TIDMMPO
RNS Number : 4892K
Macau Property Opportunities Fund
21 September 2016
This replaces announcement number 3817K released at 07.00 BST on
21 September 2016. Under Financial Highlights, the third bullet
point has been amended to read "IFRS NAV was US$106.6 million or
US$1.40 (105 pence*) per share, a 30% drop over the reporting
period", and the third bullet point now reads "Share price discount
to Adjusted NAV per share widened from 17% to 53%, based on the
Fund's share price of 105 pence at the period end". All other
information remains the same.
21 September 2016
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Final Results for the period ended 30 June 2016
Macau Property Opportunities Fund Limited announces its results
for the year ended 30 June 2016. The Company, which is managed by
Sniper Capital Limited, develops and invests in real estate
opportunities in Macau.
FINANCIAL HIGHLIGHTS
Fund performance
-- MPO's portfolio value was US$393.7 million, a decline of 15% over the year.
-- Adjusted NAV was US$226.3 million, equating to a per share value of US$2.96 (223 pence*).
-- IFRS NAV was US$106.6 million or US$1.40 (105 pence*) per
share, a 30% drop over the reporting period.
-- Share price discount to Adjusted NAV per share widened from
17% to 53%, based on the Fund's share price of 105 pence at the
period end.
* US Dollar/Sterling exchange rate of 1.326 as at 30 June 2016
(US Dollar/Sterling exchange rate of 1.573 as at 30 June 2015).
Capital management
-- The cash balance stood at US$14.9 million at the period end,
of which US$2.1 million was pledged as collateral for MPO's debt
facilities.
-- The Fund's loan-to-value ratio was 40% as at 30 June 2016.
Overall debt stood at US$164.5 million.
-- 1.1 million shares (1.4% of issued share capital) worth
GBP1.94 million were repurchased and cancelled.
PORTFOLIO HIGHLIGHTS
-- The Waterside
- Occupancy level remained stable at 44%, unchanged from a year
earlier, but the average rental rate achieved as at end June
declined by 16% year-on-year to HK$19.72 (US$2.53) per square foot
per month.
-- The Fountainside
- The last sold unit was successfully handed over in August.
Marketing efforts are continuing, although remain hindered by
government policies which limit mortgage loan-to-value ratios. More
evidence of an improvement in economic conditions is needed to spur
further sales.
-- Estrada da Penha
- Active marketing strategies targeting ultra high-net-worth
individuals are being employed to divest this asset. We are taking
full advantage of the improving market sentiment to achieve a sale
for this luxury private house.
-- Senado Square
- The architectural concept plan was submitted in July and we
hope to receive an endorsement in the first quarter of 2017,
allowing us to move to the detailed planning stage. Construction is
expected to commence by end-2017.
Chris Russell, Chairman of Macau Property Opportunities Fund
said, "Notwithstanding the difficult operating environment, we have
continued to focus on asset management and marketing our properties
as distinct, desirable developments to attract buyers and quality
tenants."
"A recovery in property market values, albeit a gradual and
cautious one, may now be in sight. Low-value property transactions
have recovered with some improvement in prices. The pace of Macau's
economic slowdown is easing and the gaming industry, the driver of
the city's economy, has been showing signs of stabilising.
"We are optimistic that Macau will come through its current
economic difficulties, given its strong underlying fundamentals,"
added Chris Russell.
For more information, please visit www.mpofund.com for the
Company's full Annual Report 2016.
The Manager will be available to speak to analysts and the
media. If you would like to arrange a call, please contact Kelsey
Traynor at MHP Communications on +44 (0) 20 3128 8100 or
Kelsey.Traynor@mhpc.com.
- End -
About Macau Property Opportunities Fund
Macau Property Opportunities Fund Limited is a closed-end
investment company registered in Guernsey. Listed on the London
Stock Exchange's main market, it is also a constituent stock of the
FTSE All-Share and FTSE SmallCap indices.
Launched in 2006, the Company targets strategic property
investment and development opportunities in Macau and mainland
China's western Pearl River Delta. Its current portfolio comprises
a mix of well-positioned residential and retail property
assets.
The Fund is managed by Sniper Capital, an Asia-based property
investment manager with an established track record in fund
management and investment advisory.
For further information:
Public Relations
MHP Communications
Kelsey Traynor / Simon Hockridge / Andrew Jaques
Tel: +44 20 3128 8100
Email:
Kelsey.Traynor@mhpc.com/Simon.Hockridge@mhpc.com/Andrew.Jaques@mhpc.com
Manager
Sniper Capital
Doris Boo
Tel: +65 6222 1440
Email: doris.boo@snipercapital.com
Corporate Broker
Liberum Capital
Richard Bootle / Jonathan Wilkes-Green / Henry Freeman
Tel: +44 20 3100 2232
Company Secretary & Administrator
Heritage International Fund Managers
Mark Huntley / Laurence McNairn
Tel: +44 14 8171 6000
Stock Codes:
Bloomberg: MPO LN
Reuters: MPO.L
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
ANNUAL REPORT & ACCOUNTS FOR THE PERIODED 30 JUNE 2016
Note: US Dollar/Sterling exchange rate used in this report is
1.326 based on the rate as at 30 June 2016, unless otherwise
stated.
CHAIRMAN'S MESSAGE
June 2016 marked the 10th anniversary of your Company's IPO. On
behalf of the Board, I wish to extend our gratitude to all
shareholders for your continued confidence and support.
MPOF's portfolio has registered a drop in value for the second
consecutive year - a consequence of the continued decline in
Macau's gaming revenue and its slowing economy, largely
attributable to China's anti-corruption campaign.
However, the Fund posted its first quarter-on-quarter Adjusted
NAV growth, of 0.3% in Q2 2016, after almost 2 years of
declines.
Investors continue to look for an end to the decline in gaming
revenues and, encouragingly, Sands - the largest casino operator in
the territory - has revealed that June was the first month in two
years in which its mass-market gaming revenue grew.
One swallow does not make a summer, and the VIP gaming sector
remains volatile. We nevertheless look to the next few months,
following the recent opening of two new casino resorts, for
confirmation of a change in the gaming revenue trend.
Financial Performance
For the year in review, MPOF's portfolio of properties was
valued at US$393.7 million, 15% lower than the previous year.
Adjusted NAV was US$226.3 million, translating to US$2.96 (223
pence) per share.
IFRS NAV declined 30% to US$106.6 million, with an IFRS NAV per
share of US$1.40 (105 pence).
Total borrowings stood at US$164.5 million, translating to a
loan-to-value ratio of 40%.
MPOF's closing share price on 30 June 2016 reflected a 53%
discount to Adjusted NAV per share - a level deemed unacceptable by
the Board and one which we seek to address by continuing to return
funds in excess of operating needs to shareholders when
opportunities arise.
Since our listing in June 2006, a total of some US$122.2 million
(GBP75.5 million) has been utilised for share repurchases and
shareholder distributions.
Optimising Shareholder Value
During this downturn, we have continued to focus on
strengthening the position of our properties as distinct, desirable
developments, ensuring that our assets continue to meet the
increasingly sophisticated demands of buyers and tenants.
To maintain The Waterside's position as Macau's pre-eminent
residential development for lease, we are carrying out extensive
asset enhancement initiatives to the development, starting with the
untenanted units. In an extremely sluggish leasing market, The
Waterside achieved an occupancy rate of above 40%, relatively
unchanged since the last full-year reporting period.
We embarked on numerous marketing activities to maintain
awareness of The Fountainside, in anticipation of an eventual
recovery in demand. Sale prices have also been adjusted to ensure
that the property remains competitive but sales in the mid and
high-end property segments were difficult to achieve during the
period.
Since undergoing enhancement work a year ago, Estrada da Penha
has attracted significant attention. We remain focused on achieving
an optimal sale price for this prominent, premium property.
The Urban Condition Plan for Senado Square was finally granted
in May. This is a major milestone on what has been a lengthy
project, and we are continuing to work closely with the relevant
authorities to achieve full planning approval.
Positive Long Term Outlook
A recovery in property market values, albeit a gradual, cautious
one, may now be in sight. Lower-value property transaction volumes
have recovered, with some improvement in prices. The pace of
Macau's economic slowdown is easing and the gaming industry, the
driver of the city's economy, has been showing signs of
stabilising.
The completion of infrastructure projects in the next few years,
including the Hong Kong-Zhuhai-Macau bridge, will integrate Macau
with neighbouring cities in the Greater Pearl River Delta
region.
The progressive opening of new mega-resorts in the next two
years will help to support full employment and wage growth. The
Macau Tourism Industry Development Master Plan aims to boost
visitor arrivals to 40 million yearly by 2025 and generate
non-gaming revenues to double from US$6.4 billion last year to
US$14 billion yearly by 2025.
Continuation of Fund Life
An AGM and a discontinuation vote will be held in November,
following presentation of the Board's recommendations to
shareholders. These will include extending the Fund's life for
another 2 years from November 2016. Thereafter, it is proposed that
a 1-year extension be voted on annually, with the voting threshold
reduced from 75% to 50% from 2018 onwards.
Finally, any performance fees due to the Manager of the Fund
will, from this November, be payable only upon the successful
disposal of assets and the return of funds to shareholders, as well
as after the performance hurdle and high water mark have been
exceeded.
In Conclusion
The Company has been operating in an extremely challenging
market during the past couple of years. Nevertheless, we remain
optimistic that Macau will overcome its current economic
difficulties, given its strong underlying fundamentals.
We will continue to strive to optimise shareholder value through
proactive asset management and asset enhancement initiatives and,
when circumstances allow, the timely disposal of our assets.
Chris Russell
Chairman
Macau Property Opportunities Fund Limited
20 September 2016
KEY HIGHLIGHTS
1. MPO marks its 10th year of fund life
2. Adjusted NAV Per Share
-- US$2.96 (223 pence)
-25.5% over the year
3. Portfolio Valuation
-- US$393.7 million
-15% over the year
4. Share Price as at 30 June 2016
-- 105 pence
-49.8% over the year
5. The Waterside
-- Occupancy at above 40%
On the back of proactive leasing initiatives
6. The Fountainside
-- 15 units available for sale
Marketing campaign continues
7. Estrada da Penha
-- Embarked on a divestment strategy
Focus on achieving an optimal sale price
8. Senado Square
-- Urban Condition Plan granted
Preparation works in progress for the next phase
FINANCIAL CALAR
2016:
September
-- Announcement of full year results ended 30 Jun 2016
-- Annual Investor Roadshow
October
-- Annual Report and Accounts 2016 published
November
-- Annual General Meeting
-- Net Asset Value Update (30 Sep 2016)
December
-- 2017 Financial Half-Year
2017:
January
-- Bi-annual Investor Update
February
-- Net Asset Value Update (31 Dec 2016)
-- Announcement of half-yearly results ending 31 Dec 2016
March
-- Interim Report and Accounts 2017 published
May
-- Net Asset Value Update (31 Mar 2017)
June
-- Financial Year End
July
-- Bi-annual Investor Update
August
-- Net Asset Value Update (30 Jun 2017)
September
-- Announcement of full year results ending 30 Jun 2017
Special Feature: 10-year Milestones (BY CALAR YEAR)
2006:
June
-- Listed on AIM of London Stock Exchange.
October
-- Maiden land acquisition. Residential site planned for The Fountainside.
November
-- Acquired Tower 6 (The Waterside) of One Central Residences.
-- Acquired residential redevelopment site at Rua do Laboratório.
2007:
October
-- Acquired Senado Square site, for redevelopment into a retail mall.
-- Acquired several high-end residential units in One Central Residences.
December
-- Acquired The Green House located in Penha Hill district.
2008:
January
-- Acquired a residential property worth US$3.5 million.
August
-- Maiden investment into the logistic sector.
-- Acquired APAC Logistics Centre and Cove Residence in Zhuhai.
2009:
September
-- Took ownership of The Waterside.
2010:
June
-- Listed on the Main Market of London Stock Exchange.
September
-- Ground-breaking for The Fountainside.
2011:
February
-- Divested Rua do Laboratório site, achieved IRR of 15%.
-- Sold 40% of the units in The Fountainside during pre-launch.
May
-- First opportunistic share buyback worth US$2 million.
July
-- Dividend paid out of US$0.17 (10.76p) per share.
December
-- US$5.4 million worth of shares repurchased during the year.
2012:
April
-- Acquired Sky House, a penthouse in One Central Residences.
December
-- US$13.2 million worth of shares repurchased during the year.
2013:
March
-- Divested Sky House, achieved IRR of 96%.
August
-- Divested APAC Logistics Centre and Cove Residence, achieved IRR of 21%.
December
-- US$30.9 million worth of shares repurchased during the year.
2014:
April
-- Dividend paid out of US$0.35 (21.1p) per share.
June
-- Inclusion into FTSE All-Share and FTSE SmallCap indices.
July
-- Share price surged c. 80% to reach 269p.
October
-- Acquired the villa adjoining The Green House.
December
-- US$19.7 million worth of shares repurchased during the year.
2015:
February
-- The Fountainside obtained Occupancy Permit.
March
-- Consolidated The Green House with the adjoining villa to become Estrada da Penha.
October
-- A carpark lot at The Fountainside sold for a record price of US$385,000.
December
-- US$6.1 million worth of shares repurchased during the year.
2016:
May
-- Senado Square project granted Urban Condition Plan.
BOARD OF DIRECTORS
Chris Russell
Chairman
Chris Russell is Chairman of F&C Commercial Property Trust
Ltd and a Non-Executive Director of a number of investment and
financial companies. Mr Russell was previously an Executive
Director of Gartmore Investment Management plc, heading up its
operations in the US and Japan. Before joining Gartmore, he was a
holding board director at the Jardine Fleming Group in Hong
Kong.
Mr Russell is a Chartered Accountant and a Fellow of the UK
Society of Investment Professionals. Mr Russell is a Guernsey
resident.
Thomas Ashworth
Non-Executive Director
Thomas Ashworth has 30 years of experience in finance and
investment management. He began his career at HSBC Group in London
before relocating to Asia in 1995, where he worked for a number of
global investment banks. From 2000, he established a number of
entrepreneurial ventures in the finance and alternative investment
sectors. Encouraged by the potential of Macau's long-term
demographics and deeply undervalued real estate market, he
identified numerous early-stage property investment opportunities
in the territory, which led him to co-found Sniper Capital Limited,
the investment manager for MPOF, in 2006. Mr Ashworth is a British
national and permanent resident of Macau.
Alan Clifton
Non-Executive Director
Alan Clifton began his career at stockbroker Kitcat &
Aitken, first as an analyst, later becoming a Partner and then a
Managing Partner prior to the firm's acquisition by Royal Bank of
Canada. He was subsequently invited to take up the role of Managing
Director at Morley Fund Management, the asset management arm of
Aviva plc, the UK's largest insurance group. He is currently
Chairman of JP Morgan Japanese Smaller Companies Trust plc and
International Biotechnology Trust plc, and a Director of several
other investment companies. Mr Clifton is a UK resident.
Wilfred Woo
Non-Executive Director
Wilfred Woo is a qualified chartered accountant who joined
Coopers & Lybrand as an auditor in
1982 before becoming Chief Financial Officer at Abbey Woods
Development, a real estate company listed on the Toronto Stock
Exchange, in 1990. He has since spent more than 25 years with the
Kuok Group, notably with Kerry Properties Limited and Shangri-La
Asia Limited. He currently holds senior management and board
positions at Shangri-La-linked companies as well as a Kerry
Properties-linked company listed on the Philippine Stock Exchange.
Mr Woo is a Canadian citizen.
PORTFOLIO OVERVIEW:
SUMMARY (AS AT 30 JUNE 2016)
Property Sector Type Current No. Commitment Gross Acquisition Project Uplift Composition Market
Status of US$ million Floor Cost Dev. Based on Based Valuation
Units Area US$ Cost market value on market US$
Square million US$ value million
feet million
Over
the Since
year acquisition
The Waterside
Tower Leasing
Six of and
One Central Luxury asset
residences* residential Investment management 59 99 148,000 88 11 -15.3% 135.0% 52.5% 206.6
Leasing
One Central and
Individual Luxury asset
units residential Investment management 4 10 9,400 10 N.A. -15.1% 31.0% 3.3% 12.9
The
Fountainside Low-density Sales
** residential Redevelopment phase 42 23 72,000 8 15 -14.9% 979.0% 11.4% 45
Luxury
Estrada private Sales
da Penha home Investment phase N.A. 28 12,030 27 1 -6.2% 53.6% 10.5% 41.5
Senado Prime Advanced
Square retail Redevelopment planning N.A. 47 67,800 16 31 -18.5% 443.0% 22.2% 87.3
Smaller
Property Residential Investment Hold N.A. N.A. 700 0.4 N.A. N.A. N.A. 0.1% 0.4
* One Central is a trademark
registered in Macau SAR under
the name of Basecity Investments
Limited. Sniper Capital Limited,
Macau Property Opportunities
Fund Limited, MPOF Macau (Site
5) Limited, Bela Vista Property
Services Limited and "The Waterside"
are not associated with Basecity
Investments Limited, Shun Tak
Holdings Limited or Hongkong
Land Holdings Limited.
** Information listed are inclusive
of the 27 sold units, except
for Uplift, Project Composition Total Total Total Total Total Total Total Total
and Market Valuation. 207 309,930 149.4 58 -15.1% 171% 100% 393.7
MANAGER'S REPORT:
FINANCIAL REVIEW
HIGHLIGHTS
2012 2013 2014 2015 2016
----------------------- ------ ------ ------ ------ ------
NAV (IFRS) (US$
million) (1) 211.7 214.8 222.9 155.4 106.6
----------------------- ------ ------ ------ ------ ------
NAV per share (IFRS)
(US$) (1) 2.07 2.39 2.74 2.00 1.40
----------------------- ------ ------ ------ ------ ------
Adjusted NAV (US$
million) (1) 296.5 336.4 397.8 308.0 226.3
----------------------- ------ ------ ------ ------ ------
Adjusted NAV per
share (US$) (1) 2.91 3.74 4.89 3.97 2.96
----------------------- ------ ------ ------ ------ ------
Adjusted NAV per
share (pence) (2) 185 246 286 253 223
----------------------- ------ ------ ------ ------ ------
Share price (pence) 105.0 153.5 254.0 209.0 105.0
----------------------- ------ ------ ------ ------ ------
Portfolio valuation
(US$ million) 374.8 452.9 535.8 463.7 393.7
----------------------- ------ ------ ------ ------ ------
Loan-to-value ratio
(%) 27 20 22 34 40
----------------------- ------ ------ ------ ------ ------
1 Figures incorporated adjustments for deferred
tax provisions as discussed in Note 9.
2 Based on the following US$/GBP exchange rates
on 30 June: 2012: 1.571; 2013: 1.521; 2014: 1.710;
2015: 1.573; 2016: 1.326
Macau's real estate market is showing signs of stabilisation
after two years of declining property prices. Although we are
mindful of not becoming too optimistic at this stage, there are
reasons to believe that a gradual but modest recovery will unfold
over the coming year.
Financial Results
The value of MPOF's portfolio as at 30 June 2016 was US$393.7
million, a 15% decline from the US$463.7 million reported a year
ago. Adjusted NAV as at 30 June 2016 slid 25.5% year-on-year to
US$226.3 million, equating to US$2.96 (223 pence) per share. IFRS
NAV also fell 31% to US$106.6 million, or US$1.40 (105 pence) per
share.
The Company's share price as at 30 June 2016 was 105 pence, a
decline of 49.8% over the year. The share price discount to
Adjusted NAV per share has widened to 53%, reflecting continued
poor sentiment towards Macau's real estate sector.
As at the end of the financial year, a total of 1.1 million
shares worth GBP1.94 million (US$3.02 million) had been repurchased
and cancelled at an average price of 176.6 pence (US$2.74). This
represents an average discount of 30% to Adjusted NAV per share.
The total number of shares issued currently stands at
76,432,964.
Capital Management
The Company continues to take a cautious approach towards
capital management. MPOF's cash flow and working capital are
closely monitored to ensure the Company's short- to medium-term
commitments can continue to be met.
As at 30 June 2016, MPOF held a cash balance of US$14.9 million,
of which US$2.1 million was pledged as collateral for its credit
facilities. The Company's total assets and total liabilities stood
at US$290.1 million and US$183.4 million, respectively.
During the period, the Company refinanced its loan facility
against its properties at One Central Residences with a new
five-year term loan of US$36.4 million. Bank borrowings stood at
US$164.5 million as at 30 June 2016, translating to a loan-to-value
ratio of 40%, an increase of 6 percentage
points from the same period last year.
Debt Allocation by Assets
The Waterside and individual units at One Central Residences
-- 72.8%
The Fountainside
-- 15.5%
Estrada da Penha
-- 11.7%
Based on information as at 30 June 2016.
PORTFOLIO & PERFORMANCE UPDATES
The Waterside
A landmark residence located by the waterfront in downtown
Macau, The Waterside at One Central Residences, offers
breathtaking, panoramic views of the territory's cityscape and Nam
Van lake.
This luxury development offers 59 exclusive apartments for lease
- consisting of a combination of stylish standard apartments and a
special collection of premium suites, located on high floors, all
with designer furniture and fittings.
Performance
Leasing activity for the mid to high-end residential segment
continued to face headwinds amid a difficult market environment.
Despite the challenging conditions, The Waterside maintained a
stable occupancy level of around 44% as at 30 June 2016, unchanged
from a year earlier.
During the period, we made progress in attracting a more
diversified tenant mix to The Waterside, with 73% of residents
working in non-gaming industries.
Current market conditions have posed a considerable challenge to
the leasing team, as both existing and potential tenants have been
very much guided by market sentiment and have remained extremely
cost-conscious. These factors led to a fall in rental rates over
the year, as tenants lowered their budgets and negotiated for
cheaper rents.
As at 30 June 2016, the average rental at The Waterside was
HK$19.72 (US$2.53) per square foot per month, a decline of 16%
year-on-year. 17 new leases were successfully secured during the
financial year, at an average rental rate of HK$16.69 (US$2.14) per
square foot per month.
We seek continuously to strengthen the position of The Waterside
and its value through our ongoing asset enhancement programme. To
date, 32 units have undergone refurbishment and another 8 units
will have been refurbished by the end of 2016. We believe that this
initiative, worth approximately HK$15 million (US$1.9 million), is
critical to attracting new tenants and retaining existing ones.
Exit Strategy
We remain committed to improving the occupancy level at The
Waterside, maximising rental growth and creating value through
asset enhancement initiatives. These are key to unlocking the true
value of the development, which we will ultimately seek to realise
by way of an en-bloc sale.
Other Units at One Central Residences
The Company will continue its opportunistic disposal strategy
for its remaining four apartments at One Central Residences. These
units do not constitute part of The Waterside.
The Fountainside
The Fountainside, a distinctive, low-density residential
development, is situated in Macau's prestigious Penha Hill
district. In an effort to complement the rich heritage of the
district, The Fountainside has retained the architectural facade of
the original Macanese houses previously on site and incorporated
them into its overall architectural design.
The Fountainside comprises a total of 38 apartments, 4 villas
and 47 vehicle parking lots.
Performance
We continue to focus on marketing campaign efforts for The
Fountainside to maintain a high awareness level for the
development.
As at the end of the financial year, 27 residential units and 9
parking lots had been sold for a combined value of HK$224.5 million
(US$28.9 million). The last sold unit was handed over to the buyer
in August, with the receipt of HK$7.8 million (US$1 million) as
final payment.
In response to current market conditions, the average selling
price for the remaining units has been adjusted downwards. There
are currently 15 residential units, including 4 villas, and 34
parking lots available for sale. We anticipate a pick-up in sales
activity once the economy improves.
Exit Strategy
We aim to maximise exit value by marketing the available units
to high-net-worth individuals, families and investors seeking top
quality residences boasting first-class amenities.
Estrada da Penha
Estrada da Penha is one of the very few detached houses in
Macau. Its distinctive green facade and colonial style is a
stunning example of Portuguese-Macanese architectural design. The
prominence of the property is further increased by its elevated
site, atop the prestigious Penha Hill.
The villa comprises 3 levels and 2 basements, together yielding
a combined internal gross floor area of approximately 12,000 square
feet. In addition, it has private patios and a sheltered car
porch.
Exit Strategy
In line with the Company's investment strategy, we will continue
to promote the asset and divest it at an opportune time to maximise
exit value.
Senado Square
Senado Square, MPOF's flagship retail development, is
strategically located in the UNESCO-listed heritage district of
downtown Macau. The precinct is Macau's most vibrant city square,
where historic monuments and architecture sit side by side with
modern retail facilities.
We have made progress towards making this retail development
project a reality. The Land, Public Works and Transport Bureau has
granted the Urban Condition Plan - an official document that
stipulates the approved redevelopment parameters for a development,
and which is a precursor for the submission of architectural
drawings - for the site. The architectural concept plan was
subsequently finalised and submitted in July and we hope to receive
an endorsement from the government in the first quarter of
2017.
Meanwhile, we have embarked on the process of shortlisting
consultants to work on the submission of the detailed plan, which
is the final submission before construction work commences.
Exit Strategy
We will continue to work closely with the relevant authorities
to ensure that the process of obtaining the necessary approvals and
permits runs smoothly. An asset disposal strategy will be
considered upon the receipt of the approvals.
MACROECONOMIC OUTLOOK
Macau's economy continues to adjust amid a weak performance in
the gaming sector, exacerbated by an ongoing anti-graft campaign
spearheaded by China's central government. The gaming industry is,
however, showing signs of stabilising, with the mass-gaming segment
continuing to deliver steady growth.
Following the opening of the much anticipated new casino
resorts, Wynn Palace and The Parisian, which will be followed by
two more casino resort openings in 2017/early 2018, we believe the
increased number of hotel rooms and the large scale of non-gaming
offerings will further enhance Macau's position as a world-class
tourism and leisure hub. The development of new, integrated resorts
has been well-timed to tap the rapid emergence of the middle class
in China, whose numbers are forecast to exceed 400 million by
2020.
Gaming - An Improved Business Model
The Chinese government's anti-graft campaign has been in place
for almost two years. Determined to make a success of it, the
central government and Macau's authorities have pledged to step up
efforts to supervise the gaming industry more closely. Newly
introduced regulations include a revision to the rules on
anti-money laundering procedures and a ban on proxy betting in
casinos. A regulation to raise the entry threshold for junket
operators has also been proposed.
These measures may hinder a recovery in the VIP gaming segment
but mass-market gaming continues to grow steadily in importance.
According to Macau's statistics department, mass-market gaming now
accounts for 49% of total gaming revenues, up from 26% 5 years ago.
This is an encouraging sign that the gaming industry is
transforming and is less reliant on high-rolling, VIP gamblers.
Five-year Master Plan - Moving Towards Sustainability
Macau has, for the first time, unveiled a five-year plan in
conjunction with China's five-year economic and social development
blueprint to reduce its reliance on the gaming industry. The
proposed plan includes measures to reposition the city as a
world-class tourism centre, accelerate the completion of
infrastructure developments and increase non-gaming income to at
least 9% of the total revenues generated by casino operators.
According to the proposed Macau Tourism Industry Development
Master Plan, the territory aims to increase visitor arrivals to 40
million yearly and double tourism revenues to US$14 billion
annually by 2025. To support such vast numbers of visitors, the
authorities plan to develop and diversify tourism products focusing
mainly on heritage sites, which are currently underutilised.
Infrastructure - Catalyst for Economic Growth
Major infrastructure projects have come under increased scrutiny
amid further delays in their development progress. The authorities
are working hard to complete the construction of the Hong
Kong-Zhuhai-Macau bridge by 2018. Once completed, it is expected
that the resulting "golden tourism triangle" will open the
floodgates for a range of leisure and business opportunities among
the three cities.
The Taipa section of Macau's light rail transit system is likely
to begin operating only in 2019. When completed, connectivity and
footfall are expected to increase along the Cotai Strip, which is
home to a proliferation of new, integrated resorts located near
train stations.
Risk and Uncertainties
Credit rating agency Moody's Investors Service recently
downgraded Macau's rating from Aa2 to Aa3 due to lower economic
growth and a limited policy response to falling gaming
revenues.
Although a slew of government measures are being implemented to
diversify Macau's economy, they are centred primarily around gaming
and tourism, resulting in volatile economic growth that is
vulnerable to changes in external demand.
With Macau experiencing almost full employment, a labour
shortage could pose a challenge to the new, integrated resorts that
are continuing to open.
As Macau's currency is indirectly pegged to the US dollar, a
weaker Chinese yuan is likely to have repercussions for the city's
gaming and tourism industries because mainland Chinese account for
approximately 64% of all visitors to the territory.
PROPERTY MARKET OVERVIEW
Macau's real estate market has remained quiet for most of this
year amid an uncertain economic environment. However, more
recently, there has been a marked rebound in transaction volumes,
which rose by 58% in the second quarter of 2016 compared to the
same period last year.
Although average home prices had dipped 15% year-on-year to
MOP7,285 (US$910) per square foot as at end of June, we expect
prices to hold steady in the near term, in line with an anticipated
stabilisation in gaming revenues.
Rising Population Drives Housing Demand
The government's efforts to curb property purchases by foreign
buyers through cooling measures such as the Buyer Stamp Duty,
Special Stamp Duty and mortgage caps have continued to impact the
market. These measures, designed to temper excessive investment and
speculative activity, have significantly reduced the number of
transactions involving foreigners. Foreign buyers now account for
less than 2% of residential transactions, down from 10% in
2012.
This has resulted in more attractive values for local
homebuyers, as capital values have dropped 40% since the last peak
in 2014. Amid a growing population earning sound incomes, housing
demand in Macau will be supported predominantly by local
buyers.
Given that a number of new casino and hotel projects will be
completed over the next two years, we anticipate that more foreign
workers will enter Macau, which is likely to drive stronger demand
in the leasing market and lend support to rental rates.
Property Market Cooling Measures
Macau Resident Non-resident
------------- ---------------------- ------------------------------------
Buyer Stamp N.A. Non-Macau residents
Duty (BSD) or businesses acquiring
residential property
in Macau are subject
to a 10% BSD on
top of existing
ad valorem of stamp
duty rates and
SSD rates, if applicable.
------------- ---------------------- ------------------------------------
Special Stamp Transferrers of residential, commercial
Duty (SSD) or office properties, car parking
spaces, or properties under construction
are subject to SSD at the rate
of:
* 20% of the property value if a property is resold
within 1 year of being purchased;
* 10% of the property value if a property is resold
between 1 and 2 years after being purchased.
SSD is also payable when transferring
a stake of 80% or more in a Macau
company that owns local properties.
------------- ------------------------------------------------------------
Source: PWC Asia Pacific Tax Notes
Loan-to-value Ceilings for Completed Residential Properties
Property Prices Macau Resident Non-resident
----------------- ------------------- -------------------
< MOP3.3 million 90% (max. MOP2.31 70% (max. MOP1.98
million) million)
----------------- ------------------- -------------------
MOP3.3 to <= 70% (max. MOP3.6 60% (max. MOP3
6 million million) million)
----------------- ------------------- -------------------
MOP6 to <= 8 60% (max. MOP4 50% (max. MOP3.2
million million) million)
----------------- ------------------- -------------------
> MOP8 million 50% 40%
----------------- ------------------- -------------------
Loan-to-value Ceilings for Pre-sale Residential Properties
Property Prices Macau Resident Non-resident
---------------- ------------------ ------------------
< MOP6 million 70% (max. MOP3.6 50% (max. MOP3.2
million) million)
---------------- ------------------ ------------------
MOP6 to <= 8 60% (max. MOP4 50% (max. MOP3.2
million million) million)
---------------- ------------------ ------------------
> MOP8 million 50% 40%
---------------- ------------------ ------------------
Source: Monetary Authority of Macao
Limited Housing Supply Over Next Five Years
According to real estate consultancy, JLL, 4,838 high-end
residential units are expected to be completed between 2016 and
2020, equivalent to only 2% of total existing residential stock. It
is expected that new housing supply to remain limited in the near
term.
The city's land concession policy, under which undeveloped land
parcels will be reclaimed by the government and land contracts
deemed invalid once they reach 25 years, could contribute to tight
residential supply. To date, the government has listed 113 land
contracts as being invalid due to zero development activity on
site. Housing supply is thus expected to reduce further as a result
of the lengthy process by which the government reclaims and
re-releases these land parcels to developers. As a result, actual
new supply may be even lower than expected, possibly prompting
homebuyers to turn to the secondary market as an alternative.
Investors' Preference for Macau Properties
China has introduced stimulus measures and lowered interest
rates to boost the property market, which has led to an increase in
property values in Zhuhai and Hengqin over the past year. According
to Sniper Capital Research, the average home price in Zhuhai
currently stands at CNY2,300 (US$350) per square foot, and the
price in Hengqin is CNY3,300 (US$500) per square foot. Given that
the average home price in Macau has declined to MOP7,285 (US$910)
per square foot, the price gap between Macau and its neighbouring
cities has since narrowed by approximately 23% per square foot,
making housing investment in Macau more attractive.
Macau's low tax regime gives it a competitive edge over other
Chinese cities, alongside the ease of investing in the territory on
the back of an established regulatory system and a strong currency
pegged to the US dollar.
Commercial Properties Remain Attractive
Despite the fact that retail rents are in decline, Macau's
commercial property sector is still generating strong investment
appetite among domestic investors and their mainland counterparts,
as the number of quality commercial properties is extremely limited
and, unlike residential real estate, they are not subject to
additional stamp duties. This interest is expected to keep
capitalisation rates at a low level and support capital values
going forward.
Conclusion
The property market in Macau is expected to continue to
stabilise in the coming months, with a gradual improvement in
prices to follow. Although a full-fledged recovery can be expected
only when the economy returns to growth and gaming revenues show a
sustainable pick-up, we remain confident that the long-term
demographic drivers of the city's growth and its limited housing
supply will provide support for the property market.
With this in mind, we will continue to strive for sustainable
growth and value realisation when the right opportunities
arise.
Manager and Adviser: Group Structure
Sniper Capital
----------------------------------------------------------------------------------------------------------------------
Manager: Sniper Capital Limited Investment Adviser: Sniper Capital (Macau) Limited
Acquisitions Project Asset Management Corporate Finance
& Research Development Communications & Administration
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
-- Macro & micro -- Consultant -- Property & estate -- Investor & media -- Administration &
analysis appointment & management relations accounting
coordination
-- Forecasting & -- Project monitoring -- Sales & leasing -- Marketing & -- Compliance &
modelling & reporting product positioning reporting
-- Sourcing -- Project delivery & -- Facilities -- Statutory & -- Cash management &
handover management regulatory treasury
communication
-- Due diligence -- Asset value
enhancement
Manager
The day-to-day responsibility for the management of the Macau
Property Opportunities Fund's ("MPOF" or the "Company") portfolio
rests with Sniper Capital Limited(1) .
Founded in 2004, Sniper Capital Limited focuses on capital
growth from carefully selected investment, development and
redevelopment opportunities in niche and undervalued property
markets.
Sniper Capital Limited is focused on the identification,
acquisition and development of properties chosen for their
location, current and potential value, or for the sustainable
demand for the accommodation or facilities they offer.
Sniper Capital Limited's team of over 30 professionals covers
all the required investment and development disciplines, including
research, site acquisition, project development, asset management,
investor relations and finance.
Working closely with Headland Developments Limited(2) , Sniper
Capital Limited ensures that all necessary project management
skills and services are provided in a way that will deliver each
MPOF project to the right standards and on budget.
With its 30 June 2016 holding of 12.7 million shares or 16.6% of
the Company's issued share capital, Sniper Investments Limited - an
investment vehicle associated with Sniper Capital 2 - is now the
second largest shareholder in MPOF, which bears witness to Sniper
Capital Limited's belief in the Company's long-term prospects.
Adviser
The Company's Board of Directors and Manager are advised by
Sniper Capital (Macau) Limited, which has a highly developed
network of contacts and associates spanning Macau's financial and
business community.
The Investment Adviser's brief is to source, analyse and
recommend potential investment opportunities, whilst providing the
Board with property investment and management advisory services in
relation to the Company's investments.
For more information, please visit www.snipercapital.com
1. Thomas Ashworth and Martin Tacon, Directors of Sniper Capital
Limited, have a beneficial interest in Sniper Investments Limited
and Thomas Ashworth is also a Non-Executive Director of the
Company.
2. Headland Developments Limited is part owned by Thomas
Ashworth and Martin Tacon, Directors of Sniper Capital Limited, and
therefore constitutes a related party of the Company.
Investment Policy
The Company's investment objective is to provide shareholders
with an attractive total return, which is intended to primarily
comprise capital growth but with the potential for distributions
over the medium to long term.
Asset allocation
The Company aims to achieve its investment objective by
investing in property segments in Macau. The Company's portfolio
may comprise a mixture of asset classes which include residential,
retail, leisure, industrial and office properties.
The Company targets developments which are often overlooked by
large developers and which, in the opinion of the Manager and the
Investment Adviser, offer opportunities to achieve an attractive
total return through their location, sector or 'value-added'
potential.
The Company looks to add value through redevelopment,
development, refurbishment, change of use and repositioning. In
particular, it seeks to acquire undervalued sites in attractive
locations where it believes there is a sustainable end-user demand.
The Company seeks to maximise the total return on its portfolio,
either through selling the properties after development or
redevelopment or by generating rental income.
Diversification
The Company, as an active investor, will consider concentration
risk from both a sector as well as an asset perspective. However,
if assets are realised and not replaced, concentration risk will
inevitably increase. The Company may wholly own its investments
(directly or indirectly) or it may invest through a joint venture
arrangement if the terms of the arrangement are deemed suitable.
There is no limit on the number of projects in which the Company
may invest and there is no minimum or maximum limit on the length
of time that any investment may be held.
No single investment in a development will represent more than
40% of the Gross Asset Value of the Company at the time of
investment.
Gearing
The Group has the ability to borrow, both at Company level and
Special Purpose Vehicles ("SPV") level, if SPVs are used in
relation to particular investments. The Group, either directly or
through its SPVs, may not borrow amounts in relation to any single
investment that exceed 75% of that investment's market value. When
the Company is fully invested, the maximum amount of net borrowings
that the Group may have as a whole (i.e. all principal amounts
borrowed by the Group less the Group's cash balances) will not
exceed 60% of the aggregate value of all the Group's investments at
the time that any new borrowings are made. As at 30 June 2016, the
Group had net borrowings that were 40% of the aggregate value of
all investments held. After accounting for loan deposits, the Group
had net borrowings that were 38% of the aggregate value of all
investments held. The Group may be required to use its investments
as security for the borrowings it puts in place.
The Company's Articles of Incorporation do not contain any
restriction on borrowings.
Directors' Report
The Directors present their report and audited financial
statements of the Group for the year ended 30 June 2016. This
Directors' report should be read together with Corporate Governance
Report below.
Principal activities
Macau Property Opportunities Fund Limited (the "Company") is a
Guernsey-registered closed-ended investment fund traded on the
London Stock Exchange (the "LSE"). Following the passing of all
resolutions at the Extraordinary General Meeting held on 28 June
2010, the Company's shares obtained a Premium Listing on the LSE
Main Market on 30 June 2010.
The Company is an authorised entity under the Authorised
Closed-Ended Investment Schemes Rules 2008 and is regulated by the
Guernsey Financial Services Commission ("GFSC"). During the year,
the principal activities of the Company and its subsidiaries as
listed in Note 4 to the consolidated financial statements (together
referred to as the "Group") were property development and
investment in Macau.
Business review
A review of the business during the year, together with likely
future developments, is contained in the Chairman's Message above
and in the Manager's Report above.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Manager's Report. The financial position of the
Group, its cash flows and its liquidity position are described in
the Capital Management section of the Manager's Report.
The financial risk management objectives and policies of the
Group and the exposure of the Group to credit risk, market risk and
liquidity risk are discussed in Note 2 to the consolidated
financial statements.
In accordance with provisions C1.3 and C.2.2 of the 2016
revision of the UK Corporate Governance Code (the "UK Code"), the
Directors have assessed the financial prospects of the Company for
the next 12 months and made an assessment of the Company's ability
to continue as a going concern. As part of their assessment of the
going concern of the Company, the Directors have reviewed the
comprehensive cash flow forecasts prepared by management which make
assumptions based upon current and expected future market
conditions, including predicted future sales of properties.
At the Extraordinary General Meeting held on 7 April 2014, the
shareholders voted in favour of amending the Company's Articles of
Incorporation so that the next discontinuation vote would take
place no later than 31 December 2016. This was considered a
suitable timeframe for the maximisation of the value of the
Company's portfolio. The Directors believe that the forthcoming
Discontinuation Vote does not give rise to a material uncertainty
(that might cast doubt about the Company's ability to continue as a
going concern) because it is highly unlikely that the vote will be
carried. Shareholder support of 75% is required to pass the
Discontinuation Vote; Sniper Investments Limited, with a 16.6%
shareholding, and other major shareholders are supportive of the
Board; and it is likely that returns from sales of properties would
be lower if the Company were forced to sell as a result of
discontinuation.
The Directors are satisfied - based upon the forecasts described
above, their assessment of the Group's committed banking facilities
and expected continuing compliance with related covenants - that
the Company has the resources to continue in business for the
foreseeable future and furthermore, are not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern. The Directors therefore
believe it is appropriate to prepare the financial statements of
the Group on the going concern basis.
Viability statement
The Board has an on-going robust assessment process of the
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency and
liquidity. The Directors have considered each of the Company's
principal risks and uncertainties detailed below. The Directors
also considered the Company's policy for monitoring, managing and
mitigating its exposure to these risks. This assessment involved an
evaluation of the potential impact on the Company of these risks
occurring. Where appropriate, the Company's financial model was
subject to a sensitivity analysis involving flexing a number of key
assumptions in the underlying financial forecasts in order to
analyse the effect on the Company's net cash flows and other key
financial ratios. In accordance with provision C.2.2 of the 2016
revision of the UK Code, the Directors have assessed the prospects
of the Company over a longer period than the 12 months required by
the going concern provision. The Board has conducted this review
for a period covering the next three years. The Board considers
three years to be an appropriate time horizon for its strategic
plan, being the period over which most of the Company's properties
should have completed their respective investment cycle. Based on
an assessment of the principal risks facing the Company and the
stress-test based assessment of the Company's prospects, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the three-year period of their assessment.
Share capital
Ordinary Shares
The Company has one class of ordinary shares, which carries no
rights to fixed income. On a show of hands, each member - present
in person or by proxy - has the right to one vote at general
meetings. On a poll, each member is entitled to one vote for every
share held.
The Company's Memorandum and Articles of Incorporation contain
details relating to the rules that the Company has about the
appointment and removal of Directors or amendment to the Company's
Articles of Incorporation.
Results and dividends
The results for the year are set out in the consolidated
financial statements below.
Authority to purchase own shares
Following the authority first granted in the Extraordinary
General Meeting on 28 June 2010 and subsequently renewed at each
Annual General Meeting, a resolution to provide the Company with
authority to purchase its own shares will be tabled at the Annual
General Meeting on 14 November 2016. The Board has publicly stated
its commitment to undertake share buybacks at attractive levels of
discount of the share price to Adjusted NAV. The Board intends to
renew this authority at the 2016 Annual General Meeting.
During the year, the Company repurchased 1,101,000 (2015:
3,881,036) ordinary shares or 1.05% (2015: 3.70%) of the originally
issued ordinary shares, at an average share price of 176.64p (2015:
237.75p). All shares repurchased pursuant to the buyback programme
were cancelled.
Significant shareholdings
As at 30 June 2016, a total of 6 shareholders held more than 3%
each of the issued ordinary shares of the Company, accounting for a
total of 54,754,012 shares (2015: 52,586,429) or 71.64% (2015:
67.8%) of the issued share capital. Significant shareholdings as at
30 June 2016 are detailed below:
Name of shareholder No. of shares %
----------------------------- -------------- -------
Lazard Asset Management
LLC 16,522,672 21.62
Sniper Investments
Limited 12,693,215 16.61
Universities Superannuation
Scheme 10,500,000 13.74
Invesco Asset Management 9,549,601 12.49
Rathbones 2,893,533 3.79
Apollo Multi Asset
Management 2,594,991 3.39
Subtotal 54,754,012 71.64
Others 21,678,952 28.36
----------------------------- -------------- -------
Total 76,432,964 100.00
Directors
Biographies of the Directors who served during the year are
detailed above.
Name Function Date of appointment Date of resignation
Chris Russell Chairman 8 May 2012
Thomas Ashworth Director 18 May 2006
Alan Clifton Director, Chairman 18 May 2006
of the Audit Committee,
the Management
Engagement
Committee, and
the Nomination
and Remuneration
Committee
Wilfred Woo Director 3 January 2012
David Hinde Former Chairman 18 May 2006 13 November 2015
Directors' interests
Directors who held office during the year and had interests in
the shares of the Company as at 30 June 2016 were:
Ordinary shares of US$0.01
Held at Held at
30-Jun-16 30-Jun-15
David Hinde * N/A 60,000
Thomas Ashworth - -
**
Alan Clifton 100,000 100,000
Wilfred Woo - -
Chris Russell 252,548 252,548
* David Hinde is no longer a Director as at 30 June 2016.
** Thomas Ashworth has a beneficial interest in Sniper
Investments Limited, which as at the year-end held 12,693,215
shares (2015: 11,020,000).
There have been no changes to the aforementioned interests since
30 June 2016.
Non-mainstream pooled investments
The Board notes the changes to the Financial Conduct Authority
(FCA)("UK Listing Rules") rules relating to the restrictions on the
retail distribution of unregulated collective investments schemes
and close substitutes which came into effect on 1 January 2014.
Following the receipt of legal advice, the Board confirms that
it has conducted the Company's affairs in such a manner that the
Company would have qualified for approval as an investment trust if
it was resident in the United Kingdom, and that it is the Board's
intention that the Company will continue to conduct its affairs in
such a manner. Thus, the Company is, and the Board expects it will
continue to be, outside the scope of the new restrictions and
Independent Financial Advisors (IFAs) should therefore be able to
recommend ordinary shares in the Company to retail investors in
accordance with the FCA relating to non-mainstream investment
products.
AIFM Directive
The Directors have considered the impact of the EU Alternative
Investment Fund Managers Directive (no. 2011/61/EU) ("AIFM
Directive"), which was transposed into UK law in the United Kingdom
on 22 July 2013 with the transitional period ended in June 2014, on
the Company and its operations.
The Company is a non-EU domiciled Alternative Investment Fund
which does not currently intend to market its shares within Europe,
therefore the Directors consider that neither authorisation nor
registration is required.
Directors' remuneration
Directors of the Company are all non-executive and, by way of
remuneration, receive an annual fee. During the year, the Directors
received the following emoluments in the form of Directors' fees
from the Company:
2016 2015
US$ US$
David Hinde * 26,615 74,333
Thomas Ashworth - -
**
Alan Clifton 51,266 55,325
Timothy Henderson - -
#
Wilfred Woo 43,137 46,458
Chris Russell 58,668 47,310
------------------- -------- --------
Total 179,686 223,426
* David Hinde retired on 13 November 2015.
** As disclosed in Note 19 to the consolidated financial
statements, Thomas Ashworth is a shareholder and Director of
Headland Developments Limited and Adept Capital Partners Services
Limited, and he has a beneficial interest in and is a Director of
Sniper Capital Limited and Bela Vista Property Services Limited,
all of which received fees from the Group during the year.
# Timothy Henderson retired from the Board on 8 November 2012.
He is a Director of certain SPVs and received US$7,136 (2015:
US$7,743) of Directors' fees during the year.
Change of control
There are no agreements that the Company considers significant
and to which the Company is party, that would take effect, alter or
terminate upon change of control of the Company, following a
takeover bid.
Annual General Meeting
The Annual General Meeting of the Company will be held at 10am
on 14 November 2016 at Lefebvre Place, Lefebvre Street, St Peter
Port, Guernsey.
Independent auditors
The Audit Committee reviews the appointment of the external
auditor, its effectiveness and its relationship with the Group,
which includes monitoring our use of the Auditor for non-audit
services and the balance of audit and non-audit fees paid.
Following a review of the independence and effectiveness of our
external auditor, a resolution will be proposed at the 2016 Annual
General Meeting to reappoint Ernst & Young LLP. Each Director
believes that there is no relevant information of which the Auditor
is unaware. Each has taken all steps necessary, as a Director, to
be aware of any relevant audit information and to establish that
Ernst & Young LLP is made aware of any pertinent information.
This confirmation is given and should be interpreted in accordance
with the provisions of Section 249 of the Companies (Guernsey) Law,
2008.
Subsequent events
Significant subsequent events have been disclosed in Note
25.
Financial risk management policies and objectives
Financial risk management policies and objectives are disclosed
in Note 2.
Principal risks and uncertainties
Principal risks and uncertainties are discussed in the Corporate
Governance Report below.
On behalf of the Board
Chris Russell
Chairman of the Board
20 September 2016
Corporate Governance Report
The Board has put in place a framework for corporate governance
which it believes is appropriate for an investment company.
Paragraph 9.8.6R of the UK Listing Rules obliges Boards to report
upon their corporate governance arrangements against the UK Code
issued by the Financial Reporting Council (the "FRC"). The Company
is a member of the Association of Investment Companies (the "AIC")
and the Board has considered the principles and recommendations of
the AIC's Code of Corporate Governance ("AIC Code") and the AIC
Corporate Governance Guide for Investment Companies (the "AIC
Guide"). The Board considers that reporting against the principles
and recommendations of the AIC Code, and the AIC Guide will provide
better information to shareholders. The FRC has provided the AIC
with an endorsement letter to cover the latest edition of the AIC
Code. The endorsement confirms that by following the AIC Guide,
investment company's boards should fully meet their obligations in
relation to the UK Code and paragraph 9.8.6R of the UK Listing
Rules.
The AIC Code and the AIC Guide are available on the AIC's
website, www.theaic.co.uk. The UK Code is available on the FRC's
website, www.frc.org.uk.
The AIC Code includes provisions relating to: the role of the
chief executive; executive Directors' remuneration; and the need
for an internal audit function, which are not considered by the
Board to be relevant to the Company, being an externally managed
investment company. The Company has therefore not reported further
in respect of these provisions.
The GFSC Finance Sector Code of Corporate Governance ("GFSC
Code") came into force in Guernsey on 1 January 2012. The Company
is deemed to satisfy the GFSC Code provided that it continues to
conduct its governance in accordance with the requirements of the
AIC Code.
Except as disclosed below, the Company complied throughout the
year with the recommendations of the AIC Code and the relevant
provisions of the UK Code.
The Board
The Board consists of four Non-Executive Directors, three of
whom, including the Chairman, Chris Russell, are independent of the
Company's Manager and Investment Adviser. Thomas Ashworth has a
beneficial interest in and is a Director of Sniper Capital Limited.
Sniper Capital Limited is the Manager to the Group and received
fees during the year as detailed in the consolidated statement of
comprehensive income and in Note 18.
Directors' details are listed above which set out the range of
investment, financial and business skills and experience
represented. Principle 1 of the AIC Code states that a Board should
consider appointing 1 independent Non-Executive Director to be the
senior independent Director. The Board, having taken into account
its small size and that the Chairman and two other Directors are
each similarly independent and Non-Executive, considers it
unnecessary to appoint such a senior independent Director.
The Company's Articles of Incorporation specify that one third
by number of the Directors are subject to annual re-election at the
Annual General Meeting of the Company. The Board has agreed that a
minimum of two Directors should be offered for re-election each
year and that each Director shall retire every two years by
rotation following an alphabetical format. Thomas Ashworth will
retire annually pursuant to the listing rules of the FCA and Alan
Clifton will retire annually pursuant to the AIC Code, as he has
now served for more than nine years as a director of the Company. A
retiring Director shall be eligible for reappointment. No Director
shall be required to vacate his office at any time by reason of the
fact that he has attained any specific age.
The Board has considered the need for a policy regarding tenure
of office; however, the Board believes that any decisions regarding
tenure should consider the need for continuity and maintenance of
knowledge and experience and to balance this against the need to
periodically refresh board's composition and have a balance of
skills, experience, age and length of service bearing in mind the
limited expected life of the Company.
The Board meets at least four times a year for regular scheduled
meetings and, should the nature of the activity of the Company
require it, additional meetings may be held, some at short notice.
At each meeting, the Board follows a formal agenda that covers the
business to be discussed.
To fulfil the recommendation of AIC Code Principle 14 and to
give sufficient attention to strategy, the Board discusses strategy
at each of its regular scheduled meetings, but holds a separate
session annually devoted to strategy.
Between meetings there is regular contact with the Manager and
the Administrator, and the Board requires to be supplied in a
timely manner with information by the Manager, the Company
Secretary and other advisers in a form and of a quality to enable
it to discharge its duties.
The terms and conditions of appointment of Non-Executive
Directors are available for inspection from the Company's
registered office.
Performance and evaluation
Pursuant to Principle 7 of the AIC Code which requires a formal
and rigorous annual evaluation of its performance, the Board
formally reviews its performance annually through an internal
process. Internal evaluation of the Board, the Audit Committee, the
Nomination and Remuneration Committee, the Management Engagement
Committee and individual Directors has taken the form of
self-appraisal questionnaires and discussions to determine
effectiveness and performance in various areas as well as the
Directors' continued independence.
During the year, a formal board performance appraisal was
carried out. The results have been collated and reviewed whereby,
it was noted that overall performance of the Board during the year
had been satisfactory and that the Board is confident in its
ability to continue effectively to lead the Company and oversee its
affairs. The Board believes that the current mix of skills,
experience, knowledge and age of the Directors is appropriate to
the requirements of the Company.
New Directors receive an induction from the Manager as part of
the vetting process of candidates. All Directors receive other
relevant training as necessary.
Duties and responsibilities
The Board is responsible to shareholders for the overall
management of the Company. The Board has adopted a Schedule of
Matters Reserved for the Board which sets out the particular duties
of the Board. Such reserved powers include decisions relating to
the determination of investment policy and approval of investments,
strategy, capital raising, statutory obligations and public
disclosure, financial reporting and entering into any material
contracts by the Company.
The Directors have access to the advice and services of the
Company Secretary and Administrator, who are responsible to the
Board for ensuring that Board procedures are followed and that it
complies with Guernsey Law and applicable rules and regulations of
the GFSC and the LSE. Where necessary, in carrying out their
duties, the Directors may seek independent professional advice at
the expense of the Company. The Company maintains appropriate
Directors' and Officers' liability insurance in respect of legal
action against its Directors on an on-going basis.
The Board has responsibility for ensuring that the Company keeps
proper accounting records, which disclose with reasonable accuracy
at any time the financial position of the Company, and which enable
it to ensure that the financial statements comply with the
Companies (Guernsey) Law, 2008.
The Board has responsibility for ensuring that the Annual Report
presents a fair, balanced and understandable assessment of the
Company's position and prospects. This responsibility extends to
interim and other price-sensitive public reports.
Committees of the Board
Nomination and Remuneration Committee
The Nomination and Remuneration Committee Report is below.
Management Engagement Committee
The Management Engagement Committee Report is below.
Audit Committee
The Audit Committee Report is below.
Meeting Attendance
Name Scheduled Other board Audit Committee Nomination Management
board meeting meeting meeting (max and Remuneration Engagement
(max 4) (max 2) 4) Committee Committee
meeting (max meeting (max
1) 1)
------------------ --------------- ------------ ---------------- ------------------ --------------
Chris Russell 4 2 4 1 1
Thomas Ashworth* 4 2 - 1 -
Alan Clifton 4 1 4 1 1
Wilfred Woo 4 2 4 1 1
David Hinde - - - - -
(resigned
on 13 November
2015)
* Thomas Ashworth is not a member of the Audit Committee or the
Management Engagement Committee.
Internal control and financial reporting
The Board is responsible for the Group's system of internal
control and for reviewing its effectiveness, and the Board has,
therefore, established a process designed to meet the particular
needs of the Group in managing the risks to which it is
exposed.
The process takes a risk-based approach to internal control
through a matrix which identifies the key functions carried out by
the Manager and other key service providers, the various activities
undertaken within those functions, the risks associated with each
activity and the controls employed to minimise those risks. A
residual risk rating is then applied. Regular reports are provided
to the Board, highlighting material changes to risk ratings and a
formal review of these procedures is carried out by the Audit
Committee and reported to the Board on an annual basis and has been
completed during the financial year. By their nature, these
procedures provide a reasonable, but not absolute, assurance
against material misstatement or loss.
At each board meeting, the Board also monitors the Group's
investment performance and activities since the last board meeting
to ensure that the Manager adheres to the agreed investment policy
and approved investment guidelines. Furthermore, at each board
meeting, the Board receives reports from the Company Secretary and
Administrator in respect of compliance matters and duties performed
on behalf of the Company.
The Board considers that an internal audit function specific to
the Group is unnecessary and that the systems and procedures
employed by the Administrator and Manager, including their own
audit functions, provide sufficient assurance that a sound system
of internal control, which safeguards the Group's assets, is
maintained. Investment advisory services are provided to the Group
by Sniper Capital (Macau) Limited. The Board is responsible for
setting the overall investment policy and monitors the action of
the Manager at regular board meetings. The Board has also delegated
administration and company secretarial services to Heritage
International Fund Managers Limited but retains accountability for
all functions it delegates.
Management agreement
The Company has entered into an agreement with the Manager. This
sets out the Manager's key responsibilities, which include
proposing the property investment strategy to the Board,
identifying property investments to recommend for acquisition and
arranging appropriate financing to facilitate the transaction. The
Manager is also responsible to the Board for all issues relating to
property asset management.
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Management
Engagement Committee at its regular scheduled meetings. Each year,
a detailed review of performance pursuant to their terms of
engagement is undertaken by the Management Engagement
Committee.
In accordance with Listing Rule 15.6.2(2)R and having formally
appraised the performance and resources of the Manager, in the
opinion of the Directors, the continuing appointment of the
Manager, on the terms agreed, is in the interest of the
shareholders as a whole.
Relations with shareholders
The Company welcomes the views of shareholders and places great
importance on communication with its shareholders. Senior members
of the Manager are available at all reasonable times to meet with
principal shareholders and key sector analysts. The Chairman and
other Directors are also available to meet with shareholders, if
required.
Reports on the views of shareholders are provided to the Board
on a regular basis. The Board is also kept fully informed of all
relevant market commentary on the Company by the Manager and the
Corporate Broker.
All shareholders can address their individual concerns to the
Company in writing at its registered address. The Annual General
Meeting of the Company provides a forum for shareholders to meet
and discuss issues with the Directors and the Manager. In addition,
the Company maintains a website which contains comprehensive
information, including company notifications, share information,
financial reports, investment objectives and policy, investor
contacts and information on the Board and corporate governance.
Principal risks and uncertainties
The Group's assets consist of commercial and residential
property investments in Macau. Its principal risks are therefore
related to the commercial and residential property market in
general, but also the particular circumstance of the properties in
which they are invested and where relevant, their tenants. The
Manager seeks to mitigate these risks through active asset
management initiatives and carrying out due diligence work on
potential tenants before entering into any new lease agreements.
All the properties in the portfolio are insured.
Each Director is aware of the risks inherent in the Group's
business and understands the importance of identifying and
evaluating these risks. The Board has adopted procedures and
controls that enable it to manage these risks within acceptable
limits and to meet all its legal and regulatory obligations.
For each material risk, the likelihood and consequence are
identified, management controls and frequency of monitoring are
confirmed and results are reported and discussed at board
meetings.
The Company's principal risk factors are fully discussed in the
Company's prospectus, available on the Company's website and should
be reviewed by shareholders. Note 2 further describes the Group's
risk management processes.
The principal significant risks and uncertainties faced by the
Group are set out below:
- Macau's real estate market is showing signs of stabilisation
following two years of declining property prices. Any sustained
further market decline in Macau could prevent the Group from being
able to realise its assets.
- There can be no guarantee that Macau will remain the only
centre in China where gambling is legal. Changes in policies of the
government or changes in laws and regulations may result in the
legalisation of gambling in other parts of China. This in turn may
have an adverse effect on Macau's economy and property market and
the favourable treatment of gambling in Macau. This is an inherent
risk of investing in the Macau region and therefore cannot be
mitigated or managed by the Board.
- New legislation or regulations, or different or more stringent
interpretation or enforcement of existing laws or regulations, in
any jurisdiction in which the Group operates, may have a material
adverse effect on the Group's financial performance and returns to
shareholders.
- Macau law governs the majority of the Group's agreements which
relate to property investments, property ownership rights and
securities. It cannot be guaranteed that the Group will be able to
enforce any such agreements or that remedies will be available
outside of Macau.
- The Group's return on its investments and prospects are
subject to economic, legal, political and social developments in
Macau and China, and the Asia-Pacific region in general. In
particular, the Group's return on its investments may be adversely
affected by:
- changes in Macau's and China's political, economic and social
conditions;
- changes in policies of the government or changes in laws and
regulations (including the revocation or modification by the
Chinese Government of Macau's SAR status and high autonomy levels),
or the interpretation of laws and regulations;
- changes in foreign exchange rates or regulations;
- measures that may be introduced to control inflation, such as
interest rate increases;
- changes in the rate or method of taxation;
- title and/or legal disputes with neighbouring land owners and
legal disputes with architects, project managers and suppliers;
- changes to restrictions on or regulations concerning
repatriation of funds; and
- the continuous clampdown by the People's Republic of China
("PRC") Government on corruption and money laundering.
There is a process for identifying, evaluating and managing the
significant risks faced by the Group. This process (which accords
with the Turnbull guidance) has been regularly reviewed and has
been in place throughout the financial year and up to the date of
approval of these annual accounts.
The above significant risks are mitigated and managed by the
Board through continual review, policy setting and annual updating
of the Group's risk matrix to ensure that procedures are in place
with the intention of minimising the impact of the above mentioned
risks. The Board relies on reports periodically provided by the
Administrator and the Manager regarding risks that the Group faces.
When required, experts are employed to gather information,
including tax advisers, legal advisers and planning advisers.
To mitigate the interest rate risks on the Group's borrowing,
the Group entered into interest rate derivative instruments. The
Board relies on the Manager's close relationship with legal
professionals in Macau, Hong Kong and China to keep abreast of any
potential changes to the law and any possible impact on the Group.
The Board also regularly monitors the investment environment and
the management of the Group's property portfolio, and applies the
principles detailed in the internal control guidance issued by the
FRC. Details of the Group's internal controls are described in more
detail above.
The Group's financial risks and uncertainties are further
discussed in Note 2 to the consolidated financial statements.
On behalf of the Board
Chris Russell
Chairman of the Board
20 September 2016
Nomination & Remuneration Committee Report
Summary of the role of the Nomination and Remuneration
Committee
The Nomination and Remuneration Committee regularly reviews the
structure, size and composition (including the skills, knowledge,
gender, experience and diversity) of the Board and makes
recommendations to the Board with regard to any changes and also
considers the appropriate levels of the Board's remuneration. The
Board monitors the developments in corporate governance to ensure
the Board remains aligned with best practice, especially with
respect to the increased focus on diversity. The Board acknowledges
the importance of diversity of experience, approach and gender, for
the effective functioning of the Board and commits to supporting
diversity in the boardroom. It is the Board's on-going objective to
have an appropriately diversified representation. The Board also
values diversity of business skills and experience because
Directors with diverse skills sets, capabilities and experience
gained from different geographical backgrounds enhance the Board by
bringing a wide range of perspectives to the Company. The Board is
satisfied with the current composition and function of its members.
It is the Company's policy to give careful consideration to issues
of the Board's balance and diversity when making new appointments.
When appointing Board members, its priority is based on merit, but
will be influenced by the strong desire to maintain the Board's
diversity, including gender. The terms of reference are considered
annually by the Nomination and Remuneration Committee and are then
referred to the Board for approval and are available on the
Company's website.
Composition of the Nomination and Remuneration Committee
The members of the Nomination and Remuneration Committee are
listed below.
Meetings
The Nomination and Remuneration Committee shall meet at least
once a year and otherwise as required. Meetings of the Nomination
and Remuneration Committee shall be called by the Company Secretary
at the request of the Committee Chairman. Unless otherwise agreed,
notice of each meeting confirming the venue, time and date,
together with an agenda of items to be discussed, shall be
forwarded to each member of the Nomination and Remuneration
Committee, any other person required to attend and all other
Non-Executive Directors, no later than five working days before the
date of the meeting. Supporting papers shall be sent to the
Nomination and Remuneration Committee and to other attendees as
appropriate, at the same time. Any Non-Executive Director who is
not considered independent will not take part in the Nomination and
Remuneration Committee's deliberations regarding remuneration
levels.
Consideration of Directors for Re-election
Following discussion and having noted the schedule of Directors
re-elected in each year since 2007, it was recommended by the
Nomination and Remuneration Committee that Thomas Ashworth and Alan
Clifton should be submitted for re-election at the Annual General
Meeting to be held on 14 November 2016.
There were no new Directors appointed during the period under
review. The Nomination and Remuneration Committee will consider the
use of external consultants to assist with the appointment of
future Directors.
Overview
The Nomination and Remuneration Committee met once in the year
ended 30 June 2016. Matters considered at the meeting included but
were not limited to:
- the structure, size and composition (including the balance of
skills, knowledge, experience and diversity) of the Board and Audit
Committee and the need to periodically refresh membership;
- to note guidance set out in the AIC Code;
- to consider key outcomes from the Board's evaluation process;
- to consider Board's tenure and succession planning; and
- consideration of Directors for re-election.
As a result of its work during the year, the Nomination and
Remuneration Committee has concluded that it has acted in
accordance with its terms of reference.
On behalf of the Nomination and Remuneration Committee
Alan Clifton
Chairman of the Nomination and Remuneration Committee
20 September 2016
Management Engagement Committee Report
Summary of the role of the Management Engagement Committee
The Management Engagement Committee annually reviews the terms
of the Investment Management Agreement between the Company and the
Manager and to review the performance and terms of engagement of
any other key service providers to the Company, as detailed in
Appendix 1 of the Terms of Reference of the Committee. The terms of
reference are considered annually by the Management Engagement
Committee and are then referred to the Board for approval and are
available on the Company's website.
Composition of the Management Engagement Committee
The members of the Management Engagement Committee are listed
below.
Meetings
The Management Engagement Committee meets at least once a year
and otherwise as required. Meetings of the Management Engagement
Committee shall be called by the Company Secretary at the request
of the Chairman. Unless otherwise agreed, notice of each meeting
confirming the venue, time and date, together with an agenda of
items to be discussed, shall be forwarded to each member of the
Management Engagement Committee, any other person required to
attend and all other Non-Executive Directors, no later than five
working days before the date of the meeting. Supporting papers
shall be sent to Management Engagement Committee and to other
attendees as appropriate, at the same time.
Performance of the Manager
Following discussion, it is the opinion of the Management
Engagement Committee that the performance of the Manager for the
year ended 30 June 2016 was acceptable and the continuing
appointment of the Manager on the terms agreed is in the interests
of the shareholders as a whole.
Performance of key service providers
Following discussion, it is the opinion of the Management
Engagement Committee that the performance of key service providers
(as detailed in Appendix 1 of the Terms of Reference of the
Committee) for the year ended 30 June 2016 was acceptable.
Overview
The Management Engagement Committee met once during the year and
as a result of its work, the Management Engagement Committee has
concluded that it has acted in accordance with its terms of
reference.
On behalf of the Management Engagement Committee
Alan Clifton
Chairman of the Management Engagement Committee
20 September 2016
Audit Committee Report
Summary of the role of the Audit Committee
The Audit Committee is appointed by the Board from the
Non-Executive Directors of the Company, excluding the Chairman. The
Audit Committee's terms of reference include all matters indicated
by Disclosure and Transparency Rule 7.1 and the UK Code. The terms
of reference are considered annually by the Audit Committee and are
then referred to the Board for approval and are available on the
Company's website.
The Audit Committee is responsible for:
- reviewing and monitoring the integrity of the Annual Report
and Audited Consolidated Financial Statements, the Interim Report
and Interim Condensed Consolidated Financial Statements of the
Group, and any formal announcements relating to the Group's
financial performance, and reviewing significant financial
reporting judgement contained therein;
- reporting to the Board on the appropriateness of the
accounting policies and practices including critical accounting
policies and practices;
- advising the Board on whether the Committee believes the
annual report and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy;
- reviewing the Group's internal financial controls and, unless
expressly addressed by the Board itself, the Group's internal
control and risk management systems;
- making recommendations to the Board for a resolution to be put
to the shareholders, for their approval in general meetings, on the
appointment of the external auditor and the approval of the
remuneration and terms of engagement of the external auditor;
- reviewing and monitoring the external auditor's independence
and objectivity and the effectiveness of the audit process, taking
into consideration relevant UK professional and regulatory
requirements;
- developing and implementing a policy on the engagement of the
external auditor to supply non-audit services, taking into account
relevant guidance regarding the provision of non-audit services by
the external audit firm;
- reviewing the valuations of the Company's investments prepared
by the Investment Adviser, and make a recommendation to the Board
on the valuation of the Company's investments;
- meeting the external auditor to review their proposed audit
programme of work and the subsequent audit report and to assess the
effectiveness of the audit process and the levels of fees paid in
respect of both audit and non-audit work;
- considering annually whether there is a need for the Company
to have its own internal audit function; and
- reviewing and considering the UK Code, the AIC code, the AIC
Guidance on Audit Committees and the Stewardship Code.
The Audit Committee is required to report its findings to the
Board, identifying any matters on which it considers that action or
improvement is needed, and to make recommendations on the steps to
be taken.
The Audit Committee is also required to report to the Board,
identifying how it has discharged its responsibilities during the
current year.
The Board has taken note of the requirement that at least one
member of the Audit Committee should have recent and relevant
financial experience and is satisfied that the Audit Committee is
properly constituted in that respect, with all members being highly
experienced, and in particular, two of its members having
backgrounds as chartered accountants.
The Audit Committee reviews the information contained in the
other sections of the Annual Report including the Directors'
Report, Chairman's Message and the Manager's Report. The
independent auditor reports by exception if the information in the
other sections of the Annual Report is materially inconsistent with
the information in the audited financial statements.
The Audit Committee is the formal forum through which the
auditor reports to the Board. The external auditor is invited to
attend the Audit Committee meetings at which the Annual Report and
Audited Consolidated Financial Statements, the Interim Report and
Interim Condensed Consolidated Financial Statements are considered,
and at which they have the opportunity to meet with the Audit
Committee without representatives of the Investment Adviser being
present at least once per year.
Composition of the Audit Committee
The members of the Audit Committee are:
Date of appointment
------------------------ --------------------
Alan Clifton (Chairman) 23 May 2006
Wilfred Woo 27 February 2012
Chris Russell1 2 September 2012
Appointments to the Audit Committee will be for a period of up
to three years, which is extendable, so long as members continue to
be independent. Alan Clifton has been a member of the Audit
Committee for 10 years. However, the Board and Audit Committee have
satisfied themselves that Alan Clifton continues to remain
independent and so have resolved to extend his appointment to the
Audit Committee for a further two years.
Financial Reporting
The primary role of the Audit Committee in relation to the
financial reporting is to review with the Administrator, Investment
Adviser and the Auditor on the appropriateness of the Annual Report
and Audited Consolidated Financial Statements and Interim Report,
concentrating on, among other matters:
- the quality and acceptability of accounting policies and practices;
- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
- material areas in which significant judgement have been
applied or there has been discussion with the auditor;
- whether the Annual Report and Audited Consolidated Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for the shareholders to
assess the Company's performance, business model and strategy;
and
- any correspondence from regulators in relation to Company's financial reporting.
To aid its review, the Audit Committee considers reports from
the Administrator and Investment Adviser and also reports from the
auditor on the outcomes of their half-year review and annual audit.
The Audit Committee supports Ernst and Young LLP in displaying the
necessary professional scepticism their role requires.
Significant issues considered in relation to the financial
statements
The Audit Committee has had regular contact with management and
the auditor during the interim and year end audit process. The
Committee's discussions have been broad ranging, including the
consideration of the Company's going concern status and key areas
of judgement.
The Audit Committee is satisfied, having received advice from
professional advisers which include valuers, tax advisers and
lawyers, that these sensitivities have been appropriately reflected
and disclosed in the financial statements.
During its review of the Group's financial statements for the
year ended 30 June 2016, the Audit Committee considered the
following significant issues:
- valuation of investment properties and inventories;
- ownership and existence of investments properties and inventories;
- accounting treatment for taxes incurred in multiple jurisdictions;
The risk relating to the valuation of investment properties and
inventories are mitigated through use of a professionally qualified
valuer to conduct the valuations in accordance with current Royal
Institute of Chartered Surveyors Appraisal and Valuations
Standards.
The valuation is overseen by the Investment Adviser to ensure
that the values are comparable to current market values of similar
properties. The valuation process and methodology are discussed
with the Investment Adviser regularly during the year and with the
auditor as part of the year-end audit planning and interim review
processes. These valuations are reviewed, challenged and ultimately
agreed by the Board, who possesses knowledge and understanding of
the markets where the properties are situated. The Board meets with
the valuer at least once a year. The factors that affect the value
and ownership of the investment property and inventory are further
discussed in Notes 3, 6 and 7.
The risks relating to the ownership and existence of investment
properties and inventories are mitigated through ensuring proper
title deeds for the properties are held. Asset reconciliations are
performed by the Administrator with the SPV Administrator on a
quarterly basis. Property searches showing ownership of each of the
assets are conducted to ascertain that there are no changes in
ownership.
The risk relating to taxation is mitigated through the setup of
the Group structure. When taxation queries arise, an independent
taxation adviser is employed to advise the Board on such issues.
The factors that affect the Group's taxation position are further
discussed in Note 9.
Meetings
The Audit Committee meets not less than twice a year and at such
other times as the Chairman requires. Any member of the Audit
Committee may request that a meeting be convened by the Company
Secretary. The external auditors may request that a meeting be
convened if they deem it necessary. Other Directors and third
parties may be invited by the Audit Committee to attend meetings as
and when appropriate.
Annual General Meeting
The Audit Committee Chairman, or other members of the Audit
Committee appointed for the purpose, shall attend each Annual
General Meeting of the Company, prepared to respond to
shareholders' questions on the Audit Committee's activities.
Risk Management
The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Audit Committee.
The work of the Audit Committee was driven primarily by the
Company's assessment of its principal risks and uncertainties as
set out in the Corporate Governance Report. The Audit Committee
receives reports from the Investment Adviser and Administrator on
the Company's risk evaluation process and reviews changes to
significant risks identified.
Internal audit
The Audit Committee considers at least once a year whether or
not there is a need for an internal audit function. Currently, the
Audit Committee does not consider there to be a need for an
internal audit function, given that there are no employees in the
Group and all outsourced functions are with parties/administrators
who have their own internal controls and procedures. The Audit
Committee also considers the review of controls of the service
organisations.
External audit
During the year, the Committee considered at length the
re-appointment of the external auditors and decided not to put the
provision of the external audit out to tender at this time. In
doing so, they reviewed the effectiveness and independence of the
external auditors and remained satisfied that the auditors provide
effective independent challenge to the Board and to the Investment
Adviser. The Audit Committee will continue to monitor the
performance of the external auditors on an annual basis and will
consider their independence and objectivity, taking account of
appropriate guidelines.
The external auditors are required to rotate the audit partner
responsible for the Group audit every five years. The current lead
audit partner has been in place for one year. Ernst & Young LLP
has been the external auditor since 2010. There are no contractual
obligations restricting the choice of external auditor and the
Company will put the audit services contract out to tender at least
every 10 years. In line with the FRC's suggestions on audit
tendering, this will be considered further when the audit partner
rotates every five years. Under Company Law, the re-appointment of
the external auditors is subject to shareholders' approval at the
Annual General Meeting. The Committee has provided the Board with
its recommendation to the shareholders on the re-appointment of
Ernst & Young LLP as external auditor for the year ended 30
June 2016. Accordingly, a resolution proposing the reappointment
of
Ernst & Young LLP as the Company's auditor will be put to
shareholders at the 2016 Annual General Meeting.
During the year, the Committee discussed the planning, conduct
and conclusions of the external audit as it proceeded. At the June
2016 Audit Committee meeting, the Committee discussed and approved
the auditor's Group plan in which they identified the Group's
valuation of the investment property, carrying value of inventory
properties and revenue recognition as key areas of risk of
misstatement in the Group's financial statements.
The Committee discussed these issues at the June 2016 meeting to
ensure that the key risk areas identified by the auditors are
consistent with the risks identified by the Board and that
appropriate arrangements are in place to mitigate these risks.
To fulfil its responsibility regarding the independence of the
external auditor, the Audit Committee will consider:
- discussions with or reports from the external auditor
describing its arrangements to identify, report and manage any
conflicts of interest; and
- the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the
Committee will review:
- the external auditor's fulfilment of the agreed audit plan and variations from it;
- discussions or reports highlighting the major issues that
arose during the course of the audit; and
- feedback from other service providers evaluating the performance of the audit team.
Non-audit services
To further safeguard the objectivity and independence of the
external auditor from becoming compromised, the Audit Committee has
a formal policy governing the engagement of the external auditor to
provide non-audit services. This precludes Ernst & Young LLP
from providing certain services such as valuation work or the
provision of accounting services and also sets a presumption that
Ernst & Young LLP should only be engaged for non-audit services
where Ernst & Young LLP is best placed to provide the non-audit
service, for example, the interim review service or specialist tax
advice. Please see Note 23 for details of services provided by
Ernst & Young LLP.
Overview
The Audit Committee met four times in the year ended 30 June
2016. Matters considered at these meetings included but were not
limited to:
- consideration and agreement of the terms of reference of the
Audit Committee for approval by the Board;
- review of the accounting policies and format of the financial statements;
- review of the 2015 Annual Report and Audited Consolidated
Financial Statements for the year ended 30 June 2015;
- review of the 2015 Interim Report and Interim Condensed
Consolidated Financial Statements for the 6 months ended 31
December 2015;
- review of the Interim Management Statement released in
November 2015 and the quarterly results announcement issued in May
2016;
- review of the audit plan and timetable for the preparation of
the 2016 Annual Report and Audited Consolidated Financial
Statements;
- discussions and approval of the fee for the external audit;
- assessment of the effectiveness of the external audit process as described above; and
- review of the Company's significant risks and internal controls.
As a result of its work during the year, the Audit Committee has
concluded that it has acted in accordance with its terms of
reference and has ensured the independence and objectivity of the
external auditor. The Audit Committee has recommended to the Board
that the external auditor is re-appointed.
On behalf of the Audit Committee
Alan Clifton
Chairman of the Audit Committee
20 September 2016
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and accounts in accordance to applicable laws and regulations. The
Companies (Guernsey) Law 2008 requires the Directors to prepare
financial statements for each financial year. Under that law, the
Directors are required to prepare the Group's financial statements
in accordance to International Financial Reporting Standards as
adopted by the European Union ("IFRS"). Under Company Law, the
Directors must not approve the accounts unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and of the financial performance and cash flows of the Group
for that period. In preparing these Group's financial statements,
the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgement that are reasonable and prudent;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group's financial position and financial
performance;
- state that the Group has complied with IFRS, subject to any
material departures disclosed and explained in the Group's
financial statements; and
- prepare the Group's financial statements on a going concern
basis unless it is inappropriate to presume that the Group will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Group's financial statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Company and which enable them to
ensure that the financial statements comply with the Companies
(Guernsey) Law, 2008. They are also responsible for safeguarding
the assets of the Company and hence, for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The maintenance and integrity of the Company's website
(www.mpofund.com) is the responsibility of the Directors. The work
carried out by the Auditor does not involve consideration of these
matters and, accordingly, the Auditor accepts no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
All companies with a Premium Listing of equity shares in the UK
are required under the Listing Rules to report on how they have
applied the UK Code in their annual report and accounts.
Responsibility Statement of the Directors in respect of the
Annual Report and Accounts
Each of the Directors, whose names are set out above, confirms
that, to the best of their knowledge and belief that:
Directors' Statement under the Disclosure and Transparency
Rules
- The Group's financial statements, prepared in accordance with
IFRS, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group.
-- The management report, which is incorporated into the
Directors' Report, Manager's Report and Chairman's Message
contained in the annual report, includes a fair review of the
development and performance of the Group and of the position of the
Company and the Group as a whole, together with a description of
the principal risks and uncertainties they face.
-- The annual report and accounts include information required
by the UK Listing Authority and for ensuring that the Company
complies with the provisions of the Listing Rules and the
Disclosure Rules and Transparency Rules of the UK Listing
Authority, with regard to corporate governance, require the Company
to disclose how it has applied the principles, and complied with
the provisions of the corporate governance code applicable to the
Company.
Directors' Statement under the UK Corporate Governance Code
-- The Directors are responsible for preparing the annual report
and Group's financial statements in accordance with applicable law
and regulations. Having taken advice from the Audit Committee, the
Directors consider the annual report and Group's financial
statements, taken as a whole, as fair, balanced and understandable
and that it provides the information necessary for shareholders to
assess the Group's performance, business model and strategy.
On behalf of the Board
Chris Russell
Chairman of the Board
20 September 2016
Independent Auditor's Report to the Members of Macau Property
Opportunities Fund Limited
1. Our opinion on the consolidated financial statements
In our opinion, Macau Property Opportunities Fund Limited's
("the Company") and its subsidiaries' (the "Group") consolidated
financial statements (the "financial statements"):
-- give a true and fair view of the state of the Group's affairs
as at 30 June 2016 and its loss for the year then ended;
-- have been properly prepared in accordance with IFRS; and
-- have been prepared in accordance with the requirements of the
Companies (Guernsey) Law 2008.
2. What we have audited
We have audited the consolidated financial statements of the
Company for the year ended 30 June 2016, which comprise:
-- the Consolidated Statement of Financial Position as at 30
June 2016;
-- the Consolidated Statement of Comprehensive Income for the
year ended 30 June 2016;
-- the Consolidated Statement of Changes in Equity for the year
ended 30 June 2016;
-- the Consolidated Statement of Cash Flows for the year ended
30 June 2016; and
-- the related Notes 1 to 25.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRS.
3. Overview of our audit approach
Risks of material
misstatement * Valuation of investment property
* Carrying value of inventory properties
* Revenue recognition
------------------ -------------------------------------------------------------
Audit scope
* We have performed an audit of the consolidated
financial statements of the Group.
------------------ -------------------------------------------------------------
Materiality
* Overall materiality of US$1.1 million (2015: US$3.1
million) which represents 1% (2015: 2%) of NAV.
------------------ -------------------------------------------------------------
What has changed Our scope of work remained the same as compared
to the previous year and as communicated
during planning meeting
with the exception of the following:
-- Change in materiality
* We have reassessed the materiality level during the
execution stage taking into account both qualitative
and quantitative considerations, particularly the
decline in market values of the properties. We have
deemed it appropriate to adjust the materiality level
from 2% of NAV to 1% of NAV.
-- Ownership of investment property and
inventory properties
* Ownership of investment property and inventory
properties was considered as significant risk in
prior year. Given that there were no property
purchases in the year, it is no longer considered to
be a significant risk in the current year.
-- Improper accounting treatment for income
taxes
* In the prior year, improper accounting treatment for
income taxes was considered to be a significant risk
due to significant unresolved uncertainties. As a
result of these uncertainties, it is no longer
considered to be a significant risk in the current
year.
-- Carrying value of inventory properties
* Inventory properties are carried in the financial
statements at lower of cost or net realisable value.
Calculation of net realisable value involves
estimates and judgements. As a result of reductions
in market values and a consequential reduction in the
net realisable value, we have determined that there
is an increased risk of a misstatement of the
carrying value of inventory properties and as a
result have determined that it is a significant risk
in the current year.
The audit team comprised individuals from Guernsey ("Group
team") and Hong Kong ("Component team") and we operated as an
integrated team across both jurisdictions. The engagement partner
and senior manager from the Channel Islands visited Hong Kong to
review the work performed and to visit the properties in Macau. We
performed the audit procedures and responded to the risks
identified as described below.
We identified the risks of material misstatement described below
as those that had the greatest effect on our overall audit
strategy, the allocation of resources in the audit and the
direction of the efforts of the audit team. In addressing these
risks, we have performed the procedures below, which were designed
in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual
areas.
Risk Our response to the risk What we concluded to the Audit
Committee
-------------------------------- ----------------------------------------- -----------------------------------------
Fair valuation of We performed full scope audit procedures We confirmed that there were no
investment property over the valuation of investment material matters arising from
(US$206.6 million; property. Audit procedures performed our audit work on the inputs used
2015: US$243.8 million) by Component audit teams are based and the judgment made by the Specialists
on instructions issued by the Group that we wished to bring to the
The valuation of investment audit team. Those procedure are attention of the Audit Committee.
property is the key described below: We confirmed that investment property
driver of the Group's -- We documented our understanding is not materially misstated.
net asset value and of the processes, policies and
total return. Valuation methodologies
of investment property used by management for valuing
requires specialist investment
expertise and the property and performed walkthrough
use of significant tests to confirm our understanding
estimates and judgement, of the systems and controls implemented.
giving rise to a higher -- We agreed the valuations recorded
risk of misstatement. in the consolidated financial statements
Refer to the Audit to the values reported by the Group's
Committee Report and independent Specialists.
Note 6 of the financial -- We tested the inputs to the valuation
statements for consistency with underlying
tenancy agreements.
-- We involved our real estate expert
in Hong Kong to assess whether the
assumptions in relation to the market
related inputs were reasonable.
-- We tested the calculation of
profit/loss on revaluation of the
year and assessed the appropriateness
of the recording and reporting of
these amounts.
-- We engaged our own internal valuation
experts from Hong Kong to:
- use their knowledge of the market
to assess and corroborate the market
related judgement and valuation
inputs (including discount rates,
exit yields and sales values) used
by the Specialists; and
- assist us in determining whether
the Specialists were appropriately
qualified and independent.
-------------------------------- ----------------------------------------- -----------------------------------------
Carrying value of We performed full scope audit procedures We confirmed that there were no
inventory properties over the carrying value of inventory material matters arising from
(US$67.4 million; properties. Audit procedures performed our audit work on the inputs used
2015: US$67.3 million) by Component audit teams are based and the judgment made by the Specialists
on instructions issued by the Group that we wished to bring to the
Inventory properties audit team. Those procedures are attention of the Audit Committee.
are stated at lower described below: We confirmed that carrying value
of cost and Net Realisable -- We documented our understanding of inventory properties is not
Value ("NRV"). The of the processes, policies and materially misstated.
valuation of inventory methodologies
properties is the used by management for valuing inventory
key driver to determine properties and performed walkthrough
the NRV of properties. tests to confirm our understanding
Valuation of property of the systems and controls implemented.
requires specialist -- We agreed a sample of the significant
expertise and the inputs used by the Specialists to
use of significant value the properties, particularly
estimates and judgement, development cost, projected capex,
giving rise to a higher to contractual documentation and
risk of misstatement. development plans and agreements.
Refer to the Audit -- We tested the arithmetical accuracy
Committee Report and of the calculations prepared by
Note 7 of the financial the Specialists for the main assumptions
statements in the model, by reperforming a
sample of their calculations.
-- We engaged our own internal valuation
experts from Hong Kong to:
- use their knowledge of the market
to assess and corroborate the market
related judgement and valuation
inputs (including discount rates,
exit yields and sales values) used
by the Specialists; and
- assist us in determining whether
the Specialists were appropriately
qualified and independent.
-------------------------------- ----------------------------------------- -----------------------------------------
Recognition of rental -- Rental income We confirmed that there were no
income (US$2.1 million; matters identified during our
2015: US$4.3 million)/realised - We have agreed a sample of tenancy audit work on revenue recognition
gain on disposal of agreements to amounts recorded as that we wished to bring to the
properties (US$1.0 rental income. attention of the Audit Committee.
million; 2015: US$27.9 We confirmed that revenue from
million) - Performed analytical procedures rental income and on disposal
on rental income to identify any of properties was recognised in
Management may seek inconsistencies in rental income accordance with IFRS.
to overstate revenue patterns or holiday periods.
generated from rental
income and on disposal - Determined that the accounting
of inventory properties, policy for rental income was in
as it is a significant compliance with IFRS.
metric and indicator
of the Group's progress, -- Property realisation
giving rise to a higher
risk of misstatement. - We have re-performed calculations
Refer to the Audit of the realised gain on disposal
Committee Report and of properties.
Note 1 of the financial
statements - Inspected the documentation supporting
the sales price (i.e. Sale and Purchase
Agreement).
-------------------------------- ----------------------------------------- -----------------------------------------
4. Our application of materiality
We apply the concept of materiality, both in planning and
performing our audit, and in evaluating the effect of misstatements
on our audit and on the consolidated financial statements. For the
purposes of determining whether the consolidated financial
statements are free from material misstatement, we define
materiality as the magnitude of misstatement that makes it probable
that the economic decisions of a reasonably knowledgeable person,
relying on the financial statements, would be changed or
influenced.
4.1. Materiality
This is the magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be expected to
influence the economic decisions of the users of the financial
statements. Materiality provides a basis for determining the nature
and extent of our audit procedures. We determined planning
materiality for the Group to be US$1.1 million (2015: US$3.1
million), which is 1% (2015: 2%) of NAV. This provided a basis for
determining the nature, timing and extent of risk assessment
procedures, identifying and assessing the risk of material
misstatement and determining the nature, timing and extent of
further audit procedures.
It was considered inappropriate to determine materiality based
on the Group's profit before tax, as the primary performance
measures of the Group for internal and external reporting are based
on equity.
We believe that NAV provides us with an appropriate basis for
audit materiality, as it is a key published performance measure and
is a key metric used by management in assessing and reporting on
overall performance.
4.2. Performance materiality
Performance materiality is the application of materiality at the
individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Group's overall control environment, our
judgement was that performance materiality was 75% (2015: 75%) of
our planning materiality, namely US$0.80 million (2015: US$2.3
million). Our objective in adopting this approach was to ensure
that total uncorrected and undetected audit differences in the
financial statements did not exceed our materiality level.
4.3. Reporting threshold
An amount below which identified misstatements is considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of US$53,000 (2015:
$155,000), which is set at 5% of planning materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
5. Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the consolidated financial statements are
free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are
appropriate to the Group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the Annual Report to
identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If
we become aware of any apparent material misstatements or
inconsistencies, we will consider the implications for our
report.
5.1. Tailoring the scope
We performed audit procedures on accounts within the Group, that
we considered had the potential for the greatest impact on the
significant accounts in the financial statements, either because of
the size of the accounts or their risk profile.
5.2. Involvement with Component teams
Team structure
The overall audit strategy is determined by the opinion
signatory who is based in the Channel Islands. Since the Group's
operations are principally in Hong Kong/Macau, the audit team
includes EY team members from Hong Kong. The Group audit team
visited Hong Kong during the current year. Whilst in Hong Kong, we
focused our time on the significant risks and judgemental areas of
the audit.
Involvement with Component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at the
components by the Group audit team, or by the Component team
operating under our instruction. We determined the appropriate
level of involvement to enable us to be satisfied that sufficient
audit evidence had been obtained as a basis for our opinion on the
Group as a whole. The Group audit team, assisted by our internal
valuation specialists in Hong Kong, performed procedures on the
valuations of investment property.
The Group audit team interacted regularly with the Component
teams, where appropriate, during various stages of the audit,
reviewed key working papers and were responsible for the scope and
direction of the audit process. This, together with the additional
procedures performed at group level, gave us appropriate audit
evidence for our opinion on the Group's financial statements.
6. Respective responsibilities of Directors and Auditor
As explained more fully in the Statement of Directors'
Responsibilities set out above, the Directors are responsible for
the preparation of the Group's financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board's Ethical Standards for
Auditors.
This report is made solely to the Company's members as a body,
in accordance with Section 262 of the Companies (Guernsey) Law
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
7. Matters on which we are required to report by exception
ISAs (UK and Ireland) We are required to report to you if, in We have no exceptions
reporting our opinion, financial and non-financial to report.
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 Group acquired in the course
of performing our audit; or
-- otherwise misleading.
In particular, we are required to report
whether we have identified any inconsistencies
between our knowledge acquired in the course
of performing the audit and the Directors'
Statement that they consider the annual
report and accounts taken as a whole is
fair, balanced and understandable and provides
the information necessary for shareholders
to assess the entity's performance, business
model and strategy; and whether the annual
report appropriately addresses those matters
that we communicated to the Audit Committee
that we consider should have been disclosed.
---------------------- ---------------------------------------------------------- ----------------------
Listing Rules review We are required by Listing Rules to review: We have no exceptions
requirements to report.
-- the Directors' Statement in relation
to going concern and longer-term viability,
set out above; and
-- the part of the Corporate Governance
Statement relating to the Group's compliance
with the provisions of the UK Corporate
Governance Code specified for our review.
---------------------- ---------------------------------------------------------- ----------------------
Companies (Guernsey) We are required to report to you if, in We have no exceptions
Law 2008 reporting our opinion: to report.
* 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.
---------------------- ---------------------------------------------------------- ----------------------
8. Statement on the Directors' Assessment of the Principal Risks
that Would Threaten the Solvency or Liquidity of the Entity
ISAs (UK and Ireland) We are required to give a statement as to We have no material
reporting whether we have anything material to add to add or to draw attention
or to draw attention to in relation to: to.
-- the Directors' confirmation in the annual
report that they have carried out a robust
assessment of the principal risks facing
the entity, including those that would threaten
its business model, future performance,
solvency or liquidity;
-- the disclosures in the annual report
that describe those risks and explain how
they are being managed or mitigated;
-- the Directors' Statement in the financial
statements about whether they considered
it appropriate to adopt the going concern
basis of accounting in preparing them, and
their identification of any material uncertainties
to the
entity's ability to continue to do so over
a period of at least 12 months from the
date of approval of the financial statements;
and
-- the Directors' explanation in the annual
report as to how they have assessed the
prospects of the entity, over what period
they have done so and why they consider
that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the entity will be able
to continue in operation and meet its liabilities
as they fall due over the period of their
assessment, including any related disclosures
drawing attention to any necessary qualifications
or assumptions.
Andrew Dann
Ernst & Young LLP
Guernsey, Channel Islands
20 September 2016
Note:
1. The maintenance and integrity of the Group's website is the
responsibility of the Directors; the work carried out by the
Auditors does not involve consideration of these matters and,
accordingly, the Auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website.
2. Legislation in Guernsey governing the preparation and
dissemination of group financial statements may differ from
legislation in other jurisdictions.
Consolidated Statement of Financial Position
Note 2016 2015
US$'000 US$'000
ASSETS
Non-current assets
Investment property 6 206,595 243,810
Deposits with lenders 21 2,113 1,941
Financial assets at fair value through
profit or loss - interest rate swap 20 - 174
Trade and other receivables 111 111
--------- ---------
208,819 246,036
--------- ---------
Current assets
Inventories 7 67,410 67,288
Trade and other receivables 10 1,096 3,279
Deposits with lenders 21 - 709
Cash and cash equivalents 12,741 28,749
--------- ---------
81,247 100,025
--------- ---------
Total assets 290,066 346,061
--------- ---------
EQUITY
Capital and reserves attributable
to the Company's equity holders
Share capital 12 764 775
Retained earnings 38,724 84,375
Distributable reserves 66,208 69,213
Foreign currency translation reserve 947 1,084
--------- ---------
Total equity 106,643 155,447
--------- ---------
LIABILITIES
Non-current liabilities
Deferred taxation provision 9 12,782 17,385
Taxation provision 9 2,409 4,924
Interest-bearing loans 8 149,018 146,769
Financial liabilities at fair value
through profit or loss - interest
rate swap 20 23 -
--------- ---------
164,232 169,078
--------- ---------
Current liabilities
Taxation provision 9 2,514 -
Trade and other payables 11 1,891 1,773
Interest-bearing loans 8 14,705 19,194
Financial liabilities at fair value
through profit or loss - interest
rate swap 20 81 569
--------- ---------
19,191 21,536
--------- ---------
Total liabilities 183,423 190,614
--------- ---------
Total equity and liabilities 290,066 346,061
--------- ---------
Net Asset Value per share (US$) 17 1.40 2.00
Adjusted Net Asset Value per share
(US$) 17 2.96 3.97
The accompanying notes are an integral part of these
consolidated financial statements.
The consolidated financial statements were approved by the Board
of Directors and authorised for issue on 20 September 2016.
Chris Russell Alan Clifton
Director Director
Consolidated Statement of Comprehensive Income
Note 2016 2015
US$'000 US$'000
Income
Income on sale of inventories 7 1,045 27,906
Rental income 2,109 4,311
Net loss from fair value adjustment
on investment property 6 (38,227) (62,048)
Other income 4 11
--------- ---------
(35,069) (29,820)
Expenses
Cost of sales of inventories 7 254 11,004
Management fee 19 5,528 8,117
Non-Executive Directors' fees 18 187 231
Auditors' remuneration: audit fees 23 103 90
Auditors' remuneration: non-audit
fees 23 32 32
Property operating expenses 15 1,271 1,687
Sales and marketing expenses 77 202
General and administration expenses 13 1,155 1,490
Loss on foreign currency translation 75 194
--------- ---------
(8,682) (23,047)
--------- ---------
Operating loss for the year (43,751) (52,867)
--------- ---------
Finance income and expenses
Net gain on valuation of interest
rate swap 20 291 265
Bank loan interest (4,827) (3,901)
Interest expense on interest rate
swap 20 (581) (1,035)
Other financing costs 14 (324) (506)
Bank and other interest - 2
--------- ---------
(5,441) (5,175)
--------- ---------
Loss for the year before tax (49,192) (58,042)
--------- ---------
Taxation 9 3,541 5,515
--------- ---------
Loss for the year after tax (45,651) (52,527)
--------- ---------
Items that may be reclassified subsequently
to profit or loss
Exchange difference on translating
foreign operations (137) (5)
--------- ---------
Total comprehensive loss for the
year (45,788) (52,532)
--------- ---------
Loss attributable to:
Equity holders of the Company (45,651) (52,527)
--------- ---------
Total comprehensive loss attributable
to:
Equity holders of the Company (45,788) (52,532)
--------- ---------
2016 2015
US$ US$
Basic and diluted loss per Ordinary
Share attributable to the equity
holders of the Company during the
year 17 (0.5961) (0.6661)
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated Statement of Changes in Equity
Note Share Retained Distributable Foreign Currency Total
capital earnings reserves translation US$'000
US$'000 US$'000 US$'000 reserve
US$'000
Balance brought
forward at 1
July 2015 775 84,375 69,213 1,084 155,447
Loss for the
year - (45,651) - - (45,651)
Items that may
be reclassified
subsequently
to profit or
loss
Exchange difference
on translating
foreign operations - - - (137) (137)
--------- ---------- -------------- ----------------- ---------
Total comprehensive
loss for the
year - (45,651) - (137) (45,788)
--------- ---------- -------------- ----------------- ---------
Share buyback 12 (11) - (3,005) (3,016)
--------- ---------- -------------- ----------------- ---------
Balance carried
forward at 30
June 2016 764 38,724 66,208 947 106,643
--------- ---------- -------------- ----------------- ---------
Share Retained Distributable Foreign currency Total
capital earnings reserves translation US$'000
US$'000 US$'000 US$'000 reserve
US$'000
Balance brought
forward at 1
July 2014 814 136,902 84,049 1,089 222,854
Loss for the
year (52,527) (52,527)
Items that may
be reclassified
subsequently
to profit or
loss
Exchange difference
on translating
foreign operations - - - (5) (5)
--------- ---------- -------------- ----------------- ---------
Total comprehensive
loss for the
year - (52,527) - (5) (52,532)
--------- ---------- -------------- ----------------- ---------
Share buyback 12 (39) - (14,836) - (14,875)
--------- ---------- -------------- ----------------- ---------
Balance carried
forward at 30
June 2015 775 84,375 69,213 1,084 155,447
--------- ---------- -------------- ----------------- ---------
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated Statement of Cash Flows
Note 2016 2015
US$'000 US$'000
Net cash used in operating activities 16 (4,904) (38,497)
--------- ---------
Cash flows from investing activities
Capital expenditure on investment
property 6 (1,237) (103)
Movement in pledged bank balances 537 6
Proceeds from disposal of investment
property - 6,452
--------- ---------
Net cash (used in)/generated from
investing activities (700) 6,355
--------- ---------
Cash flows from financing activities
Proceeds from bank borrowings 36,266 51,441
Repayment of bank borrowings (38,367) (13,622)
Share buyback 12 (3,016) (14,875)
Interest and bank charges paid (5,400) (5,654)
--------- ---------
Net cash (used in)/generated from
financing activities (10,517) 17,290
--------- ---------
Net movement in cash and cash equivalents (16,121) (14,852)
Cash and cash equivalents at beginning
of year 28,749 43,528
Effect of foreign exchange rate
changes 113 73
Cash and cash equivalents at end
of year 12,741 28,749
--------- ---------
The accompanying notes are an integral part of these
consolidated financial statements.
Notes to the Consolidated Financial Statements
General information
Macau Property Opportunities Fund Limited (the "Company") is a
Company incorporated and registered in Guernsey under The Companies
(Guernsey) Law, 1994. This law was replaced by the Companies
(Guernsey) Law, 2008 on 1 July 2008. The Company is an authorised
entity under the Authorised Closed-Ended Investment Schemes Rules
2008 and is regulated by the GFSC. The address of the registered
office is given below.
The consolidated financial statements for the year ended 30 June
2016 comprise the financial statements of the Company and its
subsidiaries (together referred to as the "Group"). The Group
invests in residential and commercial property and property-related
ventures primarily in Macau.
These consolidated financial statements have been approved for
issue by the Board of Directors on 20 September 2016.
1. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all years presented,
unless otherwise stated.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with IFRS; applicable legal and regulatory requirements
of Guernsey Law and under the historical cost convention as
modified by the revaluation of investment properties and derivative
financial instruments.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity or areas where assumptions
and estimates are significant to the financial statements are
disclosed in Note 3. The consolidated financial statements are
presented in US Dollar and all values are rounded to the nearest
thousand ($'000), except where otherwise indicated.
Certain comparative prior year amounts are restated due to
reclassification adjustments in accordance to IAS 1.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Manager's Report. The financial position of the
Group, its cash flows and its liquidity position are described in
the Capital Management section of the Manager's Report.
The financial risk management objectives and policies of the
Group and the exposure of the Group to credit risk, market risk and
liquidity risk are discussed in Note 2 to the consolidated
financial statements.
The Group continues to meet its capital requirements and
day-to-day liquidity needs through the Group's cash resources. As
part of their assessment of the going concern of the Group, the
Directors have reviewed the comprehensive cash flow forecasts
prepared by management which make assumptions based upon current
and expected future market conditions, including predicted future
sales of properties. It is the Directors' belief that, based upon
these forecasts and their assessment of the Group's committed
banking facilities, it is appropriate to prepare the financial
statements of the Group on a going concern basis.
At the Extraordinary General Meeting held on 7 April 2014, the
shareholders voted in favour of amending the Company's Articles of
Incorporation so that the next discontinuation vote would take
place no later than 31 December 2016. This was considered a
suitable timeframe for the maximisation of the value of the
Company's portfolio. The Directors believe that the forthcoming
Discontinuation Vote does not give rise to a material uncertainty
(that might cast doubt about the Company's ability to continue as a
going concern) because it is highly unlikely that the vote will be
carried. Shareholder support of 75% is required to pass the
Discontinuation Vote; Sniper Investments, with a 16.6%
shareholding, and other major shareholders are supportive of the
Board; and it is likely that returns from sales of properties would
be lower if the Company were forced to sell as a result of
discontinuation.
The Directors believe it is appropriate to prepare the financial
statements of the Group on a going concern basis based upon
existing cash resources, the forecasts described above, the
expected extension of the life of the Company and the Directors'
assessment of the Group's committed banking facilities and expected
continuing compliance with related covenants.
New and amended standards and interpretations adopted by the
Group
There have been no new standards or amendments to existing
standards applicable during the current year.
New and amended standards and interpretations not applied
The following new and amended standards and interpretations in
issue are applicable to the Group but are not yet effective or have
not been adopted by the European Union and therefore, have not been
adopted by the Group:
Effective
dates
no earlier
than
IFRS Financial instruments 1 January
9 2018
IFRS Revenue from contracts with customers 1 January
15 2018
IFRS Accounting for acquisitions of interests 1 January
11 in Joint Operations amendments 2016
IAS Disclosure Initiative - amendments to IAS 1 January
1 1 2016
IRFS Leases 1 January
19 2019
Various Amendments to IFRS 10, IFRS 12 and IAS 1 January
28: Investment Entities: Applying Consolidation 2016
Exemption
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$'000 GBP'000 HK$'000 Other Total
currencies US$'000
'000
As at 30 June 2016
Trade and other receivables (excluding
prepayments) - - 1,013 111 1,124
Cash and cash equivalents - 66 12,638 37 12,741
Deposits with lenders - - 2,113 - 2,113
-------- -------- ---------- ------------ ----------
Total financial assets - 66 15,764 148 15,978
-------- -------- ---------- ------------ ----------
Trade and other payables 114 172 23 1,582 1,891
Interest-bearing loans - - 164,514 - 164,514
Financial liabilities at fair value
through profit or loss - - 104 - 104
-------- -------- ---------- ------------ ----------
Total financial liabilities 114 172 164,641 1,582 166,509
-------- -------- ---------- ------------ ----------
Net financial position (114) (106) (148,877) (1,434) (150,531)
-------- -------- ---------- ------------ ----------
US$'000 GBP'000 HK$'000 Other Total
currencies US$'000
'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$1,354,000) (based on the
interest bearing net financial liability per the table below). This
is mainly due to the Group's exposure to interest-bearing loans.
The majority of loans are hedged, see details below.
The following table details the Group's exposure to interest
rate risks:
Interest Non-interest Total
bearing bearing US$'000
US$'000 US$'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
Interest Non-interest Total
bearing bearing US$'000
US$'000 US$'000
As at 30 June 2015
Trade and other receivables (excluding
prepayments) - 3,301 3,301
Cash and cash equivalents 28,749 - 28,749
Deposits with lenders 2,650 - 2,650
Financial assets at fair value through
profit or loss - 174 174
Total financial assets 31,399 3,475 34,874
Trade and other payables - 1,773 1,773
Interest-bearing loans 166,770 - 166,770
Financial liabilities at fair value
through profit or loss - 569 569
Total financial liabilities 166,770 2,342 169,112
The Group has entered into various interest rate swaps as
disclosed in Note 20.
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Group. The Group is exposed to credit
risks from both its leasing activities and financing activities,
including deposits with banks and financial institutions.
The Group's main exposure to credit risk is its balances with
banks. This risk is mitigated through using banks with a high
credit rating.
The Group's deposits, including deposits with lenders, are split
by banks with the following ratings from Fitch and Moody's
Ratings:
Credit Rating 2016 2015
US$'000 US$'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$1,941,000) relates to long-term
banking facilities, and are, therefore, classified as non-current
assets. Pledged bank balances represent deposits pledged to the
banks to secure the banking facilities granted to the Group.
The Group has term loan facilities with Hang Seng Bank,
Industrial and Commercial Bank of China, and Banco Tai Fung for its
investments in The Waterside, individual units in One Central
Residences, Estrada da Penha, and The Fountainside. The Group's
liquidity position is monitored by the Manager and is reviewed
quarterly by the Board of Directors. Please refer to Note 8 for
details of the facilities.
The table on the right analyses the Group's financial assets and
liabilities into relevant maturity profiles based on the remaining
period at the Consolidated Statement of Financial Position date to
the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows (including interest
payments).
As at 30 June 2016 On demand Less 3 to 1 to 2 to Over 5 Total
US$'000 than 12 2 5 years US$'000
3 months months years years US$'000
US$'000 US$'000 US$'000 US$'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 demand Less 3 to 1 to 2 to Over 5 Total
US$'000 than 12 2 5 years US$'000
3 months months years years US$'000
US$'000 US$'000 US$'000 US$'000
Trade and other receivables
(excluding
prepayments) - 3,183 7 111 - - 3,301
Cash and cash equivalents 28,749 - - - - - 28,749
Deposits with lenders - - 709 - 1,941 - 2,650
Financial assets at fair value
through profit or loss - - - 47 127 - 174
---------- ---------- --------- --------- --------- --------- ----------
Total financial assets 28,749 3,183 716 158 2,068 - 34,874
---------- ---------- --------- --------- --------- --------- ----------
Trade and other payables - 821 952 - - - 1,773
Interest-bearing loans - 5,317 18,421 31,184 82,804 44,240 181,966
Financial liabilities at fair
value through profit or loss - 258 311 - - - 569
---------- ---------- --------- --------- --------- --------- ----------
Total financial liabilities - 6,396 19,684 31,184 82,804 44,240 184,308
---------- ---------- --------- --------- --------- --------- ----------
Net financial position 28,749 (3,213) (18,968) (31,026) (80,736) (44,240) (149,434)
---------- ---------- --------- --------- --------- --------- ----------
Fair value hierarchy
Financial investments measured at fair value
IFRS 13 requires disclosure of fair value measurements by level
as discussed in Note 1.
The Group's interest rate swaps have been classified within
Level 2 which makes use of a model with inputs that are directly or
indirectly observable market data. The following table presents the
value carried on the Consolidated Statement of Financial Position
by level within the valuation hierarchy as at 30 June 2016:
As at As at
30 June 30 June
2016 2015
US$'000 US$'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
MPOF Mainland Company
Macau (Site 9) Limited 100% Macau 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 Gorey Hills International
Limitada 100% Macau Limited 100% BVI
The Fountainside Company Hillsleigh Holdings
Limited 100% Macau Limited 100% BVI
Castelo Branco Companhia Jin Mei International
Limitada 100% Macau Limited 100% BVI
Vila Real Companhia Mega League Investments
Limitada 100% Macau Limited 100% BVI
Poly Advance Management
MPOF (Penha) Limited 100% Guernsey Limited 100% BVI
MPOF (Taipa) Limited 100% Guernsey Smooth Run Group Limited 100% BVI
MPOF (Jose) Limited 100% Guernsey Worthy Way Limited 100% BVI
China City Properties
MPOF (Sun) Limited 100% Guernsey Limited 100% Hong Kong
East Base Properties
MPOF (Monte) Limited 100% Guernsey 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
New Perfect Properties
MPOF (6A) Limited 100% Guernsey Limited 100% Hong Kong
Pacific Asia Properties
MPOF (6B) Limited 100% Guernsey 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$4,311,000).
6. Investment property
2016 2015
US$'000 US$'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$159,000).
There are no disposals of investment property during the
year.
The following table shows the assumptions used in valuing the
investment property, which is classified as Level 3 in the fair
value hierarchy:
Property Carrying Valuation Input Unobservable Other key
by information amount / technique and information
fair value observable
as at 30 inputs used
Jun 2016 in
US$'000 determination
of fair values
Name The Waterside 206,595 Term Term rent HK$19.5 psf Age of building
and (inclusive
Reversion of management
Analysis fee and furniture)
Type Residential/ Term yields 1.6% - 2.4% Remaining
Completed (exclusive useful life
apartments of management of building
fee and furniture)
Location One Central Reversionary HK$19.0 psf
Tower 6 rent
Macau (exclusive
of management
fee and furniture)
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 by 5%, (and
all other assumptions remained the same), the fair value of The
Waterside would decrease by US$10 million or increase by US$11
million.
The Waterside is currently valued at its highest and best use.
There is no extra evidence available to suggest that it has an
alternative use that would provide a greater fair value
measurement.
There have been no transfers between levels during the period or
a change in valuation technique since the last period.
7. Inventories
Cost 2016 2015
US$'000 US$'000
Balance brought forward 67,288 54,351
Additions 438 23,955
Disposals (254) (11,004)
Exchange difference (62) (14)
--------- ---------
Balance carried forward 67,410 67,288
--------- ---------
During the prior year, the Group purchased a luxury private
house located in Macau's exclusive neighbourhood of Penha Hill for
a total acquisition cost of HK$182,320,000 (US$23,500,000)
(inclusive of stamp duty and all other fees and expenses). The
acquisition was complementary to the Group's portfolio given that
the property adjoined the Group's existing property The Green
House. The Green House, together with this newly acquired property,
is now named as Estrada da Penha.
Additions include capital expenditure, development costs and
capitalisation of financing costs.
Interest costs of US$nil (2015: US$225,000) relating to The
Fountainside loan facility were capitalised during the year.
Under IFRS, inventories are valued at the lower of cost and NRV.
The carrying amounts for inventories as at 30 June 2016 amounts to
US$67,410,000 (2015: US$67,288,000). NRV as at 30 June 2016 as
determined by independent, professionally-qualified valuer,
Savills, was US$185,211,000 (2015: US$217,655,000).
3 car parking spaces and 1 motorcycle parking space (2015: 27
units and 5 car parking spaces) were sold during the year for a
total consideration of US$1.0 million (HK$8.1 million) (2015:
US$27.9 million (HK$216.4 million)) against a total cost of US$0.2
million (HK$2.0 million) (2015: US$11.0 million (HK$85.6 million)),
which resulted in a net profit of US$0.8 million (HK$6.1 million)
(2015: US$16.9 million (HK$130.8 million)) after all associated
fees and transaction costs.
8. Interest-bearing loans
2016 2015
US$'000 US$'000
Bank loans - Secured
- Current portion 14,705 19,194
- Non-current portion 149,018 146,769
--------- ---------
163,723 165,963
--------- ---------
The Group has a term loan facility with Hang Seng Bank for The
Waterside and the individual units in One Central Residences. On 4
November 2015, a new tranche of the facility was executed for
HK$282 million (US$36.4 million) (Tranche 5) to finance the
principal instalments of the previous tranches, for up to the end
of 2017.
As at 30 June 2016, three tranches remained outstanding. Tranche
1 had been fully repaid during the year (2015: HK$79.4 million
(US$10.2 million)); Tranche 3 had an outstanding balance of HK$572
million (US$73.7 million) (2015: HK$750 million (US$96.7 million));
and Tranche 4 had an outstanding balance of HK$76 million (US$9.8
million) (2015: HK$100 million (US$12.9 million)); and Tranche 5
had an outstanding balance of HK$281 million (US$36.3 million)
(2015: HK$nil (US$nil)). Interest is paid quarterly on this loan
facility. As at 30 June 2016, the loan-to-value ratio for the Hang
Seng One Central facility was 57.98% (2015: 46.28%).
The interest rates applicable to Tranche 3, Tranche 4 and
Tranche 5 of the term loan are 2.25% per annum, 2.35% per annum and
2.35% per annum, respectively, over the 1-, 2- or 3-month HIBOR
rate, the choice of rate is at the Group's discretion. The term
loans mature on 19 September 2020. The principal is to be repaid in
half-yearly instalments commencing 19 March 2018 with 50% of the
principal due upon maturity. The loan-to-value covenant is 60%. The
facility is secured by means of a first registered legal mortgage
over The Waterside and the individual residential units owned by
the Group at One Central Residences as well as a pledge of all
income from the units. The Company is the guarantor for the credit
facility. In addition, the Group is required to maintain a cash
reserve equal to six months' interest with the lender. Early
prepayment covenant for sales proceeds out of the individual One
Central Residence units will be waived, subject to the Group
maintaining a loan-to-value ratio of not more than 50% on the
facility.
During the prior year, the Group executed a loan facility with
the Industrial and Commercial Bank of China (Macau) Limited to
refinance the credit facility with OCBC Wing Hang Limited (Macau)
(previously known as Banco Weng Hang S.A.) in relation to The
Fountainside redevelopment project. The facility amount is HK$220
million (US$28.4 million) with a tenor of 3 years to mature in
March 2018. Full amount of the facility was drawdown in March 2015
to repay the OCBC Wing Hang facility. Interest is charged at 3% per
annum over the 3-month HIBOR rate. The principal is to be repaid in
half-yearly instalments commencing 12 months after drawdown date
with 50% of the principal due upon maturity. The loan-to-value
covenant is 60%. The facility is secured by means of a first
registered legal mortgage over all unsold units and car parking
spaces of The Fountainside as at the loan facility date as well as
a pledge of all income from the units and the car parking spaces.
The Company is the guarantor for the credit facility.
As at 30 June 2016, the facility had an outstanding balance of
HK$198.1 million (US$25.5 million) (2015: HK$214.4 million (US$27.7
million)). Sales proceeds of US$nil (2015: US$0.3 million) was
pledged with the lender. As at 30 June 2016, the loan-to-value
ratio for The Fountainside facility was 56.76% (2015: 49.33%).
The Group has two loan facilities for the purchase and
redevelopment of Estrada da Penha:
Banco Tai Fung
The loan facility with Banco Tai Fung has a term of 3 years and
the facility amount is HK$70 million. Interest is charged at 3.2%
per annum over the 6-month HIBOR rate and repayment is due in full
at maturity in June 2017. As at 30 June 2016, the facility had an
outstanding balance of HK$70 million (US$9.0 million) (2015: HK$70
million (US$9.0 million)). This facility is secured by a first
legal mortgage over the property as well as a pledge of all income
from the property. The Group is the guarantor for this term loan.
Interest is paid monthly on this loan facility. As at 30 June 2016,
the loan-to-value ratio for this facility was 47.62% (2015:
44.59%).
ICBC Macau
The loan facility with Industrial and Commercial Bank of China
(Macau) Limited was executed on 11 December 2014. The term of the
loan is 3 years and the facility amount is HK$79 million. Interest
is charged at 3.2% per annum over the 3-month HIBOR rate and
repayment is due in full at maturity in December 2017. As at 30
June 2016, the facility had an outstanding balance of HK$79 million
(US$10.2 million) (30 June 2015: HK$79 million (US$10.2 million)).
This facility is secured by a first legal mortgage over the
property as well as a pledge of all income from the property. The
Group is the guarantor for this term loan. In addition, the Group
is required to maintain a cash reserve equal to six months'
interest with the lender. Interest is paid monthly on this loan
facility. As at 30 June 2016, the loan-to-value ratio for this
facility was 45.14% (2015: 42.47%).
Bank loan interest paid during the year was US$4,827,000 (2015:
US$4,126,000), including US$nil (2015: US$225,000) capitalised
during the year (see Note 7).
Amortised loan arrangement fees for the year are disclosed in
Note 14.
The fair value of fixed rate financial assets and liabilities
carried at amortised cost are estimated by comparing market
interest rates when they were first recognised with current market
rates for similar financial instruments.
The estimated fair value of fixed interest bearing loans is
based on discounted cash flows using prevailing market interest
rates for debts with similar credit risk and maturity. As at 30
June 2016, the fair value of the interest-bearing loans was
US$378,000 lower than the carrying value of the financial
liabilities (2015: the fair value of the financial liabilities was
US$57,000 higher than the carrying value of the financial
liabilities).
The fair value of the Company's interest-bearing loans have been
classified within Level 2 of the fair value hierarchy (Note 1), as
they have observable inputs from similar loans. There have been no
transfers between levels during the period or a change in valuation
technique since the last period.
9. Taxation
The Company is exempt from taxation in Guernsey under the
provisions of The Income Tax (Exempt Bodies) (Guernsey) Ordinances,
1989 to 1992, and is charged an annual exemption fee of GBP1,200
(US$1,742) (2015: GBP1,200 (US$1,914)).
The Group would only be exposed to Hong Kong profits tax if it
is:
i) not exempted under the Revenue (Profits Tax Exemption for
Offshore Funds) Ordinance 2006 (the "Ordinance"); and it is
ii) treated as carrying on a trade or business in Hong Kong
either on its own account or through any person as an agent.
No accrual has been made for Hong Kong profits tax, as the Board
believes that no such tax exposure exists at the end of the
reporting year (2015: US$nil).
The Group is not subject to any income, withholding or capital
gains taxes in the BVI. No capital or stamp duties are levied in
the BVI on the issue, transfer or redemption of shares. As a
result, no provision for BVI taxes has been made in the
consolidated financial statements.
The Macanese SPVs are liable to Macau property tax in respect of
their ownership of Macau properties. Taxation will be charged at
the higher of 10% (2015: 10%) of any rent received or 6% (2015: 6%)
of the official ratable rentable value. Newly built residential
buildings or commercial buildings are exempt from property tax for
four years and six years, respectively (such time running from the
month after the occupancy permit is issued) for properties located
in Macau peninsula and outlying islands. Macau Complementary Taxes
are generally levied on income and profits arising in or derived
from commercial and/or industrial activities carried on in Macau.
There is no distinction made between a "revenue profit" and
"capital profit" under the Macau complementary tax regulations.
Accordingly, all income booked by a Macau corporate taxpayer,
including gains on sale of investment/immovable property, will be
subject to complementary tax. In general, gains on the disposal of
shares in a Macau company (such as an SPV of the Company) should
not attract Macau complementary tax.
The Board closely monitors and assesses the level of provisions
for Macanese tax taking into consideration factors such as the
Group's structure.
The Group also has exposure to PRC taxation for its business
operation in the PRC. The Board considers that the Group's exposure
to PRC tax has been properly reflected in the Group's consolidated
financial statements.
As at the year end, the following amounts are the outstanding
tax provisions.
2016 2015
US$'000 US$'000
Current liabilities
PRC tax authorities provision 2,514 -
--------- ---------
Non-current liabilities
PRC tax authorities provision - 2,324
Deferred taxation 12,782 17,385
Provisions for Macanese taxations 2,409 2,600
--------- ---------
15,191 22,309
--------- ---------
PRC tax authorities provision
As at 30 June 2016, due to disposal during the year ended 30
June 2014 of the APAC Logistics Centre and Cove Residence in
Zhuhai, China, the Group is in the process of finalising the tax
assessment with the PRC tax authorities. The provision has arisen
due to the profit on the disposal. The Group has received taxation
advice as to the potential charge that may be imposed by the PRC
tax authorities. The provision amount as at 30 June 2016 reflects
the expected outcome of the tax charge and is expected to be
settled within one year. The Group is unlikely to be reimbursed for
this provision. During the year, an interim payment of HK$6,278,000
(US$810,000) was made against this provision to the PRC tax
authorities.
On 25 August 2016, the Group had submitted the final tax return
to the PRC tax authorities regarding the disposal of the APAC
Logistics Centre and Cove Residence. The final assessed tax
liability totalled HK$19 million (US$2.45 million) was paid on 26
August 2016. The Management considered that the PRC tax provisions
made as at 30 June 2016 is adequate to reflect the Group's tax
position.
Deferred taxation
The Group has recognised a deferred tax liability for the
taxable temporary difference relating to the investment property
carried at fair value.
Provisions for Macanese taxations
The Group has made provisions for property tax and complementary
tax arisen from its Macau business operations.
Tax Reconciliation
No tax reconciliation has been presented because the Company is
exempt from taxation in Guernsey (except as described above). The
tax credit for the year of US$3,541,000 (2015: tax credit of
US$5,515,000) comprised a deferred tax credit of US$4,587,000
(2015: US$7,453,000), arising from the reduction in the value of
investment property offset by a provision for Macanese taxes of
US$46,000 (2015: US$1,938,000) at a rate of 12% and an increase in
the tax authorities provision for the PRC of US$1,000,000 (2015:
US$nil).
10. Trade and other receivables
Current assets 2016 2015
US$'000 US$'000
Trade receivables 1,013 3,189
Prepayments 83 90
--------- ---------
1,096 3,279
--------- ---------
11. Trade and other payables
Current liabilities 2016 2015
US$'000 US$'000
Accruals 454 385
Other payables 1,437 1,388
--------- ---------
1,891 1,773
--------- ---------
Other payables principally comprise outstanding amounts for
operating expenses.
12. Share capital
2016 2015
US$'000 US$'000
Ordinary shares
Authorised:
300 million ordinary shares
of US$0.01 each 3,000 3,000
Issued and fully paid:
76.4 million (2015: 77.5 million)
ordinary shares of US$0.01
each 764 775
--------- ---------
The Company has one class of ordinary shares which carries no
right to fixed income.
Ordinary shares repurchase
During the year, under the authority first granted in the
Extraordinary General Meeting of 28 June 2010 and renewed at each
Annual General Meetings thereafter, the Company repurchased
1,101,000 (2015: 3,881,036) ordinary shares or 1.05% (2015: 3.70%)
of the originally issued shares, totalling US$3,016,000 (2015:
US$14,875,000) at an average share price of 176.64p (2015:
237.75p). All shares bought back under the buyback programme were
at market value and were cancelled.
The following table summarises all shares repurchased by the
Company as at 30 June 2016:
Number Repurchase
of Shares Price Per
Share *
Total shares repurchased/average
price at beginning of year 27,466,036 163.72
12 August 2015 550,000 184.00
19 August 2015 129,000 171.00
21 August 2015 122,000 171.00
28 August 2015 150,000 170.24
4 September 2015 150,000 165.50
----------- -----------
Total shares repurchased/average
price
during the current year 1,101,000 176.64
----------- -----------
Total shares repurchased/average
price
at end of year 28,567,036 164.22
----------- -----------
* Price in pence Sterling
The Board has publicly stated its commitment to undertake share
buybacks at attractive levels of discount of the share price to
Adjusted NAV. In order to continue this strategy, the Board intends
to renew this authority at the 2016 Annual General Meeting.
13. General and administration expenses
General and administration expenses 2016 2015
US$'000 US$'000
Legal and professional 317 372
Holding Company administration 262 344
Guernsey SPV administration 131 172
BVI, Hong Kong & Macanese SPV administration 101 99
Insurance costs 19 19
Listing fees 21 24
Printing & postage 44 54
Other operating expenses 260 406
--------- ---------
1,155 1,490
--------- ---------
Administration fees for the BVI, Hong Kong and Macanese SPVs are
payable to Adept Capital Partners Services Limited, in which Thomas
Ashworth is a shareholder and Director.
14. Other financing costs
Financing costs 2016 2015
US$'000 US$'000
Bank charges 11 161
Loan arrangement fees 313 345
--------- ---------
324 506
--------- ---------
As at 30 June 2016, unamortised loan arrangement fees were
US$791,000 (2015: US$807,000).
15. Property operating expenses
Property operating expenses 2016 2015
US$'000 US$'000
Property management fee 742 693
Property taxes 275 677
Utilities 18 35
Other property expenses 236 282
--------- ---------
1,271 1,687
--------- ---------
16. Cash flows from operating activities
Cash flows from operating activities 2016 2015
US$'000 US$'000
Loss for the year before tax (49,192) (58,042)
Adjustments for:
Net gain on valuation of interest
rate swap (291) (265)
Net loss from fair value adjustment
on investment property 38,227 62,048
Net finance costs 5,732 5,440
--------- ---------
Operating cash flows before
movements in working capital (5,524) 9,181
--------- ---------
Effects of foreign exchange
rate changes (137) (5)
Movement in trade and other
receivables 2,183 (3,028)
Movement in trade payables,
provision and other payables 77 (31,933)
Movement in inventories (184) (12,712)
Taxation paid (1,319) -
--------- ---------
Net change in working capital 757 (47,673)
Net cash used in operating
activities (4,904) (38,497)
--------- ---------
Cash and cash equivalents (which are presented as a single class
of assets on the face of the Consolidated Statement of Financial
Position) comprise cash at bank and other short-term, highly-liquid
investments with a maturity of three months or less. For both year
ends, there are no cash equivalents held by the Group.
17. Basic and diluted loss per ordinary share and net asset
value per share
The basic and diluted loss per equivalent ordinary share is
based on the loss attributable to equity holders for the year of
US$45,651,000 (2015: loss of US$52,527,000) and on the 76,583,767
(2015: 78,862,869) weighted average number of ordinary shares in
issue during the year.
30 June 16 30 June 15
Loss Attributable Weighted EPS Loss Attributable Weighted EPS
US$'000 Average US$ US$'000 Average US$
No. of Shares No. of Shares
'000s '000s
Basic and
diluted (45,651) 76,584 (0.5961) (52,527) 78,863 (0.6661)
Net asset value reconciliation 2016 2015
US$'000 US$'000
Net assets attributable to ordinary
shareholders 106,643 155,447
Uplift of inventories held at cost
to market value 119,672 152,565
--------- ---------
Adjusted NAV 226,315 308,012
--------- ---------
Number of ordinary shares outstanding
('000) 76,433 77,534
NAV per share (IFRS) (US$) 1.40 2.00
Adjusted NAV per share (US$) 2.96 3.97
Adjusted NAV per share (GBP)* 2.23 2.53
The NAV per share is arrived at by dividing the net assets as at
the date of the Consolidated Statement of Financial Position, by
the number of ordinary shares in issue at that date.
Under IFRS, inventories are carried at the lower of cost and
NRV. The Adjusted NAV includes the uplift of inventories to their
market values.
The Adjusted NAV per share is arrived at by dividing the
Adjusted NAV as at the date of the Consolidated Statement of
Financial Position, by the number of ordinary shares in issue at
that date.
There are no potentially dilutive shares in issue.
* US$:GBP rate as at 30 June 2016 is 1.326 (2015: 1.573).
18. Related party transactions
Directors of the Company are all non-executive and by way of
remuneration, receive only an annual fee which is denominated in
Sterling.
2016 2015
US$'000 US$'000
Directors' fees 187 231
The Directors are considered to be the key management personnel
(as defined under IAS 24) of the Company. Director's fees
outstanding as at 30 June 2016 was US$39,461 (2015: US$58,578).
Thomas Ashworth has a beneficial interest in and is a Director
of Sniper Capital Limited. Sniper Capital Limited is the Manager to
the Group and received fees during the year, as detailed in the
Consolidated Statement of Comprehensive Income and on the basis
described in Note 19.
Thomas Ashworth is a shareholder and Director of Adept Capital
Partners Services Limited. Adept Capital Partners Services Limited
provides administrative services to the Macanese, Hong Kong and BVI
SPVs and received fees during the year as detailed in Note 13.
No performance fee was accrued at the year end (2015: US$nil). A
performance fee of US$nil was paid during the year (2015:
US$23,964,000).
The Group has a Development Management Services Agreement with a
development management company named Headland Developments Limited
("Headland"). Thomas Ashworth has a beneficial interest in and is a
Director of Headland and therefore, constitutes a related party of
the Group. Development Management Services fees capitalised in
investment property and inventories during the year are detailed in
Note 19.
The Group has a Project Management Services Agreement with a
property management company named Bela Vista Property Services
Limited ("Bela Vista"). Thomas Ashworth has a beneficial interest
in and is a director of Bela Vista and therefore, constitutes a
related party of the Group. Project Management Services fees
capitalised in investment property during the year are detailed in
Note 19.
All intercompany loans and related interest are eliminated on
consolidation.
19. Material contracts
Management fee
Under the terms of an appointment made by the Board of Directors
of the Company on 23 May 2006, Sniper Capital Limited was appointed
as Manager to the Group. The Manager is paid quarterly in advance,
a fee of 2.0% of the NAV, as adjusted to reflect the Property
Investment Valuation Basis. During the prior year, an amendment was
made to the Investment Management Agreement relating to the
definition of NAV on which the fee is calculated. The definition of
NAV changed to include an 'add-back' of deferred taxation to the
Adjusted NAV, subject to a claw-back provision, as the Directors
are of the opinion that such a liability will not be payable by the
Group in the future. Management fees paid for the year totalled
US$5,528,000 (2015: US$8,117,000) with US$nil outstanding as at 30
June 2016 (2015: US$nil).
Performance fee
In addition, the Manager is entitled to a performance fee in
certain circumstances. This fee is payable by reference to the
increase in Adjusted NAV per ordinary share over the course of each
calculation period. The first calculation period ended on 30 June
2007; each subsequent performance period is a period of one
financial year.
Payment of the performance fee is subject to:
i) the achievement of a performance hurdle condition: Adjusted
NAV per ordinary share at the end of the relevant performance
period must exceed an amount equal to the US Dollar equivalent of
the Placing Price increased at a rate of 10% per annum on a
compounding basis up to the end of the relevant performance period
(the "performance hurdle"); and
ii) the achievement of a 'high water mark': Adjusted NAV per
ordinary share at the end of the relevant performance period must
be higher than the highest previously reported Adjusted NAV per
Ordinary Share at the end of a performance period in relation to
which a performance fee, if any, was last earned.
If the basic performance hurdle is met, and the high water mark
exceeded, the performance fee will be an amount equal to 20% of the
excess of the Adjusted NAV per ordinary share at the end of the
relevant performance period over the higher of (i) the basic
performance hurdle; (ii) the Adjusted NAV per ordinary share at the
start of the relevant performance period; and (iii) the high water
mark (in each case on a per share basis), multiplied by the time
weighted average of the number of ordinary shares in issue in the
performance period (or since Admission in the first performance
period) (together, if applicable, with an amount equal to the VAT
thereon).
In the year ended 30 June 2016, no performance fee was accrued
(2015: US$nil) by the Group. During the year ended 30 June 2016, a
performance fee of US$nil was paid (2015: US$23,964,000) by the
Group. This performance fee is based on the basic performance
hurdle.
The Manager's appointment is terminable by the Manager or the
Company on not less than 12 months' notice. The Company may
terminate the Management Agreement with immediate effect, if either
or both of the Principals is removed from their position of
full-time employment with the Manager or ceases to be available for
any reason beyond the Manager's reasonable control and the Manager
fails, within three months (or six months in the case of one only)
of such event, to cause to be made available the services of a
competent replacement(s) of equivalent skill and experience. The
Management Agreement may also be terminated with immediate effect
by either the Manager or the Company if the other party has gone
into liquidation, administration or receivership or has committed a
material breach of the Management Agreement.
Development Management Services Agreement
A Development Management Services Agreement dated 1 June 2010
was entered into between the Group and Headland, under which
Headland provides development management services to the Group in
respect of the Group's properties that require development.
Headland is paid a development management fee based on the hourly
rates of its personnel and the actual time spent on each project
for the Group. Such hourly rates will be reviewed annually by the
Board. Budgeted development management fees are submitted to the
Board for approval and are used to monitor against actual fees
charged to the Group. Under certain circumstances, a fixed
percentage fee cap based on construction value of the project may
apply, should the Board deem necessary.
The Group also agrees to reimburse Headland for any reimbursable
expenses reasonably incurred in the performance of its duties under
the agreement. Headland agrees to exercise all the reasonable
skill, care and diligence to be expected of a prudent and competent
development manager experienced in the provision of development
management services for projects of a similar size, scope, nature
and complexity as the projects on which it will be engaged by the
Group.
During the year, development management services fees of US$nil
(HK$nil) (2015: US$nil (HK$nil)) were capitalised in investment
property and US$22,000 (HK$170,000) (2015: US$113,000 (HK$875,000))
were capitalised in inventories. As at 30 June 2016, US$5,000
(2015: US$nil) was outstanding.
Project Management Services Agreement
The Group and Bela Vista entered into a Project Management
Services Agreement, under which Bela Vista provides project
management services to the Group in respect of the renovation and
enhancement works at The Waterside. Bela Vista is paid a project
management fee based on a percentage of the total renovation and
enhancement costs and expenses incurred or contracted by The
Waterside. Such percentage will be reviewed annually by the
Board.
During the year, project management services fees of US$ 62,399
(HK$ 484,143) (2015: US$ Nil (HK$ Nil)) were capitalised in
investment property. As at 30 June 2016 US$ 62,399 (2015: US$ Nil)
was outstanding.
20. Interest rate swaps
During the year, the Group paid a net interest of US$581,000
(2015: US$1,035,000) to the bank as shown in financing expenses on
the Consolidated Statement of Comprehensive Income.
The swaps are treated as net financial liabilities at fair value
through profit or loss with a year end value of US$104,000 (2015:
US$395,000). For the year ended 30 June 2016, a fair value gain of
US$291,000 (2015: US$265,000) arising from the net interest rate
swaps has been recognised in the Consolidated Statement of
Comprehensive Income.
There are no changes in the counterparty credit risk during the
period.
Standard Chartered Bank
The Group entered into five interest rate swaps with Standard
Chartered Bank to mitigate risks associated with the variability of
cash flows arising from interest rate fluctuations. All of the
interest rate swaps matured during the year, with the earliest
maturity date being 6 August 2015 and the latest being 20 May
2016.
The total notional amount for the interest rate swaps was HK$500
million, being a notional amount of HK$100 million for each
swap.
Under these swaps, the Group received quarterly interest at
variable rates of 3-month HIBOR and paid quarterly interest at
fixed rates ranging from 1.395% to 2.09% per annum.
In the prior year, the Group placed HK$5,500,000 (US$709,500)
with Standard Chartered Bank as a pledged deposit to secure the
interest rate swap facilities.
Hang Seng Bank
The Group has also entered into an interest rate swap with Hang
Seng Bank to mitigate risks associated with the variability of cash
flows arising from interest rate fluctuations.
The notional amount for the interest rate swap is HK$250
million, the tenor of the swap is 5 years with maturity date on 19
March 2018. Under this swap, the Group receives quarterly interest
at variable rates of 3-month HIBOR and pays quarterly interest at a
fixed rate of 1% per annum.
21. Deposits with lenders
Pledged bank balances represent deposits pledged to the banks to
secure the banking facilities and interest rate swaps granted to
the Group. Deposits amounting to US$2.1 million (2015: US$1.9
million) have been pledged to secure long-term banking facilities
and are, therefore, classified as non-current assets. There are no
other significant terms and conditions associated with these
pledged bank balances.
2016 2015
US$'000 US$'000
Pledged for loan covenants 2,113 1,941
Pledged for interest rate
swaps - 709
--------- ---------
2,113 2,650
--------- ---------
22. Commitments and contingencies
As at 30 June 2016, the Group had agreed construction contracts
with third parties and is consequently committed to future capital
expenditure in respect of inventories of US$nil (2015: US$nil).
23. Auditors' remuneration
All fees payable to the auditors relate to audit services and
interim review fees. During the year, US$19,850 (2015: US$4,850)
was paid to Ernst and Young Tax Services Limited in Hong Kong for
tax advice in relation to the disposal of APAC Logistics Centre and
Cove Residence.
Auditors remuneration was broken down as follows:
2016 2015
US$'000 US$'000
Ernst & Young LLP group audit 103 90
Ernst & Young LLP group interim
review (non-audit) 25 27
Non Ernst & Young LLP subsidiary
auditors' remuneration 7 5
--------- ---------
135 122
--------- ---------
24. Operating leases - Group as lessor
The Group has entered into leases on its property portfolio.
Future minimum rentals receivable under non-cancellable
operating leases as at 30 June 2016 are as follows:
Residential 2016 2015
US$'000 US$'000
Within 1 year 902 1,145
After 1 year, but not more 46 -
than 5 years
--------- ---------
Total future rental income 948 1,145
--------- ---------
The majority of leases involve tenancy agreements with a term of
12 months.
25. Subsequent events
There were no significant events occurring after the reporting
date of the annual report for the year ended 30 June 2016.
Directors & Company Information
Directors Corporate Broker
Chris Russell (Chairman) Liberum Capital Limited
Thomas Ashworth Ropemaker Place, Level 12
Alan Clifton 25 Ropemaker Street
Wilfred Woo London EC2Y 9LY
David Hinde (resigned as of 13
November 2015)
Audit Committee Independent Auditors
Alan Clifton (Chairman) Ernst & Young LLP
Wilfred Woo PO Box 9
Chris Russell Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
Management Engagement Committee Property Valuers
Alan Clifton (Chairman) Savills (Macau) Limited
Chris Russell Suite 1310
Wilfred Woo 13/F Macau Landmark
David Hinde (resigned as of 13 555 Avenida da Amizade
November 2015) Macau
Nomination and Remuneration Committee Administrator and Company
Alan Clifton (Chairman) Secretary
Thomas Ashworth Heritage International
Wilfred Woo Fund Managers Limited
Chris Russell Heritage Hall
David Hinde (resigned as of 13 PO Box 225
November 2015) Le Marchant Street
St Peter Port
Guernsey GY1 4HY
Manager Macau and Hong Kong Administrator
Sniper Capital Limited Adept Capital Partners
PO Box 957 Services Limited
Offshore Incorporations Centre 26/F Jubilee Centre
Road Town 42-46 Gloucester Road
British Virgin Islands Hong Kong
Investment Adviser Solicitors to the Group as
Sniper Capital (Macau) Limited to English Law
918 Avenida da Amizade Norton Rose LLP
14/F World Trade Centre 3 More London Riverside
Macau London SE1 2AQ
Public Relations Advocates to the Group as
MHP Communications to Guernsey Law
6 Agar Street Carey Olsen
London WC2N 4HN Carey House
Les Banques
Guernsey GY1 4BZ
Registered Office
Heritage Hall
PO Box 225
Le Marchant Street
St Peter Port
Guernsey GY1 4HY
This information is provided by RNS
The company news service from the London Stock Exchange
END
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