of Metro Manila were able to impose looser guidelines on mobility, which resulted in a lesser impact to overall economic activity compared to the regional ECQ lockdowns that were put in place last year. In addition, the piloting of an Alert Level System in Metro Manila, based on four ters, started in mid-September. This resulted in relaxed age mobility restrictions and looser guidelines for fully vaccinated individuals, as well as providing for greater capacity for restaurants and services. ‘* For the first nine months of the year, the company saw its income reach pre-pandemic levels with 3Q21 earnings at +25% vs 3Q19 and 9M21 earnings at +7% vs 9M19, Despite the reimposition of Enhanced Community Quarantine (ECQ) in August, subsequently followed by an Alert Level 4 classification, introduced to control the spread of the Delta variant in the country, the company still grew net income by 14% compared to theprevious quarter. This brings total net income for the first nine months of the year to 2.163 billion, which accounts for 83% of FY2019 net income. Export sales continued its positive momentum in 9M21 as it jumped 55% y-o-y. Export contribution to total revenues in 9M21 stood at 32% compared to just 28% over the same period last year. The company is optimistic that it will reach its long-term target export contribution of 50%, The company's planned expansion in Batangas will add a significant amount of new capacity, focusing mainly on higher value and higher margin products which will allow the company to cater to more customers in both local and overseas markets in the future. Fyi6 | FYI7 | Fvia | Fy19 | FY20 | 9M20 | 9M21 export as % of total 18% | 25% | 24% | 21% | 29% | 28% | 32% sales Gross profit for the first nine months of the year increased by 24% to P35 billion from P2.8 billion, Selling and marketing expenses were higher by 19% at P590 million from P495 million mostly from higher delivery charges, Administrative expenses were higher by 3% at P335 million from P324 million mostly from higher tax and licenses. ‘The Company booked P91.9 million foreign exchange gain in the first nine months of the year, a complete reversal from the P67.9 million in forex losses booked over the same period last year. Finance costs decreased by 26% to P104 million from P94 million mainly on lower interest rate. Income tax expense was lower by 0.19% to P443 million from P444 million during the same period last year as a result of lower corporate income tax rate under the CREATE bil ‘The company’s profitability ratios remain healthy, Return on Equity (ROE) and Return on Invested Capital (ROIC) stood at 15.5% and 13.9%, respectively, as of September 30, 2021 Segment Operations ‘The food ingredients segment showed continued recovery from the previous year, with 9M21 volumes up by +4%, sales up by +39% and net income surging +105%. With quarantine restrictions now easing across the country and in the economic hub of Metro Manila, the company anticipates that further recovery is set to continue as fully vaccinated individuals are granted more freedom of movement, especially in restaurants, hotels and the service industry. In 3Q21 alone, income for the segment was up 61% YoY and is almost at par with 3Q19 income level recorded prior to the pandemic. On a quarter-on-quarter basis, 3921 earnings increased by 11% compared to 2921. Chemrez continued to post strong performance with a 33% YoY increase in earnings in 9M21. Volumes were up 13% YoY which more than offset the overall margin compression of 5%. The margin compression mainly came from the Oleochemicals segment (chemicalsderived from coconut oil) with average coconut oil prices up 74% YoY in 9M21. While the company passes on price changes to customers, It takes the company 30-45 days to adjust its prices. As such, in an environment of rapid price changes, temporary margin contraction is possible. Nonetheless, the company sees its margins recovering in the succeeding quarters. ‘* Specialty plastics income increased by 46% YoY in 9M21. This was driven by higher volume for both engineered polymers and colorants and additives. Total segment volume increased by 21% YoY for the period. The company expects steady and consistent demand moving forward given the crucial role that plastics play during the current pandemic — from various medical applications to packaging for parcel and food deliveries, ‘* Consumer products ODM, previously referred to as Aerosols, continues to post strong ‘volume growth, Overall, volumes in this segment grew by +30%, as consumer demand for sanitation and disinfectant products continues to be strong amidst the pandemic. Total volume grew by 30% YoY, while net income was mostly flat, up +1% to P206m, due to lower margins in the personal care segment, This resulted from surging raw material prices as well as lower demand for higher margin personal care products, The company continues to mitigate rising raw material prices by passing on price changes to customers every 30-45 days. The company anticipates that this product segment will recover as quarantine restrictions are eventually eased, leading to greater foot traffic in retail outlets and more consumers resuming the regular use of personal hygiene products. Key Performance Indicators Fortheperiodend 54, :eperod end 2021 . September 30, 2020 Gross prft margins 1a 1796 Netprofit margin! 10% 0% Interest cover aan 16 Return on Equity 155% 107% Asofena September30, December 34,2020 Net deb teat ratios 35% 1% Aosetto-Fguiy ratio! 183 us currentratioe an 20s Book Value pershare} 260 29 * Gross Profit/ Revenues » Net Profit available to owners of the Parent company / Revenues «Earnings before interest and taxes / Finance costs4 Annualized Net Income available to owners of the Parent Company / Shareholders" Equity * (Borrowings ~Cash) / Shareholders’ Equity / Total Assets/ Total equity Current Assets / Current Liabilities » Shareholders’ Equity (available to owners ofthe Parent) / outstanding number of common shares Financial Condition Period end September 30, 2021 versus Period end December 31, 2020 ‘* The company remains in a good liquidity position as current ratio stood at 2.11% a of end September 2021, higher than 2,05x in December 2020, ‘* Cash increased by P42 billion to P6.3 billion. ‘* Receivables increased by 5% during the period to P3.9 billion from P3.68 billion. Meanwhile, average account receivable days stood at 46 days vs 52 days in 2020, ‘© Inventories increased by 15% to P6.7 billion mainly on higher average prices of key raw materials such as coconut and palm oil, Average days in inventory stood at 94 days vs 90 days in 2020. '# Net debt to equity ratio stood at 35%. Borrowings increased by 150% to P12.9 billion at end September 2021 from P5.15 billion at end December 2020, ‘* Total equity increased by P799 million to P18.6 billion, ‘* During the period, the Company's cash generally went to acquisition of property and equipment. - Net Cash generated by operating activities amounted to P73 million - Net cash used in investing activities amounted to P2,1 billion, This was spent ‘on acquisition of property and equipment. = Net cash generated by financing activities amounted to P6.1 billion, which came from new borrowings. D&L’s Plan of Operation for 2021 With over a year into the pandemic, the company believes that itis now ina far better position to thrive in an adverse environment and a potentially protracted economic recovery period. Moreover, as the majority of the products that the company manufactures cater to basic essential industries such as food, oleochemicals, plastics and cleaning chemicals, the company sees continued strong demand ahead. From a capital structure perspective, the company is in a solid position to withstand external pressures. In September, the company completed its maiden bond offering, raising a total of PS billion, The fixed-rate retail issuance consisted of 3-year Series A and 5-year Series B bonds. As of end-September 2021, the company’s debt levels remain manageable, with net debt at 35% and Interest cover at 33x. In addition, the cash conversion cycle for the period was lower at 119 days vs 127 days in 2020, given lower account receivables days and higher payable days. Despite quarantine restrictions still in place, the company believes that it can continue its recovery path. The company intends to further capitalize on the increasing awareness on health, safety, and the environment. This trend should continue to translate to strong demand for the company’s oleochemicals and sanitation and disinfection products.Meanwhile, the company’s expansion facility in Batangas, carried under Natura Acropack Corporation, and D&L Premium Foods Corp,is more than halfway done. The said expansion facility will mainly cater to D&L’s growing export businesses in the food and oleochemicals segments, It will add the capability to manufacture downstream packaging, thus allowing the company to capture a bigger part of the production chain. For instance, while the company primarily sells raw materials to customers in bulk, the new plants will allow it to “pack at source’. ‘This means that D&L will have the ability to process the raw materials and package them closer to finished consumer-facing products, This will enable D&L to move a step closer to its customers by providing customized solutions and simplifying their supply chain, which is of high importance given logistical challenges in general Impact of COVID-19 pandemic The Company's manufacturing activities, including the ongoing construction of new manufacturing facilities in Batangas have continued. The Company has complied with all the health and safety protocols imposed by the Government, The Company has performed an assessment of the overall impact of the situation on the Company's operations, including the measurements of assets and liabilities of the Company and concluded that there are no material adverse effects on the Company's operations and financial position, Impact of Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) Under CREATE Act, corporate taxpayers shall prepare their annual income tax return for the calendar year 2020 (CY2020) using the pro-rated rate for CY2020 reckoned from July 1, 2020 (retrospective effect). Such retrospective effect resulted in reversal of provisions for income tax recognized as at December 31, 2020 amounting to P52 million and reduction of deferred tax assets amounting to P23 million. This has a corresponding reduction to income tax expense and increase in profit for the nine-month period ended September 30, 2021 amounting to P29 million. Basis of preparation The principal accounting policies adopted in the preparation of these condensed consolidated interim financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. This condensed consolidated interim financial statements for the nine-month period ended September 30, 2021 has been prepared in accordance with Philippines Accounting Standard (PAS) 34 Interim Financial Reporting. The condensed consolidated interim financial statements do not include all the notes normally included in annual financial statements. Accordingly, this report is to be read in conjunction with the annual financial statements for the year ended December 31, 2020 and any public announcements made by the Company during the nine-month period. ‘The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the estimation of income tax. There are no new accounting standards or amendments effective January 1, 2021 that have a ‘material impact on these condensed consolidated interim financial statements. There are no other future standards, amendments or interpretations that are effective beginning on or after January 1, 2021 that are expected to havea material impact on the Company's financial statements,Selected Notes to the Interim Consolidated Financial Statements In compliance with the requirements of the Securities Regulations Code 1 1 12 13 14. ‘The same accounting policies and methods of computation were followed in the interim consolidated financial statements consistent with those adopted for the Company's annual consolidated financial statements for the year ended December 31, 2020. Interim operations do not follow any particular seasonal or cyclical pattern. Except as discussed in the foregoing, demand for the Company's products have been historically fairly constant throughout the previous years. Significant fixed asset additions during the periods pertain to the construction of the expansion facility in Batangas. There were no items not in the ordinary course of business that affected assets, liabilities, equity, net income, or cash flows that are unusual because of their nature, size, or incidence. ‘There were no changes in estimates of amounts reported in prior interim periods of financial years prior to the commencement of results reporting on a consolidated basis There were no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons created subsequent to the end of the interim period that have not been reflected in the financial statements for the period. ‘There were no changes in contingent liabilities or contingent assets since the last annual balance sheet date, Other than what has been disclosed in the foregoing report, there are no existing material contingencies, events or transactions that are material to an understanding of the current interim period, There are no events other than those already disclosed that will trigger direct or contingent financial obligations that are material to the Company, including any default or acceleration of an obligation, There are no trends, demands, commitments, events or uncertainties known to ‘management that will have a material adverse impact on the Company's liquidity. There are currently no material commitments for capital expenditures except as already disclosed. The Company is not aware of any trend, event or transaction that would have a material impact on its results of operations or on its financial condition except as already disclosed, Aside from interest earnings from the Company's cash deposits, there are no significant elements of income or loss that did not arise from the issuer's continuing operations. ‘Any material changes from period to period in any line items of the Company's financial statements that have not been explained in the Management's Discussion and Analysis section of this report were the results of normal fluctuations in operations. The interim consolidated financial statements have been prepared in conformity with Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality.Additional Disclosures on Risk Management and Financial Instruments 1. Financial risk factors ‘The Company's activities expose it to a variety of financial risks and these activities involve the analysis, evaluation and management of some degree of risk or combination of risks. The Company's overall risk management program focuses on the unpredictability of financial markets, aims to achieve an appropriate balance between risk and return and seeks to minimize potential adverse effects on the Company's financial performance. Risk management is carried out by ManCom and the Board, through its Risk Oversight Committee. The most important types of risk the Company manages are: credit risk, market risk and liquidity risk, Market risk includes foreign currency exchange, price and interest risks. 2. Components of financial assets and liabilities by category 21 Financial assets Details of the Company's financial assets are as follows: September 30,2021 December 31, 2020 (Unaudited) (Audited) Financial assets at amortized cost Cash and cash equivalents 6,321,491,483 2,136,611,930 Receivables, gross 3,926,281,100 751,171,581 Due from related parties 50,988,632 44,728,322 Refundable deposits 87,722,447 39,190,570 10,356,483,661 5,971,702,403 Financial assets at FVPL 657,120,752 638,496,145 Financial assets at FVOCI 182,248,820 182,248,820 11,195,853,233 6,792,447,368 Receivables are presented gross of allowance for impairment as at September 30, 2021 amounting. to P 56,147,955 (December 31, 2020 - P69,202,300} The other components of other current and noncurrent assets are considered non-financial assets which include deposits to suppliers, input VAT, creditable withholding taxes and prepayments. The carrying amounts of financial assets at amortized cost approximate their fair values (Level 1) as the impact of discounting is not considered significant. Financial assets at FVPL and FVOCI are measured at quoted prices (Level 1). Investments in FVPL include investments in open-ended unit investment trust funds that are redeemable anytime and reports daily net asset value.2.1 Financial liabilities Details of the Company's financial liabilities, categorized as other financial liabilities at amortized cost at December 31 areas follows: September 30,2021 December 31, 2020 (Unaudited) (Audited) ‘Trade payables and other liabilities 1,758,743,881 1,870,574,395 Due to related parties 18,829,730 21,281,272 Loan payable to a related party (long-term) : 300,000,000 Lease liabilities 467,278,804 110,641,936 Borrowings 12,885,589,421 5,150,000,000 15,130,441,926 7,452,497,603 Trade payables and other liabilities exclude amounts due to regulatory agencies and advances from customers as at September 30, 2021 amounting to P21,995,922 and P171,098 (December 31, 2020 - P56,088,624 and P479,186), respectively. The carrying amounts of financial liabilities at amortized cost approximate their fair values (Level 2) due to their short-term nature and/or the impact of discounting is not considered significant. ‘As at December 31, 2020, estimated fair value (Level 2) of the P300 million long-term borrowings from a related party approximates its carrying amount as it carries market interest rate of 5%. 3. Credit Risk The Company's exposure to credit risk arises primarily from financial assets at amortized costand financial assets at FVTPL. The Company has prudent credit policies to ensure that sales of its products are made to customers with good credit history. The senior management team, product group heads and the respective sales team perform credit evaluation and monthly review of outstanding receivables as part of the regular performance assessment process, All significant receivables from key customers are monitored for collectability and actual settlement performance, and specific action plans are required for any material overdue amounts from all categories of customers. The Company's financial assets that are subject to the expected credit loss model are as follows: September 30,2021 December 31, (Unaudited) 2020 Basis for (Audited) recognition of ECL Financial assets at amortized cost Cash and cash equivalents 6,319,191,883, 2,063,176,955, 12-month ECL Trade and other receivables 4,118,047,743, 3,751,171,581 Lifetime ECL. Due from related parties 50,998,632 44,728,322 12-month ECL. Refundable deposits 57,722,447 39,190,570 12-month ECLFinancial assets at FVTPL 657,120,752 638,496,145 Marked to market 11,011,304,813 6,536,763,573 Cash and cash equivalents exclude cash on hand as at September 30, 2021 amounting to 2,299,600 (2020 - P73,434,975) which is not subject to credit risk. The maximum exposure to credit risk at the reporting date is the carrying value of financial assets summarized above. None of the financial assets that are fully performing has been renegotiated as at September 30, 2021 and December 31, 2020. ‘The Group does not hold any collateral as security to the above financial assets. Cash in bank Credit risk exposure arising from cash in the bank arises from default of the counterparty, with a maximum exposure equal to the fair value of the financial asset. To minimize credit risk exposure, the Group deposits its cash in banks with good credit ratings. Cash deposited in these banks are as follows: September 30,2021 December 31, 2020 (Unaudited) (audited) Universal banks 6,315,213,396 2,087,120,486 Thrifebanks 3.978.487 26,056,469 619,191,888 2,068,176,955 While cash in banks are also subject to requirements of PFRS 9, expected credit loss is considered ‘not significant. The Group does not hold any collateral as security to the above financial assets. Due from related parties Due from related parties pertain to amounts receivable for sale of inventories and services to related parties. These are non-interest bearing and are collectible generally within 30 to 60 days after transaction date. Due from related parties are fully recoverable. Management does not foresee significant credit risk on the outstanding balances of due from related parties as these are transacted with related parties with strong financial and liquidity positions. Trade and other receivables ) Trade receivables The Company applies the PFRS 9 simplified approach to measuring expected credit losses which used a lifetime expected loss allowance for trade receivables arising from sale of goods and services to third parties. To measure the expected credit losses, receivables have been grouped based on shared credit risk characteristics and the historical collection cycle, The expected loss rates are based on the payment profiles of counterparties over a period of 36 months and the corresponding historical credit losses experienced within this period.The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The Company has identified the Gross Domestic Product (GDP) and the Inflation Rates to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors. On that basis, the loss allowance as at period end was determined as follows: Morethan More than More than ‘Total 30 days past 60 days past 90 days past due September 30, 2021 Current due due Expected loss rate 22.75% 161% Gross carrying amount = trade receivables 2,428,003,983 1,085,907,623 304,848,408 «290,159,781 4,108,919,794 Loss allowance - - - 56,147,955 56,147,955 Net receivables 2,428,003,983 1,085,907,623 304,848,408 290,159,781 4,108,919,794 Morethan Morethan More than Total 30 days past 60 days past 90 days past December 31, 2020 Current due due due Expected loss rate 0.30% 0.35% 0.38% 11.67% 1.85% Gross carrying amount - trade receivables 2,063,995,367 834,299,333 342,947,503 504,516,016 3,745,758,219 Loss allowance (6,114,317) (2,905,470) (1,305,286) (58,877,227) (69,202,300) Net receivables 2,057,881,050 831,393,863 341,642,217 445,638,789 3,676,555,919 ii) Other receivables Other receivables include loans to officers and employees amounting to P11,401,340 (2020 - 5,413,362). To address credit risk, these advances are subject to liquidation and/or collectible through salary deduction, Refundable depasits This account pertains to security deposits on properties leased by the Company. Security deposits are generally refundable at the end of the lease term, Management does not expect significant credit risk on these deposits, Financial assets measured at FVPL. The Company's investments in debt instruments are considered to have low credit risk. Management considers ‘low credit risk’ for unit investment trust funds, as they are managed by universal banks with good credit ratings.4, Market Risk 41 Foreign currency exchange risk ‘The Company's foreign currency denominated monetary assets and liabilities as at December 31 consist of: September 30,2021 December 31, 2020 (Unaudited) (Audited) InusD cash 5,753,311 9,138,668 Receivables 18,892,741 12,153,143 Financial assets at FVPL. 12,154,262 10,410,769 36,800,559 31,702,580 ‘Trade payable and other liabilities (12,212,023) (6,344,399) Net assets in USD 24,588,535 25,358,181 Closing exchange rate 50.96 48.02 Philippine peso equivalent 3,007,176 1,217,699,852 Foreign exchange gain, net for the periods ended September 30 consist of: September 30,2021 September 30, 2020 (Unaudited) Realized foreign exchange gain/(loss) 36,588,957 (11,495,677) Unrealized foreign exchange gain/{(loss) 98,494 (6,761,032) 91,987,452 (17,256,709) Foreign exchange risk arises when future commercial transactions and assets and liabilities are denominated in a currency that is not the Parent Company's functional currency. ‘The Company manages its foreign currency exchange risk through minimizing foreign currency denominated transactions. Also, the Company maintains sufficient cash in foreign currency to cover its maturing obligations. A market driven change in foreign currency exchange rate, arising from US Dollar denominated assets (liabilities), as at December 31 would lead to immaterial pre- tax profit and equity movements. 42 Price risk As at September 30, 2021, the Company is exposed to price risk in relation to its Investments in debt and equity financial assets amounting to P627,674,818 and P182,248,820, respectively (December 31, 2020 - P638,496,145 and P182,248,820, respectively), Components of debt and equity financial assets would increase or decrease as a result of gains or lasses on these financial assets measured at fair value at the end of each reporting period. Management monitors such financial assets based on the net asset value of the debt instruments (unit investment trust funds) current market price of the shares. These financial assets are managed on an individual basis, and all buy and sell decisions are approved by the Management Committee.The impact of a market driven change in fair value of the debt and equity investments, with all other variables held constant, would have been immaterial. 43 Cash flow and fair value interest rate risk Cash flow interest rate risk is the risk that the future cash flows of financial assets and liabilities will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of financial assets and liabilities will fluctuate because of changes in market interest rates Cash flow interest rate risk ‘The Company's exposure to cash flow interest rate risk pertains to short-term borrowings where the related interests are repriced at periodic intervals based on the prevailing mark-to-market prices, in accordance with the terms of the agreement. The Company's practice is to manage its interest cost by reference to current market rates in borrowings. ‘The Company's fixed rate borrowings are measured at amortized cost. They are therefore not subject to cash flow interest rate risk as defined in PFRS 7, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates. Fair value interest rate risk Changes in the market interest rates of the Company's financial liabilities with fixed interest rates only affect income if these are measured at their fair value. As such, the Company's financial Liabilities with fixed interest rates that are measured at amortized cost are not subject to fair value interest rate risk as defined in PFRS 7. 5. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding ‘through an adequate amount of credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Company aims to maintain flexibility by keeping credit lines available, Ona regular basis, management monitors forecasts of the Company's liquidity reserve on the basis. of expected cash flows. The Company places cash in excess of immediate requirements in banks. The table below summarizes the maturity profile of the Company's non-derivative financial liabilities based on contractual undiscounted payments: Due and Within 12 demandable months Over 12months ‘Total September 30,2021 Trade payables and otherliabilities 196,382,752 1,824,802,449 - 2,021,185,201 Due to related parties - 18,829,730 - 18,829,730 Borrowings and future interest payments - 7,961,180,833 4,935,589,421 12,896,770,254 Lease liabilities and future interest payments - 267,465,851 212,490,655 479,956,506 196,382,752 10,072,278,863 5,148,080,075 15,416,741,691December 31,2020 ‘Trade payables and other liabilities 472,973,410 1,397,600,985 - 1,870,574,395 Due to related parties 13,880,572 7,400,700 - 21,281,272 Loan payable to a related party - : 347,250,000 347,250,000 Borrowings and future interest payments 3,813,259,068 1,363,018,318 - 5,176,277; Lease liabilities and future interest payments 6,774 531 73,942,893 35,356,960 116,074,384 4,306,887,581 2,841,962,896 382,606,960 _7,531,457,437 The Parent Company, together with its related parties entered into surety agreements with local banks anda corporate guarantee with a foreign bank, The borrowings of the Company are covered by surety agreements and corporate guarantee agreements, The amounts disclosed in the table are the contractual undiscounted cash flows. Balances equal ‘their carrying balances, as the impact of discounting is not significant. The Company believes that cash generated from its operating activities and current assets are sufficient to meet maturing obligations required to operate the business, The Company would also beable to meet unexpected cash outflows by accessing additional funding sources from local banks and related parties, The Company expects to settle the above financial obligations in accordance with their maturity date, However, the Group may consider to roll-over short-term loans based on working capital requirements. Capital management The Company's objective when managing capital is to generate the maximum possible returns for its shareholders while taking on a manageable degree of risk ensuring that the Company will continue to expand business and manufacturing facilities. In order to maintain or adjust the capital structure, the Company reviews its capital structure from time to time to assess the proper financing mix necessary to grow and sustain its operations. As a matter of policy, capital expenditures have been financed from internally-generated cash flow while working capital requirements will be augmented by short-term bank borrowings from time totime. wings in excess of dividend distribution to shareholders have been continuously redeployed and reinvested in the growth of the Company's business. Each instance of expansion of ‘manufacturing capacity and entry into new products and markets undergo a thorough evaluation process to ensure that such investments and marketing programs are in consonance with the Company's core competencies and would be enhancing, rather than diminishing, shareholder value in the long run. As part of the reforms of the PSE to expand the capital market and improve transparency among listed firms, PSE required a minimum percentage of ten percent (10%) of the listed companies’ issued and outstanding shares, exclusive of any treasury shares, to be held by the public. On May 31, 2017, the SEC issued a Memorandum Circular to increase the minimum percentage requirement to at least fifteen percent (15%) on or before the end of 2018 and then to at least. twenty percent (20%) on or before the end of 2020. The Parent Company is compliant with respect to this requirement.Total capital is equal to total equity (excluding any reserves) as shown in the consolidated statements of financial position. September 30,2021 December 31, 2020 (Unaudited) (Audited) Total equity 18,565,586,057 17,766,928 890 Reserves (187,082,997) (287,082,997) 18,378,503,059.55 _17,579,845,893 There are no changes to the Company's capital management policies as at September 30, 2021 and. December 31, 2020. (This space deliberately left blank)SIGNATURES Pursuant to the requirement of the Securities Regulation Code, the issuer has duly caused this report to be signed on its behalf by undersigned thereunto duly authorized. D & LINDUSTRIES, INC. me Alvin'D. Lao President/CEO Franco Diego Q. CFO and Treasurer November 10, 2021D&L Industries, Inc, and Subsidiaries Unaudited Consolidated Statements of Financial Position As at September 30, 2021 and December 31, 2020(All amounts in Philippine Peso) ANNEX A, ‘September 30,2021 December 31, (Unaudited) 2020 (Audited) ASSETS Current assets (Cash and cash equivalents 6321,491.483 2,136,611,930 Receivables, net 3,870,133.145, 3.681,969,281 Inventories, net 6,694.411.204 5,832,537.236 Due from related parties 30,988,632 44,728,322 Financial assets at fair value through profit or loss (FVPL) 657,120,752 638,496,144 Prepayments and other current assets 4.064496 565 2,494,980,473, Total current assets 21,658,641,870, 14.829,323,386 Non-current assets Right of use (ROU) assets 448,662,246 103,819,960 Investments in equity securities at fair value through other ‘comprehensive income (FVOCI) 192,248,820 182,248,820 Property, plant and equipment. net 7,449,469,770 5,693,862,377 Deferred income tax assets. net 62,707,278 86,649,891 Goodwill 3,367,846.840 3,367,846.840 Other non current assets 790,612,886 1.128,433,119 Total non-current assets 12;301,547.839, 10.562,861,007 Total assets 33,960,189.710 25,302,184,393 LIABILITIES AND EQUITY Current liabilities ‘Trade payables and other liabilities 1,780,920.548 1,927,142,204 Lease Liabilities 386,483,886 76,991,919 Due to related parties 18,829,730 21,281,272 Borrowings 7,950,000,000 5.150,000,000 Income tax payable 146,047,757 48,151,003 Total current liabilities 10,282,281,922 7,223,566,398 ‘Non-current liabilities Loan payable toa related party : 300,000,000 Lease Liabilities - Non-current 80,795,008 33,650,017 Retirement benefit obligation 95,937,303 68,030,088 Long-term borrowings 4.935,589.421 s Total non-current liabilities 5,112,321.731 01,689,105 Total liabilities 15,394,603,653 7,625,255,503, Equity Attributable tothe owners of the Parent Company: Share Capital 7.142,857,990 7.142,857,990 Share Premium 3,255,166.445 3.255,166,445 Reserve for remeasurement on retirement benefit 76,332,175, 76,332,175 Fair value reserve on investments in equity securities at FVOCL 110,750,822 110,750822 Retained earnings 7,980478,624 7.181,821,458 Total equity 18,565,586.057, 17,766,928,890 Total liabilities and equity '33,960,189.710 25,302,184,393DAL Industries, Inc. and Subsidiaries Unaudited Consolidated Statements of Total Comprehensive Income For nine months ended September 30, 2021 and 2020 (All amounts in Philippine Peso) ANNEX B [Nine-month periods ended Sep 30 For three months ended Sep 30 2021, 2020 2021 72020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues Sales of goods, net 21456,965,134 «15,868430785 —-7,600978.863. $726341412 Service fees 74,365,952 48919.726 25547116 18411802 21531,351.086 15917350510 _ 7626525979 8744753214 Cost ofsalesand services Costofsales (17.937,548,090) (13024222885) (6585213743) (4577,016994) Costofservices (59.646.412) (67.457957) (20191325) __(47.775941) (3797,194,502) (13071.680882) _ (6405405068) (4594792934) ‘Gross profit 3.534.156.5854 2845668669 1221120912 1.149,960.280 Selling and marketing expenses (590.475,501) (494598722) «(215062228 (188658977) General and administrative expenses (335.447.152) (524389645) (115147,160) —_(113.488,600) Qtherincome.net 401.865.922 i zeso3249 (62149463) ‘Operating profit 2710,098,853 1958592317 969314.773___ 785663219 Finance costs (104,261,743) (140411401) _(28.070996)__(46.237.447) Profit before income tax expense 2.605,858.110 1818180916 940244677 73942572 Provision for income tax (442,995,068) (443729175) __(172241384) __ (166796924), Profit for the period 2,162,943,081 1374451741 768003293 572628848, other comprehensive income - - - - “Total comprehensive income forthe period 21, 05.081 _ L37S45L741 768003295 572628838, Profit for the period attributable to ‘Owners ofthe parent Company 2.162,943.081____1374451.741 768003293 ___ 572628538 Eaming per-share Basic and dluted 030 019 oat 0.08,D&L Industries, Inc. and Subsidiaries ANNEX C Unaudited Consolidated Statements of Cash Flows For nine months ended September 30, 2021 and 2020 (All amounts in Philippine Peso) ‘ine month periods ended Sep 30 oz 2020 —eE sneint)_cuss ies) ‘Gah ows trom operating actives "roftevorescomescespcse pensaseuio eve .ensis Adesments or Deprecaton adamertzition sagen sass Depreciation of ROU Asset maaace —0seL4se Inurstepence cine 2252938 15.164209 Uatisatoree ectange(pic)iosznet 6580488) 10708548 Prono forrareest sufi oninoe Provision fer (vera of ventory cbolescem . 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