REG - Macau Prop Opp Fund - Final Results for the period to 30 June 2015 <Origin Href="QuoteRef">MPO.L</Origin> - Part 2
24/09/2015 07:01
- Part 2: For the preceding part double click ID:nRSX0287Aa
"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 have 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 boards should
fully meet their obligations in relation to the UK Code and paragraph 9.8.6 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 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 Guernsey Financial Services Commission ("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 UK 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 five Non-Executive Directors, four of whom, including the Chairman, David Hinde, are independent of
the Company's Manager and Investment Adviser. Thomas Ashworth is a shareholder and 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 one independent Non-Executive
Director to be the senior independent Director. The Board, having taken into account its small size and that the 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. Mr
Ashworth will retire annually pursuant to the listing rules of the Financial Conduct Authority ("Listing Rules") 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. David Hinde has decided not to offer himself for
re-election and will therefore retire from the Board at the AGM.
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 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, to give sufficient attention to strategy, the Board discusses
strategy at each of its regular scheduled meetings but additionally 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 presented below.
Management Engagement Committee
The Management Engagement Committee Report is presented below.
Audit Committee
The Audit Committee Report is presented below.
Meeting Attendance
Name Scheduled Board Meeting(max 4) Other Board Meeting(max 2) Audit Committee(max 4) Nomination and Remuneration Committee(max 1) Management Engagement Committee(max 1)
David Hinde* 4 1 - 1 1
Thomas Ashworth** 4 2 - 1 -
Alan Clifton 4 1 4 1 1
Wilfred Woo 4 2 4 1 1
Chris Russell 4 2 4 1 1
*Mr Hinde is not a member of the Audit Committee
**Mr 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. Further, at
each Board meeting, the Board receives reports from the Company Secretary and Administrator in respect of compliance
matters and duties performed by it 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, their continuing appointment of the Manager on the terms agreed is in the interests 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 it is 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 of 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 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.
- 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 disputes, 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 clamp down by the PRC Government on corruption and money laundering.
There is an on-going 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 below.
The Group's financial risks and uncertainties are further discussed in Note 2 to the consolidated financial statements.
On behalf of the Board
Alan Clifton
Director
23 September 2015
Nomination and Remuneration Committee Report
Summary of the role of the Nomination and Remuneration Committee
The Nomination and Remuneration Committee regularly review 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 Board 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
functioning of its members. It is the Company's policy to give careful consideration to issues of Board 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 board 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 above.
Meetings
The Committee shall meet at least once a year and otherwise as required. Meetings of the 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 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 Committee members and to other attendees as appropriate, at the same
time. Any Non-Executive Directors who are not considered independent will not take part in the 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 Mr. Ashworth and Mr. Clifton should be submitted for re-election at the
Annual General Meeting to be held on 13 November 2015. Mr. Hinde has elected not to offer himself for re-election and will
retire from the Board at the AGM.
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 for future Directors.
Overview
The Nomination and Remuneration Committee met once in the year ended 30 June 2015. Matters considered at these meetings
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 evaluation process;
- to consider Board 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
23 September 2015
Management Engagement Committee Report
Summary of the role of the Management Engagement Committee
The Management Engagement Committee annually review the terms of the Investment Management Agreement between the Company
and Manager and 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 above.
Meetings
The Committee meets at least once a year and otherwise as required. Meetings of the 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 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 Committee members 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 2015 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 2015 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
Director
23 September 2015
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
Corporate Governance 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 Financial 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 judgements 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 Audit 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 making 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 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 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, 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 Statement and the Investment Adviser's Report. The 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 and the
Interim Condensed Consolidated Financial Statements are considered and at which they have the opportunity to meet with the
Audit Committee without representatives of the Investment Adviser being present at least once per year.
Composition of the Audit Committee
The members of the Audit Committee are:-
Date of appointment
Alan Clifton (Chairman) 23 May 2006
Wilfred Woo 27 February 2012
Chris Russell 12 September 2012
Appointments to the Audit Committee will be for a period of up to three years, which is extendable, so long as members
continue to be independent. Alan Clifton has been a member of the Audit Committee for nine years. However, the Board and
Audit Committee have satisfied themselves that Mr. Clifton continues to remain independent and so have resolved to extend
his appointment to the Audit Committee for a further three 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 the appropriateness of the Annual Report and Audited Consolidated Financial Statements
and Interim Condensed Consolidated Financial Statements, concentrating on, amongst 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 judgements 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 Audit 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 2015, 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.
- Going concern.
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 possess a knowledge and understanding of the markets where the
properties are situated. The Board and the Auditors meet 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 risk 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 Audit Committee Chairman shall require.
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 any shareholder 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 on above 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.
External audit
During the year the Audit 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 five years and will rotate after the completion of the current year end
audit. Ernst & Young LLP have been the external auditors 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 ten 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 Companies Law the re-appointment of the external auditors is subject to shareholder approval at the
Annual General Meeting. The Audit Committee has provided the Board with its recommendation to the shareholders on the
re-appointment of Ernst & Young LLP as external auditor for the year ending 30 June 2016. Accordingly a resolution
proposing the reappointment of Ernst & Young LLP as our auditor will be put to shareholders at the 2015 Annual General
Meeting.
During the year the Audit Committee discussed the planning, conduct and conclusions of the external audit as it proceeded.
At the June 2015 audit committee meeting, the Audit Committee discussed and approved the auditor's Group audit plan in
which they identified the Group's valuation and ownership of the investment property and inventory, and current and
deferred tax exposures within the Group, as the key areas of risk of misstatement in the Group's financial statements.
The Audit Committee discussed these issues at the June 2015 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 Audit 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 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 are best placed to
provide the non-audit service for example, the interim review service. 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 2015. 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 2014 Annual Report and Audited Consolidated Financial Statements for the year ended 30 June 2014;
- review of the 2014 Interim Report and Interim Condensed Consolidated Financial Statements for the six months ended 31
December 2014;
- review of the Interim Management Statement released in November 2014 and the quarterly results announcement issued in May
2015;
- review of the audit plan and timetable for the preparation of the 2015 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
23 September 2015
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable laws and
regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the
Directors are required to prepare the Group financial statements in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union. 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 financial statements, the Directors are
required to:
- select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
- make judgements that are reasonable and prudent;
- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
- provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union
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 as adopted by European Union, subject to any material departures disclosed
and explained in the Group financial statements; and
- prepare the Group 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 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 and the United Kingdom 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 Corporate Governance Code (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, confirm that, to the best of their knowledge and belief:
Directors' Statement under the Disclosure and Transparency Rules
- The Group financial statements, prepared in accordance with IFRS as adopted by the European Union, 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 Statement
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 financial statements in accordance with
applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the Annual Report and
Group 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
Alan Clifton
Director
23 September 2015
Independent Auditor's Report to the Members of Macau Property Opportunities Fund Limited
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the Group's affairs as at 30 June 2015 and of its loss for the year then
ended;
- have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European
Union; and
- have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
What we have audited
We have audited the consolidated financial statements of Macau Property Opportunities Fund Limited (the "Company") and its
Subsidiaries, (together, the "Group") for the year ended 30 June 2015 which comprise the Consolidated Statement of
Financial Position, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity,
the Consolidated Statement of Cash Flows and the related Notes 1 to 26. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European
Union.
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.
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 consolidated 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.
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 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 consolidated financial statements. In addition, we read all the financial
and non-financial information in the Annual Report and Accounts 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 consider the implications for our report.
Our assessment of risks of material misstatement
We identified the following risks of material misstatement that we believed would have the greatest impact on our overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team:
- valuation of the Group's investment properties, because valuations require significant judgement and estimation;
- ownership of investment properties and inventories, because failure to obtain good title exposes the Group to significant
risk of loss; and
- accounting for taxes incurred in multiple jurisdictions because the interpretation of the tax requirements can require
significant judgment.
Our application of materiality
We apply the concept of materiality to the individual account or balance level through our determination of performance
materiality, which is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
We determined materiality for the Company to be US$3.1m (2014: US$4.5m), which is 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.
On the basis of our risk assessments, together with our assessment of the Company's overall control environment, our
judgement was that overall performance materiality (i.e. our tolerance for misstatement in an individual account or
balance) for the Company should be 75% of materiality, amounting to US$2.3m (2014: US$3.3m). Our objective in adopting this
approach was to ensure that total uncorrected and undetected audit differences in all accounts did not exceed our
materiality level.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of US$0.16m (2014:
US$0.22m), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
We adopted a risk-based approach in determining our audit strategy. This approach focuses audit effort towards higher risk
areas, such as management judgments and estimates.
Our response to the risks identified was as follows:
We addressed the risk of misstatement in the valuation of the Group's investment property by:
- identifying and performing walkthrough tests on the overall controls over the investment valuation process operated by
the Group;
- assessing the expertise, independence and qualifications of the Group's third party valuation experts
- agreeing the fair values determined by the Group's third party valuation expert to the Group's books and records; and
- engaging our own internal valuation experts to evaluate whether the Group's third party valuation experts used reasonable
valuation methods and whether the fair values determined by them fell within a range that was supported by comparable
transaction evidence.
We addressed the risk that the Group does not hold legal title to the properties by:
- obtaining independent evidence that corroborated legal title to 100% of the investment property and inventory.
We addressed the risk of improper accounting treatment for taxes incurred in multiple jurisdictions by:
- engaging EY tax specialists in the relevant jurisdictions to test local tax computations and to evaluate management's
assessment of the tax exposures in those jurisdictions;
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
- materially inconsistent with the information in the audited financial statements; or
- apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the
course of performing our audit; or
- is otherwise misleading.
In particular we are required to consider whether we have identified any inconsistencies between our knowledge acquired
during the audit and the directors' statement that they consider the annual report is fair, balanced and understandable and
whether the annual report appropriately discloses those matters that we communicated to the audit committee which we
consider should have been disclosed.
Under the Companies (Guernsey) Law, 2008 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 accounting records; or
- we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the UK Corporate Governance Code specified for our review.
Michael Bane
For and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
Date: 23 September 2015
1. The maintenance and integrity of the Macau Property Opportunities Fund Limited web site 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 web site.
2. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Consolidated Statement of Financial Position
2015 2014
Note US$'000 US$'000
ASSETS
Non-current assets
Investment property 6 243,810 306,575
Deposits with lenders 21 1,941 2,656
Financial assets at fair value through profit or loss - interest rate swap 20 174 315
Trade and other receivables 111 112
246,036 309,658
Current assets
Inventories 7 67,288 54,351
Proceeds from disposal of property held in escrow - 6,452
Trade and other receivables 10 4,086 950
Deposits with lenders 21 709 -
Cash and cash equivalents 28,749 43,528
100,832 105,281
Total assets 346,868 414,939
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital 12 775 814
Retained earnings 84,375 136,902
Distributable reserves 69,213 84,049
Foreign currency translation reserve 1,084 1,089
Total equity 155,447 222,854
LIABILITIES
Non-current liabilities
Taxation provision 9 22,309 27,161
Provision 25 - 1,343
Interest-bearing loans 8 147,576 128,952
169,885 157,456
Current liabilities
Trade and other payables 11 1,773 4,239
Performance fee payable 19 - 23,964
Deferred income/deposits on property pre-sales - 5,451
Interest-bearing loans
- More to follow, for following part double click ID:nRSX0287AcRecent news on Macau Property Opportunities Fund
See all newsREG - Macau Prop Opp Fund - Further Update on Macau Property Market
AnnouncementREG - Macau Prop Opp Fund - Update on Macau Property Market and Divestment
AnnouncementREG - Macau Prop Opp Fund - Interim Report to 31 December 2023
AnnouncementREG - Macau Prop Opp Fund - Quarterly Net Asset Value Update
AnnouncementREG - Macau Prop Opp Fund - Investor Update H2 2023
Announcement