REG - Macau Prop Opp Fund - Annual Financial Report <Origin Href="QuoteRef">MPO.L</Origin> - Part 2
28/09/2017 07:07
- Part 2: For the preceding part double click ID:nRSb0317Sa
12,693,215).
There have been no changes to the aforementioned interests since 30 June 2017.
Non-mainstream pooled investments
The Board notes the changes to the Financial Conduct Authority (FCA) rules ("UK Listing Rules") relating to the
restrictions on the retail distribution of unregulated collective investments schemes and close substitutes which came into
effect on 1 January 2014.
Following the receipt of legal advice, the Board confirms that it has conducted the Company's affairs in such a manner that
the Company would have qualified for approval as an investment trust if it was resident in the United Kingdom, and that it
is the Board's intention that the Company will continue to conduct its affairs in such a manner. Thus, the Company is, and
the Board expects it will continue to be, outside the scope of the new restrictions and Independent Financial Advisors
(IFAs) should therefore be able to recommend ordinary shares in the Company to retail investors in accordance with the FCA
relating to non-mainstream investment products.
AIFM directive
The Directors have considered the impact of the EU Alternative Investment Fund Managers Directive (no. 2011/61/EU) ("AIFM
Directive"), which was transposed into United Kingdom law on 22 July 2013 with the transitional period having ended in June
2014, on the Company and its operations.
The Company is a non-EU domiciled Alternative Investment Fund which does not currently intend to market its shares within
Europe, therefore the Directors consider that neither authorisation nor registration is required.
Directors' remuneration
Directors of the Company are all non-executive and, by way of remuneration, receive an annual fee. During the year, the
Directors received the following emoluments in the form of directors' fees from the Company:
2017 US$ 2016US$
David Hinde * - 26,615
Thomas Ashworth ** - -
Alan Clifton 44,974 51,266
Timothy Henderson # - -
Wilfred Woo 38,072 43,137
Chris Russell 60,916 58,668
Total 143,962 179,686
* David Hinde retired on 13 November 2015.
** As disclosed in Note 18 to the consolidated financial statements, Thomas Ashworth is a shareholder and Director of
Headland Developments Limited and Adept Capital Partners Services Limited, and he has a beneficial interest in and is a
Director of Sniper Capital Limited and Bela Vista Property Services Limited, all of which received fees from the Group
during the year. Thomas Ashworth has waived his Director's fees from the Company.
# Timothy Henderson retired from the Board on 8 November 2012. He is a Director of certain SPVs and received US$6,345
(2016: US$7,136) of Directors' fees during the year.
Change of control
There are no agreements that the Company considers significant and to which the Company is party, that would take effect,
alter or terminate upon change of control of the Company, following a takeover bid.
Annual General Meeting
The Annual General Meeting of the Company will be held at 2.30pm on 8 November 2017 at Lefebvre Place, Lefebvre Street, St
Peter Port, Guernsey.
Independent auditors
The Audit Committee reviews the appointment of the external auditor, its effectiveness and its relationship with the Group,
which includes monitoring our use of the Auditor for non-audit services and the balance of audit and non-audit fees paid.
Following a review of the independence and effectiveness of our external auditor, a resolution will be proposed at the 2017
Annual General Meeting to reappoint Ernst & Young LLP. Each Director believes that there is no relevant information of
which the Auditor is unaware. Each has taken all steps necessary, as a director, to be aware of any relevant audit
information and to establish that Ernst & Young LLP is made aware of any pertinent information. This confirmation is given
and should be interpreted in accordance with the provisions of Section 249 of the Companies (Guernsey) Law, 2008.
Subsequent events
Significant subsequent events have been disclosed in Note 25.
Financial risk management policies and objectives
Financial risk management policies and objectives are disclosed in Note 2.
Principal risks and uncertainties
Principal risks and uncertainties are discussed in the Corporate Governance Report.
On behalf of the Board
Chris Russell
Chairman of the Board
27 September 2017
CORPORATE GOVERNANCE REPORT
The Board has put in place a framework for corporate governance which it believes is appropriate for an investment company.
Paragraph 9.8.6R of the UK Listing Rules obliges Boards to report upon their corporate governance arrangements against the
UK Code issued by the Financial Reporting Council (the "FRC"). The Company is a member of the Association of Investment
Companies (the "AIC") and the Board has considered the principles and recommendations of the AIC's Code of Corporate
Governance ("AIC Code") and the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide"). The Board
considers that reporting against the principles and recommendations of the AIC Code, and the AIC Guide will provide better
information to shareholders. The FRC has provided the AIC with an endorsement letter to cover the latest edition of the AIC
Code. The endorsement confirms that by following the AIC Code, investment company boards should fully meet their
obligations in relation to the UK Code and paragraph 9.8.6R of the UK Listing Rules.
The AIC Code and the AIC Guide are available on the AIC's website, www.theaic.co.uk. The UK Code is available on the FRC's
website, www.frc.org.uk.
The AIC Code includes provisions relating to: the role of the chief executive; executive directors' remuneration; and the
need for an internal audit function, which are not considered by the Board to be relevant to the Company, being an
externally managed investment company. The Company has therefore not reported further in respect of these provisions.
The GFSC Finance Sector Code of Corporate Governance (the "GFSC Code") came into force in Guernsey on 1 January 2012. The
Company is deemed to satisfy the GFSC Code provided that it continues to conduct its governance in accordance with the
requirements of the AIC Code.
Except as disclosed below, the Company complied throughout the year with the recommendations of the AIC Code and the
relevant provisions of the UK Code.
The Board
The Board consists of four non-executive directors, three of whom, including the Chairman, Chris Russell, are independent
of the Company's Manager and Investment Adviser. Thomas Ashworth has a beneficial interest in and is a Director of Sniper
Capital Limited. Sniper Capital Limited is the Manager to the Group and received fees during the year as detailed in the
Consolidated Statement of Comprehensive Income and in Note 18.
Directors' details are listed in the Board of Directors section which set out the range of investment, financial and
business skills and experience represented. Principle 1 of the AIC Code states that a Board should consider appointing one
independent non-executive director to be the senior independent director. The Board, having taken into account its small
size and that the Chairman and two other directors are each similarly independent and non-executive, considers it
unnecessary to appoint a senior independent director.
The Company's Articles of Incorporation specify that one third by number of the directors are subject to annual re-election
at the Annual General Meeting of the Company. The Board has agreed that a minimum of two directors should be offered for
re-election each year and that each director shall retire every three years by rotation, therefore Chris Russell and
Wilfred Woo shall retire in the current year. Thomas Ashworth will retire annually pursuant to the listing rules of the FCA
and Alan Clifton will retire annually pursuant to the AIC Code, as he has now served for over 10 years as a Director of the
Company. A retiring director shall be eligible for reappointment. No director shall be required to vacate his office at any
time by reason of the fact that he has attained any specific age.
The Board has considered the need for a policy regarding tenure of office; however, the Board believes that any decisions
regarding tenure should consider the need for continuity and maintenance of knowledge and experience and to balance this
against the need to periodically refresh board's composition and have a balance of skills, experience, age and length of
service bearing in mind the limited expected life of the Company.
The Board meets at least four times a year for regular scheduled meetings and, should the nature of the activity of the
Company require it, additional meetings may be held, some at short notice. At each meeting, the Board follows a formal
agenda that covers the business to be discussed.
To fulfil the recommendation of AIC Code Principle 14 and to give sufficient attention to strategy, the Board discusses
strategy at each of its regular scheduled meetings, but holds a separate session annually devoted to strategy.
Between meetings, there is regular contact with the Manager and the Administrator, and the Board requires to be supplied in
a timely manner with information by the Manager, the Company Secretary and other advisers in a form and of a quality to
enable it to discharge its duties.
The terms and conditions of appointment of non-executive directors are available for inspection from the Company's
registered office.
Performance and evaluation
Pursuant to Principle 7 of the AIC Code which requires a formal and rigorous annual evaluation of its performance, the
Board formally reviews its performance annually through an internal process. Internal evaluation of the Board, the Audit
Committee, the Nomination and Remuneration Committee, the Management Engagement Committee and individual Directors has
taken the form of self-appraisal questionnaires and discussions to determine effectiveness and performance in various areas
as well as the Directors' continued independence.
During the year, a formal board performance appraisal was carried out by the Nomination & Remuneration Committee. Following
review and collation of the results, the Board considered that the overall performance of the Board during the year had
been satisfactory and that the Board is confident in its ability to continue effectively to lead the Company and oversee
its affairs. The Board believes that the current mix of skills, experience, knowledge and age of the Directors is
appropriate to the requirements of the Company.
New directors receive an induction from the Manager as part of the vetting process of candidates following appointment. All
directors receive other relevant training as necessary.
Duties and responsibilities
The Board is responsible to shareholders for the overall management of the Company. The Board has adopted a Schedule of
Matters Reserved for the Board which sets out the particular duties of the Board. Such reserved powers include decisions
relating to the determination of investment policy and approval of investments, strategy, capital raising, statutory
obligations and public disclosure, financial reporting and entering into any material contracts by the Company.
The Directors have access to the advice and services of the Company Secretary and Administrator, who are responsible to the
Board for ensuring that board procedures are followed and that it complies with Guernsey Law and applicable rules and
regulations of the GFSC and the LSE. Where necessary, in carrying out their duties, the Directors may seek independent
professional advice at the expense of the Company. The Company maintains appropriate directors' and officers' liability
insurance in respect of legal action against its Directors on an on-going basis.
The Board has responsibility for ensuring that the Company keeps proper accounting records, which disclose with reasonable
accuracy at any time the financial position of the Company, and which enable it to ensure that the financial statements
comply with the Companies (Guernsey) Law, 2008.
The Board has responsibility for ensuring that the Annual Report presents a fair, balanced and understandable assessment of
the Company's position and prospects. This responsibility extends to interim and other price-sensitive public reports.
Committees of the Board
Nomination and Remuneration Committee
Refer to the Nomination and Remuneration Committee Report.
Management Engagement Committee
Refer to the Management Engagement Committee Report.
Audit Committee
Refer to the Audit Committee Report.
Meeting Attendance
Name Scheduled Other Audit Nomination and Management
Board Board Committee Remuneration Engagement
Meeting(max 4) Meeting(max 2) Meeting(max 4) Committee Meeting(max 1) Committee Meeting(max 0)
Chris Russell 4 2 4 1 -
Thomas Ashworth * 4 1 - 1 -
Alan Clifton 4 1 4 1 -
Wilfred Woo 4 1 4 1 -
* Thomas Ashworth is not a member of the Audit Committee or the Management Engagement Committee.
Internal control and financial reporting
The Board is responsible for the Group's system of internal control and for reviewing its effectiveness, and the Board has,
therefore, established a process designed to meet the particular needs of the Group in managing the risks to which it is
exposed.
The process takes a risk-based approach to internal control through a matrix which identifies the key functions carried out
by the Manager and other key service providers, the various activities undertaken within those functions, the risks
associated with each activity and the controls employed to minimise those risks. A residual risk rating is then applied.
Regular reports are provided to the Board, highlighting material changes to risk ratings and a formal review of these
procedures is carried out by the Audit Committee and reported to the Board on an annual basis and has been completed during
the financial year. By their nature, these procedures provide a reasonable, but not absolute, assurance against material
misstatement or loss.
At each board meeting, the Board also monitors the Group's investment performance and activities since the last board
meeting to ensure that the Manager adheres to the agreed investment policy and approved investment guidelines. Furthermore,
at each board meeting, the Board receives reports from the Company Secretary and Administrator in respect of compliance
matters and duties performed on behalf of the Company.
The Board considers that an internal audit function specific to the Group is unnecessary and that the systems and
procedures employed by the Administrator and Manager, including their own audit functions, provide sufficient assurance
that a sound system of internal control, which safeguards the Group's assets, is maintained. Investment advisory services
are provided to the Group by Sniper Capital (Macau) Limited. The Board is responsible for setting the overall investment
policy and monitors the action of the Manager at regular board meetings. The Board has also delegated administration and
company secretarial services to Heritage International Fund Managers Limited but retains accountability for all functions
it delegates.
Management agreement
The Company has entered into an agreement with the Manager. This sets out the Manager's key responsibilities, which include
proposing the property investment strategy to the Board, identifying property investments to recommend for acquisition and
arranging appropriate financing to facilitate the transaction. The Manager is also responsible to the Board for all issues
relating to property asset management.
The Company has delegated the provision of all services to external service providers whose work is overseen by the
Management Engagement Committee at its regular scheduled meetings. Each year, a detailed review of performance pursuant to
their terms of engagement is undertaken by the Management Engagement Committee.
In accordance with Listing Rule 15.6.2(2)R and having formally appraised the performance and resources of the Manager, in
the opinion of the Directors, the continuing appointment of the Manager, on the terms agreed, is in the interest of the
shareholders as a whole.
Relations with shareholders
The Company welcomes the views of shareholders and places great importance on communication with its shareholders. Senior
members of the Manager are available at all reasonable times to meet with principal shareholders and key sector analysts.
The Manager, Chairman and other Directors are not only available to meet with shareholders, but have actively done so.
Reports on the views of shareholders are provided to the Board on a regular basis. The Board is also kept fully informed of
all relevant market commentary on the Company by the Manager and the Corporate Broker.
All shareholders can address their individual concerns to the Company in writing at its registered address. The Annual
General Meeting of the Company provides a forum for shareholders to meet and discuss issues with the Directors and the
Manager. In addition, the Company maintains a website (www.mpofund.com) which contains comprehensive information, including
company notifications, share information, financial reports, investment objectives and policy, investor contacts and
information on the Board and corporate governance.
Principal risks and uncertainties
The Group's assets consist of commercial and residential property investments in Macau. Its principal risks are therefore
related to the commercial and residential property market in general, but also the particular circumstance of the
properties in which they are invested and where relevant, their tenants. The Manager seeks to mitigate these risks through
active asset management initiatives and carrying out due diligence work on potential tenants before entering into any new
lease agreements. All the properties in the portfolio are insured.
Each Director is aware of the risks inherent in the Group's business and understands the importance of identifying and
evaluating these risks. The Board has adopted procedures and controls that enable it to manage these risks within
acceptable limits and to meet all its legal and regulatory obligations.
For each material risk, the likelihood and consequence are identified, management controls and frequency of monitoring are
confirmed and results are reported and discussed at board meetings.
The Company's principal risk factors are fully discussed in the Company's prospectus, available on the Company's website
and should be reviewed by shareholders. Note 2 further describes the Group's risk management processes.
The principal risks and uncertainties faced by the Group are set out below:
· Macau's real estate market is showing signs of stabilisation following two years of declining property prices. Any
sustained further market decline in Macau could prevent the Group from being able to realise its assets.
· There can be no guarantee that Macau will remain the only centre in China where gambling is legal. Changes in policies
of the government or changes in laws and regulations may result in the legalisation of gambling in other parts of China.
This in turn may have an adverse effect on Macau's economy and property market and the favourable treatment of gambling in
Macau. This is an inherent risk of investing in the Macau region and therefore cannot be mitigated or managed by the
Board.
· New legislation or regulations, or different or more stringent interpretation or enforcement of existing laws or
regulations, in any jurisdiction in which the Group operates, may have a material adverse effect on the Group's financial
performance and returns to shareholders.
· Macau law governs the majority of the Group's agreements which relate to property investments, property ownership
rights and securities. It cannot be guaranteed that the Group will be able to enforce any such agreements or that remedies
will be available outside of Macau.
· The Group's return on its investments and prospects are subject to economic, legal, political and social developments
in Macau and China, and the Asia Pacific region in general. In particular, the Group's return on its investments may be
adversely affected by:
- changes in Macau's and China's political, economic and social conditions;
- changes in policies of the government or changes in laws and regulations (including the revocation or modification by the
Chinese Government of Macau's SAR status and high autonomy levels), or the interpretation of laws and regulations;
- changes in foreign exchange rates or regulations;
- measures that may be introduced to control inflation, such as interest rate increases;
- changes in the rate or method of taxation;
- title and/or legal disputes with neighbouring land owners and legal disputes with architects, project managers and
suppliers;
- changes to restrictions on or regulations concerning repatriation of funds; and
- the continuous clampdown by the People's Republic of China ("PRC") Government on corruption and money laundering.
There is a process for identifying, evaluating and managing the principal risks faced by the Group. This process (which
accords with the FRC's "Guidance on Risk Management, Internal Control and Related Financial and Business Reporting") has
been regularly reviewed and has been in place throughout the financial year and up to the date of approval of these annual
accounts.
The above principal risks are mitigated and managed by the Board through continual review, policy setting and annual
updating of the Group's risk matrix to ensure that procedures are in place with the intention of minimising the impact of
the above mentioned risks. The Board relies on reports periodically provided by the Administrator and the Manager regarding
risks that the Group faces. When required, experts are employed to gather information, including tax advisers, legal
advisers and planning advisers.
To mitigate the interest rate risks on the Group's borrowing, the Group entered into interest rate derivative instruments.
The Board relies on the Manager's close relationship with legal professionals in Macau, Hong Kong and China to keep abreast
of any potential changes to the law and any possible impact on the Group. The Board also regularly monitors the investment
environment and the management of the Group's property portfolio, and applies the principles detailed in the internal
control guidance issued by the FRC. Details of the Group's internal controls are described in more detail in the Internal
Control and Financial Reporting section.
The Group's financial risks and uncertainties are further discussed in Note 2 to the consolidated financial statements.
On behalf of the Board
Chris Russell
Chairman of the Board
27 September 2017
NOMINATION & REMUNERATION COMMITTEE REPORT
Summary of the role of the Nomination and Remuneration Committee
The Nomination and Remuneration Committee regularly reviews the structure, size and composition (including the skills,
knowledge, gender, experience and diversity) of the Board and makes recommendations to the Board with regard to any changes
and also considers the appropriate levels of the Board's remuneration. The Board monitors the developments in corporate
governance to ensure the Board remains aligned with best practice, especially with respect to the increased focus on
diversity. The Board acknowledges the importance of diversity of experience, approach and gender, for the effective
functioning of the Board and commits to supporting diversity in the boardroom. It is the Board's on-going objective to have
an appropriately diversified representation. The Board also values diversity of business skills and experience because
directors with diverse skills sets, capabilities and experience gained from different geographical backgrounds enhance the
Board by bringing a wide range of perspectives to the Company. The Board is satisfied with the current composition and
function of its members. It is the Company's policy to give careful consideration to issues of the Board's balance and
diversity when making new appointments. When appointing board members, its priority is based on merit, but will be
influenced by the strong desire to maintain the Board's diversity, including gender. The terms of reference are considered
annually by the Nomination and Remuneration Committee and are then referred to the Board for approval and are available on
the Company's website.
Composition of the Nomination and Remuneration Committee
The members of the Nomination and Remuneration Committee are listed on Directors and Company Information.
Meetings
The Nomination and Remuneration Committee shall meet at least once a year and otherwise as required. Meetings of the
Nomination and Remuneration Committee shall be called by the Company Secretary at the request of the Committee Chairman.
Unless otherwise agreed, notice of each meeting confirming the venue, time and date, together with an agenda of items to be
discussed, shall be forwarded to each member of the Nomination and Remuneration Committee, any other person required to
attend and all other non-executive directors, no later than five working days before the date of the meeting. Supporting
papers shall be sent to the Nomination and Remuneration Committee and to other attendees as appropriate, at the same time.
Any non-executive director who is not considered independent will not take part in the Nomination and Remuneration
Committee's deliberations regarding remuneration levels.
Consideration of Directors for re-election
Following discussion and having noted the schedule of Directors re-elected in each year since 2007, it was recommended by
the Nomination and Remuneration Committee that Thomas Ashworth and Alan Clifton should be submitted for re-election at the
Annual General Meeting to be held on
8 November 2017 as they each have over 10 years in office. In addition, in accordance with the Board's re-election policy
that each Director shall retire every three years by rotation, Chris Russell and Wilfred Woo will also stand for
re-election at the Annual General Meeting to be held on 8 November 2017.
There were no new Directors appointed during the period under review. The Nomination and Remuneration Committee will
consider the use of external consultants to assist with the appointment of future directors.
Overview
The Nomination and Remuneration Committee met once in the year ended 30 June 2017. Matters considered at the meeting
included but were not limited to:
· the structure, size and composition (including the balance of skills, knowledge, experience and diversity) of the
Board and Audit Committee and the need to periodically refresh membership;
· to note guidance set out in the AIC Code;
· to consider key outcomes from the Board's evaluation process;
· to consider Board's tenure and succession planning;
· consideration of Directors for re-election; and
· consideration of Directors' remuneration.
Directors' fees were last changed in July 2010. Following a review, it was agreed to raise individual Directors'
remuneration by 20%, representing an annual increase since 2010 of approximately 2.5%, which is in line with the rate of
inflation over the period.
During the year, Directors waived any additional remuneration for the significant time commitments involved with work on a
potential transaction for the Company's entire real estate portfolio. Looking ahead, additional fees to Directors
reflecting exceptional further work may arise in the event of material successful transactions.
As a result of its work during the year, the Nomination and Remuneration Committee has concluded that it has acted in
accordance with its terms of reference.
On behalf of the Nomination and Remuneration Committee
Alan Clifton
Chairman of the Nomination and Remuneration Committee
27 September 2017
MANAGEMENT ENGAGEMENT COMMITTEE REPORT
Summary of the role of the Management Engagement Committee
The Management Engagement Committee annually reviews the terms of the Investment Management Agreement between the Company
and the Manager and to review the performance and terms of engagement of any other key service providers to the Company, as
detailed in Appendix 1 of the Terms of Reference of the Committee. The terms of reference are considered annually by the
Management Engagement Committee and are then referred to the Board for approval and are available on the Company's
website.
Composition of the Management Engagement Committee
The members of the Management Engagement Committee are listed on Directors and Company Information.
Meetings
The Management Engagement Committee meets at least once a calendar year and otherwise as required. Meetings of the
Management Engagement Committee shall be called by the Company Secretary at the request of the Chairman. Unless otherwise
agreed, notice of each meeting confirming the venue, time and date, together with an agenda of items to be discussed, shall
be forwarded to each member of the Management Engagement Committee, any other person required to attend and all other
non-executive directors, no later than five working days before the date of the meeting. Supporting papers shall be sent to
Management Engagement Committee and to other attendees as appropriate, at the same time.
Performance of the Manager
Following discussion, it is the opinion of the Management Engagement Committee that the performance of the Manager for the
year ended 30 June 2017 was satisfactory and the continuing appointment of the Manager on the terms agreed is in the
interests of the shareholders as a whole.
Performance of key service providers
Following discussion, it is the opinion of the Management Engagement Committee that the performance of key service
providers (as detailed in Appendix 1 of the Terms of Reference of the Committee) for the year ended 30 June 2017 was
satisfactory.
Overview
The Management Engagement Committee met during June 2016 and September 2017 and as a result of its work, the Management
Engagement Committee has concluded that it has acted in accordance with its terms of reference.
On behalf of the Management Engagement Committee
Alan Clifton
Chairman of the Management Engagement Committee
27 September 2017
AUDIT COMMITTEE REPORT
Summary of the role of the Audit Committee
The Audit Committee is appointed by the Board from the non-executive Directors of the Company. The Audit Committee's terms
of reference include all matters indicated by Disclosure and Transparency Rule 7.1 and the UK Code. The terms of reference
are considered annually by the Audit Committee and are then referred to the Board for approval and are available on the
Company's website.
The Audit Committee is responsible for:
· reviewing and monitoring the integrity of the Annual Report and Audited Consolidated Financial Statements, the Interim
Report and Interim Condensed Consolidated Financial Statements of the Group, and any formal announcements relating to the
Group's financial performance, and reviewing significant financial reporting judgement contained therein;
· reporting to the Board on the appropriateness of the accounting policies and practices including critical accounting
policies and practices;
· advising the Board that the annual report and accounts, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company's performance, business model and strategy;
· reviewing the Group's internal financial controls and, unless expressly addressed by the Board itself, the Group's
internal controls and principal risks;
· making recommendations to the Board for a resolution to be put to the shareholders, for their approval in general
meetings, on the appointment of the external auditor and the approval of the remuneration and terms of engagement of the
external auditor;
· reviewing and monitoring the external auditor's independence and objectivity and the effectiveness of the audit
process, taking into consideration relevant UK professional and regulatory requirements;
· developing and implementing a policy on the engagement of the external auditor to supply non-audit services, taking
into account relevant guidance regarding the provision of non-audit services by the external audit firm;
· reviewing the valuations of the Company's investments prepared by the Investment Adviser, and make a recommendation to
the Board on the valuation of the Company's investments;
· meeting the external auditor to review their proposed audit programme of work and the subsequent audit report and to
assess the effectiveness of the audit process and the levels of fees paid in respect of both audit and non-audit work;
· considering annually whether there is a need for the Company to have its own internal audit function; and
· reviewing and considering the UK Code, the AIC code, the AIC Guidance on Audit Committees and the Stewardship Code.
The Audit Committee is required to report its findings to the Board, identifying any matters on which it considers that
action or improvement is needed, and to make recommendations on the steps to be taken.
The Audit Committee is also required to report to the Board, identifying how it has discharged its responsibilities during
the current year.
The Board has taken note of the requirement that at least one member of the Audit Committee should have recent and relevant
financial experience and is satisfied that the Audit Committee is properly constituted in that respect, with all members
being highly experienced, and in particular, two of its members having backgrounds as chartered accountants.
The Audit Committee reviews the information contained in the other sections of the Annual Report including the Directors'
Report, Chairman's Message and the Manager's Report. The independent auditor reports by exception if the information in the
other sections of the Annual Report is materially inconsistent with the information in the audited financial statements.
The Audit Committee is the formal forum through which the Auditor reports to the Board. The external auditor is invited to
attend the Audit Committee meetings at which the Annual Report and Audited Consolidated Financial Statements, the Interim
Report and Interim Condensed Consolidated Financial Statements are considered, and at which they have the opportunity to
meet with the Audit Committee without representatives of the Investment Adviser being present at least once per year.
Composition of the Audit Committee
The members of the Audit Committee are:
Date of Appointment
Alan Clifton (Chairman) 23 May 2006
Wilfred Woo 27 February 2012
Chris Russell 12 September 2012
Appointments to the Audit Committee will be for a period of up to three years, which is extendable, depending upon members
continuing to be independent. Alan Clifton has been a member of the Audit Committee for 10 years. However, the Board and
Audit Committee have satisfied themselves that Alan Clifton continues to remain independent and so have resolved to extend
his appointment to the Audit Committee for a further two years.
Financial reporting
The primary role of the Audit Committee in relation to the financial reporting is to review with the Administrator,
Investment Adviser and the Auditor on the appropriateness of the Annual Report, Audited Consolidated Financial Statements
and the Interim Report, concentrating on, among other matters:
· the quality and acceptability of accounting policies and practices;
· the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance
reporting requirements;
· material areas in which significant judgement have been applied or there has been discussion with the Auditor;
· whether the Annual Report and Audited Consolidated Financial Statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for the shareholders to assess the Company's performance, business
model and strategy; and
· any correspondence from regulators in relation to Company's financial reporting.
To aid its review, the Audit Committee considers reports from the Administrator and Investment Adviser and also reports
from the Auditor on the outcomes of their half-year review and annual audit. The Audit Committee supports Ernst and Young
LLP in displaying the necessary professional scepticism their role requires.
Significant issues considered in relation to the financial statements
The Audit Committee has had regular contact with the management and the auditor during the interim and year end audit
process. The Committee's discussions have been broad ranging, including the consideration of the Company's going concern
status and key areas of judgement.
The Audit Committee is satisfied, having received advice from professional advisers which include valuers, tax advisers and
lawyers, that these sensitivities have been appropriately reflected and disclosed in the financial statements.
During its review of the Group's financial statements for the year ended 30 June 2017, the Audit Committee considered the
following significant issues:
· valuation of investment properties and inventories;
· ownership and existence of investments properties and inventories;
· accounting treatment for taxes incurred in multiple jurisdictions.
The risk relating to the valuation of investment properties and inventories are mitigated through use of a professionally
qualified valuer to conduct the valuations in accordance with current Royal Institute of Chartered Surveyors Appraisal and
Valuations Standards.
The valuation is overseen by the Investment Adviser to ensure that the values are comparable to current market values of
similar properties. The valuation process and methodology are discussed with the Investment Adviser regularly during the
year and with the Auditor as part of the year-end audit planning and interim review processes. These valuations are
reviewed, challenged and ultimately agreed by the Board, who possesses knowledge and understanding of the markets where the
properties are situated. The Board meets with the valuer at least once a year. The factors that affect the value and
ownership of the investment property and inventory are further discussed in Notes 3, 6 and 7.
The risks relating to the ownership and existence of investment properties and inventories are mitigated through ensuring
proper title deeds for the properties are held. Asset reconciliations are performed by the Administrator with the SPV
Administrator on a quarterly basis. Property searches showing ownership of each of the assets are conducted to ascertain
that there are no changes in ownership.
The risk relating to taxation is mitigated through the setup of the Group structure. When taxation queries arise, an
independent taxation adviser is employed to advise the Board on such issues. The factors that affect the Group's taxation
position are further discussed in Note 9.
Meetings
The Audit Committee meets not less than twice a year and at such other times as the Chairman requires. Any member of the
Audit Committee may request that a meeting be convened by the Company Secretary. The external auditors may request that a
meeting be convened if they deem it necessary. Other Directors and third parties may be invited by the Audit Committee to
attend meetings as and when appropriate.
Annual General Meeting
The Audit Committee Chairman, or other members of the Audit Committee appointed for the purpose, shall attend each Annual
General Meeting of the Company, prepared to respond to shareholders' questions on the Audit Committee's activities.
Risk management
The Company's risk assessment process and the way in which significant business risks are managed is a key area of focus
for the Audit Committee. The work of the Audit Committee was driven primarily by the Company's assessment of its principal
risks and uncertainties as set out in the Corporate Governance Report. The Audit Committee receives reports from the
Investment Adviser and Administrator on the Company's risk evaluation process and reviews changes to principal risks
identified.
Internal audit
The Audit Committee considers at least once a year whether or not there is a need for an internal audit function.
Currently, the Audit Committee does not consider there to be a need for an internal audit function, given that there are no
employees in the Group and all outsourced functions are with parties/administrators who have their own internal controls
and procedures. The Audit Committee also considers the review of controls of the service organisations.
External audit
During the year, the Committee considered at length the re-appointment of the external auditors and decided not to put the
provision of the external audit out to tender at this time. In doing so, they reviewed the effectiveness and independence
of the external auditors and remained satisfied that the Auditors provide effective independent challenge to the Board and
to the Investment Adviser. The Audit Committee will continue to monitor the performance of the external auditors on an
annual basis and will consider their independence and objectivity, taking account of appropriate guidelines.
The external auditors are required to rotate the audit partner responsible for the Group audit every five years. The
current lead audit partner has been in place for two years. Ernst & Young LLP has been the external auditor since 2010.
There are no contractual obligations restricting the choice of external auditor and the Company will put the audit services
contract out to tender at least every 10 years. In line with the FRC's suggestions on audit tendering, this will be
considered further when the audit partner rotates every five years. Under Company Law, the
re-appointment of the external auditors is subject to shareholders' approval at the Annual General Meeting. The Committee
has provided the Board with its recommendation to the shareholders on the re-appointment of Ernst & Young LLP as external
auditor for the year ending 30 June 2018. Accordingly, a resolution proposing the re-appointment of Ernst & Young LLP as
the Company's auditor will be put to shareholders at the 2017 Annual General Meeting.
During the year, the Committee discussed the planning, conduct and conclusions of the external audit as it proceeded. At
the June 2017 Audit Committee meeting, the Committee discussed and approved the auditor's Group plan in which they
identified the Group's valuation of the investment property, carrying value of inventories and revenue recognition as the
key areas of risk of misstatement in the Group's financial statements.
The Committee discussed these issues at the June 2017 meeting to ensure that appropriate arrangements are in place to
mitigate these risks.
To fulfil its responsibility regarding the independence of the external auditor, the Audit Committee will consider:
· discussions with or reports from the external auditor describing its arrangements to identify, report and manage any
conflicts of interest; and
· the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the Committee will review:
· the external auditor's fulfilment of the agreed audit plan and variations from it;
· discussions or reports highlighting the major issues that arose during the course of the audit; and
· feedback from other service providers evaluating the performance of the audit team.
Non-audit services
To further safeguard the objectivity and independence of the external auditor from becoming compromised, the Audit
Committee has a formal policy governing the engagement of the external auditor to provide non-audit services. This
precludes Ernst & Young LLP from providing certain services such as valuation work or the provision of accounting services
and also sets a presumption that Ernst & Young LLP should only be engaged for non-audit services where Ernst & Young LLP is
best placed to provide the non-audit service, for example, the interim review service or specialist tax advice. Please see
Note 23 for details of services provided by Ernst & Young LLP.
Overview
The Audit Committee met four times in the year ended 30 June 2017. Matters considered at these meetings included but were
not limited to:
· consideration and agreement of the terms of reference of the Audit Committee for approval by the Board;
· review of the accounting policies and format of the financial statements;
· review of the 2016 Annual Report and Audited Consolidated Financial Statements for the year ended 30 June 2016;
· review of the 2016 Interim Report and Interim Condensed Consolidated Financial Statements for the 6 months ended 31
December 2016;
· review of the quarterly results announcements issued in November 2016 and May 2017;
· review of the audit plan and timetable for the preparation of the 2017 Annual Report and Audited Consolidated
Financial Statements;
· discussions and approval of the fee for the external audit;
· assessment of the effectiveness of the external audit process as described above; and
· review of the Company's principal risks and internal controls.
As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its terms
of reference and has ensured the independence and objectivity of the external auditor. The Audit Committee has recommended
to the Board that the external auditor is re-appointed.
On behalf of the Audit Committee
Alan Clifton
Chairman of the Audit Committee
27 September 2017
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report and accounts in accordance to applicable laws and
regulations. The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial statements for each financial
year. Under that law, the Directors are required to prepare the Group's financial statements in accordance to International
Financial Reporting Standards as adopted by the European Union ("IFRS"). Under Company Law, the Directors must not approve
the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the
financial performance and cash flows of the Group for that period. In preparing these Group's financial statements, the
Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements that are reasonable and prudent;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users
to understand the impact of particular transactions, other events and conditions on the Group's financial position and
financial performance;
· state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the Group's
financial statements; and
· prepare the Group's financial statements on a going concern basis unless it is inappropriate to presume that the Group
will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the Group's financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and which enable
them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They are also responsible for
safeguarding the assets of the Company and hence, for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The maintenance and integrity of the Company's website (www.mpofund.com) is the responsibility of the Directors. The work
carried out by the Auditor does not involve consideration of these matters and, accordingly, the auditor accepts no
responsibility for any changes that may have occurred to the financial statements since they were initially presented on
the website.
Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
All companies with a Premium Listing of equity shares in the UK are required under the Listing Rules to report on how they
have applied the UK Code in their annual report and financial statements.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS
Each of the Directors, whose names are set out in Board of Directors of the Annual Report, confirms that, to the best of
their knowledge and belief that:
Directors' statement under the Disclosure and Transparency Rules
· The Group's financial statements, prepared in accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group.
· The management report, which is incorporated into the Directors' Report, Manager's Report and Chairman's Message
contained in the Annual Report, includes a fair review of the development and performance of the Group and of the position
of the Company and the Group as a whole, together with a description of the principal risks and uncertainties they face.
Directors' statement under the UK Corporate Governance Code
· The Directors are responsible for preparing the Annual Report and Group's financial statements in accordance with
applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the Annual Report and
Group's financial statements, taken as a whole, as fair, balanced and understandable and that it provides the information
necessary for shareholders to assess the Group's performance, business model and strategy.
On behalf of the Board
Chris Russell
Chairman of the Board
27 September 2017
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MACAU PROPERTY OPPORTUNITIES FUND LIMITED
Opinion
In our opinion:
· Macau Property Opportunities Fund Limited (the "Company") and its subsidiaries' (the "Group") consolidated financial
statements (the "financial statements") give a true and fair view of the state of the Group's affairs as at 30 June 2017
and of the Group's profit for the year then ended;
· the financial statements have been properly prepared in accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union; and
· the financial statements have been prepared in accordance with the requirements of the Companies (Guernsey) Law,
2008.
We have audited the financial statements of Macau Property Opportunities Fund Limited for the year ended 30 June 2017 which
comprise:
· Consolidated Statement of Financial Position;
· Consolidated Statement of Comprehensive Income for the year then ended;
· Consolidated Statement of Changes in Equity for the year then ended;
· Consolidated Statement of Cash Flows for the year then ended; and
· Related Notes 1 to 25 to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and IFRS as adopted by the
European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor's responsibilities for the audit of the
financial statements section of our report below. We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting
Council's ("FRC") Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
This report is made solely to the Company's members, as a body, in accordance with Section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required
to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK)
require us to report to you whether we have anything material to add or draw attention to:
· the disclosures in the Annual Report set out in Corporate Governance Report that describe the principal risks and
explain how they are being managed or mitigated;
· the Directors' confirmation set out in Corporate Governance Report in the Annual Report that they have carried out a
robust assessment of the principal risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity;
· the Directors' statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group's
ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements;
· whether the Directors' statement in relation to going concern required under the Listing Rules is materially
inconsistent with our knowledge obtained in the audit; or
· the Directors' explanation in the Directors' Report in the Annual Report as to how they have assessed the prospects of
the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as
to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Overview of our audit approach
Key audit matters · Fair valuation of investment property· Carrying value of inventories· Recognition of rental income and income on sale of inventories
Audit scope · We performed an audit of the complete financial information of the Group.
Audit materiality · Overall materiality of US$1.3 million (2016: US$1.1 million) which represents 1% (2016: 1%) of Net Asset Value ("NAV").
What has changed · Our scope of work remained the same as compared to the previous year and as communicated during planning meeting.
The audit team comprised individuals from Guernsey ("Group audit team") and Hong Kong ("Component audit team") and we
operated as an integrated team across both jurisdictions. We performed the audit procedures and responded to the risks
identified as described below.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and
we do not provide a separate opinion on these matters.
Risk Our Response to the Risk Key Observations Communicated to the Audit Committee
Fair valuation of investment property (US$241.2 million; 2016 - US$206.6 million) The valuation of investment property is the key driver of the Group's net asset value and total return. Valuation
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