REG - Macau Prop Opp Fund - Final Results for the period ended 30 June 2016 <Origin Href="QuoteRef">MPO.L</Origin> - Part 2
21/09/2016 07:06
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more than 3% each of the
issued ordinary shares of the Company, accounting for a total of 54,754,012
shares (2015: 52,586,429) or 71.64% (2015: 67.8%) of the issued share capital.
Significant shareholdings as at 30 June 2016 are detailed below:
Name of shareholder No. of shares %
Lazard Asset Management LLC 16,522,672 21.62
Sniper Investments Limited 12,693,215 16.61
Universities Superannuation Scheme 10,500,000 13.74
Invesco Asset Management 9,549,601 12.49
Rathbones 2,893,533 3.79
Apollo Multi Asset Management 2,594,991 3.39
Subtotal 54,754,012 71.64
Others 21,678,952 28.36
Total 76,432,964 100.00
Directors
Biographies of the Directors who served during the year are detailed above.
Name Function Date of appointment Date of resignation
Chris Russell Chairman 8 May 2012
Thomas Ashworth Director 18 May 2006
Alan Clifton Director, Chairman of the Audit Committee, the Management EngagementCommittee, and the Nomination and Remuneration Committee 18 May 2006
Wilfred Woo Director 3 January 2012
David Hinde Former Chairman 18 May 2006 13 November 2015
Directors' interests
Directors who held office during the year and had interests in the shares of
the Company as at 30 June 2016 were:
Ordinary shares of US$0.01
Held at30-Jun-16 Held at30-Jun-15
David Hinde * N/A 60,000
Thomas Ashworth ** - -
Alan Clifton 100,000 100,000
Wilfred Woo - -
Chris Russell 252,548 252,548
* David Hinde is no longer a Director as at 30 June 2016.
** Thomas Ashworth has a beneficial interest in Sniper Investments Limited,
which as at the year-end held 12,693,215 shares (2015: 11,020,000).
There have been no changes to the aforementioned interests since 30 June
2016.
Non-mainstream pooled investments
The Board notes the changes to the Financial Conduct Authority (FCA)("UK
Listing Rules") 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 UK law in the United Kingdom on 22 July 2013 with the transitional period
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:
2016US$ 2015US$
David Hinde * 26,615 74,333
Thomas Ashworth ** - -
Alan Clifton 51,266 55,325
Timothy Henderson # - -
Wilfred Woo 43,137 46,458
Chris Russell 58,668 47,310
Total 179,686 223,426
* David Hinde retired on 13 November 2015.
** As disclosed in Note 19 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.
# Timothy Henderson retired from the Board on 8 November 2012. He is a
Director of certain SPVs and received US$7,136 (2015: US$7,743) 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 10am on 14 November
2016 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 2016 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 below.
On behalf of the Board
Chris Russell
Chairman of the Board
20 September 2016
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 Guide, investment company's 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 ("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 above 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 1 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 such 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
two years by rotation following an alphabetical format. 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 more than
nine 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. The
results have been collated and reviewed whereby, it was noted that 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. 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
The Nomination and Remuneration Committee Report is below.
Management Engagement Committee
The Management Engagement Committee Report is below.
Audit Committee
The Audit Committee Report is below.
Meeting Attendance
Name Scheduled board meeting (max 4) Other board meeting (max 2) Audit Committee meeting (max 4) Nomination and Remuneration Committee meeting (max 1) Management Engagement Committee meeting (max 1)
Chris Russell 4 2 4 1 1
Thomas Ashworth* 4 2 - 1 -
Alan Clifton 4 1 4 1 1
Wilfred Woo 4 2 4 1 1
David Hinde(resigned on 13 November 2015) - - - - -
* 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 Chairman and other Directors are also available to meet
with shareholders, if required.
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 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 significant 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 significant
risks faced by the Group. This process (which accords with the Turnbull
guidance) 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 significant 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 above.
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
20 September 2016
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 below.
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 14 November 2016.
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
2016. 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; and
- consideration of Directors for re-election.
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
20 September 2016
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 below.
Meetings
The Management Engagement Committee meets at least once a 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 2016 was
acceptable 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 2016 was
acceptable.
Overview
The Management Engagement Committee met once during the year 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
20 September 2016
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, excluding the Chairman. 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 on whether the Committee believes 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 control and risk
management systems;
- 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 Russell1 2 September 2012
Appointments to the Audit Committee will be for a period of up to three years,
which is extendable, so long as members continue 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 and Audited Consolidated Financial
Statements and 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 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 2016, 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 significant 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 one year. 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 ended 30
June 2016. Accordingly, a resolution proposing the reappointment of
Ernst & Young LLP as the Company's auditor will be put to shareholders at the
2016 Annual General Meeting.
During the year, the Committee discussed the planning, conduct and conclusions
of the external audit as it proceeded. At the June 2016 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 inventory properties and revenue recognition as key areas of
risk of misstatement in the Group's financial statements.
The Committee discussed these issues at the June 2016 meeting to ensure that
the key risk areas identified by the auditors are consistent with the risks
identified by the Board and 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 2016. 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 2015 Annual Report and Audited Consolidated Financial
Statements for the year ended 30 June 2015;
- review of the 2015 Interim Report and Interim Condensed Consolidated
Financial Statements for the 6 months ended 31 December 2015;
- review of the Interim Management Statement released in November 2015
and the quarterly results announcement issued in May 2016;
- review of the audit plan and timetable for the preparation of the 2016
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 significant 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
20 September 2016
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 judgement 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 accounts.
Responsibility Statement of the Directors in respect of the Annual Report and
Accounts
Each of the Directors, whose names are set out above, 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.
• The annual report and accounts include information required by the UK
Listing Authority and for ensuring that the Company complies with the
provisions of the Listing Rules and the Disclosure Rules and Transparency
Rules of the UK Listing Authority, with regard to corporate governance,
require the Company to disclose how it has applied the principles, and
complied with the provisions of the corporate governance code applicable to
the Company.
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
20 September 2016
Independent Auditor's Report to the Members of Macau Property Opportunities
Fund Limited
1. Our opinion on the consolidated financial statements
In our opinion, Macau Property Opportunities Fund Limited's ("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
2016 and its loss for the year then ended;
• have been properly prepared in accordance with IFRS; and
• have been prepared in accordance with the requirements of the Companies
(Guernsey) Law 2008.
2. What we have audited
We have audited the consolidated financial statements of the Company for the
year ended 30 June 2016, which comprise:
• the Consolidated Statement of Financial Position as at 30 June 2016;
• the Consolidated Statement of Comprehensive Income for the year ended 30
June 2016;
• the Consolidated Statement of Changes in Equity for the year ended 30 June
2016;
• the Consolidated Statement of Cash Flows for the year ended 30 June 2016;
and
• the related Notes 1 to 25.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRS.
3. Overview of our audit approach
Risks of material misstatement • Valuation of investment property• Carrying value of inventory properties• Revenue recognition
Audit scope • We have performed an audit of the consolidated financial statements of the Group.
Materiality · Overall materiality of US$1.1 million (2015: US$3.1 million) which represents 1% (2015: 2%) of NAV.
What has changed Our scope of work remained the same as compared to the previous year and as communicated during planning meetingwith the exception of the following:• Change in materiality- We have reassessed the materiality level during the execution stage taking
into account both qualitative and quantitative considerations, particularly the decline in market values of the properties. We have deemed it appropriate to adjust the materiality level from 2% of NAV to 1% of NAV.• Ownership of investment property and
inventory properties- Ownership of investment property and inventory properties was considered as significant risk in prior year. Given that there were no property purchases in the year, it is no longer considered to be a significant risk in the
current year.• Improper accounting treatment for income taxes- In the prior year, improper accounting treatment for income taxes was considered to be a significant risk due to significant unresolved uncertainties. As a result of these uncertainties,
it is no longer considered to be a significant risk in the current year.• Carrying value of inventory properties- Inventory properties are carried in the financial statements at lower of cost or net realisable value. Calculation of net realisable
value involves estimates and judgements. As a result of reductions in market values and a consequential reduction in the net realisable value, we have determined that there is an increased risk of a misstatement of the carrying value of inventory
properties and as a result have determined that it is a significant risk in the current year.
The audit team comprised individuals from Guernsey ("Group team") and Hong
Kong ("Component team") and we operated as an integrated team across both
jurisdictions. The engagement partner and senior manager from the Channel
Islands visited
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