REG - Macau Prop Opp Fund - Final Results for the period ended 30 June 2016 <Origin Href="QuoteRef">MPO.L</Origin> - Part 4
21/09/2016 07:06
- Part 4: For the preceding part double click ID:nRSU3817Kc
no earlier than
IFRS 9 Financial instruments 1 January 2018
IFRS 15 Revenue from contracts with customers 1 January 2018
IFRS 11 Accounting for acquisitions of interests in Joint Operations amendments 1 January 2016
IAS 1 Disclosure Initiative - amendments to IAS 1 1 January 2016
IRFS 19 Leases 1 January 2019
Various Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying Consolidation Exemption 1 January 2016
The Directors anticipate that with the exception of IFRS 9 (the impact of
which will be assessed closer to the effective date), the adoption of these
standards and interpretations in the period of initial application will not
have a material impact on the financial statements of the Group.
Consolidation
The consolidated financial statements incorporate the financial statements of
the Company and all SPVs controlled by the Company (its subsidiaries). Control
is achieved when the Group is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns
through its power over the investee. The financial statements of subsidiaries
are included in the consolidated financial statements from the date control
commences until the date control ceases. Certain of the Company's subsidiaries
have non-coterminous year-ends. These companies are consolidated on the basis
of actual transactions occurring within the financial year.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns different from
those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that
are subject to risks and returns different from those segments operating in
other economic environments.
The Directors are of the opinion that the Group is engaged in a single segment
of business, being property investment and related business. This segment
includes residential and commercial properties and property-related ventures
primarily in Macau. Please refer to Note 5 for segment reporting.
Foreign currency translation
a) Presentation currency
Items included in the financial statements of each of the Group entities are
measured using the currency of the primary economic environment in which the
entity operates, Macanese Patacas (the "functional currency"). The
consolidated financial statements are presented in US Dollars ("US$") which is
the Group's presentation currency.
b) Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the date of the transaction. Foreign
exchange gains and losses - resulting from the settlement of such transactions
and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies - are recognised in the
Consolidated Statement of Comprehensive Income.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates at the date of the initial
transaction. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value is
determined. The gain or loss arising on translation of non-monetary items
measured at fair value is treated in line with the recognition of gain or loss
on change in fair value of the item (i.e. translation differences on items
whose fair value gain or loss is recognised in other comprehensive income or
profit or loss are also recognised in other comprehensive income or profit or
loss).
Any goodwill arising on the acquisition of a foreign operation and any fair
value adjustments to the carrying amounts of assets and liabilities arising on
the acquisition are treated as assets and liabilities of the foreign operation
and translated at the closing rate.
c) Group companies
The results and financial position of all the Group entities that have a
functional currency different from the presentation currency are translated
into the presentation currency as follows:
i) assets and liabilities for each statement of financial position are
presented at the closing rate at the date of that statement of financial
position;
ii) income and expenses for each statement of comprehensive income are
translated at average exchange rates;
iii) all resulting exchange differences are recognised as a separate component
of other comprehensive income; and
iv) on disposal of a foreign operation, the component of other
comprehensive income relating to that particular foreign operation is
recognised in profit or loss.
Foreign currency translation reserve
Foreign currency differences arising on translation of foreign operations into
the Group's presentation currency are recognised in other comprehensive income
and presented in the foreign currency translation reserve in equity.
Investment property
Property that is held for long-term rental yields or for capital appreciation
or both, and that is not occupied by companies in the consolidated Group, is
classified as investment property. Investment property also includes property
that is being constructed or developed for future use as investment property.
Investment property is measured initially at its cost, including related
transaction costs.
Subsequent expenditure is capitalised to the asset's carrying amount only when
it is probable that future economic benefits associated with the item will
flow to the Group and the cost of the item can be measured reliably. All other
repairs and maintenance costs are charged to the Consolidated Statement of
Comprehensive Income during the financial period in which they are incurred.
After initial recognition, investment property is carried at fair value.
Fair value measurements
The Group measures certain financial instruments such as derivatives, and
non-financial assets such as investment property, at fair value at the end of
each reporting period. Also, fair values of financial instruments measured at
amortised cost are disclosed in the financial statements.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place
either:
• in the principal market for the asset or liability; or
• in the absence of a principal market, in the most advantageous market for
the asset or liability.
The Group must be able to access the principal or the most advantageous market
at the measurement date. The fair value of an asset or a liability is measured
using the assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their economic
best interest.
A fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its
highest and best use, or by selling it to another market participant that
would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs significant to the fair value measurement as a whole:
Level 1 - inputs that reflect unadjusted quoted prices in active markets for
identical assets or liabilities that the Group has the ability to access at
the measurement date;
Level 2 - inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (that is, prices) or
indirectly (that is, derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs).
For assets and liabilities that are recognised in the financial statements on
a recurring basis, the Group determines whether transfers have occurred
between levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
Fair value of investment property
Fair value is based on active market prices, adjusted, if necessary, for any
difference in the nature, location or condition of the specific investment
property.
If this information is not available, the Group uses alternative valuation
methods such as recent prices on less active markets or discounted cash flow
projections. Valuations are prepared semi-annually by Savills, who holds
recognised and relevant professional qualifications and has recent experience
in the location and category of the investment properties being valued.
Investment property that is being redeveloped for continuing use as investment
property continues to be measured at fair value, if the fair value is
considered to be reliably measurable. Changes in fair values are recorded in
the Consolidated Statement of Comprehensive Income.
Fair value of interest rate swaps
The Group's derivative financial instruments are financial assets and
liabilities at fair value through profit and loss.
Financial instruments classified at fair value through profit or loss are
recognised on trade date, which is the date on which the Group commits to
purchase the asset or to assume the liability and are carried at fair value
and presented as financial assets or liabilities at fair value through profit
or loss. Related realised and unrealised gains and losses are included in net
gains/(losses) on financial assets/liabilities at fair value through profit or
loss.
Fair value is calculated through the use of discounted cash flows based on the
contracted interest rates.
Inventories
Properties and land that are being held or developed for future sale are
classified as inventories. In the opinion of the Board, inventories are held
with a view to short term sale in the ordinary course of business. They are
individually carried at the lower of cost and NRV. NRV is the estimated
selling price in the ordinary course of business less costs to complete
redevelopment and selling expenses. Cost is the acquisition cost together with
subsequent capital expenditure incurred, including capitalised interest where
relevant.
Borrowing costs
Borrowing costs incurred for the purpose of acquiring, constructing or
producing a qualifying asset, such as investment property or inventory, are
capitalised as part of the cost. Borrowing costs are capitalised while the
acquisition or construction is actively underway, and cease once the asset is
substantially complete, or suspended if the development is suspended. All
other borrowing costs are expensed in the period in which they occur.
Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds. The interest capitalised is calculated
using the Group's weighted average cost of borrowing after adjusting for
borrowing associated with specific developments. Where borrowings are
associated with specific developments, the amount capitalised is the gross
interest incurred on those borrowings less any investment income arising from
their temporary investment.
Impairment
Financial assets
A financial asset is carried at fair value through profit or loss if it falls
within the scope of IAS 39. A financial asset not carried at fair value
through profit or loss is assessed at each reporting date to determine whether
there is objective evidence that it is impaired. A financial asset is impaired
if objective evidence indicates that a loss event has occurred after the
initial recognition of the asset, and that the loss event had a negative
effect on the estimated future cash flows of that asset that can be estimated
reliably.
Losses are recognised in the Consolidated Statement of Comprehensive Income.
When a subsequent event causes the amount of impairment loss to decrease, the
decrease in impairment loss is reversed through the Consolidated Statement of
Comprehensive Income.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other than
investment property are reviewed at each reporting date to determine whether
there is any indication of impairment. If any of such indication exists, then
the asset's recoverable amount is estimated. The recoverable amount of an
asset or cash-generating unit is the greater of its value in use and its fair
value less costs to sell.
Leases
Leases in which the Group does not transfer substantially all the risks and
benefits of ownership to a lessee are classified as operating leases. Initial
direct costs incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognised over the term of the lease
on the same basis as rental income. Contingent rents are recognised as revenue
in the period in which they are earned.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment. A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not collect all amounts
due according to the original terms of the receivables. Significant financial
difficulties of the debtor, probability that the debtor will enter bankruptcy
or financial reorganisation, and default or delinquency in payments (more than
30 days overdue) are considered indicators that the trade receivable is
impaired. The amount of the provision is the difference between the asset's
carrying amount and the present value of estimated future cash flows,
discounted at the original effective interest rate. The carrying amount of the
asset is reduced through the use of an allowance account, and the amount of
the loss is recognised in the Consolidated Statement of Comprehensive Income.
When a trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries of amounts
previously written off are credited in the Consolidated Statement of
Comprehensive Income.
Cash and cash equivalents
Cash and cash equivalents in the Consolidated Statement of Financial Position
comprise cash at bank and on hand and demand deposits with an original
maturity of three months or less and other short-term, highly-liquid
investments that are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value. For the purpose of the
Consolidated Statement of Cash Flows, cash and cash equivalents consist of
cash and cash equivalents as defined above. Deposits with lenders are excluded
and not considered cash and cash equivalents.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and the amount can be
reliably estimated.
Share capital
Shares are classified as equity when there is no obligation to transfer cash
or other assets. Shares issued by the Company are recorded based upon the
proceeds received, net of incremental costs directly attributable to the issue
of new shares.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable, and includes rental income and income from property trading.
Rental income
Rental income from operating leases is recognised in income on a straight-line
basis over the lease term. When the Group provides incentives to its
customers, the cost of incentives is recognised over the lease term, on a
straight-line basis, as a reduction of rental income.
Sale of completed property
A property is regarded as sold when the significant risks and returns have
been transferred to the buyer, which is normally on unconditional exchange of
contracts. On disposal, a property that is held by a single-asset subsidiary
and when disposal is achieved through the sale of such subsidiary and where it
is judged as an asset disposal, the proceeds from disposal thereof are
recognised in income and net assets disposed of, excluding long-term debt, are
recognised in cost of sales in expenses. For conditional exchanges, sales are
recognised only when all the significant conditions are satisfied.
Sale of property under development
Where property is under development and an agreement has been reached to sell
such property when construction is complete, and where the Directors determine
the pre-sale to constitute the sale of a completed property, revenue is
recognised when the significant risks and rewards of ownership of the real
estate have been transferred to the buyer.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs of
the loan to the extent that it is probable that some or all of the facility
will be drawn down and are subsequently measured at amortised cost using the
effective interest method.
Borrowings are classified as current liabilities, unless the Group has an
unconditional right to defer settlement of the liability for at least 12
months after the date of the statement of financial position.
Finance income and expenses
Interest income is recognised using the effective interest rate method in the
Consolidated Statement of Comprehensive Income.
Finance costs comprise interest expense on borrowings. Interest expense is
recognised using the effective interest rate method in the Consolidated
Statement of Comprehensive Income.
Distributable reserves
Distributable reserves consist of share premium and are part of the Group's
reserve account that may be legally paid out in the form of a dividend.
Payments to shareholders from reserves can be seen as a distribution of
capital, rather than accumulated profit.
Offsetting
Financial assets and financial liabilities are offset and the net amount is
reported in the statement of financial position if there is a currently
enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the assets and to settle the
liabilities simultaneously.
Taxes
Current income tax
Current income tax assets and liabilities are measured at the amount expected
to be recovered from or paid to taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively
enacted by the reporting date. Current income tax relating to items recognised
directly in equity is recognised in equity and not in the Consolidated
Statement of Comprehensive Income. Management periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions where
appropriate.
Deferred income tax
Deferred income tax is provided using the liability method on all temporary
differences at the reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
except where the timing of the reversal of the temporary differences can be
controlled by the Group and it is probable that the temporary differences will
not reverse in the foreseeable future.
Deferred income tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which deductible
temporary differences, carried forward tax credits or tax losses can be
utilised.
Deferred income tax assets and liabilities are measured at the tax rates that
are expected to apply to the year when the asset is realised or the liability
is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date. Deferred income tax relating to
items recognised directly in equity is recognised in equity and not in the
Consolidated Statement of Comprehensive Income.
As a result of the discussion of the IFRS Interpretations Committee in its
July 2014 meeting relating to deferred taxation for a single asset held by a
corporate wrapper, the Group has recognised the deferred tax liability for the
taxable temporary timing difference relating to the investment property
carried at fair value.
2. Financial risk management, policies and objectives
The Group's activities expose it to a variety of financial risks: market risk
(including foreign exchange risk, price risk and cash flow and fair value
interest rate risk), credit risk and liquidity risk.
The Board of Directors provides written principles for overall risk
management, as well as written policies covering specific areas, such as
foreign exchange risk, interest rate risk and liquidity risk.
Market risk
Market risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate as a result of changes in market prices,
whether caused by factors specific to an individual financial instrument or
all factors affecting all financial instruments traded in the market including
foreign exchange risk, equity price risk and cash flow and fair value interest
rate risk as detailed below.
The Group's market risk is managed by the Manager in accordance with policies
and procedures in place as disclosed in the Group's prospectus which is
available on the Group's website. The Group's overall market position is
monitored on a quarterly basis by the Board of Directors.
Sensitivities to market risks included below are based on a change in one
factor while holding all other factors constant. In practice, this is
unlikely
to occur and changes in some of the factors may be correlated, for example,
changes in interest rates and changes in foreign currency rates.
a) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk
arising from various currency exposures. Foreign exchange risk arises from
future commercial transactions, recognised monetary assets and liabilities and
net investments in foreign operations. The Group's policy is not to enter into
any currency hedging transactions. The tables below summarise the Group's
exposure to foreign currency risk as at 30 June 2016 and 30 June 2015. The
Group's financial assets and liabilities are included in the table,
categorised by their currency at their carrying amount in US$'000. In the
current economic climate, management's assessment of a reasonable possible
change in foreign exchange rates would be up to a 1% increase/decrease for
Hong Kong Dollar ("HK$")/US$, due to the HK$ being pegged to the US$, and up
to a 10% increase/decrease for all other currencies.
The table below presents financial assets and liabilities denominated in
foreign currencies held by the Group as at 30 June 2016 and 30 June 2015, and
can be used to monitor foreign currency risk as at that date.
At 30 June 2016, if Sterling weakened/strengthened by 10% against US$ with all
other variables held constant, the post-tax loss for the year and movement in
foreign currency translation reserve would have been US$11,000 higher/lower
(2015: US$32,000 higher/lower). Any movement would have no other effect on the
remaining equity components of the Group. The HK$ is pegged to US$ with the
Hong Kong Monetary Authority pledging to keep the exchange rate within a
trading band of 5 Hong Kong cents either side of HK$7.80 per dollar. If the
HK$ weakened/strengthened by 1% against the US$ with all other variables held
constant, the post-tax loss for the year and movement in foreign currency
translation reserve would have been US$1,489,000 higher/lower
(2015: US$1,329,000 higher/lower). Any movement would have no other effect on
the remaining equity components of the Group.
The Macanese Patacas ("MOP") is fixed to the HK$ at a rate of MOP:HK$ of 1.03.
Due to the low level of assets held in this currency, a 10% change in rate
would not have a significant effect on the consolidated financial statements.
Movements in other currencies would not have a significant impact on the
consolidated financial statements.
US$'000 £'000 HK$'000 Othercurrencies'000 TotalUS$'000
As at 30 June 2016
Trade and other receivables (excluding prepayments) - - 1,013 111 1,124
Cash and cash equivalents - 66 12,638 37 12,741
Deposits with lenders - - 2,113 - 2,113
Total financial assets - 66 15,764 148 15,978
Trade and other payables 114 172 23 1,582 1,891
Interest-bearing loans - - 164,514 - 164,514
Financial liabilities at fair value through profit or loss - - 104 - 104
Total financial liabilities 114 172 164,641 1,582 166,509
Net financial position (114) (106) (148,877) (1,434) (150,531)
US$'000 £'000 HK$'000 Othercurrencies'000 TotalUS$'000
As at 30 June 2015
Trade and other receivables (excluding prepayments) - - 3,190 111 3,301
Cash and cash equivalents 1 41 28,511 196 28,749
Deposits with lenders - - 2,650 - 2,650
Financial assets at fair value through profit or loss - - 174 - 174
Total financial assets 1 41 34,525 307 34,874
Trade and other payables - 362 59 1,352 1,773
Interest-bearing loans - - 166,770 - 166,770
Financial liabilities at fair value through profit or loss - - 569 - 569
Total financial liabilities - 362 167,398 1,352 169,112
Net financial position 1 (321) (132,873)) (1,045) (134,238)
b) Cash flow and fair value interest rate risk
The Group is exposed to fair value interest rate risk with regards to its
interest rate swaps through the variability of the valuation of the interest
rate swaps caused by changes in the market expectations about future interest
rates and other variables.
Under the terms of the swap contracts, if the swap rates were to
increase/decrease by 1% with all other variables held constant, this would
result in the post tax profit being US$556,000 higher/US$468,000 lower (2015:
US$968,000 higher/US$1,046,000 lower). Any movement would have no other effect
on the remaining equity components of the Group.
Unexpected volatility or illiquidity in the markets in which the Group holds
positions can impair the Group's ability to conduct its business or cause it
to incur losses.
The Group's interest rate risk is managed by the Manager, in accordance with
policies and procedures in place and mitigated through the use of interest
rate swaps (see Note 20). The Group's overall positions and exposures are
monitored on a quarterly basis by the Board of Directors.
If interest rates had been 1% higher and all other variables were held
constant, the Group's loss for the year would have increased by US$1,497,000
(2015: US$1,354,000) (based on the interest bearing net financial liability
per the table below). This is mainly due to the Group's exposure to
interest-bearing loans. The majority of loans are hedged, see details below.
The following table details the Group's exposure to interest rate risks:
InterestbearingUS$'000 Non-interestbearingUS$'000 TotalUS$'000
As at 30 June 2016
Trade and other receivables (excluding prepayments) - 1,124 1,124
Cash and cash equivalents 12,741 - 12,741
Deposits with lenders 2,113 - 2,113
Total financial assets 14,854 1,124 15,978
Trade and other payables - 1,891 1,891
Interest-bearing loans 164,514 - 164,514
Financial liabilities at fair value through profit or loss - 104 104
Total financial liabilities 164,514 1,995 166,509
InterestbearingUS$'000 Non-interestbearingUS$'000 TotalUS$'000
As at 30 June 2015
Trade and other receivables (excluding prepayments) - 3,301 3,301
Cash and cash equivalents 28,749 - 28,749
Deposits with lenders 2,650 - 2,650
Financial assets at fair value through profit or loss - 174 174
Total financial assets 31,399 3,475 34,874
Trade and other payables - 1,773 1,773
Interest-bearing loans 166,770 - 166,770
Financial liabilities at fair value through profit or loss - 569 569
Total financial liabilities 166,770 2,342 169,112
The Group has entered into various interest rate swaps as disclosed in Note
20.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Group. The Group is exposed to credit risks from both its leasing
activities and financing activities, including deposits with banks and
financial institutions.
The Group's main exposure to credit risk is its balances with banks. This risk
is mitigated through using banks with a high credit rating.
The Group's deposits, including deposits with lenders, are split by banks with
the following ratings from Fitch and Moody's Ratings:
Credit Rating 2016US$'000 2015US$'000
AA- 273 2,679
A+ 2,411 28
A 15 17
A- 16 22,617
BBB+ 12,117 6,058
BBB 22 -
14,854 31,399
The Group is exposed to loss of rental income and increase in costs, such as
legal fees, if tenants fail to meet their payment obligations under their
leases. The Group seeks to mitigate default risk by diversifying its tenant
base and requiring deposits or guarantees from banks or parent companies,
where there is a perceived credit risk or in accordance with prevailing market
practice.
All of the Group's major tenants have met their rental requirements within the
terms of arrangement and no material receivables have not been impaired which
are past due.
The maximum exposure to credit risk at the reporting date is the carrying
value of each class of financial asset.
Liquidity risk
The Group adopts a prudent approach to liquidity management and maintains
sufficient cash reserves and borrowings to meet its obligations. The Group
maintains sufficient cash and obtains funding through credit facilities to
meet its current liabilities and property development expenditure.
Of the Group's total exposure to banks of US$14,854,000 (2015: US$31,399,000),
deposits amounting to US$2,113,000 (2015: US$2,650,000) have been pledged to
secure banking facilities, of which US$2,113,000 (2015: US$1,941,000) relates
to long-term banking facilities, and are, therefore, classified as non-current
assets. Pledged bank balances represent deposits pledged to the banks to
secure the banking facilities granted to the Group.
The Group has term loan facilities with Hang Seng Bank, Industrial and
Commercial Bank of China, and Banco Tai Fung for its investments in The
Waterside, individual units in One Central Residences, Estrada da Penha, and
The Fountainside. The Group's liquidity position is monitored by the Manager
and is reviewed quarterly by the Board of Directors. Please refer to Note 8
for details of the facilities.
The table on the right analyses the Group's financial assets and liabilities
into relevant maturity profiles based on the remaining period at the
Consolidated Statement of Financial Position date to the contractual maturity
date. The amounts disclosed in the table are the contractual undiscounted cash
flows (including interest payments).
As at 30 June 2016 On demandUS$'000 Less than3 monthsUS$'000 3 to 12monthsUS$'000 1 to 2yearsUS$'000 2 to 5yearsUS$'000 Over 5 years US$'000 TotalUS$'000
Trade and other receivables (excluding prepayments) - 1,006 7 111 - - 1,124
Cash and cash equivalents 12,741 - - - - - 12,741
Deposits with lenders - - - - 2,113 - 2,113
Total financial assets 12,741 1,006 7 111 2,113 - 15,978
Trade and other payables - 1,211 680 - - - 1,891
Interest-bearing loans - 2,690 16,978 43,370 115,808 - 178,846
Financial liabilities at fair value through profit or loss - 38 43 23 - - 104
Total financial liabilities - 3,939 17,701 43,393 115,808 - 180,841
Net financial position 12,741 (2,933) (17,694) (43,282) (113,695) - (164,863)
As at 30 June 2015 On demandUS$'000 Less than3 monthsUS$'000 3 to 12monthsUS$'000 1 to 2yearsUS$'000 2 to 5yearsUS$'000 Over 5 years US$'000 TotalUS$'000
Trade and other receivables (excluding prepayments) - 3,183 7 111 - - 3,301
Cash and cash equivalents 28,749 - - - - - 28,749
Deposits with lenders - - 709 - 1,941 - 2,650
Financial assets at fair value through profit or loss - - - 47 127 - 174
Total financial assets 28,749 3,183 716 158 2,068 - 34,874
Trade and other payables - 821 952 - - - 1,773
Interest-bearing loans - 5,317 18,421 31,184 82,804 44,240 181,966
Financial liabilities at fair value through profit or loss - 258 311 - - - 569
Total financial liabilities - 6,396 19,684 31,184 82,804 44,240 184,308
Net financial position 28,749 (3,213) (18,968) (31,026) (80,736) (44,240) (149,434)
Fair value hierarchy
Financial investments measured at fair value
IFRS 13 requires disclosure of fair value measurements by level as discussed
in Note 1.
The Group's interest rate swaps have been classified within Level 2 which
makes use of a model with inputs that are directly or indirectly observable
market data. The following table presents the value carried on the
Consolidated Statement of Financial Position by level within the valuation
hierarchy as at 30 June 2016:
As at30 June 2016US$'000 As at30 June 2015US$'000
Non-current assets - 174
Non-current liabilities (23) -
Current liabilities (81) (569)
Net interest rate swap liabilities (104) (395)
The fair value of the interest rate swaps is determined from proprietary
models based upon recognised financial principles and reasonable estimates
about relevant future market conditions. The inputs used in fair valuing the
interest rate swaps are swap rates, date convention, calculation periods,
transactional costs and other costs. There have been no changes in the
valuation technique during the year. The interest rate swaps have been fair
valued at each reporting period. There have been no transfers between levels.
As stated above, movements in the significant unobservable inputs upon which
the fair value is calculated, would have an effect on the overall fair market
value of the interest rate swaps. The Board believes that a reasonable
sensitivity range expected in each input would be a flat movement of +/- 1%.
For all financial instruments, other than those recognised at fair value or
whose fair value is disclosed within these financial statements, carrying
value of the financial asset/liability is an approximation of their fair
value.
Capital risk management
The Group's objectives, when managing capital, are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders, and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt. During the year ended 30 June
2016, there were no borrowings other than the Group's loan facilities in place
which are classified as interest bearing loans in the Consolidated Statement
of Financial Position.
Discount management policy
The Board's intention is to apply an active discount management policy, buying
back shares if there is a significant discount of share price to Adjusted Net
Asset Value ("Adjusted NAV") for a sustained period of time, subject to cash
flow operating needs of the Company. During the year, the Company has
purchased 1,101,000 (2015: 3,881,036) ordinary shares at a weighted average
price of 176.64p (2015: 237.75p) as per Note 12. All of the shares bought back
were cancelled.
Shares which are bought back by the Company may either be cancelled or held in
treasury and subsequently re-issued. Pursuant to the Companies (Guernsey) Law,
the number of shares of any class held as treasury shares must not, at any
time, exceed 10% of the total number of issued shares of that class at that
time. The authority to buy back up to 14.99% per annum of shares in issue is
renewed at each Annual General Meeting of the Company by special resolution.
The Board remains committed to an active discount management policy.
3. Critical accounting estimates, assumptions and judgement
The management makes estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, seldom equal the actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are outlined below:
a) Fair value of the investment property, NRV and Adjusted NAV are based on
the current market valuation provided by Savills, an independent valuer.
Savills is required to make assumptions on establishing the current market
valuation. The most significant assumptions (as described further in Note 6),
relate to estimating costs to complete property under development, future
income streams and discount rates applicable to these estimates. The valuation
has been made on the assumption that the owner sells the properties in the
open market without a deferred term contract, leaseback, joint venture,
management agreement or any similar arrangement, which could serve to affect
the value of the properties.
b) Inventory is stated at the lower of cost and NRV. NRV for completed
inventory property is assessed with reference to market conditions and prices
existing at the reporting date, and is determined by the Group, having taken
suitable external advice and in the light of recent market transactions. NRV
in respect of inventory property under construction (see Note 7), is assessed
with reference to market prices at the reporting date for similar completed
property, less estimated costs to complete construction and less an estimate
of the time value of money to the date of completion.
c) Deferred tax liabilities are recognised for potential tax charges to the
extent that it is probable that taxable profits will exceed taxable losses,
against which can be utilised. Significant management judgement is required to
determine the amount of deferred tax liabilities that can be recognised, based
upon the likely timing and the level of future taxable profits, together with
future tax planning strategies.
The Group did not make any critical accounting judgement, other than as
described above, in the year ended 30 June 2016 or the year ended 30 June
2015.
4. Subsidiaries
All SPVs are 100% owned by the Company. The following subsidiaries have a year
end of 31 December to coincide with the Macanese tax year:
Macau (Site 1) Limited MPOF Macau (Site 2) Limited
Macau (Site 4) Limited MPOF Macau (Site 5) Limited
MPOF Macau (Site 6) Limited Macau (Site 7) Limited
Macau (Site 8) Limited Macau (Site 9) Limited
Macau (Site 10) Limited The Fountainside Company Limited
The Waterside Company Limited Castelo Branco Companhia Limitada
Braga Companhia Limitada Vila Real Companhia Limitada
Portalegre Companhia Limitada
During the current year, the following Hong Kong companies - Goldex Properties
Limited and Honway Properties Limited - were liquidated. The following BVI
companies - Multi Gold International Limited and Gainsun Investments Limited -
were liquidated after their underlying properties were disposed of. Please
refer to Note 7 for further details of inventories disposed of during the
year.
The consolidated financial statements include the financial statements of the
Company and the subsidiaries listed below:
Ownership Incorporation Ownership Incorporation
Macau (Site 1) Limited 100% Macau MPOF (7B) Limited 100% Guernsey
MPOF Macau (Site 2) Limited 100% Macau MPOF (8A) Limited 100% Guernsey
Macau (Site 4) Limited 100% Macau MPOF (8B) Limited 100% Guernsey
MPOF Macau (Site 5) Limited 100% Macau MPOF (9A) Limited 100% Guernsey
MPOF Macau (Site 6) Limited 100% Macau MPOF (9B) Limited 100% Guernsey
Macau (Site 7) Limited 100% Macau MPOF (10A) Limited 100% Guernsey
Macau (Site 8) Limited 100% Macau MPOF (10B) Limited 100% Guernsey
Macau (Site 9) Limited 100% Macau MPOF Mainland Company 1 Limited 100% Barbados
Macau (Site 10) Limited 100% Macau Bream Limited 100% Guernsey
The Waterside Company Limited 100% Macau Cannonball Limited 100% Guernsey
Braga Companhia Limitada 100% Macau Civet Limited 100% Guernsey
Portalegre Companhia Limitada 100% Macau Gorey Hills International Limited 100% BVI
The Fountainside Company Limited 100% Macau Hillsleigh Holdings Limited 100% BVI
Castelo Branco Companhia Limitada 100% Macau Jin Mei International Limited 100% BVI
Vila Real Companhia Limitada 100% Macau Mega League Investments Limited 100% BVI
MPOF (Penha) Limited 100% Guernsey Poly Advance Management Limited 100% BVI
MPOF (Taipa) Limited 100% Guernsey Smooth Run Group Limited 100% BVI
MPOF (Jose) Limited 100% Guernsey Worthy Way Limited 100% BVI
MPOF (Sun) Limited 100% Guernsey China City Properties Limited 100% Hong Kong
MPOF (Monte) Limited 100% Guernsey East Base Properties Limited 100% Hong Kong
MPOF (Paulo) Limited 100% Guernsey Eastway Properties Limited 100% Hong Kong
MPOF (Guia) Limited 100% Guernsey Elite Gain Limited 100% Hong Kong
MPOF (Antonio) Limited 100% Guernsey Glory Properties Limited 100% Hong Kong
MPOF (6A) Limited 100% Guernsey New Perfect Properties Limited 100% Hong Kong
MPOF (6B) Limited 100% Guernsey Pacific Asia Properties Limited 100% Hong Kong
MPOF (7A) Limited 100% Guernsey Weltex Properties Limited 100% Hong Kong
5. Segment reporting
The Chief Operating Decision Maker (the "CODM") in relation to the Company is
deemed to be the Board itself. The factors used to identify the Group's
reportable segments are centred on asset class and differences in both
geographical area and regulatory environment. Furthermore, foreign exchange
and political risks are identified, as these also determine where resources
are allocated.
Based on the above and a review of information provided to the Board, it has
been concluded that the Group is currently organised into one reportable
segment based on the geographical area, Macau.
This segment includes residential, commercial and mixed-use properties.
Furthermore, there are multiple individual properties that are held within
each property type. However, the CODM considers, on a regular basis, the
operating results and resource allocation of the aggregated position of all
property types as a whole, as part of their on-going performance review. This
is supported by a further breakdown of individual property groups only to help
support their review and investment appraisal objectives.
Information about major customers
The Group does not have any customers or rental agreements which represent
more than 10% of Group's revenues. Revenues represented by rental income were
US$2,109,000 for the year ended 30 June 2016 (2015: US$4,311,000).
6. Investment property
2016US$'000 2015US$'000
At the beginning of the year 243,810 306,575
Capital expenditure on property * 1,237 (631)
Fair value adjustment (38,227) (62,048)
Exchange difference (225) (86)
Balance at end of the year 206,595 243,810
* Stamp duty expenditure relating to the purchase of The Waterside had been
capitalised in the year ended 30 June 2014. During the prior year, the stamp
duty was settled at an amount equal to US$734,000, less than estimated
initially. This amount has been removed from the asset cost as at 30 June
2015.
Valuation gains and losses from investment property are recognised in profit
and loss for the period, and are attributable to changes in unrealised gains
or losses relating to investment property (completed and under construction)
held at the end of the reporting period.
The valuation process is initiated by the Investment Adviser who appoints a
suitably qualified valuer to conduct the valuation of the investment property.
The results are overseen by the Investment Adviser. Once satisfied with the
valuations based on their expectations, the Investment Adviser reports the
results to the Board. The Board reviews the latest valuation based on their
knowledge of the property market and compares these to previous valuations.
The Group's investment properties were revalued at 30 June 2016 by
independent, professionally-qualified valuer, Savills. The valuation has been
carried out in accordance with the current Royal Institution of Chartered
Surveyors (RICS) Appraisal and Valuation Standards to calculate the market
value of the investment properties in their existing state and physical
condition, with the assumptions that:
• The owner sells the property in the open market without any arrangement,
which could serve to affect the value of the property.
• The property is held for investment purposes.
• The property is free from encumbrances, restrictions and outgoings of any
onerous nature which could affect its value.
The fair value of investment property is determined by Savills, using
recognised valuation techniques. The technique deployed was the income
capitalisation method. The determination of the fair value of investment
property requires the use of estimates such as future cash flows from assets
(such as lettings, tenants' profiles, future revenue streams, capital values
of fixtures and fittings, plant and machinery, any environmental matters and
the overall repair and condition of the property) and discount rates
applicable to those assets. These estimates are based on local market
conditions existing at the reporting date.
Capital expenditure on property during the year relates to fit-out costs for
The Waterside.
Rental income arising from The Waterside of US$2,109,000 (2015: US$4,311,000)
was received during the year. Direct operating expenses of US$967,000 (2015:
US$1,400,000) arising from The Waterside that generated rental income were
incurred during the year. Direct operating expenses during the year arising
from vacant units totalled US$325,000 (2015: US$159,000).
There are no disposals of investment property during the year.
The following table shows the assumptions used in valuing the investment
property, which is classified as Level 3 in the fair value hierarchy:
Property by information Carrying amount / fair value as at 30 Jun 2016US$'000 Valuationtechnique Input Unobservable andobservable inputs used indetermination of fair values Other keyinformation
Name The Waterside 206,595 Term andReversionAnalysis Term rent(inclusive of managementfee and furniture) HK$19.5 psf Age of building
Type Residential/Completedapartments Term yields(exclusive of managementfee and furniture) 1.6% - 2.4% Remaining useful lifeof building
Location One CentralTower 6 Macau Reversionary rent(exclusive of managementfee and furniture) HK$19.0 psf
Reversionary yield 2.0%
The fair value of The Waterside is determined using the income approach, more
specifically a term and reversion analysis, where a property's fair value is
estimated based on the rent receivable and normalised net operating income
generated by the property, which is divided by the capitalisation (discount)
rate. The difference between gross and net rental income includes the same
expense categories as those for the discounted cash flow method with the
exception that certain expenses are not measured over time, but included on
the basis of a time weighted average, such as the average lease up costs.
Under the income capitalisation method, over- and under-rent situations are
separately capitalised (discounted).
If the estimated reversionary rent increased/decreased by 5%, (and all other
assumptions remained the same), the fair value of The Waterside would
increase/decrease by US$10 million.
If the term or revisionary yield increased/decreased
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