REG - Macau Prop Opp Fund - Final Results for the period ended 30 June 2016 <Origin Href="QuoteRef">MPO.L</Origin> - Part 3
21/09/2016 07:06
- Part 3: For the preceding part double click ID:nRSU3817Kb
Hong Kong to review the work performed and to visit the
properties in Macau. We performed the audit procedures and responded to the
risks identified as described below.
We identified the risks of material misstatement described below as those that
had the greatest effect on our overall audit strategy, the allocation of
resources in the audit and the direction of the efforts of the audit team. In
addressing these risks, we have performed the procedures below, which were
designed in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual areas.
Risk Our response to the risk What we concluded to the Audit Committee
Fair valuation of investment property (US$206.6 million; 2015: US$243.8 million) The valuation of investment property is the key driver of the Group's net asset value and total return. Valuation of investment property requires specialist expertise and the use of significant estimates and judgement, giving rise to a higher risk of misstatement.Refer to the Audit Committee Report and Note 6 of the financial statements We performed full scope audit procedures over the valuation of investment property. Audit procedures performed by Component audit teams are based on instructions issued We confirmed that there were no material matters arising from our audit work on the inputs used and the judgment made by the Specialists that we wished to bring to the attention of the Audit Committee.We confirmed that investment property is not materially misstated.
by the Group audit team. Those procedure are described below:• We documented our understanding of the processes, policies and methodologies used by management for valuing
investment property and performed walkthrough tests to confirm our understanding of the systems and controls implemented.• We agreed the valuations recorded in the
consolidated financial statements to the values reported by the Group's independent Specialists.• We tested the inputs to the valuation for consistency with underlying
tenancy agreements.• We involved our real estate expert in Hong Kong to assess whether the assumptions in relation to the market related inputs were reasonable.• We
tested the calculation of profit/loss on revaluation of the year and assessed the appropriateness of the recording and reporting of these amounts.• We engaged our own
internal valuation experts from Hong Kong to:- use their knowledge of the market to assess and corroborate the market related judgement and valuation inputs (including
discount rates, exit yields and sales values) used by the Specialists; and - assist us in determining whether the Specialists were appropriately qualified and
independent.
Carrying value of inventory properties (US$67.4 million; 2015: US$67.3 million) Inventory properties are stated at lower of cost and Net Realisable Value ("NRV"). The valuation of inventory properties is the key driver to determine the NRV of properties. Valuation of property requires specialist expertise and the use of significant estimates and judgement, giving rise to a higher risk of misstatement.Refer to the Audit Committee Report and Note 7 of the financial statements We performed full scope audit procedures over the carrying value of inventory properties. Audit procedures performed by Component audit teams are based on instructions We confirmed that there were no material matters arising from our audit work on the inputs used and the judgment made by the Specialists that we wished to bring to the attention of the Audit Committee.We confirmed that carrying value of inventory properties is not materially misstated.
issued by the Group audit team. Those procedures are described below:• We documented our understanding of the processes, policies and methodologies used by management for
valuing inventory properties and performed walkthrough tests to confirm our understanding of the systems and controls implemented.• We agreed a sample of the significant
inputs used by the Specialists to value the properties, particularly development cost, projected capex, to contractual documentation and development plans and
agreements.• We tested the arithmetical accuracy of the calculations prepared by the Specialists for the main assumptions in the model, by reperforming a sample of their
calculations.• We engaged our own internal valuation experts from Hong Kong to:- use their knowledge of the market to assess and corroborate the market related judgement
and valuation inputs (including discount rates, exit yields and sales values) used by the Specialists; and- assist us in determining whether the Specialists were
appropriately qualified and independent.
Recognition of rental income (US$2.1 million; 2015: US$4.3 million)/realised gain on disposal of properties (US$1.0 million; 2015: US$27.9 million) Management may seek to overstate revenue generated from rental income and on disposal of inventory properties, as it is a significant metric and indicator of the Group's progress, giving rise to a higher risk of misstatement.Refer to the Audit Committee Report and Note 1 of the financial statements • Rental income - We have agreed a sample of tenancy agreements to amounts recorded as rental income. - Performed analytical procedures on rental income to identify any We confirmed that there were no matters identified during our audit work on revenue recognition that we wished to bring to the attention of the Audit Committee.We confirmed that revenue from rental income and on disposal of properties was recognised in accordance with IFRS.
inconsistencies in rental income patterns or holiday periods. - Determined that the accounting policy for rental income was in compliance with IFRS. • Property
realisation - We have re-performed calculations of the realised gain on disposal of properties. - Inspected the documentation supporting the sales price (i.e. Sale and
Purchase Agreement).
4. Our application of materiality
We apply the concept of materiality, both in planning and performing our
audit, and in evaluating the effect of misstatements on our audit and on the
consolidated financial statements. For the purposes of determining whether the
consolidated financial statements are free from material misstatement, we
define materiality as the magnitude of misstatement that makes it probable
that the economic decisions of a reasonably knowledgeable person, relying on
the financial statements, would be changed or influenced.
4.1. Materiality
This is the magnitude of an omission or misstatement that, individually or in
the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a
basis for determining the nature and extent of our audit procedures. We
determined planning materiality for the Group to be US$1.1 million (2015:
US$3.1 million), which is 1% (2015: 2%) of NAV. This provided a basis for
determining the nature, timing and extent of risk assessment procedures,
identifying and assessing the risk of material misstatement and determining
the nature, timing and extent of further audit procedures.
It was considered inappropriate to determine materiality based on the Group's
profit before tax, as the primary performance measures of the Group for
internal and external reporting are based on equity.
We believe that NAV provides us with an appropriate basis for audit
materiality, as it is a key published performance measure and is a key metric
used by management in assessing and reporting on overall performance.
4.2. Performance materiality
Performance materiality is the application of materiality at the individual
account or balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the
Group's overall control environment, our judgement was that performance
materiality was 75% (2015: 75%) of our planning materiality, namely US$0.80
million (2015: US$2.3 million). Our objective in adopting this approach was to
ensure that total uncorrected and undetected audit differences in the
financial statements did not exceed our materiality level.
4.3. Reporting threshold
An amount below which identified misstatements is considered as being clearly
trivial.
We agreed with the Audit Committee that we would report to them all
uncorrected audit differences in excess of US$53,000 (2015: $155,000), which
is set at 5% of planning materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
5. Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the
consolidated financial statements are free from material misstatement, whether
caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group's circumstances and have been
consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all the
financial and non-financial information in the Annual Report to identify
material inconsistencies with the audited financial statements and to identify
any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies, we will consider the implications for our
report.
5.1. Tailoring the scope
We performed audit procedures on accounts within the Group, that we considered
had the potential for the greatest impact on the significant accounts in the
financial statements, either because of the size of the accounts or their risk
profile.
5.2. Involvement with Component teams
Team structure
The overall audit strategy is determined by the opinion signatory who is based
in the Channel Islands. Since the Group's operations are principally in Hong
Kong/Macau, the audit team includes EY team members from Hong Kong. The Group
audit team visited Hong Kong during the current year. Whilst in Hong Kong, we
focused our time on the significant risks and judgemental areas of the audit.
Involvement with Component teams
In establishing our overall approach to the Group audit, we determined the
type of work that needed to be undertaken at the components by the Group audit
team, or by the Component team operating under our instruction. We determined
the appropriate level of involvement to enable us to be satisfied that
sufficient audit evidence had been obtained as a basis for our opinion on the
Group as a whole. The Group audit team, assisted by our internal valuation
specialists in Hong Kong, performed procedures on the valuations of investment
property.
The Group audit team interacted regularly with the Component teams, where
appropriate, during various stages of the audit, reviewed key working papers
and were responsible for the scope and direction of the audit process. This,
together with the additional procedures performed at group level, gave us
appropriate audit evidence for our opinion on the Group's financial
statements.
6. Respective responsibilities of Directors and Auditor
As explained more fully in the Statement of Directors' Responsibilities set
out above, the Directors are responsible for the preparation of the Group's
financial statements and for being satisfied that they give a true and fair
view. Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with the
Auditing Practices Board's Ethical Standards for Auditors.
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.
7. Matters on which we are required to report by exception
ISAs (UK and Ireland) reporting We are required to report to you if, in our opinion, financial and non-financial information in the annual report is:• materially inconsistent with the information in the We have no exceptions to report.
audited financial statements; or• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of
performing our audit; or• otherwise misleading.In particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired in
the course of performing the audit and the Directors' Statement that they consider the annual report and accounts taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess the entity's performance, business model and strategy; and whether the annual report appropriately
addresses those matters that we communicated to the Audit Committee that we consider should have been disclosed.
Listing Rules review requirements We are required by Listing Rules to review: • the Directors' Statement in relation to going concern and longer-term viability, set out above; and • the part of the We have no exceptions to report.
Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate Governance Code specified for our review.
Companies (Guernsey) Law 2008 reporting We are required to report to you if, in our opinion:• proper accounting records have not been kept; or• the financial statements are not in agreement with the We have no exceptions to report.
accounting records; or• we have not received all the information and explanations we require for our audit.
8. Statement on the Directors' Assessment of the Principal Risks that Would
Threaten the Solvency or Liquidity of the Entity
ISAs (UK and Ireland) reporting We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to: • the Directors' confirmation in the annual We have no material to add or to draw attention to.
report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future
performance, solvency or liquidity; • the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated; • 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 theentity's ability to continue to do so over a period of at least 12 months from the date of approval of the financial
statements; and • the Directors' explanation in the annual report as to how they have assessed the prospects of the entity, 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 entity 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.
Andrew Dann
Ernst & Young LLP
Guernsey, Channel Islands
20 September 2016
Note:
1. The maintenance and integrity of the Group's website is the responsibility
of the Directors; the work carried out by the Auditors does not involve
consideration of these matters and, accordingly, the Auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
2. Legislation in Guernsey governing the preparation and dissemination of
group financial statements may differ from legislation in other
jurisdictions.
Consolidated Statement of Financial Position
Note 2016US$'000 2015US$'000
ASSETS
Non-current assets
Investment property 6 206,595 243,810
Deposits with lenders 21 2,113 1,941
Financial assets at fair value through profit or loss - interest rate swap 20 - 174
Trade and other receivables 111 111
208,819 246,036
Current assets
Inventories 7 67,410 67,288
Trade and other receivables 10 1,096 3,279
Deposits with lenders 21 - 709
Cash and cash equivalents 12,741 28,749
81,247 100,025
Total assets 290,066 346,061
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital 12 764 775
Retained earnings 38,724 84,375
Distributable reserves 66,208 69,213
Foreign currency translation reserve 947 1,084
Total equity 106,643 155,447
LIABILITIES
Non-current liabilities
Deferred taxation provision 9 12,782 17,385
Taxation provision 9 2,409 4,924
Interest-bearing loans 8 149,018 146,769
Financial liabilities at fair value through profit or loss - interest rate swap 20 23 -
164,232 169,078
Current liabilities
Taxation provision 9 2,514 -
Trade and other payables 11 1,891 1,773
Interest-bearing loans 8 14,705 19,194
Financial liabilities at fair value through profit or loss - interest rate swap 20 81 569
19,191 21,536
Total liabilities 183,423 190,614
Total equity and liabilities 290,066 346,061
Net Asset Value per share (US$) 17 1.40 2.00
Adjusted Net Asset Value per share (US$) 17 2.96 3.97
The accompanying notes are an integral part of these consolidated financial
statements.
The consolidated financial statements were approved by the Board of Directors
and authorised for issue on 20 September 2016.
Chris Russell Alan Clifton
Director Director
Consolidated Statement of Comprehensive Income
Note 2016US$'000 2015US$'000
Income
Income on sale of inventories 7 1,045 27,906
Rental income 2,109 4,311
Net loss from fair value adjustment on investment property 6 (38,227) (62,048)
Other income 4 11
(35,069) (29,820)
Expenses
Cost of sales of inventories 7 254 11,004
Management fee 19 5,528 8,117
Non-Executive Directors' fees 18 187 231
Auditors' remuneration: audit fees 23 103 90
Auditors' remuneration: non-audit fees 23 32 32
Property operating expenses 15 1,271 1,687
Sales and marketing expenses 77 202
General and administration expenses 13 1,155 1,490
Loss on foreign currency translation 75 194
(8,682) (23,047)
Operating loss for the year (43,751) (52,867)
Finance income and expenses
Net gain on valuation of interest rate swap 20 291 265
Bank loan interest (4,827) (3,901)
Interest expense on interest rate swap 20 (581) (1,035)
Other financing costs 14 (324) (506)
Bank and other interest - 2
(5,441) (5,175)
Loss for the year before tax (49,192) (58,042)
Taxation 9 3,541 5,515
Loss for the year after tax (45,651) (52,527)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations (137) (5)
Total comprehensive loss for the year (45,788) (52,532)
Loss attributable to:
Equity holders of the Company (45,651) (52,527)
Total comprehensive loss attributable to:
Equity holders of the Company (45,788) (52,532)
2016US$ 2015US$
Basic and diluted loss per Ordinary Share attributable to the equity holders of the Company during the year 17 (0.5961) (0.6661)
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Changes in Equity
Note SharecapitalUS$'000 RetainedearningsUS$'000 DistributablereservesUS$'000 Foreign Currency translation reserveUS$'000 TotalUS$'000
Balance brought forward at 1 July 2015 775 84,375 69,213 1,084 155,447
Loss for the year - (45,651) - - (45,651)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - (137) (137)
Total comprehensive loss for the year - (45,651) - (137) (45,788)
Share buyback 12 (11) - (3,005) (3,016)
Balance carried forward at 30 June 2016 764 38,724 66,208 947 106,643
SharecapitalUS$'000 RetainedearningsUS$'000 DistributablereservesUS$'000 Foreign currency translation reserveUS$'000 TotalUS$'000
Balance brought forward at 1 July 2014 814 136,902 84,049 1,089 222,854
Loss for the year (52,527) (52,527)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - (5) (5)
Total comprehensive loss for the year - (52,527) - (5) (52,532)
Share buyback 12 (39) - (14,836) - (14,875)
Balance carried forward at 30 June 2015 775 84,375 69,213 1,084 155,447
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Cash Flows
Note 2016US$'000 2015US$'000
Net cash used in operating activities 16 (4,904) (38,497)
Cash flows from investing activities
Capital expenditure on investment property 6 (1,237) (103)
Movement in pledged bank balances 537 6
Proceeds from disposal of investment property - 6,452
Net cash (used in)/generated from investing activities (700) 6,355
Cash flows from financing activities
Proceeds from bank borrowings 36,266 51,441
Repayment of bank borrowings (38,367) (13,622)
Share buyback 12 (3,016) (14,875)
Interest and bank charges paid (5,400) (5,654)
Net cash (used in)/generated from financing activities (10,517) 17,290
Net movement in cash and cash equivalents (16,121) (14,852)
Cash and cash equivalents at beginning of year 28,749 43,528
Effect of foreign exchange rate changes 113 73
Cash and cash equivalents at end of year 12,741 28,749
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
General information
Macau Property Opportunities Fund Limited (the "Company") is a Company
incorporated and registered in Guernsey under The Companies (Guernsey) Law,
1994. This law was replaced by the Companies (Guernsey) Law, 2008 on 1 July
2008. The Company is an authorised entity under the Authorised Closed-Ended
Investment Schemes Rules 2008 and is regulated by the GFSC. The address of the
registered office is given below.
The consolidated financial statements for the year ended 30 June 2016 comprise
the financial statements of the Company and its subsidiaries (together
referred to as the "Group"). The Group invests in residential and commercial
property and property-related ventures primarily in Macau.
These consolidated financial statements have been approved for issue by the
Board of Directors on 20 September 2016.
1. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all years presented, unless otherwise stated.
Basis of preparation
The consolidated financial statements have been prepared in accordance with
IFRS; applicable legal and regulatory requirements of Guernsey Law and under
the historical cost convention as modified by the revaluation of investment
properties and derivative financial instruments.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity or
areas where assumptions and estimates are significant to the financial
statements are disclosed in Note 3. The consolidated financial statements are
presented in US Dollar and all values are rounded to the nearest thousand
($'000), except where otherwise indicated.
Certain comparative prior year amounts are restated due to reclassification
adjustments in accordance to IAS 1.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Manager's
Report. The financial position of the Group, its cash flows and its liquidity
position are described in the Capital Management section of the Manager's
Report.
The financial risk management objectives and policies of the Group and the
exposure of the Group to credit risk, market risk and liquidity risk are
discussed in Note 2 to the consolidated financial statements.
The Group continues to meet its capital requirements and day-to-day liquidity
needs through the Group's cash resources. As part of their assessment of the
going concern of the Group, the Directors have reviewed the comprehensive cash
flow forecasts prepared by management which make assumptions based upon
current and expected future market conditions, including predicted future
sales of properties. It is the Directors' belief that, based upon these
forecasts and their assessment of the Group's committed banking facilities, it
is appropriate to prepare the financial statements of the Group on a going
concern basis.
At the Extraordinary General Meeting held on 7 April 2014, the shareholders
voted in favour of amending the Company's Articles of Incorporation so that
the next discontinuation vote would take place no later than 31 December 2016.
This was considered a suitable timeframe for the maximisation of the value of
the Company's portfolio. The Directors believe that the forthcoming
Discontinuation Vote does not give rise to a material uncertainty (that might
cast doubt about the Company's ability to continue as a going concern) because
it is highly unlikely that the vote will be carried. Shareholder support of
75% is required to pass the Discontinuation Vote; Sniper Investments, with a
16.6% shareholding, and other major shareholders are supportive of the Board;
and it is likely that returns from sales of properties would be lower if the
Company were forced to sell as a result of discontinuation.
The Directors believe it is appropriate to prepare the financial statements of
the Group on a going concern basis based upon existing cash resources, the
forecasts described above, the expected extension of the life of the Company
and the Directors' assessment of the Group's committed banking facilities and
expected continuing compliance with related covenants.
New and amended standards and interpretations adopted by the Group
There have been no new standards or amendments to existing standards
applicable during the current year.
New and amended standards and interpretations not applied
The following new and amended standards and interpretations in issue are
applicable to the Group but are not yet effective or have not been adopted by
the European Union and therefore, have not been adopted by the Group:
Effective dates
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