IONICS, INC. and SUBSIDIARIES QUARTERLY REPORT...the expected sources of funds for such...

IONICS, INC. and SUBSIDIARIES QUARTERLY REPORT

For the 3rd Quarter Ended September 30, 2019

(SEC Form 17-Q)

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SEC Registration Number

1 0 7 4 3 2

Company Name

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

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

1 7 - Q

COMPANY INFORMATION

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

[email protected]

(049) 508-1111 0917-869-5688

No. of Stockholders Annual Meeting

Month/Day Fiscal Year Month/Day

862 06/21 09/30

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, Laguna

Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

CO VER SH EET

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SEC Number: 107432 File Number: ________

IONICS, INC. AND SUBSIDIARIES ________________________________________

(Company’s Full Name)

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

________________________________________ (Company’s Address)

(049) 508 - 1111 _________________________________________

(Telephone Number)

September 30, 2019 _________________________________________

(Fiscal Year Ending) (month & day)

Quarterly Unaudited Interim Condensed Consolidated Financial Statements (SEC Form 17-Q)

________________________________________________ Form Type

________________________________________________

Amendment Designation (if applicable)

_________________________________________ Period Ended Date

__________________________________________

Secondary License Type and File Number

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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 quarter ended September 30, 2019

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 Philippines 6. Industry classification code: (SEC Use Only) 7. Address of principal office Circuit Street, Light Industry and Science Park of

the Philippines, Bo. Diezmo, Cabuyao City, Laguna Postal code 4025 8. Issuer's telephone number, including area code (049) 508-1111 and Fax Number (049) 508-111 loc. 309 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 Common P=1.00 par value, issued 857,974,992 shares and

outstanding, 837,130,992 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

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 [ ]

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PART I – FINANCIAL INFORMATION

ITEM 1. Unaudited Interim Condensed Consolidated Financial Statements

The unaudited interim condensed consolidated financial statements including notes thereto are filed as part of this report (pages 11-38). These unaudited interim condensed consolidated financial statements include the accounts of the Parent Company and its wholly-owned subsidiaries, Ionics Properties, Inc. (IPI), Synertronix, Inc. (SI), Ionics Circuits Limited (ICL), Iomni Precision, Inc. (Iomni), Ionics Products Solutions, Inc. (IPSI) and the 97%-owned Ionics EMS, Inc. (EMS) and a Subsidiary (EMS-USA). Material intercompany balances have been eliminated in the consolidation.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Below are the Consolidated Key Financial Ratios for the nine months period ended September 30, 2019 and for the year ended December 31, 2018:

September 30,

2019 December 31,

2018 Revenue Growth 5.00% 4.01% Gross Profit Margin 13.81% 14.76% Net Income Margin 6.87% 7.41% Return on Equity 5.78% 8.29% Current Ratio 2.63:1 2.70:1 Quick Asset Ratio 1.66:l 1.72:1 Leverage Ratio (0.05:1) (0.01:1) Debt-to-Equity Ratio 0.42:1 0.40:1 Asset-to-Equity Ratio 1.42:1 1.40:1 Interest Rate Coverage Ratio 15.95 15.65:1

1. Revenue Growth

Revenue growth is computed from current revenue less revenue of the prior period divided by revenue of the prior period. The result is expressed in percentage.

2. Gross Profit Margin

Gross profit margin reflects the management’s policies related to pricing and production efficiency. This is computed by dividing gross profit by the total revenue for the period. The result is expressed in percentage.

3. Net Income Margin

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

4. Return on Equity

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

5. Current Ratio

Current ratio is the ratio of the Group’s current resources and its current obligation. This is computed by dividing current assets by current liabilities.

6. Quick Asset Ratio Quick asset ratio is the ratio of the Group’s current assets to its current obligations. This is computed by dividing sum of cash and cash equivalents, marketable securities and receivables by current liabilities.

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7. Leverage Ratio Leverage ratio determines the Group’s cost mix and its effects on the operating income. This is computed by dividing net debt by the sum of total equity and net debt.

8. Debt-to-Equity Ratio

The debt-to-equity ratio is used to measure the Group’s financial standing and ability to repay its obligations. This is computed by dividing total liabilities by equity.

9. Asset-to-Equity Ratio The asset-to-equity ratio shows the relationship of the total assets of the Group to the portion owned by shareholders. This indicates the Group’s leverage (debt) used to finance the Group. This is computed by dividing total assets by equity.

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

As of the 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; except for Ionics Ems, Inc. a.) The Board approval of US$10.00 million capital expenditures for machinery intended for new turnkey customers and expansion of an existing consignment customers. b.) The said capital expenditures will be funded by long term finance lease facilities from foreign finance Leasing Companies.

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 analyses of any material item, were disclosed in page number 7 to 9 of this report.

CONSOLIDATED FINANCIAL POSITION As of September 30, 2019, the consolidated assets of the Group amounted to US$77.38 million which is US$5.89 million higher than the US$71.49 million as of December 31, 2018. The increase in the Group’s total assets was due to the net increase in cash and cash equivalents, contract assets, prepayments and other current assets and right-of-use assets.

Current ratio slightly decreased from 2.70:1 as of December 31, 2018 to 2.63:1 as of September 30, 2019 due to increase in accounts payable and other liabilities, contract liabilities and bank loans and lease liabilities. While the Group’s debt-to-equity ratio slightly increased from 0.40:1 as of December 31, 2018 to 0.42:1 as of September 30, 2019.

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Below is the summary of Statements of Financial Position accounts with 5% or more increase (decrease):

Reasons for Increase (Decrease) As of September 30, 2019 (09.30.19 vs 12.31.18) Cash and cash equivalents increased due to cash flows generated by operations, net of machine acquisition and payment of finance lease and bank loans. Receivables decreased mainly due to collections from customers. Contract assets increased due to higher work in process and finished goods inventory recognized as sales under Philippine Financial Reporting Standards (PFRS) 15. Inventory increased due to additional demand for existing customers and inventory build-up for new turnkey customers. The increase in prepayments and other current assets was due to increase in advance payments to suppliers for material ordering and renewal of IT maintenance agreement amortized over the contracted period. Investment in associates decreased due to the recognition of equity loss on the fair value changes of the associate’s investee. Property, plant and equipment decrease primarily due reclassification of finance lease assets to Right-of-use assets upon adoption of PFRS 16. Right-of-use assets increased mainly due to the adoption of PFRS 16, Leases, recognized from lease contracts. Increase from deferred tax assets pertain to the recognized deferred tax on the unrealized gain on changes in fair value of financial assets at FVOCI. Other noncurrent assets increased due to additional advances to contractors. Accounts payable and other liabilities increased mainly due to the purchase of raw materials. The increase in contract liabilities was due to additional advance payments made by the customers for material ordering. The decrease in income tax payable was due to payments of income tax during the period. Net pension liabilities increased due to foreign currency exchange revaluation. As of December 31, 2018 (12.31.18 vs 12.31.17) Cash and cash equivalents increased due to cash flows generated from operations. Receivables decreased due to significant collections from customer. Contract assets increased as a result of the over

Percentage increase (decrease) September 30, 2019 vs. December 31, 2018 vs December 31, 2018 December 31, 2017 ASSETS Cash and cash equivalents 28 65 Receivables (7) (26) Contract assets 103 100 Inventories 6 14 Prepayments and other current assets 60 (12) Financial assets at fair value through other

comprehensive income (FVOCI)

N/A 46

Investments in associates (13) − Property, plant and equipment (24) (16) Right-of-use assets 100 − Deferred tax assets 6 57 Other noncurrent assets 47 6 LIABILITIES Accounts payable and other liabilities 25 N/A Contract liabilities 23 (7) Bank loans and lease liabilities N/A (23) Income tax payable (11) (37) Net pension liabilities 5 (19) Deferred tax liabilities N/A 100 Other noncurrent liabilities (20) (36)

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time revenue recognition primarily coming from the relatively higher volume of either in progress or completed units but not yet delivered and billed as of reporting period. The decrease in prepayments and other current assets was attributable to the decrease in advance payment to suppliers for material ordering. Financial assets at FVOCI (Available-for-sale investments in 2017) increased due to additional investment to an investee company. Property and equipment decreased due to depreciation for the year. Other noncurrent assets increased due to additional advances to contractors. Deferred tax assets increased due to recognition of deferred tax assets on MCIT of the Parent Company. The decrease in contract liabilities was due to application of advance payments against receivable. Bank loans and lease liabilities 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. Deferred tax liabilities increased due to the recognition of provision for deferred tax on the Group’s fair value changes on financial assets at FVOCI. The decrease in other noncurrent liabilities is due to reclassification of unearned income and security deposits to current considering the terms of lease contracts. CONSOLIDATED RESULTS OF OPERATIONS

The summarized revenues and net income (losses) of the Group for the nine months ended September 30, 2019 and 2018 are presented as follows (amounts in US Dollars):

September 30, 2019 (9 months)


REVENUE

Operating Expense

NET INCOME (LOSS)*

REVENUE

Operating Expense

NET INCOME (LOSS)* COMPANY Sales

Rent income

and Other income Total Sales

Rental Income and

Other Income Total

Parent − 442,593 442,593 377,011 (47,644) − 441,087 441,087 378,886 (41,144) EMS and a Subsidiary 42,605,610 33,929 42,639,539 2,035,109 2,201,565 39,592,212 244,671 39,836,883 2,148,456 1,880,259 IPI − 1,483,349 1,483,349 220,077 952,612 − 1,891,883 1,891,883 76,362 1,448,492 ICL − − − 4,478 2,785 − 11,493 11,493 27,656 (16,188) Iomni 1,808,503 127,520 1,936,023 154,846 (15,714) 2,138,904 120,671 2,259,575 138,676 28,766 Synertronix − 3 3 10 (7) − 3 3 359 (356) Ionics Products

Solutions, Inc. 9,609 77 9,683 11,532 (11,000) − 76 76 530 (7,372) TOTAL 44,423,723 2,087,471 46,511,193 2,803,063 3,082,597 41,731,116 2,709,884 44,443,077 2,770,925 2,841,935 Eliminations (180,363) (481,775) (662,638) (103,750) (15,766) (153,282) (465,179) (618,461) (127,808) 41,812 Consolidated 44,243,360 1,605,696 45,849,055 2,699,313 3,066,831 41,577,834 2,244,705 43,824,616 2,643,117 3,312,568

*Net income (loss) attributable to equity holders of the Parent Company.

The Group’s revenue increased by US$2.18 million or by 5% from US$43.56 million for the nine months in 2018 to US$45.74 million in the same period of 2019 due to higher demand by customers. However, rental income decreased by US$0.45 million from US$1.90 million for the nine months in 2018 to US$1.50 million in 2019 due to termination of two lease agreements. With the increase in revenue, gross profit increased to US$6.37 million in 2019 from US$6.24 million in 2018. Operating expenses slightly increased by US$0.06 million from US$2.65 million in 2018 to US$2.71 million in 2019.

From a net other income of US$0.25 million for the nine months in 2018, the Group posted net other charges of US$0.06 million in 2019 coming from changes in exchange rates due to revaluation of foreign currency-denominated monetary assets and liabilities.

The Group posted an income before income tax of US$3.42 million and US$3.61 million for the nine months ended September 30, 2019 and 2018, respectively.

With the foregoing, the Group reported a decrease of 5% in the consolidated net income attributable to equity holders of the Parent Company from US$3.60 million to US$3.42 million for the nine months ended September 30, 2018 and 2019, respectively.

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INDIVIDUAL RESULT OF OPERATIONS Ionics, Inc. The Parent Company reported a net loss of US$0.04 million for the nine months ended September 30, 2019 and 2018, respectively. There was no dividend income received during the period.

The individual performances of the subsidiaries for the nine months ended September 30, 2019 and 2018 are as follows: Ionics EMS, Inc. and a Subsidiary The Group’s revenue increased by US$2.99 million or 8% from US$39.63 million for the nine months ended September 30, 2018 to US$42.62 million in the same period of 2019 due to higher demand by customers. With the increase in sales, gross profit increased by 12% or US$0.51 million from US$4.27 million for the nine months ended September 30, 2018 to US$4.78 million in the same period of 2019. Operating expenses decrease from US$2.15 million in 2018 to US$2.03 million in 2019 due to nil impairment of accounts receivable in 2019. Interest expense increased due to recognition of interest expense on lease liabilities in 2019 amounting to US$136k due to adoption of PFRS16. Due to strengthening of Philippine peso vs US dollar, foreign exchange gain decreased by US$0.19 million in 2019 resulting to net other expenses of US$15k in 2019 from net other income of US$177k in 2018. With the foregoing, the Group reported a 19% increase in net income from US$1.86 million to US$2.20 million for the nine months ended September 30, 2018 and 2019, respectively. Ionics Properties, Inc. (IPI) IPI contributed rent income of US$1.44 million and US$1.88 million in nine months ended September 30, 2019 and 2018, respectively, the decrease was due to cancellation of two lease agreements in 2019. As a result net income amounted to US$0.95 million and US$1.45 million for the nine months ended September 30, 2019 and 2018, respectively. Ionics Circuits, Limited (ICL) ICL reported a net loss amounting to US$0.02 million and net income amounting to US$0.01 million for the nine months ended September 30, 2019 and 2018, respectively. Iomni Precision, Inc. (Iomni) Iomni’s revenue in the first nine months of 2019 decreased to US$1.94 million from US$2.28 million in 2018, due to lower customers demand.,Iomni reported a gross income of US$0.19 million in 2019 as compared to US$0.18 million in 2018. Operating expenses amounted to US$0.15 million and US$0.14 million in September 30, 2019 and 2018, respectively. Interest expense increased due to recognition of interest expense on lease liability as a result of adoption of PFRS16. With the foregoing, the Company’s performance resulted to a net loss of US$0.02 million and net income of US$0.03 million for the nine months ended September 30, 2019 and 2018, respectively. Synertronix, Inc. (SI) SI report net income or loss amounted to nil for the nine months ended September 30, 2019 and 2018, respectively. Ionics Products Solutions, Inc. (IPSI) IPSI reported a net income amounting to US$0.01 million and net loss amounting to US$0.001 for the nine months ended September 30, 2019 and 2018, respectively.

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ITEM 3. Additional Requirements Financial Soundness Indicator Below are the financial ratios that are relevant to the Group for two comparative periods:

a. Liquidity Ratio

September 30,

2019 December 30,

2018 Current ratio

Current ratio 2.63:1 2.70:1 Quick asset ratio 1.66:1 1.72:1 Debt-to-equity ratio 0.42:1 0.50:1 Asset-to-equity ratio 1.42:1 1.50:1

b. Profitability Ratio

September 30,

2019 September 30,

2018 Interest rate coverage ratio 15.95:1 15.84:1 Profitability ratio Gross profit margin 13.81% 14.33% Operating margin 7.91% 8.27% Net income margin 6.87% 7.50% Revenue growth 5.00% 14.81%

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PART II - OTHER INFORMATION As of the period ended September 30, 2019, the Group: a) has not experienced any suspension of its operations; b) has no contract of merger, consolidation or joint venture, contract of management,

licensing, marketing, distributorship or similar agreement was signed; c) has no offering of right, granting of stock options and corresponding plans; and, d) has not done any transfer of assets during the quarter.

SIGNATURE

Pursuant to the requirements of the Securities Regulation Code, the issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ISSUER : IONICS, INC.

__ 11.14.2019____ RONAN R. ANDRADE Date VP - Finance

__11.14.2019____ LAWRENCE C. QUA Date

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Thousands)

Unaudited September 30,

2019

Audited December 31,

2018

ASSETS

Current Assets Cash and cash equivalents (Notes 3, 4, 5 and 22) US$21,031 US$16,483 Receivables (Notes 3, 6 and 22) 10,793 11,642 Contract assets (Notes 3 and 7) 2,638 1,302 Inventories (Note 8) 14,512 13,742 Prepayments and other current assets 1,569 983

Total Current Assets 50,543 44,152

Noncurrent Assets Financial assets at fair value through other comprehensive income

(FVOCI; Notes 9 and 22) 3,444 3,330 Investments in associates (Note 10) 638 730 Property, plant and equipment (Note 11) 13,617 17,809 Investment properties (Note 12) 4,854 5,017 Right-of-use assets (Notes 2 and 14) 3,630 − Deferred tax assets 35 33 Other noncurrent assets (Note 3) 618 420 Total Noncurrent Assets 26,836 27,339 US$77,379 US$71,491

LIABILITIES AND EQUITY

Current Liabilities Accounts payable and other liabilities (Notes 2, 3, 4, 13 and 22) US$12,105 US$9,715 Contract liabilities (Note 7) 1,503 1,219 Current portion of bank loans and lease liabilities

(Notes 2, 3, 4, 14 and 22) 5,496 5,299 Income tax payable 107 120 Total Current Liabilities 19,211 16,353

Noncurrent Liabilities Net pension liabilities 2,271 2,169 Bank loans and lease liabilities - net of current portion (Notes 2,

3, 4, 14 and 22) 719 778 Deferred tax liabilities 257 254 Other noncurrent liabilities (Notes 3, 4, 13 and 22) 588 737 Total Noncurrent Liabilities 3,835 3,938 Total Liabilities 23,046 20,291

(Forward)

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Unaudited September 30,

2019

Audited December 31,

2018

Equity (Note 4) Capital stock US$17,633 US$17,633 Additional paid-in capital 9,072 9,072 Retained earnings 29,124 26,097 Unrealized losses on financial assets at FVOCI (Note 9) 71 (40) Other reserves (Note 10) (537) (455) Adjustment to noncontrolling interests (943) (943) Exchange differences (Notes 10 and 12) 900 895 Treasury shares (1,365) (1,365) 53,955 50,894 Noncontrolling interests 378 306 Total Equity 54,333 51,200 US$77,379 US$71,491 See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands, Except Earnings per Share)

For the Period Ended September 30 2019 2018

July toSeptember(3 months)

January toSeptember (9 months)

July to September (3 months)

January to September (9 months)

REVENUE (Note 21) Revenue from contracts with customers US$15,603 US$44,243 US$14,114 US$41,578 Rental income 407 1,495 650 1,950

16,010 45,738 14,764 43,528

COST OF SALES AND RENTAL SERVICES Cost of sales (Notes 2 and 15) 13,736 39,104 12,360 36,887 Cost of rental services (Notes 2 and 16) 114 319 122 373

13,850 39,423 12,482 37,260

GROSS PROFIT 2,160 6,315 2,282 6,268

OPERATING EXPENSES (Notes 2 and 17) 895 2,699 930 2,619

OTHER INCOME (EXPENSES) Share in net earnings (losses) of associate (Note 10) (6) (15) 2 4 Finance costs (Notes 2 and 18) (68) (232) (85) (243)Others - net (Note 19) 87 99 60 245

13 (148) (23) 6

INCOME BEFORE INCOME TAX 1,278 3,468 1,329 3,655

PROVISION FOR INCOME TAX 114 327 133 342

NET INCOME 1,164 3,141 1,196 3,313

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

Impairment loss on available-for-sale investments reclassified to profit or loss (Note 8) 16 (7)

Net unrealized gains (losses) on available-for-sale investments (Note 8)

- 44

Exchange differences − 5 − (27) Items that may not be reclassified to profit or loss:

Share in other comprehensive loss of associate (Note 10) − (82) − −

Fair value gains (losses) on financial assets at FVOCI (Note 9) 79 111

− −

79 34 16 17

TOTAL COMPREHENSIVE INCOME US$1,243 US$3,175 US$1,212 US$3,330

NET INCOME ATTRIBUTABLE TO: Equity holders of the Parent Company US$1,135 US$3,069 US$1,171 US$3,251 Noncontrolling interests 29 72 25 62

US$1,164 US$3,141 US$1,196 US$3,313

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Equity holders of the Parent Company US$1,214 US$3,103 US$1,187 US$3,268 Noncontrolling interests 29 72 25 62

US$1,243 3,175 US$1,212 US$3,330

BASIC/DILUTED EARNINGS PER SHARE (Note 20)

For net income for the year attributable to ordinary equity holders of the Parent Company US$0.0014 US$0.0037

US$0.0009 US$0.0039

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS CHANGES IN EQUITY (Amounts in Thousands)

Attributable to the Equity Holders of the Parent Company

Capital

Stock

Additional Paid-in Capital

Retained Earnings

Unrealized Gains

(Losses) on Financial

Assets at FVOCI (Note 9)

Other Reserves

Adjustment to Non-

Controlling Interest

Exchange Difference

Treasury Shares Totals

Non- Controlling

Interest Total

For the period ended September 30, 2019 Balances as of January 1, 2019, as previously

presented US$17,633 US$9,072 US$26,097 (US$40) (US$455) (US$943) US$895 (US$1,365) US$50,894 US$306 US$51,200 Effect of adoption of new standard (Note 2) − − (42) − − − − − (42) − (42)

Balances as of January 1, 2019, as restated 17,633 9,072 26,055 (40) (455) (943) 895 (1,365) 50,812 306 51,158 Net income − − 3,069 − − − − − 3,069 72 3,141 Other comprehensive income (loss) − − − 111 (82) − 5 − 34 − 34 Total comprehensive income (loss) − − 3,069 111 (82) − `5 − 3,103 72 3,175 Balances as of September 30, 2019 US$17,633 US$9,072 US$29,124 US$71 (US$537) (US$943) US$900 (US$1,365) US$53,955 US$378 US$54,333 For the period ended September 30, 2018 Balances as of January 1, 2018, as previously

presented US$17,633 US$9,072 US$21,556 (US$361) (US$838) (US$943) US$904 (US$1,365) US$45,658 US$211 US$45,869 Effect of adoption of new standards − − 375 (223) − − − − 152 4 156

Balance as of January 1, 2018, as restated US$17,633 US$9,072 US$21,931 (US$584) (US$838) (US$943) US$904 (US$1,365) US$45,810 US$215 US$46,025 Net income − − 3,251 − − − − − 3,251 62 3,313 Other comprehensive loss − − − 44 − − (27) − 17 − 17 Total comprehensive income (loss) − − 3,251 44 − − (27) − 3,268 62 3,330 Balances as of September 30, 2018 US$17,633 US$9,072 US$25,182 (US$540) (US$838) (US$943) US$877 (US$1,365) US$49,078 US$277 US$49,355


IONICS, INC. AND SUBSIDIARIES

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) For the Period Ended June 30

2019 2018

July to September

(3 months)

January to September

(9months)

July to September (3 months)

January to September (9 months)

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax US$1,278 US$3,468 US$1,345 US$3,607

Adjustments for:

Depreciation and amortization (Notes 11, 12, 14, 15, 16, and 17) 1,101 3,608 1,166 3,536

Share in net earnings of associates (Note 9) 6 15 (2) (4)

Impairment loss on available-for-sale investments (Note 8) − 17 24

Finance costs (Note 18) 68 232 85 243

Movement in net pension liabilities (15) 102 6 (174)

Interest income (Note 19) (39) (99) (28) (50)

Unrealized foreign exchange loss (gain) − 20 (35)

Operating income before working capital changes 2,399 7,326 2,607 7,145

Decrease (increase) in:

Receivables 890 852 592 2,849

Contract assets (520) (1,336) (631) (3,850)

Inventories (1,613) (770) 257 (373)

Prepayments and other current assets (309) (586) (1) (15)

Other noncurrent assets (81) (198)

Increase (decrease) in: (674) 1,424

Accounts payable and other liabilities 2,112 2,437 117 (211)

Contract liabilities (504) 284 − (342)

Other noncurrent liabilities (153) (149) 2,607 7,145Net cash generated from operations 2,221 7,860 2,267 6,627

Interest received 35 96 17 38

Income taxes paid (113) (342) (98) (404)

Net cash provided by operating activities 2,143 7,614 2,101 5,998 CASH FLOWS FROM INVESTING ACTIVITY

Acquisitions of:

Property, plant and equipment (Note 11) 166 (1,510) (173) (807)

Investment properties (Note 12) - (68) (59) (93)

Available-for-sale investment − − (250)

Proceeds from sales of property and equipment − 2 2

Net cash used in investing activities 166 (1,578) (230) (1,148)CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from commercial loans - − US$4,000 US$7,954 Availments of (Note 3):

Commercial loans 2,000 6,000 − − Bank loans 26 79 − −

Payments of (Note 3): Commercial loans (2,000) (6,000) (3,954) (7,954)Lease liabilities (352) (1,281) (608) (1,526)Bank loans (17) (50) (19) (48)Interests (69) (236) − −

Net cash used in financing activities (412) (1,488) (581) (1,574)NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS 1,897 4,548 1,296 3,269

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,134 16,483 11,934 9,961

CASH AND CASH EQUIVALENTS AT END OF PERIOD (Note 5) US$21,031 US$21,031 US$13,230 US$13,230


IONICS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED F INANCIAL STATEMENTS (Amounts in Thousands, Except Par Value per Share and Earnings per Share) 1. Corporate Information

Ionics, Inc. (the Parent Company) is a domestic corporation incorporated under the laws of the Philippines and registered with the Securities and Exchange Commission (SEC) in September 1982 with a corporate life of 50 years. The Parent Company started commercial operations in July 1987 and engaged in electronic manufacturing services business. In September 1999, the Parent Company transferred 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 a manufacturing company to a holding company. The Parent Company is listed in the Philippine Stock Exchange. The registered office address of the Group is Circuit Street, Light Industry and Science Park of the Philippines, Bo. Diezmo, Cabuyao City, Laguna. The unaudited interim condensed consolidated financial statements were approved and authorized for issue by the Board of Directors (BOD) on November 11, 2019.

2. Summary of Significant Accounting Policies

Basis of Preparation The unaudited interim condensed consolidated financial statements of the Group have been prepared in accordance with Philippine Accounting Standards (PAS) 34, Interim Financial Reporting.

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at December 31, 2018.

The unaudited interim condensed consolidated financial statements are presented in United States (US) Dollar, which is also the Group’s functional currency. All amounts are rounded to the nearest thousand US$ (US$000), unless otherwise indicated. The following are the wholly and majority-owned subsidiaries of the Parent Company as of September 30, 2019 and December 31, 2018:

Subsidiaries Country

of Incorporation Principal Activity Effective Percentage of Ownership

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

USA United States of America Manufacturing 97

18

Changes in Accounting Policies and Disclosures The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those of the Group’s annual consolidated financial statements as of December 31, 2018, except for the adoption of new standards and interpretations effective as of January 1, 2019. As required by PAS 34, the nature and effect of these changes are disclosed below. Several other new standards and amendments apply for the first time in 2019. The nature and impact of each new standard and amendment are described below: • 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 the contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to PFRS 9 clarify that a financial asset passes the SPPI criterion regardless of the event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract. The amendments should be applied retrospectively and are effective from January 1, 2019, with earlier application permitted. The amendments do not materially impact the unaudited interim condensed consolidated financial statements.

• PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single-on balance sheet model similar to the accounting for finance leases under PAS 17. The standard includes two recognition exemptions for lessees - leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an 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 lease liability 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 an index or rate used to determine those payments). The lessee will generally recognize the amount of 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 under PAS 17. Lessors will continue to classify all leases using the same classification principle as in PAS 17 and distinguish between two types of leases: operating and finance leases. PFRS 16, which is effective for annual period beginning on or after January 1, 2019, requires lessees and lessors to make more extensive disclosures than under PAS 17.

19

The Group adopted PFRS 16 using the modified retrospective method of adoption with the date of initial application of January 1, 2019. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed at this date. The Group elected to apply the standard to outstanding contracts as at January 1, 2019. The effect of adopting PFRS 16 as at January 1, 2019 follows: Increase (Decrease)

Asset Right-of-use assets US$6,892 Property plant and equipment (4,195) Liabilities Accounts payable and other liabilities 43 Bank loans and lease liabilities (2,782) Net impact on equity (US$42)

Set out below are the amounts by which each financial statement line item is affected as at and for the period ended September 30, 2019 as a result of the adoption of PFRS 16.

Amounts prepared

under Increase (Decrease) PFRS 16 PAS 17

Asset Right-of-use assets US$3,630 US$− US$2,538

Liabilities Bank loans and lease liabilities 6,215 4,664 4,585 Costs and expenses Cost of sales

Depreciation 3,554 2,952 602 Occupancy cost and utilities 2,040 2,642 (602)

Cost of rental services Depreciation 84 - 84 Other expenses - 84 (84)

Operating expenses Depreciation 94 68 26 Occupancy cost and utilities 179 205 (26)

Finance costs 567 294 272 *Excludes lease payments.

• Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside the scope of PAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments.

20

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 together with one or more uncertain tax treatments. The approach that better predicts the resolution of uncertainty should be followed.

This interpretation does not have significant impact to the Group.

• 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 joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.

A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in PFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2019 and to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early application permitted. These amendments are currently not applicable to the Group but may apply to future transactions.

• Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments Classified as Equity The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application is permitted. These amendments are not relevant to the Group because dividends declared by the Group do not give rise to tax obligations under the current tax laws.

21

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

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to 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 of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with earlier application permitted. This does not materially impact the Group.

3. Financial Risk Management Objectives and Policies

Risk management structure All policy directions, business strategies and management initiatives emanate from the BOD. The BOD convenes in quarterly 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. Under the guidelines, all new investments, any increase in investment in business and subsidiary and any divestments 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 foreign currency risk exposures.

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

The Group’s policies on managing the risks arising from the Group’s financial instruments follow:

Credit Risk Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform its obligations during the life of the transaction. This includes the risk of non-payment by banks and customers, failed settlement of transactions and default on contracts. Management has a credit policy in 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 counterparties with acceptable credit standing and that are duly approved by the BOD. The Group does not hold any collateral from its customers thus, the carrying amounts of cash and cash equivalents, receivables, financial assets at FVOCI and refundable deposits approximate the Group’s maximum exposure to credit risk. No other financial assets carry a significant exposure to credit risk. Trade receivables, other receivables from customers and contract assets The Group’s trade receivables, other receivables from customers and contract assets are monitored on a regular basis. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due of the customer with loss pattern. The calculation reflects the probability-weighted outcome and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

22

The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. Generally, trade receivables, other receivables from customers and contract asset are written-off when deemed unrecoverable and are not subject to enforcement activity. The maximum credit exposure to credit risk at the reporting date is the carrying value of each class of financial assets. Other financial assets Credit risk from balances with banks and financial institutions is managed in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty limits are reviewed and approved by the BOD, and are updated when necessary. Cash are placed in various banks. Amounts are held by banks that have good reputation and low probability of insolvency. These are considered to be low credit risk investments. Risk concentration of the maximum exposure to credit risk An industry sector analysis of the Group’s maximum exposure to credit risk is as follows:

September 30, December 31, 2019 2018

Banks and financial intermediaries US$21,023 US$16,473 Telecommunications (Telecom) 6,445 5,861 Consumer electronics 3,651 2,886 Computer peripherals 2,986 3,008 Automotive 165 364 Real estate 135 176 Others* 1,082 930 Total US$35,487 US$29,698 *Excludes nonfinancial assets amounting to US$0.084 million and US$0.087 million as of September 30, 2019 and December 31, 2018, respectively.

The Group has concentration of credit risk due to sales to significant customers. The financial assets of the Group were more concentrated to banks and financial intermediaries, telecom and consumer electronics industries which accounted for 85.82% of the total financial assets as of September 30, 2019. While as of December 31, 2018, the Group’s assets are more concentrated to banks and financial intermediaries, telecom and computer peripherals industries which accounted for 85.33% of the total financial assets. The Group’s financial instruments are broadly diversified along industry, product and geographic lines, and transactions are entered into with a range of counterparties, thereby mitigating any significant concentration of credit risk. The tables below summarize the credit quality of the Group’s financial assets (gross of allowance for impairment losses):

23

September 30, 2019

Neither Past Due nor Individually Impaired Past Due

but not Individually Minimal Risk Average Risk High Risk Impaired Impaired Total Cash and cash equivalents* US$21,023 US$− US$− US$− US$− US$21,023 Receivables Trade receivables 7,092 − −− 2,557 728 10,397 Other receivables from customers 501 − −− 100 216 817 Rent receivables 135 − −− − − 135 SSS claims receivables 37 − −− − − 37 Advances to managers and employees** 29 − − − − 29 Others 102 − − 142 5 249 Contract assets 2,638 − − − − 2,638 Other noncurrent assets

Refundable deposits 423 − − − − 423 US$31,980 US$− US$− US$2,819 US$949 US$35,748 *Excludes cash on hand amounting to US$.008 million. **Excludes nonfinancial assets amounting to US$0.078 million.

December 31, 2018

Neither Past Due nor Individually Impaired Past Due

but not Individually Minimal Risk Average Risk High Risk Impaired Impaired TotalCash and cash equivalents* US$16,473 US$− US$− US$− US$− US$16,473Receivables Trade receivables 6,981 − − 3,105 728 10,814 Other receivables from customers 872 − − 138 216 1,226 Rent receivables 176 − − − − 176 SSS 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 − − − − 368 US$26,333 US$− 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. The Group classifies credit quality risk as follows: Minimal risk - accounts with a high degree of certainty in collection, where counterparties have consistently displayed prompt settlement practices, and have little to no instance of defaults or discrepancies in payment.

Average risk - active accounts with minimal to regular instances of payment default, due to ordinary/common collection issues, but where the likelihood of collection is still moderate to high as the counterparties are generally responsive to credit actions initiated by the Group. High risk - accounts with a low probability of collection and can be considered impaired based on historical experience, where counterparties exhibit a recurring tendency to default despite constant reminder and communication, or even extended payment terms. The Group maintains cash and cash equivalents with various financial institutions that management believes to be of high credit quality. The Group’s policy is to invest with financial institution from which it has outstanding loans and loan facilities.

24

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

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

September 30, 2019

On demand Less than

3 months 3 to 12

months 1 to 5

years Total Financial assets Cash and cash equivalents US$15,531 US$5,500 US$− US$− US$21,031 Receivables1 − 2,638 − − 2,638 Contract assets 2,819 7,896 − − 10,715 Refundable deposit2 − − − − 423 18,350 16,034 423 − 34,807 Financial liabilities Accounts payable and other

liabilities3 2,192 7,650 − − 9,842 Bank loans and lease liabilities4 − 2,391 3,281 968 6,640 Security deposits5 − − − 316 316 2,192 10,041 3,2781 1,284 16,798 Liquidity gap US$16,158 US$5,993 (US$3,281) (US$861) US$18,009 1Excludes nonfinancial assets amounting to US$0.084 million. 2Included under noncurrent assets. 3Excludes nonfinancial liabilities amounting to US$0.353 million. 4Including future interest payable amounting to US$0.083 million. 5Included under accounts payable and other liabilities and other noncurrent liabilities.

December 31, 2018

On demand Less than 3 months

3 to 12 months

1 to 5 years

More than 5 years Total

Financial assets Cash and cash equivalents US$11,983 US$4,500 US$− US$− US$− US$16,483 Receivables1 3,365 8,188 − 2 − 11,555 Contract assets − 1,302 − − − 1,302 Refundable deposits2 − − − 368 − 368 15,348 13,990 − 370 − 29,708 Financial liabilities Accounts payable and other

liabilities3 2,601 6,552 − − − 9,153 Bank loans and lease liabilities4 − 2,416 2,960 776 2 6,154 Security deposits5 − − − 236 275 511 2,601 8,968 2,960 1,012 277 15,818 Liquidity 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 million. 2Included under noncurrent assets. 3Excludes nonfinancial liabilities amounting to US$0.338 million. 4Including future interest payable amounting to US$0.077 million. 5Included under accounts payable and other liabilities and other noncurrent liabilities.

25

In order to manage the liquidity gap, the Group has various sources of financing, either through support of related parties or availment of bank credit lines. The Group finances its cash requirements by obtaining advances from the Ultimate Parent Company and its affiliates.

The Group will apply for additional credit lines as the need arises. Market Risk Market risk is the risk of loss to future earnings, to fair value or future cash flows of a financial instrument as a result of changes in its price, caused by changes in interest rates, equity prices and foreign currency exchange rates and other market factors. Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is exposed to currency risk primarily through purchases that are denominated in a currency other than the functional currency of the Group. The currency giving rise to this risk is primarily the Philippine Peso (P=). 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 liabilities is 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 from forecasted transactions or recognized assets or liabilities denominated in a currency other than the functional currency of the Group. Philippine Peso

September 30, 2019 December 31, 2018 In US

Dollar In Philippine

Peso In US Dollar

In Philippine Peso

Cash US$1,603 P=83,402 US$4,591 P=241,385 Receivables 723 37,636 790 41,526 Financial assets at FVOCI – – 721 37,910 Refundable deposits – – 217 11,402 Deposits and other 412 21,455 AFS Investment 721 37,522 3,459 180,015 6,319 332,223 Less accounts payable and other liabilities 3,021 157,226 2,178 114,514 Net exposure arising from

recognized assets and liabilities US$438 22,789 US$4,141 P=217,709

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

Currency Source September 30,

2019 December 31,

2018 Philippine Peso Bankers Association of the Philippines (BAP)

closing rate US$0.019215 US$0.019019 Sensitivity analysis The following table indicates the approximate change in the Group’s income before income tax in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the reporting date:

26

Increase (decrease) from year-end

exchange rates 2019 2018 Changes in foreign currency exchange rates 1.02% (1.02%) 5.04% (5.04%) Effect on income (loss) before tax US$25 (US$25) US$209 (US$209)

Other than the potential impact on income (loss) before income tax, there is no significant effect on equity. The sensitivity analysis has been determined assuming that the change in foreign currency exchange rates has occurred at the reporting date and has been applied to each of the Group entities’ exposure to currency risk for financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant. The Group does not expect the impact of the volatility on other currencies to be material.

The stated changes represent management’s assessment of reasonably possible changes in foreign currency exchange rates over the period until the next annual reporting date. Results of the analysis as presented in the above table represent an aggregation of the effects on each of the entities’ income before tax measured in the respective functional currencies, translated into US Dollars at the exchange rate ruling at the reporting date for presentation purposes.

Changes in liabilities arising from financing activities: September 30, 2019

Lease

Liabilities Bank

Loans Commercial

Loan Accrued Interest

Payable Total Balances at January 1, 2019 US$1,877 US$200 US$4,000 US$15 US$6,092 Impact of adoption of PFRS 16

(Note 2) 3,265 −

−

− 3,265 Additions − 80 6,000 147 6,227 Payments (955) (44) (6,000) (151) (7,150) Balances at September 30, 2019 US$4,187 US$236 US$4,000 US$11 US$8,434

December 31, 2018

Lease

Liabilities Bank

Loans Commercial

Loan Accrued Interest

Payable Total Balances at January 1, 2018 US$3,733 US$197 US$4,000 US$31 US$7,961 Additions − 83 9,954 319 10,356 Payments (1,856) (80) (9,954) (335) (12,225) Balances at December 31, 2018 US$1,877 US$200 US$4,000 US$15 US$6,092

4. Capital Management

The Group’s primary objective in managing capital is to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group monitors capital using a leverage ratio, which is net debt divided by the sum of total equity and net debt. Net debt includes bank loans and lease liabilities and accounts payable and other liabilities less cash and cash equivalents. The Group’s policy is for its leverage ratio not to exceed 75%. The management continues to monitor and improve on areas of customers’ terms to adhere with the policy of leverage ratio.

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The leverage ratio as of September 30, 2019 and December 31, 2018:

September 30,

2019 December 31,

2018 Current liabilities Accounts payable and other liabilities* US$11,752 US$9,377 Current portion of bank loans and lease liabilities 5,496 5,299 17,248 14,676 Noncurrent liabilities Security deposits** 224 287 Bank loans and lease liabilities

- net of current portion 719 778 943 1,065 Total debt 18,191 15,741 Less cash and cash equivalents 21,031 16,483 Net debt (2,840) (742) Equity 54,331 51,200 Total equity and net debt US$51,493 US$50,458 Leverage ratio -5.52% -1.47% *Excluding nonfinancial liabilities amounting to US$0.353 million and US$0.338 million as of September 30, 2019 and December 31,

2018, respectively. ** Included under other noncurrent liabilities. 5. Cash and Cash Equivalents

This account consists of:

September 30,

2019 December 31,

2018 Cash on hand US$8 US$10 Cash in banks 15,523 11,973 Cash equivalents 5,500 4,500 US$21,031 US$16,483

6. Receivables


September 30,

2019 December 31,

2018 Trade receivables US$10,397 US$10,814 Other receivables from customers 817 1,226 Rent receivables 135 176 Advances to managers and employees 107 112 SSS claims receivables 37 37 Others 249 226 11,742 12,591 Less allowance for impairment losses 949 949 US$10,793 US$11,642

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7. Contract Balances


September 30,

2019 December 31,

2018 Contract assets US$2,638 US$1,302 Contract liabilities 1,503 1,219

Contract assets are initially recognized for revenue earned from manufacturing of goods as receipt of consideration is conditional on successful completion of the services. When goods are shipped or goods 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 are received from customers depending on the credit terms. For the period ended September 30, 2019 and 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 the transaction price allocated to remaining performance obligations given the customer contracts have original expected duration of one (1) year or less.

8. Inventories


September 30,

2019 December 31,

2018 At cost: Raw materials 13,428 US$12,975 Spare parts and supplies 1,084 767 US$14,512 US$13,742

The related cost of raw materials inventories measured at NRV (with nil NRV) amounted to US$0.29 million as of September 30, 2019 and December 31, 2018.

9. Financial Assets at Fair Value through Other Comprehensive Income (FVOCI)


September 30,

2019 December 31,

2018 Quoted Beginning balance US$28 US$47 Fair value loss (gain) (5) (19)

Ending balance US$23 US$28

(Forward)

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September 30,

2019 December 31,

2018 Unquoted Beginning balance US$3,302 US$2,240 Additional investments − 250 Fair value gain 119 812

Ending balance 3,421 3,302 US$3,444 US$3,330

The Group’s investments at FVOCI include investment listed in US NASDAQ stock market, investments in golf/club shares and other non-listed companies which are not held for trading and which the Group has irrevocably designated at FVOCI. The movements in net unrealized losses on financial assets at FVOCI and AFS investments follows:

September 30,

2019 December 31,

2018 Beginning balance (US$40) (US$361) Impact of adoption of PFRS 9 − (223) Beginning balance, as restated (US$40) (584) Fair value gain - net of tax 111 544 Ending balance US$71 (US$40)

10. Investments in Associates

The composition of and movements in this account follow:

September 30,

2019 December 31,

2018 Acquisition cost Balances at beginning and end of year US$580 US$580 Accumulated equity in net earnings Balances at beginning of year 252 244 Share in net earnings (losses) (15) 8 Share in other comprehensive loss (82) − Balances at end of year 155 252 Equity in cumulative translation adjustment (97) (102) Net book values US$638 US$730

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11. Property, Plant and Equipment The composition of and movements in this account follow:

September 30, 2019

Land

Machineries and

Equipment

Building,Building

Improvementsand LeaseholdImprovements

Tools and Other

Equipment

Plant Water and Aircondi-

tioning Systems

Furniture, Fixtures

and Equipment

Transpor- tation

Equipment Construction- in-Progress Total

Cost Balances at January 1 US$1,925 US$34,044 US$7,713 US$7,209 US$1,455 US$265 US$263 US$57 US$52,931 Additions − 1,255 19 266 110 − − − 1,650 Disposal/Transfers (3,852) (73) (1) − (3,925) Impairment (Note 17) − − − − − − (57) (57) Balances at June 30 1,925 31,447 7,732 7,402 1,566 265 263 − 50,598 Accumulated Depreciation and

Amortization

Balances at January 1 − 21,223 6,983 5,169 1,328 255 164 − 35,122 Depreciation and amortization

(Notes 15, 16 and 17) − 2,254 180 560 73 3 32

− 3,102

Disposal/Transfers (1,206) (36) −

1,243 Balances at June 30 − 22,271 7,163 5,693 1,401 258 196 − 36,981 Net Book Values US$1,925 US$9,176 US$569 US$1,709 US$164 US$7 US$67 − US$13,617

December 31, 2018

Land

Machineries and

Equipment

Building,Building

Improvementsand LeaseholdImprovements

Tools and Other

Equipment

Plant Water and Aircondi-

tioning Systems

Furniture, Fixtures and

Equipment

Transpor- tation

Equipment

Construction -in-Progress Total

Cost Balances at January 1 US$1,925 US$33,772 US$7,693 US$7,038 US$1,429 US$263 US$268 US$57 US$52,445 Additions − 716 20 247 26 3 − − 1,012 Disposals − (444) − (76) − (1) (5) − (526) Balances at December 31 1,925 34,044 7,713 7,209 1,455 265 263 57 52,931 Accumulated Depreciation and

Amortization

Balances at January 1 − 18,558 6,709 4,423 1,224 251 116 − 31,281 Depreciation and amortization

(Notes 15, 16 and 17) − 3,109 274 822 104 5 53 − 4,367 Disposals − (444) − (76) − (1) (5) − (526) Balances at December 31 − 21,223 6,983 5,169 1,328 255 164 − 35,122 Net Book Values US$1,925 US$12,821 US$730 US$2,040 US$127 US$10 US$99 US$57 US$17,809

12. Investment Properties The composition of and movements in this account follow:

September 30, 2019

Land Building Building

Improvements Total Cost Balances at beginning US$2,390 US$5,295 US$4,021 US$11,706 Additions − − 68 68 Balances at end of year 2,390 5,295 4,089 11,774 Accumulated Depreciation and

Amortization Balances at beginning of year − 2,978 3,705 6,683 Depreciation and amortization

(Note 16) − 134 97 231 Balances at end of year − 3,112 3,802 6,914 Exchange Reserves (6) − − (6) Net Book Values US$2,384 US$2,183 US$287 US$4,854

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December 31, 2018

Land Building Building

Improvements Total Cost Balances at beginning of year US$2,390 US$5,295 US$3,905 US$11,590 Additions − − 116 116 Balance at end of year 2,390 5,295 4,021 11,706 Accumulated Depreciation and

Amortization Balances at beginning of year − 2,798 3,537 6,335 Depreciation and amortization

(Note 16) − 180 168 348 Balances at end of year − 2,978 3,705 6,683 Exchange Reserves (6) − − (6) Net Book Values US$2,384 US$2,317 US$316 US$5,017

13. Accounts Payable and Other Liabilities This account consists of:

September 30,

2019 December 31,

2018 Trade payables US$8,266 US$6,472 Accrued expenses 2,787 2,034 Unearned rent income 466 686 Security deposit 316 511 Non-trade payables 118 50 Others 747 699 12,693 10,452 Less noncurrent portion of unearned rent and security deposits* 588 737 US$12,105 US$9,715

*Included under other noncurrent liabilities. Accrued expenses consist of:

September 30,

2019 December 31,

2018 Accrued salaries, wages and other benefits US$1,252 US$723 Accrued utilities 409 317 Accrued sales commission 418 320 Accrued professional fees 181 135 Accrued handling charges 139 121 Accrued contracted labor 89 24 Accrued direct materials 18 26 Accrued interest 11 15 Accrued rent 2 86 Others 268 267 US$2,787 US$2,034

Other payables mainly include withholding taxes and statutory payables to government which are normally settled within a year.

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14. Bank Loans and Lease Liabilities


September 30,

2019 December 31,

2018 Finance lease liabilities Current US$- US$1,230 Noncurrent - 647 Lease contract liabilities Current 1,429 − Noncurrent 556 − Bank loans Current 67 69 Noncurrent 163 131 Commercial loans Current 4,000 4,000 US$6,215 US$6,077

Current US$5,496 US$5,299 Noncurrent 719 778 US$6,215 US$6,077

Lease contract liabilities (with corresponding set up of right-of-use assets) arise from the adoption of PFRS 16 as at January 1, 2019 in relation to the Group’s lease contracts where the Group acts as the lessee (see Note 2). The related right-of-use assets on the lease contracts amounted to US$3.60 million as of September 30, 2019. Depreciation expenses on right-of-use assets amounted to US$0.60 million, US$0.08 million and US$0.03 million which are reported under cost of sales, cost of rental services and operating expenses, respectively. Interest expense on lease contract liabilities amounted to US$0.27 million for the nine months ended September 30, 2019 (nil in 2018).

15. Cost of Sales


September 30, 2019

(9 months)

September 30, 2018

(9 months) Raw materials and supplies used US$24,794 US$22,690 Salaries, wages and benefits 8,094 7,620 Depreciation and amortization (Notes 11 and 14) 2,023 3,167 Occupancy cost and utilities 3,258 2,226 Handling and freight charges 347 301 Other expenses 588 843 Total manufacturing cost US$39,104 36,887

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16. Cost of Rental Services


September 30, 2019

(9 months)

September 30, 2018

(9 months) Depreciation (Notes 11, 12 and 14) US$217 US$273 Taxes and licenses 5 5 Other expenses 97 95 US$319 US$373

17. Operating Expenses


September 30, 2019

(9 months)

September 30, 2018

(9 months) General and administrative expenses US$1,795 US$1,829 Selling expenses 904 790

US$2,699 US$2,619

General and administrative expenses consist of the following:

September 30, 2019

(9 months)

September 30, 2018

(9 months)Salaries and benefits US$930 US$905 Professional fees 248 197 Depreciation (Notes 11 and 14) 115 77 Impairment losses on investment property 57 − Occupancy cost and utilities 107 82 Insurance 47 44 Dues and subscription − – Security services − – Taxes and licenses 24 7 Impairment loss of AFS investment (Note 8) − – Impairment losses on receivables − 275 Other expenses 267 242

US$1,795 US$1,829 Selling expenses consist of the following:

September 30, 2019

(9 months)

September 30, 2018

(9 months)Sales commission and agent’s professional fee US$543 US$467 Salaries and benefits 260 229 Occupancy cost and utilities (Note 21) Depreciation and amortization

(Notes 11 and 14) 17 19 Other expenses 84 75

US$904 US$790

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18. Finance Costs


September 30, 2019

(9 months)

September 30, 2018

(9 months)Interest on commercial loan and lease liabilities

(Note 14) US$191 US$215 Interest on bank loans 41 9 US$232 US$224

19. Others - Net


September 30, 2019

(9 months)

September 30, 2018

(6 months) Interest income US$99 US$226 Dividend income 27 0 Foreign currency exchange gains (losses) - net 5 50 Bank charges (44) (38) Miscellaneous 12 7 US$99 US$245

20. Earnings Per Share

The basis of income per share calculations attributable to the equity holders of the Parent Company follows:

September 30, 2019

(9 months)

September 30, 2018

(9 months) a. Net income attributable to equity holders of the Parent Company US$3,069 US$3,251 b. Weighted average number of issued common

shares 857,975 857,975 c. Less treasury shares (Note 17) 34,903 34,903 d. Weighted average number of outstanding

common shares 823,072 823,072 e. Basic earnings per share (a/b) US$0.0037 US$0.0039

There were no potential dilutive shares in 2019 and 2018.

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21. Segment Information The primary segment reporting format of the Group is by business segments as the Group’s

risks and rates of return are affected predominantly by differences in the goods produced. Secondary information is reported geographically. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

The revenues from major customers under the telecom industry amounted to US$4.64 million and US$4.41 million, in the nine months period ended September 30, 2019 and 2018, respectively. Total revenues from these customers exceed 10% of the total revenues of the Group.

The analysis of the Group’s segments by product line follows:


Computer

Peripherals Telecom Automotive Consumer

Electronics Real Estate Others

Adjustments and

Eliminations Total Sales (external customers) US$14,540 US$14,705 US$473 US$13,651 US$− US$1,054 (US$180) US$44,243 Rental income US$− US$97 US$− US$− US$1,438 US$442 (US$481) US$1,495 Income (loss) from operations US$1,376 US$1,142 (US$125) US$224 US$975 US$24 US$− US$3,616 Foreign exchange gain (loss)

- net (10) 7 1 9 − 4 − 2 Income tax (84) (110) (1) (48) (54) (29) − (327) Share in net earnings

(losses) of associates - net − − − − − 20 8 (11)

Interest - net (34) (88) (8) (87) 32 28 − (227) Non-controlling interests − − − − − − – – Miscellaneous - net (10) (10) − (10) − (1) − (32) Net income (loss) US$1,238 US$941 (US$133) US$88 US$953 US$46 US$8 US$3,141 Identifiable assets US$10,645 US$15,427 US$541 US$11,964 US$12,742 US$46,983 (US$40,359) US$57,943 Unallocated assets − − − − − 19,436 − 19,436 Total assets US$10,645 US$15,427 US$541 US$11,964 US$12,742 US$66,419 (US$40,359) US$77,379 Identifiable liabilities US$67 US$2,420 US$70 US$893 US$854 US$30,882 (US$48,473) (US$13,287) Unallocated liabilities − − − − − 36,333 − 36,333 Total liabilities US$67 US$2,420 US$70 US$893 US$854 US$67,215 (US$48,473) US$23,046 Capital expenditures US$598 US$411 US$− US$470 US$68 US$103 US$− US$1,650 Depreciation and

amortization US$1,898 US$449 US$− US$569 US$252 US$167 US$− US$3,335


Computer

Peripherals Telecom Automotive Consumer

Electronics Real Estate Others

Adjustments and

Eliminations Total Sales (external customers) US$13,753 US$12,699 US$1,023 US$13,310 US$− US$976 (US$153) US$41,608 Rental income US$− US$110 US$− US$− US$1,880 US$425 (US$465) US$1,950 Income (loss) from operations US$1,350 US$499 (US$136) US$294 US$1,514 US$80 US$− US$3,601 Foreign exchange gain (loss) - net 142 34 1 26 (2) 25 − 226 Income tax (83) (86) (2) (49) (77) (44) − (341) Share in net earnings of associates - net − − − − − 11 (7) 4 Interest - net (92) (66) − (61) 14 12 − (193) Noncontrolling interests − − − − − − (61) (61) Miscellaneous - net (11) (9) (1) (10) − − − (31) Net income (loss) US$1,306 US$372 (US$138) US$200 US$1,449 US$84 (US$68) US$3,205

Identifiable assets US$13,430 US$14,747 US$1,038 US$15,594 US$11,817 US$45,976 (US$37,876) US$64,726 Unallocated assets − − − 5,722 − 630 − 6,352 Total assets US$13,430 US$14,747 US$1,038 US$21,316 US$11,817 US$46,606 (US$37,876) US$71,078

Identifiable liabilities US$161 US$2,176 US$87 US$500 US$1,295 US$3,916 (US$45,820) (US$37,685) Unallocated liabilities − − − − − 59,618 − 59,618 Total liabilities US$161 US$2,176 US$87 US$500 US$1,295 US$63,534 (US$45,820) US$21,933

Capital expenditures US$310 US$145 US$− US$59 US$93 US$365 US$− US$972

Depreciation and amortization US$2,092 US$662 US$− US$312 US$281 US$189 US$− US$3,536

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The Group’s geographical segments are based on the location of the Group’s assets. Sales to external customers disclosed in the geographical segments are based on the geographical location of its customers.

The following tables represent the Group’s total revenue and certain assets based on the Group’s geographical segment:

Segment Revenue

September 30,

2019 September 30,

2018 Asia US$24,861 US$26,384 Europe 6,597 4,622 North America 14,280 12,552 US$45,738 US$43,558

Segment Assets

September 30,

2019 December 31,

2018 Asia US$74,727 US$68,047 North America 1,472 2,080 Europe 1,180 1,364 US$79,930 US$71,491

Revenue from Contracts with Customers Revenues from contracts with customers are further disaggregated by type, product type and timing of revenue recognition, as management believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. For the period ended June 30, 2019 and 2018, the revenue from contracts with customers recognized over time by the Group pertains to manufacturing of goods.

22. Fair Value Measurement The Group’s financial instruments consist of cash and cash equivalents, receivables (excluding advances to managers and employees), refundable deposits (included under other noncurrent assets), financial assets at FVOCI, accounts payable and other liabilities (excluding nonfinancial liabilities), bank loans and lease liabilities and security deposits (included under other noncurrent liabilities).

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The following table sets forth the fair value hierarchy of the Group’s assets and liabilities: September 30, 2019

Fair value measurement using

Carrying value

Total

Quoted prices in

active markets (Level 1)

Significant observable

inputs (Level 2)

Significant unobservable

inputs (Level 3)

Asset measured at fair value: Financial assets at FVOCI

(Note 9)

US$3,444

US$3,444

US$23

US$139 US$3,328 Asset for which fair values are

disclosed:

Other noncurrent assets

Refundable deposits

384

384 −

− 384 US$3,828 US$3,828 US$23 US$139 US$3,712

Liabilities for which fair values are disclosed:

Lease liabilities (Note 14) US$1,985 US$2,414 US$− US$− US$2,414 Bank loans (Note 14) 230 230 − − 230 Other liabilities

Security deposits 312 402

−

− 402 US$2,527 US$3,046 US$− US$− US$3,046

December 31, 2018

Fair value measurement using

Carrying value

Total

Quoted prices in

active markets

(Level 1)

Significant observable

inputs (Level 2)

Significant unobservable

inputs (Level 3)

Asset measured at fair value: Financial assets at FVOCI

(Note 9)

US$3,330

US$3,330

US$28

US$125 US$3,177 Asset for which fair values are

disclosed:

Other noncurrent assets

Refundable deposits

368

368 −

− 368 US$3,698 US$3,698 US$28 US$125 US$3,545

Liabilities for which fair values are disclosed:

Lease liabilities (Note 14) US$1,877 US$1,848 US$− US$− US$1,848 Bank loans (Note 14) 200 200 − − 200 Other liabilities

Security deposits 511 499

−

− 499 US$2,588 US$2,547 US$− US$− US$2,547

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

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The estimated fair values of refundable deposits, lease liabilities, bank loans, and security deposits represents the present value of the amount of estimated future cash flows expected to be collected or paid derived using the incremental borrowing rate of the Group for a similar loan. The estimated fair values of lease liabilities represent the present value of the amount of estimated future cash flows expected to be collected or paid derived using the applicable rates ranging from 4.27% to 4.97% in 2019 and 5.57% to 6.85% in 2018. As of September 30, 2019 and December 31, 2018, the fair values of the Group’s lease liabilities amounted to US$2.41 million and US$1.85 million and the carrying values amounted to US$2.34 million and US$1.88 million, respectively. This is included within Level 3 of the hierarchy. For quoted equity investments, the fair value of financial assets is determined using the market prices of the listed shares and the price of the most recent transaction for non-listed shares. Unquoted investments are measured using market approach on its comparable underlying investments with significant unobservable inputs within Level 3 category.

Financial assets at FVOCI measured at fair value based on the quoted market bid prices are included within the Level 1 of the fair value hierarchy. The fair values of proprietary golf/club shares measured at FVOCI is determined by using the market price of the proprietary golf /club shares and is included in Level 2 of the hierarchy. The fair values of the non-listed equity investments categorized within Level 3 of the fair value hierarchy have been estimated using the comparable company valuation multiples technique. The market approach is applied using significant unobservable inputs such as quoted prices of the comparable companies under the real estate industries and lack of marketability discount ranging from 10% to 30%. Factors such as revenue growth and earnings before interest, taxes, depreciation and amortization depreciation are considered on the selection of comparable companies. Increase in quoted prices and decrease in lack of marketability discount increase the value of the investments and vice versa. As of September 30, 2019 and December 31, 2018, there were no transfer between Level 1 and Level 2 of the fair value hierarchy, and no transfer into and out of the Level 3 category.

IONICS, INC. and SUBSIDIARIES QUARTERLY REPORT...the expected sources of funds for such...

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