TIDMMPO
RNS Number : 0317S
Macau Property Opportunities Fund
28 September 2017
28 September 2017
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Annual results for the period ended 30 June 2017
Macau Property Opportunities Fund Limited announces its results
for the year ended 30 June 2017. The Company, which is managed by
Sniper Capital Limited, is a closed-end investment fund and the
only quoted real estate fund dedicated to investing in Macau.
FINANCIAL HIGHLIGHTS
Fund performance
-- MPO's portfolio value appreciated 9.7% over the year to US$425.7 million.
-- Adjusted NAV grew 10.2% year-on-year to US$249.3 million,
equating to US$3.26 (250 pence*) per share.
-- IFRS NAV increased by 20.8% year-on-year to US$128.8 million
or US$1.69 (129 pence*) per share.
-- MPO's share price rose 49.5% over the year to 157 pence,
representing a 37.2% discount to Adjusted NAV per share.
* Based on the Dollar/Sterling exchange rate of 1.303 on 30 June
2017.
Capital management
-- Overall borrowings were US$174.0 million equating to a loan-to-value ratio of 39.4%.
-- Cash balance stood at US$16.2 million, US$3.1 million of
which was pledged as collateral for debt facilities.
-- The loan facility for The Fountainside was extended for
another two years to March 2020, while one of the two loan
facilities for Estrada da Penha was extended to June 2019.
PORTFOLIO HIGHLIGHTS
-- The Waterside
- Occupancy rose to a two-year high of 62%, boosted by 33 new
leases secured during the period. As at 30 June 2017, the average
monthly rent was US$2.27 per square foot, down 10.3%
year-on-year.
-- Strata units at One Central Residences
- One of the four remaining strata units was sold in March for
US$5 million or 13% above valuation.
-- The Fountainside
- An apartment was sold in June close to valuation for US$1.3
million, leaving 14 residential units - 10 apartments and 4 villas
- available for sale at an average asking price of HK$9,160
(US$1,174) per square foot.
-- Estrada da Penha
- An international marketing agency specialising in ultra-luxury
property transactions has been appointed to spearhead the asset
disposal.
-- Senado Square
- Ongoing dialogue sessions were carried out with the relevant
authorities to make continued headway in the planning approval
process. We are also evaluating all options to maximise returns to
shareholders from this asset.
Chris Russell, Chairman of Macau Property Opportunities Fund,
said, "Macau's prospects are looking brighter, driven by a
sustained recovery in the gaming industry. Our Company is well
positioned today to benefit further from what we expect to be a
gradual, but ongoing, recovery in property values.
"Our overriding focus is now on realising asset values. We will
continue to assess all forms of potential divestment options with
the goal of maximising exit values and returning cash to
shareholders."
For more information, please visit www.mpofund.com for the
Company's full Annual Report 2017.
The Manager will be available to speak to analysts and the
media. If you would like to arrange a call, please contact Doris
Boo of Sniper Capital Limited at +65 6222 1440 or
doris.boo@snipercapital.com.
- End -
About Macau Property Opportunities Fund
Macau Property Opportunities Fund Limited is a closed-end
investment company registered in Guernsey and is the only quoted
property fund dedicated to investing in Macau, the world's largest
gaming market and the only city in China where gaming is
legalised.
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. Its current
portfolio comprises a mix of prime residential and retail property
assets that are valued at US$425.7 million as at 30 June 2017.
The Company is managed by Sniper Capital Limited, an Asia-based
property investment manager with an established track record in
fund management and investment advisory.
For further information:
Manager
Sniper Capital Limited
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 Code:
London Stock Exchange: MPO
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
ANNUAL REPORT & ACCOUNTS FOR THE PERIODED 30 JUNE 2017
CHAIRMAN'S MESSAGE
At this time last year, Macau had suffered a gaming and property
downturn lasting more than two years. Amid fragile sentiment, I
cautiously highlighted some early positive indicators suggesting
that a gradual recovery in property market values was in sight.
Today, Macau's prospects are looking much brighter. Gaming
revenue has rebounded for 13 consecutive months, returning the
economy to growth. In tandem, property values have begun to
recover.
We came through this challenging period thanks to our prudent
debt and cash flow management.
By focusing on enhancing the quality and profile of our assets
in anticipation of an eventual upturn, our Company is well
positioned today to benefit further from what we expect to be a
gradual, but continuing, recovery in property values.
Financial Performance
MPO's portfolio of properties was valued at US$425.7 million as
at 30 June 2017, an increase of 9.7% on the previous year. Adjusted
NAV rose by 10.2% to US$249.3 million, equivalent to US$3.26 (250
pence) per share.
IFRS NAV increased 20.8% to US$128.8 million, with an IFRS NAV
per share of US$1.69 (129 pence).
Total cash at the period end stood at US$16.2 million and total
borrowings were US$174.0 million, equating to a loan-to-value ratio
of 39.4%.
MPO's closing share price as at 30 June 2017 had increased 49.5%
over the year to 157 pence, yet was still at a 37.2% discount to
Adjusted NAV per share.
Remaining Resilient in a Challenging Environment
We have continued to enhance our portfolio, which stands out in
terms of quality and positioning, through asset management and
marketing initiatives.
Leasing occupancy at our flagship residential tower, The
Waterside, rose strongly from 40% to more than 60% over the period,
benefitting from our extensive refurbishment programme and an
improvement in the VIP gaming segment. Our focus is now on
increasing rental values.
Sales at our mid-market residential development, The
Fountainside, remained challenging amid the introduction of further
mortgage restrictions by the government. However, we are beginning
to make headway, with one unit recently divested.
We have expanded our divestment strategy for Estrada da Penha by
appointing a specialised international agency to manage the sale of
this exceptional private villa.
As we progress towards the advanced stages of planning approval
for our prime retail redevelopment site, Senado Square, we remain
open to divesting the property at an acceptable price.
A Promising Outlook
Macau's economy is forecast to grow at an average rate of
approximately 8% this year and next on the back of a stronger China
economy, improving gross gaming revenue and ongoing support by the
Chinese government.
Large-scale new infrastructure developments will boost visitor
capacity and support the city's growth momentum, as well as its
transition into a world-class leisure and tourism centre. The
much-anticipated Hong Kong-Zhuhai-Macau Bridge, set to open in
2018, is likely to be a significant game-changer, enabling greater
ease of access to Macau's wide variety of attractions.
With a limited supply of new properties and barring any
unforeseen negative economic or political developments, a continued
recovery in property prices is the most likely future path.
Portfolio Realisation
Having navigated through the downturn, our overriding focus is
now on realising asset values into the recovery. With this in mind,
the Board is continuing to assess all forms of potential divestment
options that might benefit shareholders.
In late 2016, the Company received a bid for its entire
portfolio - the first serious combined offer for our assets. Driven
by the clear attraction of offering shareholders a complete and
clean exit within a short period of time, we engaged with the
interested party but the final offer remained at a substantial
discount to MPO's end-December 2016 Adjusted NAV. This was
considered unacceptable and rejected by the Directors and key
shareholders, particularly in light of the clear evidence of a
continued recovery in the property cycle.
Looking Ahead
Sentiment in Macau has turned, as we anticipated, with a
recovery in property prices proving to be gradual but sustained.
Our portfolio is prime and well positioned. We remain wholly
committed to our goal of divesting our assets, maximising exit
values and returning cash to shareholders over the next two
years.
Chris Russell
Chairman
Macau Property Opportunities Fund Limited
27 SEPTEMBER 2017
KEY HIGHLIGHTS
1. Portfolio Valuation
US$425.7 million
up 9.7%* over the year
2. Share Price as at 30 June 2017
157 pence
up 49.5% over the year
3. Adjusted NAV Per Share
US$3.26 (250 pence)
up 10.2% over the year
4. Loan-to-value ratio
39.4%
vs. 40% as at 30 June 2016
5. The Waterside
Occupancy increased to 62%, the best performance in two
years.
6. The Fountainside
Sales activity has resumed, with the first sale in three years
of an apartment at US$1.3 million.
7. Estrada da Penha
Appointed international marketing agency to spearhead the
sale.
8. Senado Square
Evaluation of options to maximise returns to shareholders.
Note: US Dollar/Sterling exchange rate used in this report is
1.303 as at 30 June 2017, unless otherwise stated.
*Calculation is based on adjusted figures made to 2016 to
reflect like-for-like comparisons to 2017 due to divestment of
properties during the year.
FINANCIAL CALAR
(Subject to change without prior notice)
-- September 2017
- Announcement of annual results for the year ended 30 June
2017
- Annual Investor Roadshow
-- October 2017
- Third Quarter 2017 Investor Update
-- November 2017
- Annual General Meeting
- Net Asset Value Update (as at 30 September 2017)
-- January 2018
- Fourth Quarter 2017 Investor Update
-- February 2018
- Net Asset Value Update (as at 31 December 2017)
- Announcement of interim results for the period ending 31
December 2017
-- April 2018
- First Quarter 2018 Investor Update
-- May 2018
- Net Asset Value Update (as at 31 March 2018)
-- July 2018
- Second Quarter 2018 Investor Update
-- August 2018
- Net Asset Value Update (as at 30 June 2018)
-- September 2018
- Announcement of annual results for the year ending 30 June
2018
BOARD OF DIRECTORS
Chris Russell
Chairman
Chris Russell is Non-Executive Chairman of F&C Commercial
Property Trust Ltd and a Non-Executive Director of a number of
investment and financial companies - including London-listed HICL
Infrastructure Ltd and Ruffer Investment Company Ltd. 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. He is a resident of Guernsey.
Thomas Ashworth
Non-Executive Director
Thomas Ashworth has more than 30 years of experience in finance,
investment management and real estate. He began his career at HSBC
in London before relocating in 1995 to Hong Kong, where he worked
for several global investment banks prior to establishing a series
of entrepreneurial ventures in the finance and alternative
investment sectors. Encouraged by the long-term growth potential of
Macau and its 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 in
2004. Mr Ashworth is a British national.
Alan Clifton
Non-Executive Director
Alan Clifton began his career at stockbroker Kitcat &
Aitken, first as an analyst, thereafter 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, overseeing 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 in 1990 at Abbey Woods Development Limited, a
real estate company listed on the Toronto Stock Exchange. 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.
FINANCIAL REVIEW
MANAGER'S REPORT
2013(1) 2014 2015 2016 2017
----------------------- -------- ------ ------ ------ ------
NAV (IFRs) 214.8 222.9 155.4 106.6 128.8
(US$ million)
----------------------- -------- ------ ------ ------ ------
NAV per share
(IFRS)(US$) 2.39 2.74 2.00 1.40 1.69
----------------------- -------- ------ ------ ------ ------
Adjusted NAV
(US$ million) 336.4 397.8 308.0 226.3 249.3
----------------------- -------- ------ ------ ------ ------
Adjusted NAV
per share (US$) 3.74 4.89 3.97 2.96 3.26
----------------------- -------- ------ ------ ------ ------
Adjusted NAV
per share (pence)(2) 246 286 253 223 250
----------------------- -------- ------ ------ ------ ------
Share price
(pence) 153.5 254.0 209.0 105.0 157.0
----------------------- -------- ------ ------ ------ ------
Portfolio valuation
(US$ million) 452.9 535.8 463.7 393.7 425.7
----------------------- -------- ------ ------ ------ ------
Loan-to-value
ratio (%) 20 22 34 40 39
----------------------- -------- ------ ------ ------ ------
(1) Figures incorporated adjustments for deferred tax
provisions.
(2) Based on the following US Dollar/Sterling exchange rates on
30 June - 2013: 1.521; 2014: 1.710; 2015: 1.573; 2016: 1.326; 2017:
1.303
FINANCIAL REVIEW
Macau has emerged from a two-year bleak economy and is now
experiencing renewed growth, driven primarily by a sustainable
revenue pick-up in the gaming industry. Amid a return of investor
confidence, the property market has also recovered, leading to an
improved performance by MPO.
Financial Results
MPO completed the fiscal year with a 9.7% year-on-year (YoY)
appreciation in its portfolio valuation to US$425.7 million.
The Company achieved 10.2% YoY growth on its Adjusted Net Asset
Value to US$249.3 million, which translates to US$3.26 (250 pence)
per share. IFRS NAV increased by 20.8% over the one-year period to
US$128.8 million, or US$1.69 (129 pence) per share.
As at 30 June 2017, the Company's share price had risen 49.5%
over the year to 157 pence. The total number of shares in issue was
76,432,964.
Capital Management
The Company's balance sheet remains healthy.
As at 30 June 2017, the Company had combined assets worth
US$323.4 million and total liabilities of US$194.6 million. Our
cash balance increased to US$16.2 million, comprising US$13.1
million in free cash and US$3.1 million pledged as collateral for
credit facilities.
During the year, the loan facility for The Fountainside was
extended for another two years to March 2020, while one of the two
loan facilities for Estrada da Penha was extended to mature in June
2019.
Overall borrowings stood at US$174.0 million, an increase of
US$9.5 million, translating to a slightly improved loan-to-value
ratio of 39.4%, based on a fiscal year-end valuation.
While continuing its mandate of prudent capital conservation and
proactive asset management, the Company is now moving into a
divestment mode with the objective of maximising the portfolio's
exit values and returning cash to shareholders over the next two
years.
PORTFOLIO OVERVIEW
Sector Type Current No. Commitment Gross Acquisition Project Market Change Project
Status of US$ million Floor Cost dev. Valuation in value Composition
Units Area US$ cost US$ million Based on Based
Square million US$ market on
feet million value market
value
-------------- ------------- --------------- --------------- ------ ------------ --------- ------------ -------- ------------ -------------------- ------------
Over Since
the acquisition
Year
-------------------------------------------------------------------------------------------------------------------------------------- ------ ------------ ------------
The Waterside
Tower Six
of One Leasing
Central Luxury and Asset
Residences* Residential Investment Management 59 99.5 148,000 87.2 12.3 241.2 16.7% 176.6% 56.7%
-------------- ------------- --------------- --------------- ------ ------------ --------- ------------ -------- ------------ ------ ------------ ------------
One Central
Residences
Strata Luxury Opportunistic
Units Residential Investment Divestment 3 6.9 6,400 6.9 N.A. 10.2 16.7% 48.2% 2.4%
-------------- ------------- --------------- --------------- ------ ------------ --------- ------------ -------- ------------ ------ ------------ ------------
The Low-density
Fountainside Residential Redevelopment Sales Phase 42 11.5** 33,984** 4.0** 7.5** 43.4 -0.6% 992.1% 10.2%
-------------- ------------- --------------- --------------- ------ ------------ --------- ------------ -------- ------------ ------ ------------ ------------
Estrada Luxury Divestment
da Penha Residential Investment Phase N.A. 27.9 12,030 26.9 1.0 45.7 10.2% 70.3% 10.7%
-------------- ------------- --------------- --------------- ------ ------------ --------- ------------ -------- ------------ ------ ------------ ------------
Senado Advance
Square Prime Retail Redevelopment Planning N.A. 47.0 67,800 16.0 31.0 84.8 -2.8% 430.6% 19.9%
-------------- ------------- --------------- --------------- ------ ------------ --------- ------------ -------- ------------ ------ ------------ ------------
Smaller Opportunistic
Property Residential Investment Divestment N.A. 0.4 700 0.4 N.A. 0.4 -0.6% 6.3% 0.1%
-------------- ------------- --------------- --------------- ------ ------------ --------- ------------ -------- ------------ ------ ------------ ------------
Total 193.2 268,914 141.4 51.8 425.7 9.7% 201.4% 100%
----------------------------------------------------------------------- ------------ --------- ------------ -------- ------------ ------ ------------ ------------
* 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 refers to the 14 remaining units available
for sale.
PORTFOLIO UPDATES
MANAGER'S REPORT
The Waterside
Standing sentinel on the Macau Peninsula overlooking Nam Van
Lake and Macau's cityscape, The Waterside at One Central Residences
is a 39-storey premier waterfront residential development
comprising 59 tastefully designed suites available for lease.
Occupancy at The Waterside was 62% as at the end of June 2017,
boosted by a total of 33 new leases secured during the financial
year. This was the property's best performance in two years, during
which the occupancy rate had dipped to as low as 30%.
The healthier occupancy level was aided by Macau's recovering
gaming industry, in turn driven by a nascent revival in the VIP
gaming segment. An extensive asset enhancement programme initiated
during the downturn, coupled with our steadfast focus on tenant
service, significantly augmented The Waterside's desirability.
The Waterside has maintained a fairly balanced 50-50 tenant mix
in the gaming and non-gaming industries. This helps anchor the
tower on a sustainable footing amid Macau's continued economic
diversification efforts and ensures a more stable stream of rental
income.
Given the improved occupancy, we are shifting our focus to
raising rental values. As at 30 June 2017, The Waterside commanded
an average rent of US$2.27 per square foot per month, versus a high
in 2014 of US$3.19 per square foot per month.
We remain committed to improving The Waterside's occupancy rate
further and will focus on maximising rental growth going forward,
while awaiting a favourable opportunity to divest the property,
most likely through an en bloc sale.
Strata Units at One Central Residences
One of the four remaining strata units at One Central Residences
was successfully disposed of in March for US$5 million. The sale
price was a 13% premium to the property's valuation of US$4.5
million as at 31 December 2016.
The Company will continue to pursue its opportunistic divestment
strategy for the remaining three apartments.
The Fountainside
The Fountainside is a classic, low-density residential
development located in Macau's prime Penha Hill district.
Masterfully combining a traditional Portuguese façade with modern,
sustainable architecture, the freehold property comprises 38
apartments and 4 villas, with 30 car parking spaces.
A 1,620-square-foot apartment was sold in June at close to
valuation for US$1.3 million, or US$810 per square foot. This was
the first sale at the property in almost three years - a successful
outcome of our flexible sale packages introduced at the beginning
of the year.
The Fountainside has seen a total of 28 residential units and 8
car parking spaces sold for a combined value of US$30.1 million at
the close of the financial year.
The introduction of a new housing policy in May that tightened
mortgage loan caps on residential purchases by locals and
foreigners is expected to dampen buyers' investment appetite in the
short term, leading to a potential slowdown in sales enquiries.
Nonetheless, given that there is a limited number of new
developments in the Penha Hill district, we are confident that The
Fountainside is well positioned, with the smaller units appealing
particularly to first-time local homebuyers and upgraders who are
not affected by the new policy. Meanwhile, we remain mindful of the
challenge of selling the larger apartments and villas due to the
considerable lump sums required for the purchase.
Riding on the successful sale in June and looking to maximise
the property's exit value, we are continuing to explore innovative
marketing strategies to maintain interest levels and to expand our
reach to targeted groups of buyers.
As at the period end, 10 apartments, 4 villas and 18 car parking
spaces were available for sale at The Fountainside. The average
asking price of the residential units was HK$9,160 (US$1,174) per
square foot.
Estrada da Penha
Estrada da Penha is a colonial-style villa perched on Penha
Hill, offering astounding views of the South China Sea and Hengqin
Island.
The prestigious villa has a gross floor area of approximately
12,000 square feet spread over three levels and two basements. It
also boasts private patios and sheltered car porch for four
vehicles.
We are of the view that high-net-worth individuals and wealthy
investors are still scouting unique, ultra-luxury residential
property - the likes of Estrada da Penha - as second residences or
investment assets in the region. There was continued strong growth
in the number of ultra-wealthy individuals in China and Hong Kong
in 2016, among whom, luxury residential properties remain a
favoured asset class.
In accordance with the divestment strategy planned for Estrada
da Penha, the Company has appointed an international marketing
agency specialising in ultra-luxury property transactions to
spearhead the disposal of the villa.
Senado Square
Senado Square is positioned as a prime-site retail mall in the
heritage-rich, non-gaming district of central Macau. The
67,800-square-foot redevelopment, when completed, will feature a
diversified retail mix including international brands, and food and
beverage offerings.
The receipt of the architectural concept plan approval last
December, after many years of work, has significantly boosted the
appeal of this landmark asset. Amid ongoing dialogue with relevant
authorities to make continued headway in the planning approval
process, the Company is continuing to evaluate all options to
maximise returns from this unique investment to shareholders.
MACROECONOMIC HIGHLIGHTS & OUTLOOK
MANAGER'S REPORT
Macroeconomic Outlook
Macau remains unmatched in its position as the world's largest
gaming hub and it is also gradually gaining traction as a
world-class leisure and tourism destination. These bode well for
the territory's recovering economy and its global profile will
continue to grow, as infrastructure developments further enhance
its accessibility.
The Return of Macau's Dynamism
Macau is enjoying a genuine and meaningful economic recovery,
following the sharp recession from 2014 to 2016.
Moody's Investor Services in May affirmed an "Aa3" rating for
Macau and upgraded its outlook from negative to stable. This comes
largely on the back of the recovery in gaming revenues, but is also
supported by Macau's ongoing diversification towards non-gaming
activities, which has underpinned gaming operators' profitability
and enhanced the resilience of economic growth.
In the first half of 2017, real gross domestic product
accelerated 10.9% year-on-year (YoY) to MOP185.14 billion (US$23.14
billion), due mainly to solid gaming and tourism growth.
The gaming sector, the heavyweight contributor to Macau's
economy, had delivered 11 months of straight gains by the end of 1H
2017. Gross gaming revenue (GGR) is on an upward trend, having
surged 25.9% YoY to US$2.5 billion in the month of June 2017. The
growth in the gaming sector appears to be led by a recovery in the
VIP segment, which is generating a revenue stream growing at triple
the rate of those in the mass and premium mass segments. In the
first half of 2017, the city's VIP gaming revenue rose 25% from the
previous year to US$8.9 billion, while mass-market revenue grew 8%
YoY to US$6.9 billion.
Looking ahead, GGR is expected to increase by 18% YoY for the
entire year of 2017. An average annual growth rate of 9% is
estimated for the next six years, which would boost GGR to
potentially reach US$46 billion by 2022 - a similar level to the
previous market peak of US$45 billion recorded in 2013.
Despite the positive growth in gaming revenues, it is noteworthy
that any substantial increase in VIP revenue growth may attract
further scrutiny by China's central government as part of its
ongoing efforts to curb outbound capital flows. The more
sustainable mass gaming segment is expected to grow alongside
China's economic expansion and increasing gaming penetration among
the country's middle-class population.
In recent years, Macau has been working hard to build a
long-term sustainable economic model by focusing on growing
non-gaming tourism and rebranding itself as an international
integrated resort destination for families and the mass tourism
market.
In 1H 2017, tourist arrivals increased 5.4% from 1H 2016 to 15.6
million, of which 66% were from mainland China. Macau has great
potential to continue attracting Chinese outbound tourists, a
market which is expected to hit 200 million by 2020. To continue to
cater to this market, apart from building more family attractions,
Macau is also working on its hotel room supply that stood at 36,600
rooms as of June 2017. Supply is expected to increase by 6% in 2017
and by another 7% in 2018 to reach around 41,280 rooms - still
significantly below the 150,000 rooms in Las Vegas.
Infrastructure Completions to Benefit Macau
Several transportation infrastructure developments in and around
Macau are supporting the city's growth momentum.
The new Taipa Maritime Terminal, which was delayed for seven
years, finally commenced operations in June. The terminal better
facilitates sea travel between Macau and the nearby cities, and
helps redirect tourist traffic from Macau Peninsula's Outer Harbour
Ferry Terminal to Cotai's arrival point, where the new integrated
resorts cluster is located. Resorts along the Cotai strip,
including the upcoming MGM Cotai and Grand Lisboa Palace, are
likely to benefit from the new facility.
The northern extension of Macau International Airport's
passenger terminal building will - upon completion later this year
- enable the airport to handle up to 7.8 million passengers
annually. In addition, six new routes between Macau and short- to
mid-haul destinations will be launched this year, further boosting
the city's connectivity in the region and supporting its tourism
industry.
Within the Guangdong-Hong Kong-Macau Greater Bay Area(1) , the
Hong Kong-Zhuhai-Macau Bridge will be completed by the end of this
year. It is expected to commence operations during 2018, with some
50,000 vehicles forecast to traverse it each day by 2035. Hot on
the heels of the bridge's completion is the Shenzhen-Zhongshan
tunnel, which has a target completion by 2024 and is expected to
see throughput of 90,000 vehicles daily. These two key connectivity
infrastructure developments will be significant drivers of travel
by mainland Chinese into Macau.
The projects will boost visitor capacity, reshape tourists'
travel plans and routes to Macau, and help support the territory's
transformation into a world-class leisure and tourism hub.
1. The Guangdong-Hong Kong-Macau Greater Bay Area comprises 11
cities: Hong Kong, Macau, Dongguan, Foshan, Guangzhou, Huizhou,
Jiangmen, Shenzhen, Zhaoqing, Zhongshan and Zhuhai. The Greater Bay
Area concept was championed by Chinese Premier Li Keqiang to
promote economic integration among the cities. The 57,753 sq km
area has been compared with the bay areas of New York (17,405 sq
km), San Francisco (17,900 sq km) and Tokyo (36,890 sq km).
China's Central Government Acts on Pledge of Support to
Macau
As expressed in the Chinese government's 13th Five-Year Plan and
One Belt, One Road initiative, Beijing aims to diversify Macau's
economy and to develop the territory as a top-ranked tourism
destination.
To promote Macau's economic growth and encourage
diversification, a series of support measures have been introduced,
including a scheme that allows Macau-registered vehicles to enter
Hengqin and a "free-to-travel yacht scheme" to promote leisure
journeys on the waters between Guangdong Province and Macau.
Hengqin Island - A Perfect Complement to Macau
Hengqin's future development of non-gaming facilities is
designed to work in synergy with Macau's economic diversification
efforts. The island provides a respite from the tight labour market
and limited land supply in Macau, and supports the city's mass
tourism growth.
The non-gaming facilities on Hengqin are likely to benefit
Macau's tourism industry, with visitors to the island expected to
spill over into Macau and vice versa. Some key developments
include: an SJM's project being developed in partnership with
Hengqin Tourism and Transportation Services Centre in the
Guangdong-Macau Cooperation Industrial Park; Sands China's
partnership with Hengqin Chimelong International Ocean Resorts;
Galaxy's hotel resort project; and MGM China's investment in a
non-gaming project, whose details are undisclosed while still
awaiting government approval.
Risk and Uncertainties
Macau's economy is heavily reliant on the gaming sector. With
gaming concessions due to expire in 2020 and 2022, there are
uncertainties in the industry as the government has yet to announce
its plans for concession renewals or other changes being
considered.
Additionally, despite a recent rebound in VIP gaming revenues,
this segment remains volatile as it is highly exposed and
responsive to any shifts in the China central government policies,
one of which is the anti-graft campaign. Nonetheless, Macau has
stepped up its audit on the junkets to become a better regulated
gaming hub.
Although Beijing's moves to stem capital outflows are intended
to control the devaluation of the renminbi, they have affected
Macau's economic growth. The further strengthening of the US dollar
may exacerbate the situation and add momentum to Chinese capital
outflows, which in turn could have a material impact on Macau and
the emerging markets.
The introduction in May of a new housing policy on mortgage loan
caps for residential purchases is expected to dent investors'
appetite for property, at least in the short term. Additionally,
there are concerns that the central government may introduce
further tightening measures in the mainland's property market,
which could pose downside risks to the economy. Property is a key
investment class and store of wealth for mainland Chinese.
Therefore, any property cooling measures would not only curb
private consumption spending in China, but also dampen Chinese
investors' appetite for discretionary spending in Macau and
elsewhere.
PROPERTY MARKET OVERVIEW
MANAGER'S REPORT
Property Market Overview
Macau property values are maintaining a positive, albeit
gradual, growth momentum. In the first half of 2017, the total
volume of residential transactions in Macau rose 40% YoY to 5,875
units, fetching a combined sale value of MOP39.3 billion (US$4.9
billion).
The number of pre-sale units increased 189% to 1,060, while the
number of transactions involving existing residential units -
comprising resale apartments and brand new units in completed
projects - rose 26% to 4,793.
In the first six months of 2017, the average residential
transacted price rose 29% YoY to MOP9,160 (US$1,145) per square
foot.
While Macau's residential property market has been experiencing
a gradual rebound in general, potential buyers of mid- to high-end
properties are observed to still adopt a conservative approach in
their purchase intention due to the higher quantum and the lower
mortgage loan caps.
Amid steady growth in visitor arrivals and a recovery in retail
sales, Macau's retail property market has also shown signs of
improvement. In the first half of 2017, there were a total of 320
retail shop transactions, an increase of 16% YoY, fetching a total
of MOP3,774 million (US$471.8 million).
Housing Market Supported by Strong Demand and Limited Supply
Macau's residential property market is expected to remain
supported by demand from cash-rich locals and new families in
search of housing upgrades.
In tandem with the city's growing population and affluence,
residents' deposits reportedly increased 16% YoY in 2Q 2017 to an
all-time high of MOP542.5 billion (US$67.8 billion). Concurrently,
there is increasing new family unit formation, with 3,891 marriages
registered in 2016 and 2,027 in the first six months of 2017, up 5%
YoY and 2% YoY, respectively.
Macau residents remain the key driver of the residential
property sales market, accounting for more than 97% of all
transactions in the first half of 2017.
Despite healthy demand, new housing supply will remain limited
in the short- to mid-term.
According to the Macao Association of Building Contractors and
Developers, a total of approximately 13,000 new housing units are
expected to come to market between 2017 and 2020.
The average household size in Macau is around three members.
Given an estimated population increase of 65,100 by 2020 to a total
of 710,000, some 21,700 additional units will be required. With
such strong demand predicted for the next four years, Macau could
face an acute shortage of housing units.
The availability of the already-scarce residential dwellings has
been further restricted by the government land concession policy.
Macau's authorities are reclaiming undeveloped land parcels from
developers that have failed to complete their projects onsite by
the expiry of their 25-year concession term. Until the
disagreements are resolved between the developers and the
government over the undeveloped sites, they will be left idle -
further curbing supply.
In the residential leasing segment, landlords have been adopting
a flexible approach to asking rents. The upcoming openings of new
integrated resorts - MGM Cotai in 2H 2017 and the Grand Lisboa
Palace in 2018 - will create more employment opportunities and are
likely to bring in more non-resident workers, which will in turn
generate leasing demand. As a result, rental levels are forecast to
trend higher in 2018.
Potential Impact of New Government Mortgage Loan Policy
New government measures related to mortgage loan-to-value ratios
took effect in May 2017, with the aim of facilitating the
development of a stable housing market. The loan-to-value caps for
residential and equitable mortgages on both foreign and
non-first-time resident buyers have been lowered further, while
those for first-time resident buyers have remained unchanged.
According to the Monetary Authority of Macao, the new policy is
designed to curb excessive investment, promote stable development
in the housing market and aid banks' risk management.
Since the mortgage policy has remained unchanged for first-time
local homebuyers, it has had little impact on that segment.
However, overall market sentiment is still likely to be curtailed
to some extent, with those who already own residential properties
taking a cautious approach to acquiring more assets.
Revised Mortgage Loan Caps
Residential Property Residential Property
(under construction) (completed)
--------------------------------------------- ---------------------------------------------
MSAR Residents
Ratio cap between loan value and property value for mortgage
loans
--------------------------------------------------------------------------------------------
Property First Property Subsequent Property First Property Subsequent
Value Acquisition Property Value Acquisition Property
Acquisition Acquisition
------------ --------------- -------------- ----------- --------------- ---------------
Lowered Lowered
> MOP8 mil 50% to 40% > MOP8 mil 50% to 40%
------------ --------------- -------------- ----------- --------------- ---------------
> MOP6 mil 60% Lowered > MOP6 mil 60% Lowered
to (loan cap: to 50% to (loan cap: to 50%
MOP4 mil) MOP4 mil)
<= MOP8 (loan cap: <= MOP8 (loan cap:
mil MOP3.2 mil) mil MOP3.2 mil)
------------ --------------- -------------- ----------- --------------- ---------------
<= MOP6 70% Lowered > MOP3.3 70% Lowered
mil mil
(loan cap: to 60% to (loan cap: to 60%
MOP3.6 mil) MOP3.6 mil)
(loan cap: <= MOP6 (loan cap:
MOP3 mil) mil MOP3 mil)
------------ --------------- -------------- ----------- --------------- ---------------
<= MOP3.3 90% Lowered
mil
(loan cap: to 70%
MOP2.31
mil)
(loan cap:
MOP1.98 mil)
------------ --------------- -------------- ----------- --------------- ---------------
MSAR Non-Residents
Ratio cap between loan value and property value for mortgage
loans
--------------------------------------------------------------------------------------------
Property Each Property Property Each Property
Value Acquisition Value Acquisition
------------ ------------------------------- ----------- --------------------------------
> MOP8 mil Lowered to 30% > MOP8 mil Lowered to 30%
------------ ------------------------------- ----------- --------------------------------
> MOP6 mil Lowered to 40% > MOP6 mil Lowered to 40%
to (loan cap: MOP2.4 to (loan cap: MOP2.4 mil)
mil)
<= MOP8 <= MOP8
mil mil
------------ ------------------------------- ----------- --------------------------------
<= MOP6 Lowered to 40% > MOP3.3 Lowered to 50%
mil mil
(loan cap: MOP2.4 to (loan cap: MOP2.4 mil)
mil)
<= MOP6
mil
------------ ------------------------------- ----------- --------------------------------
<= MOP3.3 Lowered to 60%
mil
(loan cap: MOP1.65
mil)
--------------------------------------------- ----------- --------------------------------
Source: Monetary Authority of Macao
Looking Ahead
Although uncertainties remain in the external macroeconomic
environment - including possible future interest rate rises by the
US Federal Reserve, China's attempts to control capital outflows
and global political changes - the overall outlook for Macau's
economy appears bright.
Key infrastructure projects, coupled with continued support from
the China central government and a high degree of participation in
the Guangdong-Hong Kong-Macau Greater Bay Area Scheme, will enhance
Macau's connectivity with mainland cities and Hong Kong,
stimulating economic growth and paving the way for the territory's
transformation into an international tourism hub.
Amid this improving economic environment and powered by
compelling long-term demographic trends, we believe Macau's
property market will continue to make a gradual yet sustained
recovery.
MANAGER AND ADVISER
Sniper Capital
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Manager Investment Adviser
Sniper Capital Limited Sniper Capital (Macau) Limited
------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------
Acquisitions Project Development Asset Management Corporate Communications Finance & Administration
& Research * Consultant appointment & coordination * Property & estate management * Investor & media relations * Administration & accounting
* Macro & micro analysis
* Project monitoring & reporting * Sales & leasing * Marketing & product positioning * Compliance & reporting
* Forecasting & modelling
* Project delivery & handover * Facilities management * Statutory & regulatory communication * Cash management & treasury
* Sourcing
* Asset value enhancement
* Due diligence
------------------------------ -------------------------------------------- ------------------------------------- ------------------------------------------- ----------------------------------
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 2017 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 Limited - 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 Company and its subsidiaries (together referred to as the
"Group") have the ability to borrow, both at Company level and
Special Purpose Vehicles ("SPVs") 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 2017, the
Group had borrowings that were 39% of the aggregate value of the
portfolio. After accounting for cash balances, the Group had net
borrowings that were 37% 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 2017. This
Directors' report should be read together with Corporate Governance
Report.
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 and in
the Manager's Report.
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 provision C1.3 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.
The Company's current loan-to-value ratio of each of the
properties are well below the covenants per the respective facility
agreements while the Company's net borrowing level of 39% is below
the overall Company level borrowing restriction of 60%. The Company
has continuously adopted a prudent cash management strategy to
maintain its existing loan-to-value ratios for all properties below
the loan-to-value covenants.
At the Annual General Meeting held on 14 November 2016, the
shareholders voted against the Discontinuation Vote which would
have led to the realisation of the portfolio of the Company's
assets. In accordance with the Articles of Incorporation, the
Company now has until November 2018 to hold a further continuation
vote on which the shareholders can vote on the future of the
Company. The Directors have considered whether the continuation
vote before the end of 2018 gives rise to a material uncertainty
that might cast significant doubt about the Company's ability to
continue as a going concern and have concluded that it does not due
to the fact that the Board has the continued support of major
shareholders and it is likely that returns from sales of properties
would be lower if the Group were forced to sell as a result of
discontinuation, given that the market is gradually improving and
expected to strengthen.
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 a going concern basis.
Viability statement
The Board has an on-going and robust process to assess 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 in the Corporate
Governance Report. 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 is 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, notwithstanding
the outcome of the continuation vote in 2018 which is considered
likely to be passed and is discussed under Going Concern above.
Based on an assessment of the principal risks facing the Company
and the comprehensive stress-test based assessment of the Company's
cash positions and 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 regarding 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.
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 8 November 2017. 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 2017 Annual General Meeting.
During the financial year to 30 June 2016, the Company
repurchased 1,101,000 ordinary shares or 1.05% of the originally
issued ordinary shares, at an average share price of 176.64p. The
Company did not repurchase shares during the current financial
year. All shares repurchased pursuant to the buyback programme were
cancelled.
Significant shareholdings
As at 30 June 2017, a total of 6 shareholders each held more
than 3% of the issued ordinary shares of the Company, accounting
for a total of 52,526,866 shares (2016: 54,754,012) or 68.72%
(2016: 71.64%) of the issued share capital. Significant
shareholdings as at 30 June 2017 are detailed below:
Name of Shareholder No. of Shares %
Lazard Asset Management LLC 14,396,959 18.84
Sniper Investments Limited 12,693,215 16.61
Universities Superannuation Scheme 10,500,000 13.74
Invesco Asset Management 8,670,101 11.34
Rathbones 3,471,600 4.54
Apollo Multi Asset Management 2,794,991 3.66
=================================== ============= ======
Subtotal 52,526,866 68.73
=================================== ============= ======
Others 23,906,098 31.27
=================================== ============= ======
Total 76,432,964 100.00
=================================== ============= ======
Directors
Biographies of the Directors who served during the year are
detailed in the Board of Directors section.
Name Function Date of Appointment
--------------- -------------------------------- -------------------
Chris Russell Chairman 8 May 2012
--------------- -------------------------------- -------------------
Thomas Ashworth Director 18 May 2006
--------------- -------------------------------- -------------------
Alan Clifton Director, Chairman of the 18 May 2006
Audit Committee, the Management
Engagement Committee and the
Nomination and Remuneration
Committee
--------------- -------------------------------- -------------------
Wilfred Woo Director 3 January 2012
--------------- -------------------------------- -------------------
Directors' interests
Directors who held office during the year and had interests in
the shares of the Company as at 30 June 2017 were:
Ordinary Shares of
US$0.01
-------------------- ----------------------------
Held at Held at
30 June 2017 30 June 2016
-------------------- ------------- -------------
Thomas Ashworth (*) - -
-------------------- ------------- -------------
Alan Clifton 100,000 100,000
-------------------- ------------- -------------
Wilfred Woo - -
-------------------- ------------- -------------
Chris Russell 252,548 252,548
-------------------- ------------- -------------
* Thomas Ashworth has a beneficial interest in Sniper
Investments Limited, which as at the year-end held 12,693,215
shares (2016: 12,693,215).
There have been no changes to the aforementioned interests since
30 June 2017.
Non-mainstream pooled investments
The Board notes the changes to the Financial Conduct Authority
(FCA) rules ("UK Listing 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 United Kingdom law on 22
July 2013 with the transitional period having 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:
2017 2016
US$ US$
---------------------- ------- -------
David Hinde (*) - 26,615
---------------------- ------- -------
Thomas Ashworth (**) - -
---------------------- ------- -------
Alan Clifton 44,974 51,266
---------------------- ------- -------
Timothy Henderson (#) - -
---------------------- ------- -------
Wilfred Woo 38,072 43,137
---------------------- ------- -------
Chris Russell 60,916 58,668
---------------------- ------- -------
Total 143,962 179,686
---------------------- ------- -------
* David Hinde retired on 13 November 2015.
** As disclosed in Note 18 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. Thomas
Ashworth has waived his Director's fees from the Company.
# Timothy Henderson retired from the Board on 8 November 2012.
He is a Director of certain SPVs and received US$6,345 (2016:
US$7,136) 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 2.30pm
on 8 November 2017 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 2017 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.
On behalf of the Board
Chris Russell
Chairman of the Board
27 September 2017
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 Code,
investment company 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 (the "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 in the Board of Directors section
which set out the range of investment, financial and business
skills and experience represented. Principle 1 of the AIC Code
states that a Board should consider appointing one independent
non-executive director to be the senior independent director. The
Board, having taken into account its small size and that the
Chairman and two other directors are each similarly independent and
non-executive, considers it unnecessary to appoint 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 three years by
rotation, therefore Chris Russell and Wilfred Woo shall retire in
the current year. 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 over 10 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 by the Nomination & Remuneration Committee.
Following review and collation of the results, the Board considered
that the 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 following appointment. 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
Refer to the Nomination and Remuneration Committee Report.
Management Engagement Committee
Refer to the Management Engagement Committee Report.
Audit Committee
Refer to the Audit Committee Report.
Meeting Attendance
Nomination
and Management
Scheduled Other Audit Remuneration Engagement
Board Board Committee Committee Committee
Meeting Meeting Meeting Meeting Meeting
Name (max 4) (max 2) (max 4) (max 1) (max 0)
---------------- ---------- -------- ---------- ------------- -----------
Chris Russell 4 2 4 1 -
---------------- ---------- -------- ---------- ------------- -----------
Thomas Ashworth
(*) 4 1 - 1 -
---------------- ---------- -------- ---------- ------------- -----------
Alan Clifton 4 1 4 1 -
---------------- ---------- -------- ---------- ------------- -----------
Wilfred Woo 4 1 4 1 -
---------------- ---------- -------- ---------- ------------- -----------
* 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 Manager,
Chairman and other Directors are not only available to meet with
shareholders, but have actively done so.
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 (www.mpofund.com) 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 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
principal risks faced by the Group. This process (which accords
with the FRC's "Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting") 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 principal 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 in the Internal Control and Financial Reporting section.
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
27 September 2017
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 on Directors and Company Information.
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
8 November 2017 as they each have over 10 years in office. In
addition, in accordance with the Board's re-election policy that
each Director shall retire every three years by rotation, Chris
Russell and Wilfred Woo will also stand for re-election at the
Annual General Meeting to be held on 8 November 2017.
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 2017. 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;
-- consideration of Directors for re-election; and
-- consideration of Directors' remuneration.
Directors' fees were last changed in July 2010. Following a
review, it was agreed to raise individual Directors' remuneration
by 20%, representing an annual increase since 2010 of approximately
2.5%, which is in line with the rate of inflation over the
period.
During the year, Directors waived any additional remuneration
for the significant time commitments involved with work on a
potential transaction for the Company's entire real estate
portfolio. Looking ahead, additional fees to Directors reflecting
exceptional further work may arise in the event of material
successful transactions.
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
27 September 2017
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 on
Directors and Company Information.
Meetings
The Management Engagement Committee meets at least once a
calendar 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 2017 was satisfactory 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 2017 was satisfactory.
Overview
The Management Engagement Committee met during June 2016 and
September 2017 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
27 September 2017
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. 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 that 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
controls and principal risks;
-- 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 Russell 12 September 2012
----------------------- -------------------
Appointments to the Audit Committee will be for a period of up
to three years, which is extendable, depending upon members
continuing 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, Audited Consolidated Financial Statements and the 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 the 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 2017, 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 principal 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 two years. 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 ending 30 June 2018. Accordingly, a resolution
proposing the re-appointment of Ernst & Young LLP as the
Company's auditor will be put to shareholders at the 2017 Annual
General Meeting.
During the year, the Committee discussed the planning, conduct
and conclusions of the external audit as it proceeded. At the June
2017 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 inventories
and revenue recognition as the key areas of risk of misstatement in
the Group's financial statements.
The Committee discussed these issues at the June 2017 meeting to
ensure 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
2017. 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 2016 Annual Report and Audited Consolidated
Financial Statements for the year ended 30 June 2016;
-- review of the 2016 Interim Report and Interim Condensed
Consolidated Financial Statements for the 6 months ended 31
December 2016;
-- review of the quarterly results announcements issued in November 2016 and May 2017;
-- review of the audit plan and timetable for the preparation of
the 2017 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 principal 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
27 September 2017
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 judgements that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS 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 financial
statements.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORT AND ACCOUNTS
Each of the Directors, whose names are set out in Board of
Directors of the Annual Report, 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.
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
27 September 2017
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF MACAU PROPERTY
OPPORTUNITIES FUND LIMITED
Opinion
In our opinion:
-- Macau Property Opportunities Fund Limited (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 2017 and of the Group's profit
for the year then ended;
-- the financial statements have been properly prepared in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of Macau Property
Opportunities Fund Limited for the year ended 30 June 2017 which
comprise:
-- Consolidated Statement of Financial Position;
-- Consolidated Statement of Comprehensive Income for the year then ended;
-- Consolidated Statement of Changes in Equity for the year then ended;
-- Consolidated Statement of Cash Flows for the year then ended; and
-- Related Notes 1 to 25 to the financial statements, including
a summary of significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRS as adopted by the European
Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report below. We are independent of the
Group in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the
Financial Reporting Council's ("FRC") Ethical Standard as applied
to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
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.
Conclusions relating to principal risks, going concern and
viability statement
We have nothing to report in respect of the following
information in the Annual Report, in relation to which the ISAs
(UK) require us to report to you whether we have anything material
to add or draw attention to:
-- the disclosures in the Annual Report set out in Corporate
Governance Report that describe the principal risks and explain how
they are being managed or mitigated;
-- the Directors' confirmation set out in Corporate Governance
Report in the Annual Report that they have carried out a robust
assessment of the principal risks facing the Group, including those
that would threaten its business model, future performance,
solvency or liquidity;
-- 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 Group's ability to continue to do
so over a period of at least 12 months from the date of approval of
the financial statements;
-- whether the Directors' statement in relation to going concern
required under the Listing Rules is materially inconsistent with
our knowledge obtained in the audit; or
-- the Directors' explanation in the Directors' Report in the
Annual Report as to how they have assessed the prospects of the
Group, 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 Group 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.
Overview of our audit approach
Key audit matters
* Fair valuation of investment property
* Carrying value of inventories
* Recognition of rental income and income on sale of
inventories
================= ==================================================================
Audit scope
* We performed an audit of the complete financial
information of the Group.
================= ==================================================================
Audit materiality
* Overall materiality of US$1.3 million (2016: US$1.1
million) which represents 1% (2016: 1%) of Net Asset
Value ("NAV").
================= ==================================================================
What has changed
* Our scope of work remained the same as compared to
the previous year and as communicated during planning
meeting.
================= ==================================================================
The audit team comprised individuals from Guernsey ("Group audit
team") and Hong Kong ("Component audit team") and we operated as an
integrated team across both jurisdictions. We performed the audit
procedures and responded to the risks identified as described
below.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key Observations
Communicated to
the
Risk Our Response to the Risk Audit Committee
================= ============================================================================= ================
Fair valuation We performed full scope audit procedures We confirmed
of investment over the valuation of investment property. that
property Audit procedures performed by component there were no
(US$241.2 audit teams are based on instructions material
million; 2016 issued by the Group audit team. Those matters arising
- US$206.6 procedures are described below: from
million) our audit work
* We documented our understanding of the processes and on
The valuation performed walkthrough tests to confirm our the inputs used
of investment understanding of the systems and controls and
property is the implemented; the judgments
key driver of made
the Group's net by the
asset value and Specialists
total return. * We agreed the valuations recorded in the consolidated that we wished
Valuation of financial statements to the values reported by the to
investment management's independent specialists (the bring to the
property "Specialists"); attention
requires of the Audit
specialist Committee.
expertise and
the use of * We tested all significant inputs to the valuation for We confirmed
significant consistency with underlying tenancy agreements; that
estimates and investment
judgements giving property
rise to a higher is not
risk of * We have engaged our real estate specialists in Hong materially
misstatement. Kong to verify whether the valuation methodology used misstated.
was consistent with valuation best practice and
There was no appropriate under the circumstances by ensuring that
change in the the recorded fair value is within the acceptance
risk compared range of values calculated by our real estate
to prior year. specialists;
Refer to the
Audit Committee
Report; * We tested the calculation of gain on revaluation of
Accounting the year and verified the appropriateness of the
policies; and recording and reporting of these amounts; and
Note 6 of the
Consolidated
Financial
Statements * We engaged our own real estate specialists from Hong
Kong to:
* use their knowledge of the market to compare and
corroborate the market related judgements 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.
----------------- ----------------------------------------------------------------------------- ----------------
Key Observations
Communicated to
the
Risk Our Response to the Risk Audit Committee
================= ============================================================================= ================
Carrying value We performed full scope audit procedures We confirmed
of inventory over the carrying value of inventory that
properties properties. Audit procedures performed there were no
(US$64.0 by component audit team are based on material
million; instructions issued by the Group audit matters arising
2016 - US$67.4 team. Those procedures are described from
million) below: our audit work
on
Inventory * We documented our understanding of the processes for the inputs used
properties valuing inventory properties and performed and
are stated at walkthrough tests to confirm our understanding of the the judgments
lower of cost systems and controls implemented; made
and net by the
realisable Specialists
value. The that we wished
valuation * We agreed a sample of the significant inputs used by to
of inventory the Specialists to value the properties, particularly bring to the
properties is development cost, projected capital expenditure, to attention
the key driver contractual documentation and development plans and of the Audit
to determine agreements and we checked their purpose, business Committee.
the net rationale and whether allowable for inclusion in
realisable inventory under IFRS; We confirmed
value of that
properties. the carrying
Valuation of value
property requires * We have agreed additions and disposals of inventories of inventory
specialist to general ledger and tested individual items above properties
expertise 25% of performance materiality; is not
and the use of materially
significant misstated.
estimates
and judgements * We tested headroom of market value over cost. We have
giving rise to not identified any properties that have a higher risk
a higher risk of impairment; and
of misstatement.
There was no
change in the * We engaged our own internal real estate valuation
risk compared experts from Hong Kong to:
to prior year.
Refer to the
Audit Committee * use their knowledge of the market to compare and
Report; corroborate the market related judgements and
Accounting valuation inputs (including discount rates, exit
policies; and yields and sales values) used by the Specialists; and
Note 7 of the
Consolidated
Financial * assist us in determining whether the Specialists were
Statements appropriately qualified and independent.
----------------- ----------------------------------------------------------------------------- ----------------
Key Observations
Communicated to
the
Risk Our Response to the Risk Audit Committee
================= ============================================================================ =================
Recognition of We confirmed that
rental income * Rental income there were no
(US$2.1 million; matters
2016 - US$2.1 identified during
million)/Income our audit work on
on sale of * We have agreed a sample of tenancy agreements revenue
inventories selected based on 25% of performance materiality to recognition
(US$6.4 million; amounts recorded as rental income in the general that we wished to
2016 - US$1.0 ledger and from the general ledger to tenancy bring to the
million) agreements; attention
of the Audit
Management may Committee.
seek to overstate * Performed analytical procedures on rental income to
revenue generated identify any inconsistencies in rental income We confirmed that
from rental patterns or rent holiday periods; and revenue from
income rental
by changing the income and on
timing of revenue * Determined that the accounting policy for rental disposal
recognition and income was in compliance with IFRS as adopted by the of properties was
on disposal of EU. recognised in
inventory accordance
properties with IFRS.
by overstating
the selling price * Income on sale of inventories
or lowering the
cost of sales,
as it is a
significant * We have re-performed calculations of the realised
metric and gain on disposal of properties by taking the selling
indicator price from final sales and purchase agreements and
of the Group's cost of properties sold from allocation schedule and
progress giving underlying supporting documents and checked that the
rise to a higher resulting gain on sale of properties agrees to the
risk of recorded gain in the general ledger.
misstatement.
There was no
change in the
risk compared
to prior year.
Refer to the
Audit Committee
Report;
Accounting
policies; and
Note 6 and 7
of the
Consolidated
Financial
Statements
----------------- ---------------------------------------------------------------------------- -----------------
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for each entity within the Group. Taken together, this enables us
to form an opinion on the consolidated financial statements.
In assessing the risk of material misstatement to the Group
financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, we
performed an audit of the complete financial information of all
components covering entities within Macau, Hong Kong, BVI and the
Channel Islands which represent all business units of the
Group.
Changes from the prior year
There has been no change in scope of our audit from prior
year.
Team structure
The overall audit strategy is determined by the audit partner
who is based in the Channel Islands. Since the Group's operations
are principally located in Hong Kong/Macau, the audit team includes
EY team members from Hong Kong.
Involvement with component team
We identified the risks of material misstatement described above
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 above 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.
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at each of
the components by the Group audit team, or by the Component audit
team from other EY global network firms operating under our
instruction. We determined the appropriate level of involvement to
enable us to determine 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 real estate specialists in
Hong Kong, performed procedures on the valuations of the Group's
investment property and inventories.
The Group audit team interacted regularly with the component
team 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 evidence for our
opinion on the Group's financial statements.
Our application of audit materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
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$1.3
million (2016: US$1.1 million), which is 1% (2016: 1%) of NAV. 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.
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.
Performance materiality
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 tolerable error was 75% (2016: 75%) of our
planning materiality, namely US$0.97 million (2016: US$0.80
million). We have set performance materiality at this percentage
due to the investment strategy remaining consistent with our
previous experience and limited identification of audit findings in
previous periods.
Reporting threshold
An amount below which identified misstatements are 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$64,000 (2016:
US$53,000), which is set at 5% of 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.
Other information
The other information comprises the information included in the
Annual Report including Manager's Report, Directors' Report and
Corporate Governance Report, other than the financial statements
and our auditor's report thereon. The Directors are responsible for
the other information.
Our opinion on the financial statements does not cover the other
information, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
-- Fair, balanced and understandable set out in the
Responsibility Statement of the Directors in respect of the Annual
Reports and Accounts - the statement given by the Directors that
they consider the Annual Report and financial statements taken as a
whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group's
performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
-- Audit committee reporting set out in the Audit Committee
Report - the section describing the work of the Audit Committee
does not appropriately address matters communicated by us to the
Audit Committee; or
-- Directors' statement of compliance with the UK Corporate
Governance Code set out in the Responsibility Statement of the
Directors in respect of the Annual Reports and Accounts - the parts
of the Directors' statement required under the Listing Rules
relating to the Company's compliance with the UK Corporate
Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
-- proper accounting records have not been kept by the Company; 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.
Responsibilities of Directors
As explained more fully in the Directors' Responsibilities
Statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Andrew Dann
For and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
27 September 2017
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 consolidated financial statements
since they were initially presented on the website.
2. Legislation in the Guernsey governing the preparation and
dissemination of Group financial statements may differ from
legislation in other jurisdictions.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2017
2017 2016
Note US$'000 US$'000
-------------------------------------------- ---- -------- --------
ASSETS
-------------------------------------------- ---- -------- --------
Non-current assets
-------------------------------------------- ---- -------- --------
Investment property 6 241,193 206,595
-------------------------------------------- ---- -------- --------
Deposits with lenders 21 3,107 2,113
-------------------------------------------- ---- -------- --------
Trade and other receivables 111 111
-------------------------------------------- ---- -------- --------
244,411 208,819
-------------------------------------------- ---- -------- --------
Current assets
-------------------------------------------- ---- -------- --------
Inventories 7 63,994 67,410
-------------------------------------------- ---- -------- --------
Trade and other receivables 10 1,688 1,096
-------------------------------------------- ---- -------- --------
Deposits with lenders 21 205 -
-------------------------------------------- ---- -------- --------
Financial assets at fair value through
profit or loss - interest rate swap 20 21 -
-------------------------------------------- ---- -------- --------
Cash and cash equivalents 13,093 12,741
-------------------------------------------- ---- -------- --------
79,001 81,247
-------------------------------------------- ---- -------- --------
Total assets 323,412 290,066
-------------------------------------------- ---- -------- --------
EQUITY
-------------------------------------------- ---- -------- --------
Capital and reserves attributable to
the Company's equity holders
-------------------------------------------- ---- -------- --------
Share capital 12 764 764
-------------------------------------------- ---- -------- --------
Retained earnings 61,832 38,724
-------------------------------------------- ---- -------- --------
Distributable reserves 66,208 66,208
-------------------------------------------- ---- -------- --------
Foreign currency translation reserve (18) 947
-------------------------------------------- ---- -------- --------
Total equity 128,786 106,643
-------------------------------------------- ---- -------- --------
LIABILITIES
-------------------------------------------- ---- -------- --------
Non-current liabilities
-------------------------------------------- ---- -------- --------
Deferred taxation provision 9 17,003 12,782
-------------------------------------------- ---- -------- --------
Taxation provision 9 2,260 2,409
-------------------------------------------- ---- -------- --------
Interest-bearing loans 8 153,775 149,279
-------------------------------------------- ---- -------- --------
Financial liabilities at fair value through
profit or loss - interest rate swap 20 - 23
-------------------------------------------- ---- -------- --------
173,038 164,493
-------------------------------------------- ---- -------- --------
Current liabilities
-------------------------------------------- ---- -------- --------
Taxation provision 9 - 2,514
-------------------------------------------- ---- -------- --------
Trade and other payables 11 1,941 1,891
-------------------------------------------- ---- -------- --------
Interest-bearing loans 8 19,617 14,444
-------------------------------------------- ---- -------- --------
Financial liabilities at fair value through
profit or loss - interest rate swap 20 30 81
-------------------------------------------- ---- -------- --------
21,588 18,930
-------------------------------------------- ---- -------- --------
Total liabilities 194,626 183,423
-------------------------------------------- ---- -------- --------
Total equity and liabilities 323,412 290,066
-------------------------------------------- ---- -------- --------
Net Asset Value per share (US$) 17 1.69 1.40
-------------------------------------------- ---- -------- --------
Adjusted Net Asset Value per share (US$) 17 3.26 2.96
-------------------------------------------- ---- -------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
The consolidated financial statements were approved by the Board
of Directors and authorised for issue on 27 September 2017.
Chris Russell
Director
Alan Clifton
Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 30 June 2017
2017 2016
Note US$'000 US$'000
----------------------------------------------- ---- -------- --------
Income
----------------------------------------------- ---- -------- --------
Income on sale of inventories 7 6,351 1,045
----------------------------------------------- ---- -------- --------
Rental income 2,055 2,109
----------------------------------------------- ---- -------- --------
Net gain/(loss) from fair value adjustment
on investment property 6 36,013 (38,227)
----------------------------------------------- ---- -------- --------
Other income 13 4
----------------------------------------------- ---- -------- --------
44,432 (35,069)
----------------------------------------------- ---- -------- --------
Expenses
----------------------------------------------- ---- -------- --------
Cost of sales of inventories 7 3,477 254
----------------------------------------------- ---- -------- --------
Management fee 19 4,867 5,528
----------------------------------------------- ---- -------- --------
Non-Executive Directors' fees 18 150 187
----------------------------------------------- ---- -------- --------
Auditors' remuneration: audit fees 23 101 110
----------------------------------------------- ---- -------- --------
Auditors' remuneration: non-audit fees 23 245 25
----------------------------------------------- ---- -------- --------
Property operating expenses 15 1,249 1,271
----------------------------------------------- ---- -------- --------
Sales and marketing expenses 250 77
----------------------------------------------- ---- -------- --------
General and administration expenses 13 1,524 1,155
----------------------------------------------- ---- -------- --------
(Gain)/Loss on foreign currency translation (164) 75
----------------------------------------------- ---- -------- --------
(11,699) (8,682)
----------------------------------------------- ---- -------- --------
Operating profit/(loss) for the year 32,733 (43,751)
----------------------------------------------- ---- -------- --------
Finance income and expenses
----------------------------------------------- ---- -------- --------
Net gain on valuation of interest rate
swap 20 95 291
----------------------------------------------- ---- -------- --------
Bank loan interest (5,079) (4,827)
----------------------------------------------- ---- -------- --------
Interest expense on interest rate swap 20 (78) (581)
----------------------------------------------- ---- -------- --------
Other financing costs 14 (280) (324)
----------------------------------------------- ---- -------- --------
Bank and other interest 1 -
----------------------------------------------- ---- -------- --------
(5,341) (5,441)
----------------------------------------------- ---- -------- --------
Profit/(Loss) for the year before tax 27,392 (49,192)
----------------------------------------------- ---- -------- --------
Taxation 9 (4,284) 3,541
----------------------------------------------- ---- -------- --------
Profit/(Loss) for the year after tax 23,108 (45,651)
----------------------------------------------- ---- -------- --------
Items that may be reclassified subsequently
to profit or loss
----------------------------------------------- ---- -------- --------
Exchange difference on translating foreign
operations (965) (137)
----------------------------------------------- ---- -------- --------
Total comprehensive income/(loss) for
the year 22,143 (45,788)
----------------------------------------------- ---- -------- --------
Profit/(Loss) attributable to:
----------------------------------------------- ---- -------- --------
Equity holders of the Company 23,108 (45,651)
----------------------------------------------- ---- -------- --------
Total comprehensive income/(loss) attributable
to:
----------------------------------------------- ---- -------- --------
Equity holders of the Company 22,143 (45,788)
----------------------------------------------- ---- -------- --------
2017 2016
US$ US$
----------------------------------------------- ---- -------- --------
Basic and diluted profit/(loss) per ordinary
share attributable to the equity holders
of the Company during the year 17 0.3023 (0.5961)
----------------------------------------------- ---- -------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 30 June 2017
Foreign
Currency
Share Retained Distributable Translation
Capital Earnings Reserves Reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------------- ---- -------- --------- ------------- ------------ --------
Balance brought forward
at
1 July 2016 764 38,724 66,208 947 106,643
-------------------------------- ---- -------- --------- ------------- ------------ --------
Profit for the year - 23,108 - - 23,108
-------------------------------- ---- -------- --------- ------------- ------------ --------
Items that may be reclassified
subsequently to profit
or loss
-------------------------------- ---- -------- --------- ------------- ------------ --------
Exchange difference on
translating foreign operations - - - (965) (965)
-------------------------------- ---- -------- --------- ------------- ------------ --------
Total comprehensive income
for the year - 23,108 - (965) 22,143
-------------------------------- ---- -------- --------- ------------- ------------ --------
Balance carried forward
at
30 June 2017 764 61,832 66,208 (18) 128,786
-------------------------------- ---- -------- --------- ------------- ------------ --------
Foreign
Currency
Share Retained Distributable Translation
Capital Earnings Reserves Reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'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
-------------------------------- ---- -------- --------- ------------- ------------ --------
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 30 June 2017
2017 2016
Note US$'000 US$'000
-------------------------------------------- ---- -------- --------
Net cash used in operating activities 16 (4,210) (4,904)
-------------------------------------------- ---- -------- --------
Cash flows from investing activities
-------------------------------------------- ---- -------- --------
Capital expenditure on investment property 6 (36) (1,237)
-------------------------------------------- ---- -------- --------
Movement in pledged bank balances (1,199) 537
-------------------------------------------- ---- -------- --------
Net cash used in investing activities (1,235) (700)
-------------------------------------------- ---- -------- --------
Cash flows from financing activities
-------------------------------------------- ---- -------- --------
Proceeds from bank borrowings 15,115 36,266
-------------------------------------------- ---- -------- --------
Repayment of bank borrowings (4,621) (38,367)
-------------------------------------------- ---- -------- --------
Share buyback 12 - (3,016)
-------------------------------------------- ---- -------- --------
Interest and bank charges paid (5,439) (5,400)
-------------------------------------------- ---- -------- --------
Net cash generated from/(used in) financing
activities 5,055 (10,517)
-------------------------------------------- ---- -------- --------
Net movement in cash and cash equivalents (390) (16,121)
-------------------------------------------- ---- -------- --------
Cash and cash equivalents at beginning
of year 12,741 28,749
-------------------------------------------- ---- -------- --------
Effect of foreign exchange rate changes 742 113
-------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of year 13,093 12,741
-------------------------------------------- ---- -------- --------
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 on Directors and Company Information.
The consolidated financial statements for the year ended 30 June
2017 comprise the financial statements of the Company and its
subsidiaries (together referred to as the "Group"). The Group
invests in residential and commercial properties and
property-related ventures primarily in Macau.
These consolidated financial statements have been approved for
issue by the Board of Directors on 27 September 2017.
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.
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 Annual General Meeting held on 14 November 2016, the
shareholders voted against the Discontinuation Vote which would
have led to the realisation of the portfolio of the Company's
assets. In accordance with the Articles of Incorporation, the
Company now has until November 2018 to hold a further continuation
vote on which the shareholders can vote on the future of the
Company. The Directors have considered whether the continuation
vote before the end of 2018 gives rise to a material uncertainty
that might cast significant doubt about the Company's ability to
continue as a going concern and have concluded that it does not due
to the fact that the Board has the continued support of major
shareholders and it is likely that returns from sales of properties
would be lower if the Group were forced to sell as a result of
discontinuation, given that the market is gradually improving and
expected to strengthen.
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
extension of the life of the Company (September 2017 to November
2018 being greater than a 12-month period) and the Directors'
assessment of the Group's committed banking facilities and expected
continuing compliance with related covenants.
New and amended standards and interpretations applied
The following amendments to existing standards and
interpretations were effective for the year ended 30 June 2017 and
therefore were applied in the current year, but either they were
not applicable to or did not have a material impact on the
Group:
-- IAS 1 Disclosure Initiative - amendments to IAS 1
-- IFRS 11 Accounting for acquisitions of interests in Joint Operations amendments
-- Amendments to IFRS 10, IFRS 12 and IAS 28; Investment
Entities: Applying Consolidation Exemption
-- Annual improvements 2012-2014 cycle
-- Amendments to IAS 19; Employee Benefits
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 9 Financial instruments 1 January 2018
------- --------------------------- ----------------
IFRS 15 Revenue from contracts with
customers 1 January 2018
------- --------------------------- ----------------
IFRS 16 Leases 1 January 2019
------- --------------------------- ----------------
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,
whose valuers hold recognised and relevant professional
qualifications and have 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 uses derivative financial instruments such as interest
rate swaps to hedge its risk associated with interest rate
fluctuations.
Derivative financial instruments are initially recognised at
fair value on the date on which a contract is entered into, and are
subsequently measured 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 carried at fair value through profit or loss
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.
Deposits with lenders
Deposits with lenders comprise cash held at bank that is pledged
for loan covenants and are recognised as current and non-current
assets.
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 consolidated
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 the Group's retained earnings
that may be legally paid out in the form of a dividend. Payments to
shareholders from reserves can be seen as a distribution of
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
basis 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. 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 2017 and 30
June 2016. 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$, and up
to a 10% increase/decrease for all other currencies.
The table below presents financial assets and liabilities
denominated in foreign currencies held by the Group as at 30 June
2017 and 30 June 2016, and can be used to monitor foreign currency
risk as at that date.
At 30 June 2017, if Sterling weakened/strengthened by 10%
against US$ with all other variables held constant, the net assets
and movement in foreign currency translation reserve would have
been US$14,000 higher/lower (2016: US$11,000 higher/lower). Any
movement would have no other effect on the remaining equity
components of the Group. There are no material transactions that
would have effect on the profit/loss for the year. The HK$ is
pegged to the 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$7.80 per dollar. The foreign exchange risk is
considered minimal and as such the Company does not actively manage
against this risk. If the HK$ weakened/strengthened by 1% against
the US$ with all other variables held constant, the net assets and
movement in foreign currency translation reserve would have been
US$1,572,000 higher/lower (2016: US$1,489,000 higher/lower). Any
movement would have no other effect on the remaining equity
components of the Group. There are no material transactions that
would have effect on the profit/loss for the year.
The Macanese Patacas ("MOP") is fixed to the HK$ 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.
Other
US$ GBP HK$ currencies Total
US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------- -------- -------- --------- ----------- ---------
As at 30 June 2017
---------------------------- -------- -------- --------- ----------- ---------
Trade and other receivables
(excluding prepayments) - - 468 111 579
----------------------------- -------- -------- --------- ----------- ---------
Cash and cash equivalents - 20 13,016 57 13,093
----------------------------- -------- -------- --------- ----------- ---------
Deposits with lenders - - 3,312 - 3,312
----------------------------- -------- -------- --------- ----------- ---------
Financial assets at fair
value through profit or
loss - - 21 - 21
----------------------------- -------- -------- --------- ----------- ---------
Total financial assets - 20 16,817 168 17,005
----------------------------- -------- -------- --------- ----------- ---------
Trade and other payables 178 158 8 1,597 1,941
----------------------------- -------- -------- --------- ----------- ---------
Interest-bearing loans - - 174,000 - 174,000
----------------------------- -------- -------- --------- ----------- ---------
Financial liabilities at
fair value through profit
or loss - - 30 - 30
----------------------------- -------- -------- --------- ----------- ---------
Total financial liabilities 178 158 174,038 1,597 175,971
----------------------------- -------- -------- --------- ----------- ---------
Net financial position (178) (138) (157,221) (1,429) (158,966)
----------------------------- -------- -------- --------- ----------- ---------
Other
US$ GBP HK$ currencies Total
US$'000 US$'000 US$'000 US$'000 US$'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)
----------------------------- -------- -------- --------- ----------- ---------
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$177,000
higher/US$136,000 lower (2016: US$556,000 higher/US$468,000 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/lower and all other
variables were held constant, the Group's profit for the year would
have decreased/increased by US$1,576,000 (2016: loss for the year
increased/decreased by US$1,497,000) (based on the interest bearing
net financial liability per the table below before factoring in
impact of interest rate swaps held). This is mainly due to the
Group's exposure to interest-bearing loans.
The following table details the Group's exposure to interest
rate risks:
Non-
Interest interest
Bearing Bearing Total
US$'000 US$'000 US$'000
---------------------------- -------- --------- --------
As at 30 June 2017
---------------------------- -------- --------- --------
Trade and other receivables
(excluding prepayments) - 579 579
----------------------------- -------- --------- --------
Cash and cash equivalents 13,093 - 13,093
----------------------------- -------- --------- --------
Deposits with lenders 3,312 - 3,312
----------------------------- -------- --------- --------
Financial assets at fair
value through profit or
loss 21 - 21
----------------------------- -------- --------- --------
Total financial assets 16,426 579 17,005
----------------------------- -------- --------- --------
Trade and other payables - 1,941 1,941
----------------------------- -------- --------- --------
Interest-bearing loans 174,000 - 174,000
----------------------------- -------- --------- --------
Financial liabilities at
fair value through profit
or loss 30 - 30
----------------------------- -------- --------- --------
Total financial liabilities 174,030 1,941 175,971
----------------------------- -------- --------- --------
Non-
Interest interest
Bearing Bearing Total
US$'000 US$'000 US$'000
---------------------------- -------- --------- --------
As at 30 June 2016
---------------------------- -------- --------- --------
Trade and other receivables
(excluding prepayments) - 1,124 1,124
----------------------------- -------- --------- --------
Cash and cash equivalents 12,741 - 12,741
----------------------------- -------- --------- --------
Deposits with lenders 2,113 - 2,113
----------------------------- -------- --------- --------
Total financial assets 14,854 1,124 15,978
----------------------------- -------- --------- --------
Trade and other payables - 1,891 1,891
----------------------------- -------- --------- --------
Interest-bearing loans 164,514 - 164,514
----------------------------- -------- --------- --------
Financial liabilities at
fair value through profit
or loss 104 - 104
----------------------------- -------- --------- --------
Total financial liabilities 164,618 1,891 166,509
----------------------------- -------- --------- --------
The Group has entered into various interest rate swaps as
disclosed in Note 20.
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Group. The Group is exposed to credit
risks from both its leasing activities and financing activities,
including deposits with banks and financial institutions.
The Group's main exposure to credit risk is its balances with
banks. This risk is mitigated through using banks with a high
credit rating.
The Group's deposits, including deposits with lenders, are split
by class with the following ratings from Fitch and Moody's
Ratings:
2017 2016
Credit Rating US$'000 US$'000
-------------- -------- --------
AA- 738 273
-------------- -------- --------
A+ 12,722 2,411
-------------- -------- --------
A 2,136 15
-------------- -------- --------
A- 16 16
-------------- -------- --------
BBB+ 775 12,117
-------------- -------- --------
BBB 18 22
-------------- -------- --------
16,405 14,854
-------------- -------- --------
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$16,405,000 (2016:
US$14,854,000), deposits amounting to US$3,312,000 (2016:
US$2,113,000) have been pledged to secure banking facilities, of
which US$3,107,000 (2016: US$2,113,000) relates to long-term
banking facilities, and are, therefore, classified as non-current
assets. Pledged bank balances represent deposits pledged to the
banks to secure the banking facilities granted to the Group.
The Group has term loan facilities with Hang Seng Bank,
Industrial and Commercial Bank of China (Macau) Limited, and Banco
Tai Fung for its investments in The Waterside, individual units in
One Central Residences, Senado Square, Estrada da Penha, and The
Fountainside. The Group's liquidity position is monitored by the
Manager and is reviewed quarterly by the Board of Directors. Please
refer to Note 8 for details of the facilities.
The table below analyses the Group's financial assets and
liabilities into relevant maturity profiles based on the remaining
period at the Consolidated Statement of Financial Position date to
the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows (including interest
payments).
Less 3 to 1 to
than 12 2 2 to 5 Over
On Demand 3 Months Months Years Years 5 Years Total
As at 30 June 2017 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Trade and other receivables
(excluding prepayments) - 464 4 111 - - 579
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Cash and cash equivalents 13,093 - - - - - 13,093
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Deposits with lenders - - 205 271 2,836 - 3,312
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Financial assets
at fair value through
profit or loss - - 21 - - - 21
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Total financial assets 13,093 464 230 382 2,836 - 17,005
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Trade and other payables - 917 1,024 - - - 1,941
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Interest-bearing
loans - 1,412 23,786 52,850 108,921 - 186,969
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Financial liabilities
at fair value through
profit or loss - - 30 - - - 30
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Total financial liabilities - 2,329 24,840 52,850 108,921 - 188,940
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Net financial position 13,093 (1,865) (24,610) (52,468) (106,085) - (171,935)
---------------------------- --------- --------- -------- -------- --------- -------- ---------
Less 3 to 1 to
than 12 2 2 to 5 Over
On Demand 3 Months Months Years Years 5 Years Total
As at 30 June 2016 US$'000 US$'000 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)
---------------------------- --------- --------- -------- -------- --------- -------- ---------
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
2017:
As at As at
30 June 2017 30 June 2016
US$'000 US$'000
------------------------ ------------- -------------
Current assets 21 -
------------------------ ------------- -------------
Non-current liabilities - (23)
------------------------ ------------- -------------
Current liabilities (30) (81)
------------------------ ------------- -------------
Net interest rate swap
liabilities (9) (104)
------------------------ ------------- -------------
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 direct or indirect
observable 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 2017, 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 nil
ordinary shares. During the prior year, the Company purchased
1,101,000 ordinary shares at a weighted average price of 176.64p as
per Note 12. All of the shares bought back in the prior year 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 Directors and Investment Adviser (the "management") make
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. This is an
accounting assumption.
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. This is an accounting estimate.
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. This is an accounting
judgement.
The Group did not make any critical accounting judgements, other
than as described above, in the year ended 30 June 2017 or the year
ended 30 June 2016.
4. Subsidiaries
All SPVs are owned 100% 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 5) Limited
-- The Fountainside Company Limited
-- Castelo Branco Companhia Limitada
-- Portalegre Companhia Limitada
-- MPOF Macau (Site 2) Limited
-- MPOF Macau (Site 6) Limited
-- The Waterside Company Limited
-- Braga Companhia Limitada
During the current year, the following Guernsey companies: MPOF
(7A) Limited, MPOF (7B) Limited, MPOF (8A) Limited, MPOF (8B)
Limited, MPOF (9A) Limited, MPOF (9B) Limited, MPOF (10A) Limited,
MPOF (10B) Limited, MPOF (Monte) Limited and MPOF (Paulo) Limited
were liquidated. MPOF Mainland Company 1 Limited, a Barbados
company, was liquidated. The following Macanese companies - Macau
(Site 4) Limited, Macau (Site 7) Limited, Macau (Site 8) Limited,
Macau (Site 9) Limited, Macau (Site 10) Limited and Vila Real
Companhia Limitada were liquidated.
The consolidated financial statements include the financial
statements of the Company and the subsidiaries listed below:
Ownership Incorporation
--------------------------------- --------- -------------
Macau (Site 1) Limited 100% Macau
--------------------------------- --------- -------------
MPOF Macau (Site 2) Limited 100% Macau
--------------------------------- --------- -------------
MPOF Macau (Site 5) Limited 100% Macau
--------------------------------- --------- -------------
MPOF Macau (Site 6) Limited 100% Macau
--------------------------------- --------- -------------
The Waterside Company Limited 100% Macau
--------------------------------- --------- -------------
Braga Companhia Limitada 100% Macau
--------------------------------- --------- -------------
Portalegre Companhia Limitada 100% Macau
--------------------------------- --------- -------------
The Fountainside Company Limited 100% Macau
--------------------------------- --------- -------------
Castelo Branco Companhia Limitada 100% Macau
--------------------------------- --------- -------------
MPOF (Penha) Limited 100% Guernsey
--------------------------------- --------- -------------
MPOF (Taipa) Limited 100% Guernsey
--------------------------------- --------- -------------
MPOF (Jose) Limited 100% Guernsey
--------------------------------- --------- -------------
MPOF (Sun) Limited 100% Guernsey
--------------------------------- --------- -------------
MPOF (Guia) Limited 100% Guernsey
--------------------------------- --------- -------------
MPOF (Antonio) Limited 100% Guernsey
--------------------------------- --------- -------------
MPOF (6A) Limited 100% Guernsey
--------------------------------- --------- -------------
MPOF (6B) Limited 100% Guernsey
--------------------------------- --------- -------------
Bream Limited 100% Guernsey
--------------------------------- --------- -------------
Cannonball Limited 100% Guernsey
--------------------------------- --------- -------------
Civet Limited 100% Guernsey
--------------------------------- --------- -------------
Gorey Hills International Limited 100% BVI
--------------------------------- --------- -------------
Hillsleigh Holdings Limited 100% BVI
--------------------------------- --------- -------------
Jin Mei International Limited 100% BVI
--------------------------------- --------- -------------
Mega League Investments Limited 100% BVI
--------------------------------- --------- -------------
Poly Advance Management Limited 100% BVI
--------------------------------- --------- -------------
Smooth Run Group Limited 100% BVI
--------------------------------- --------- -------------
Worthy Way Limited 100% BVI
--------------------------------- --------- -------------
China City Properties Limited 100% Hong Kong
--------------------------------- --------- -------------
East Base Properties Limited 100% Hong Kong
--------------------------------- --------- -------------
Eastway Properties Limited 100% Hong Kong
--------------------------------- --------- -------------
Elite Gain Limited 100% Hong Kong
--------------------------------- --------- -------------
Glory Properties Limited 100% Hong Kong
--------------------------------- --------- -------------
New Perfect Properties Limited 100% Hong Kong
--------------------------------- --------- -------------
Pacific Asia Properties Limited 100% Hong Kong
--------------------------------- --------- -------------
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$2,055,000 for the year ended 30 June 2017
(2016: US$2,109,000).
6. Investment property
2017 2016
US$'000 US$'000
------------------------- --------- ---------
At the beginning of the
year 206,595 243,810
------------------------- --------- ---------
Capital expenditure on
property 36 1,237
------------------------- --------- ---------
Fair value adjustment 36,013 (38,227)
------------------------- --------- ---------
Exchange difference (1,451) (225)
------------------------- --------- ---------
Balance at end of the
year 24,193 206,595
------------------------- --------- ---------
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 2017 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$2,055,000 (2016:
US$2,109,000) was received during the year. Direct operating
expenses of US$954,000 (2016: US$967,000) 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$284,000 (2016: US$325,000).
There are no disposals of investment property during the
year.
The following tables show the inputs used in valuing the
investment property which is classified as Level 3 in the fair
value hierarchy:
Carrying
amount
/ fair Unobservable
value as and observable
at 30 June inputs used
Property 2017 Valuation in determination Other key
information US$'000 technique Input of fair values information
--------- -------------- ------------ ----------- --------------- ----------------- ---------------
Name The Waterside 241,193 Term and Term rent HK$17.1 psf Age of building
Reversion (inclusive
Analysis of management
fee and
furniture)
--------- -------------- ------------ ----------- --------------- ----------------- ---------------
Type Residential/ Term yield 1.4% - 2.2% Remaining
Completed (exclusive useful life
apartments of management of building
fee and
furniture)
--------- -------------- ------------ ----------- --------------- ----------------- ---------------
Location One Central Reversionary HK$17.1 psf
Tower 6 rent
Macau (exclusive
of management
fee and
furniture)
--------- -------------- ------------ ----------- --------------- ----------------- ---------------
Reversionary
yield 1.7%
----------------------------------------------------------------- ----------------- ---------------
Carrying
amount
/ fair Unobservable
value as and observable
at 30 June inputs used
Property 2016 Valuation in determination Other key
information US$'000 technique Input of fair values information
--------- -------------- ------------ ----------- --------------- ----------------- ---------------
Name The Waterside 206,595 Term and Term rent HK$19.5 psf Age of building
Reversion (inclusive
Analysis of management
fee and
furniture)
--------- -------------- ------------ ----------- --------------- ----------------- ---------------
Type Residential/ Term yield 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 or decrease by US$12 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$12 million or increase by US$13
million.
The Waterside is currently valued at its highest and best use.
There is no extra evidence available to suggest that it has an
alternative use that would provide a greater fair value
measurement.
There have been no transfers between levels during the period or
a change in valuation technique since the last period.
7. Inventories
2017 2016
Cost US$'000 US$'000
------------------------ -------- --------
Balance brought forward 67,410 67,288
------------------------ -------- --------
Additions 457 438
------------------------ -------- --------
Disposals (3,459) (254)
------------------------ -------- --------
Exchange difference (414) (62)
------------------------ -------- --------
Balance carried forward 63,994 67,410
------------------------ -------- --------
Additions include capital expenditure, development costs and
capitalisation of financing costs.
Finance costs of US$317,000 (2016: US$nil) relating to the
Senado Square loan facility were capitalised during the year,
including US$287,000 (2016: US$nil) of interest capitalised to the
property.
Under IFRS, inventories are valued at the lower of cost and NRV.
The carrying amounts for inventories as at 30 June 2017 amounts to
US$63,994,000 (2016: US$67,410,000). NRV as at 30 June 2017 as
determined by independent, professionally-qualified valuer,
Savills, was US$182,670,000 (2016: US$185,211,000).
One unit of The Fountainside and one individual unit of One
Central Residences (2016: 3 car parking spaces and 1 motorcycle
parking space of The Fountainside) were sold during the year for a
total consideration of US$6.4 million (HK$49.3 million) (2016:
US$1.0 million (HK$8.1 million)) against a total cost of US$3.5
million (HK$27.0 million) (2016: US$0.2 million (HK$2.0 million))
which resulted in a net profit of US$2.9 million (HK$22.3 million)
(2016: US$0.8 million (HK$6.1 million)) after all associated fees
and transaction costs.
8. Interest-bearing loans
2017 2016
Bank loans - Secured US$'000 US$'000
---------------------- -------- --------
- Current portion 19,617 14,444
---------------------- -------- --------
- Non-current portion 153,775 149,279
---------------------- -------- --------
173,392 163,723
---------------------- -------- --------
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, up to the end of
2017.
As at 30 June 2017, three tranches remained outstanding. Tranche
3 had an outstanding balance of HK$572 million (US$73.3 million)
(2016: HK$572 million (US$73.7 million)); and Tranche 4 had an
outstanding balance of HK$76 million (US$9.7 million) (2016: HK$76
million (US$9.8 million)); and Tranche 5 had an outstanding balance
of HK$281 million (US$36.0 million) (2016: HK$281 million (US$36.3
million)). As at 30 June 2017, the loan-to-value ratio for the Hang
Seng One Central facility was 47.36% (2016: 57.98%).
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
loan matures 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 Residences units will be waived, subject to the Group
maintaining a loan-to-value ratio of not more than 50% on the
facility.
During the year ended 30 June 2017, the Group executed a
two-year loan facility with Hang Seng Bank for Senado Square
redevelopment project. The total facility amount is HK$118 million
(US$15.2 million) divided into 2 tranches: Tranche A is a term loan
facility for an amount of HK$59 million (US$7.6 million) for
refinancing the property acquisition cost; Tranche B is a revolving
loan facility for an amount of HK$59 million (US$7.6 million) for
general working capital needs. The full amount of the facility was
drawndown in December 2016. Interest is charged at 2.7% per annum
over the 1-, 2- or 3-month HIBOR rate. The choice of rate is at the
Group's discretion. The facility will mature on 10 December 2018
and the principal is to be repaid by one lump sum at maturity. The
loan-to-value covenant is two-tier, on a stand-alone basis: 45% and
in aggregate with the One Central facility: 60%. The facility is
secured by means of a first registered legal mortgage over the
Group's interest in Senado Square as well as a pledge of all sales
proceeds. The Company and MPOF Macau (Site 5) Limited are the joint
guarantor for the loan facility. In addition, the Group is required
to maintain a cash reserve equal to six months' interest with the
lender. As at 30 June 2017, the loan-to-value ratio for Senado
Square facility was 17.82%.
The Group has a HK$220 million (US$28.2 million) term loan
facility with the Industrial and Commercial Bank of China (Macau)
Limited in relation to The Fountainside redevelopment project with
a tenor revised from 3 years to 5 years and to be matured in March
2020. Interest is charged at 3% per annum over the 3-month HIBOR
rate. The principal is to be repaid in half yearly instalment
commencing 5 September 2017 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 2017, the facility had an outstanding balance of
HK$162 million (US$20.8 million) (2016: HK$198.1 million (US$25.5
million)). Sales proceeds of US$nil (2016: US$nil) were pledged
with the lender. As at 30 June 2017, the loan-to-value ratio for
The Fountainside facility was 47.79% (2016: 56.76%).
The Group has two loan facilities in relation to Estrada da
Penha:
Banco Tai Fung
The loan facility with Banco Tai Fung originally had a term of 3
years and the facility amount is HK$70 million which expired in
June 2017 and was subsequently renewed for another term of 2 years.
Interest was originally charged at 3.2% per annum over the 6-month
HIBOR rate and was revised to 2.3% per annum over the 3-month HIBOR
rate, and repayment is due in full at maturity in June 2019. As at
30 June 2017, the facility had an outstanding balance of HK$70
million (US$9.0 million) (2016: 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
Company is the guarantor for this term loan. Interest is paid
monthly on this loan facility. As at 30 June 2017, the
loan-to-value ratio for this facility was 42.94% (2016:
47.62%).
ICBC Macau
The loan facility with Industrial and Commercial Bank of China
(Macau) Limited has a term of 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 2017, the facility had an outstanding
balance of HK$79 million (US$10.1 million) (30 June 2016: 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 Company 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 2017, the loan-to-value ratio
for this facility was 40.72% (2016: 45.14%).
Bank loan interest paid during the year was US$5,079,000 (2016:
US$4,827,000), including US$287,000 (2016: US$nil) 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 2017, the fair value of the interest-bearing loans was
US$84,000 lower than the carrying value of the financial
liabilities (2016: the fair value of the interest-bearing loans was
US$378,000 lower than the carrying value of the financial
liabilities).
The Group's interest-bearing loans have been classified within
Level 2, 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$1,462) (2016: GBP1,200 (US$1,742)).
The Group would only be exposed to Hong Kong profits tax if it
is:
i. not exempted under the Revenue (Profits Tax Exemption for
Offshore Funds) Ordinance 2006 (the "Ordinance") ; and
ii. treated as carrying on a trade or business in Hong Kong
either on its own account or through any person as an agent.
No accrual has been made for Hong Kong profits tax, as the Board
believes that no such tax exposure exists at the end of the
reporting year (2016: US$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% (2016: 10%) of any rent received or 6% (2016: 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 had exposure to PRC taxation for its previous 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.
2017 2016
US$'000 US$'000
------------------------------ -------- --------
Current liabilities
------------------------------ -------- --------
PRC tax authorities provision - 2,514
------------------------------ -------- --------
Non-current liabilities
------------------------------ -------- --------
Deferred taxation 17,003 12,782
------------------------------ -------- --------
Provisions for Macanese
taxations 2,260 2,409
------------------------------ -------- --------
19,263 15,191
------------------------------ -------- --------
PRC tax authorities provision
As at 30 June 2016, a tax provision had been made against the
potential tax charge by the PRC tax authorities on the gain on
disposal of the APAC Logistics Centre and Cove Residence. During
the year ended 30 June 2016, an interim payment of HK$6,278,000
(US$810,000) was made to partially settle the tax liability to the
PRC tax authorities. On 25 August 2016, the Group submitted the
final tax return to the PRC tax authorities and the final assessed
tax liability totalled HK$19 million (US$2.45 million) was fully
settled on 26 August 2016.
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 charge for the year of US$4,284,000 (2016: tax credit of
US$3,541,000) comprised a deferred tax charge of US$4,322,000
(2016: credit of US$4,587,000), arising from the increase in the
value of investment property offset by a reversal in the tax
authorities provision for the PRC of US$53,000 (2016: increase in
provision of US$1,000,000) and provision for Macanese taxes of
US$15,000 (2016: US$46,000) at a rate of 12%.
10. Trade and other receivables
2017 2016
Current assets US$'000 US$'000
------------------ -------- --------
Trade receivables 468 1,013
------------------ -------- --------
Prepayments 1,220 83
------------------ -------- --------
1,688 1,096
------------------ -------- --------
11. Trade and other payables
2017 2016
Current liabilities US$'000 US$'000
-------------------- -------- --------
Accruals 351 454
-------------------- -------- --------
Other payables 1,590 1,437
-------------------- -------- --------
1,941 1,891
-------------------- -------- --------
Other payables principally comprise outstanding amounts for
operating expenses.
12. Share capital
2017 2016
Ordinary shares US$'000 US$'000
------------------------ -------- --------
Authorised:
300 million ordinary
shares of US$0.01 each 3,000 3,000
------------------------ -------- --------
Issued and fully paid:
76.4 million (2016:
76.4 million) ordinary
shares of US$0.01 each 764 764
------------------------ -------- --------
The Company has one class of ordinary shares which carries no
rights to fixed income.
Ordinary shares repurchases
During the prior 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 ordinary shares or 1.05% of the originally issued shares,
totalling US$3,016,000 at an average share price of 176.64p. During
the current year, no shares were repurchased by the Company. All
shares bought back under the buyback programme were at market value
and were cancelled.
The Board has publicly stated its commitment to undertake share
buybacks at attractive levels of discount of the share price to
Adjusted NAV. In order to continue this strategy, the Board intends
to renew this authority at the 2017 Annual General Meeting.
13. General and administration expenses
General and administration 2017 2016
expenses US$'000 US$'000
------------------------------- -------- --------
Legal and professional(*) 747 317
------------------------------- -------- --------
Holding Company administration 269 262
------------------------------- -------- --------
Guernsey SPV administration 134 131
------------------------------- -------- --------
BVI, Hong Kong, & Macanese
SPV administration 91 101
------------------------------- -------- --------
Insurance costs 17 19
------------------------------- -------- --------
Listing fees 17 21
------------------------------- -------- --------
Printing & postage 32 44
------------------------------- -------- --------
Other operating expenses 217 260
------------------------------- -------- --------
1,524 1,155
------------------------------- -------- --------
* During the year, the Company incurred expenses of US$356,000
in relation to a bid for the entire portfolio, which are recorded
under legal and professional expenses.
Administration fees for the BVI, Hong Kong and Macanese SPVs are
payable to Adept Capital Partners Services Limited in which Thomas
Ashworth is a shareholder and Director.
14. Other financing costs
2017 2016
Financing costs US$'000 US$'000
---------------------- -------- --------
Bank charges 11 11
---------------------- -------- --------
Loan arrangement fees 269 313
---------------------- -------- --------
280 324
---------------------- -------- --------
As at 30 June 2017, unamortised loan arrangement fees were
US$608,000 (2016: US$791,000). These have been netted off against
the interest bearing loans and also split between current and
non-current.
15. Property operating expenses
Property operating 2017 2016
expenses US$'000 US$'000
------------------------ -------- --------
Property management
fee 742 742
------------------------ -------- --------
Property taxes 247 275
------------------------ -------- --------
Utilities 26 18
------------------------ -------- --------
Other property expenses 234 236
------------------------ -------- --------
1,249 1,271
------------------------ -------- --------
16. Cash flows from operating activities
2017 2016
Cash flows from operating activities US$'000 US$'000
---------------------------------------- -------- --------
Profit/(Loss) for the year before
tax 27,392 (49,192)
---------------------------------------- -------- --------
Adjustments for:
---------------------------------------- -------- --------
Net gain on valuation of interest
rate swap (95) (291)
---------------------------------------- -------- --------
Net (gain)/loss from fair value
adjustment on investment property (36,013) 38,227
---------------------------------------- -------- --------
Net finance costs 5,436 5,732
---------------------------------------- -------- --------
Operating cash flows before movements
in working capital (3,280) (5,524)
---------------------------------------- -------- --------
Effects of foreign exchange rate
changes (965) (137)
---------------------------------------- -------- --------
Movement in trade and other receivables (592) 2,183
---------------------------------------- -------- --------
Movement in trade payables, provision
and other payables 468 77
---------------------------------------- -------- --------
Movement in inventories 3,002 (184)
---------------------------------------- -------- --------
Net change in working capital 2,878 2,076
---------------------------------------- -------- --------
Taxation paid (2,843) (1,319)
---------------------------------------- -------- --------
Net cash used in operating activities (4,210) (4,904)
---------------------------------------- -------- --------
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 earnings/(loss) per ordinary share and net
asset value per share
The basic and diluted earnings/(loss) per equivalent ordinary
share is based on the profit attributable to equity holders for the
year of US$23,108,000 (2016: loss of US$45,651,000) and on the
76,432,964 (2016: 76,583,767) weighted average number of ordinary
shares in issue during the year.
30 June 2017 30 June 2016
---------- ------------------------------- ---------------------------------
Weighted Weighted
Average Average
Profit No. of Loss No. of
Attributable Shares EPS Attributable Shares EPS
US$'000 '000s US$ US$'000 '000s US$
---------- ------------- -------- ------ ------------- -------- --------
Basic and
diluted 23,108 76,433 0.3023 (45,651) 76,584 (0.5961)
---------- ------------- -------- ------ ------------- -------- --------
2017 2016
Net asset value reconciliation US$'000 US$'000
----------------------------------- ------ ------------- -------- --------
Net assets attributable
to ordinary shareholders 128,786 106,643
----------------------------------- ------ ------------- -------- --------
Uplift of inventories held
at cost to market value 120,521 119,672
----------------------------------- ------ ------------- -------- --------
Adjusted NAV 249,307 226,315
----------------------------------- ------ ------------- -------- --------
Number of ordinary shares
outstanding ('000) 76,433 76,433
----------------------------------- ------ ------------- -------- --------
NAV per share (IFRS) (US$) 1.69 1.40
----------------------------------- ------ ------------- -------- --------
Adjusted NAV per share
(US$) 3.26 2.96
----------------------------------- ------ ------------- -------- --------
Adjusted NAV per share
(GBP)* 2.50 2.23
----------------------------------- ------ ------------- -------- --------
* US$:GBP rate as at 30 June 2017 is 1.303 (2016: 1.326).
The NAV per share is arrived at by dividing the net assets as at
the date of the Consolidated Statement of Financial Position, by
the number of ordinary shares in issue at that date.
Under IFRS, inventories are carried at the lower of cost and
NRV. The Adjusted NAV includes the uplift of inventories to their
market values.
The Adjusted NAV per share is arrived at by dividing the
Adjusted NAV as at the date of the Consolidated Statement of
Financial Position, by the number of ordinary shares in issue at
that date.
There are no potentially dilutive shares in issue.
The fair value of the inventories are classified as Level 3 in
the fair value hierarchy and are determined either using the market
approach specifically the sales comparison approach, where a
property's fair value is estimated based on the average selling
price of similar properties in the market or the residual method
where a property's fair value is derived by taking the gross
development value and deducting the associated costs and fees.
There are no changes on the fair valuation technique used from
prior year.
18. Related party transactions
Directors of the Company are all non-executive and by way of
remuneration, receive only an annual fee which is denominated in
Sterling.
2017 2016
US$'000 US$'000
---------------- -------- --------
Directors' fees 150 187
---------------- -------- --------
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 2017 were US$38,752 (2016:
US$39,461).
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.
Management fees paid for the year totalled US$4,867,000 (2016:
US$5,528,000) with US$nil outstanding as at 30 June 2017 (2016:
US$nil) (see Note 19). Management fees of US$1,137,000 have been
prepaid as at 30 June 2017 (2016: US$nil).
No performance fee was accrued at the year end (2016: US$nil).
No performance fee was paid during the year (2016: US$nil).
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.
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 net asset value, as adjusted to reflect the
Property Investment Valuation Basis. During the year ended 30 June
2015, an amendment was made to the Investment Management Agreement
relating to the definition of net asset value on which the fee is
calculated. The definition of net asset value 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$4,867,000 (2016:
US$5,528,000) with US$nil outstanding as at 30 June 2017 (2016:
US$nil).
Performance fee
In addition, the Manager is entitled to a performance fee in
certain circumstances. This fee is payable by reference to the
increase in Adjusted NAV per ordinary share over the course of each
calculation period. The first calculation period ended on 30 June
2007; each subsequent performance period is a period of one
financial year.
Payment of the performance fee is subject to:
i. the achievement of a performance hurdle condition: Adjusted
NAV per ordinary share at the end of the relevant performance
period must exceed an amount equal to the US Dollar equivalent of
the Placing Price increased at a rate of 10% per annum on a
compounding basis up to the end of the relevant performance period
(the "performance hurdle");
ii. the achievement of a 'high water mark': Adjusted NAV per
ordinary share at the end of the relevant performance period must
be higher than the highest previously reported Adjusted NAV per
ordinary share at the end of a performance period in relation to
which a performance fee, if any, was last earned; and
iii. the accumulated distributions per ordinary share to shareholders exceed the high water mark.
If the basic performance hurdle is met, and the high water mark
exceeded, the performance fee will be an amount equal to 20% of the
excess of the Adjusted NAV per ordinary share at the end of the
relevant performance period over the higher of (i) the basic
performance hurdle; (ii) the Adjusted NAV per ordinary share at the
start of the relevant performance period; and (iii) the high water
mark (in each case on a per share basis), multiplied by the time
weighted average of the number of ordinary shares in issue in the
performance period (or since Admission in the first performance
period) (together, if applicable, with an amount equal to the VAT
thereon).
In the year ended 30 June 2017, no performance fee was accrued
(2016: US$nil) by the Group. During the year ended 30 June 2017, a
performance fee of US$nil was paid (2016: US$nil) 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) (2016: US$nil (HK$nil)) were capitalised in investment
property and US$17,000 (HK$133,000) (2016: US$22,000 (HK$170,000))
were capitalised in inventories. As at 30 June 2017, US$1,000
(2016: US$5,000) 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$10,146
(HK$78,806) (2016: US$62,399 (HK$484,143)) were capitalised in
investment property. As at 30 June 2017, US$nil (2016: US$62,399)
was outstanding.
Agency Services Agreement
The Group and Bela Vista entered into an Agency Services
Agreement, under which Bela Vista provides agency services to the
Group in respect of the sales of residential units and car and
motorbike parking spaces of The Fountainside as well as the
individual units in One Central Residences. Bela Vista is paid an
agency services fee based on a percentage of the total sales
considerations. Such percentage will be reviewed annually by the
Board.
During the year, agency services fees of US$38,352 (HK$297,890)
(2016: US$nil (HK$nil)) were paid. As at 30 June 2017, US$nil
(2016: US$nil) was outstanding.
20. Interest rate swaps
During the year, the Group paid a net interest of US$78,000
(2016: US$581,000) 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$9,000 (2016:
US$104,000). For the year ended 30 June 2017, a fair value gain of
US$95,000 (2016: US$291,000) 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 prior 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.
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 granted to the Group. Deposits
amounting to US$3.1 million (2016: US$2.1 million) have been
pledged to secure long-term banking facilities and are, therefore,
classified as non-current assets. There are no other significant
terms and conditions associated with these pledged bank
balances.
2017 2016
US$'000 US$'000
--------------------------- -------- --------
Non-current 3,107 2,113
--------------------------- -------- --------
Current 205 -
--------------------------- -------- --------
Pledged for loan covenants 3,312 2,113
--------------------------- -------- --------
22. Commitments and contingencies
As at 30 June 2017, the Group had agreed construction contracts
with third parties and is consequently committed to future capital
expenditure in respect of inventories of US$nil (2016: US$nil).
23. Auditors' remuneration
2017 2016
US$'000 US$'000
--------------- -------- --------
Audit fees 101 110
--------------- -------- --------
Non-audit fees 245 25
--------------- -------- --------
346 135
--------------- -------- --------
Non-audit services from auditors pertain to interim review, work
performed on a bid for the entire portfolio (US$76,000) and tax
advice related to the disposal of APAC Logistics Centre and Cove
Residence in prior years.
24. Operating leases - Group as lessor
The Group has entered into leases on its property portfolio.
Future minimum rentals receivable under non-cancellable
operating leases as at 30 June 2017 are as follows:
2017 2016
Residential US$'000 US$'000
--------------------------- -------- --------
Within 1 year 1,229 902
--------------------------- -------- --------
After 1 year, but not
more than 5 years - 46
--------------------------- -------- --------
Total future rental income 1,229 948
--------------------------- -------- --------
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 2017.
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the Annual General Meeting of the
Company will be held at Lefebvre Place, Lefebvre Street, St Peter
Port, Guernsey, GY1 4HY on 8 November 2017 at 2.30pm for the
transaction of the following business:
Ordinary Business
The Company's Accounts, the Directors' Report and the Auditors'
Report for the year ended 30 June 2017 will be laid before the
meeting and the following resolutions will be proposed as ordinary
resolutions:
1. To receive and adopt the audited accounts, the Directors'
report, and the Auditors' report for the year ended 30 June
2017.
2. To approve the Directors' Remuneration Report for the year ended 30 June 2017.
3. To appoint Ernst & Young LLP, who have indicated their
willingness to act, as auditors of the Company to hold office until
the next Annual General Meeting of the Company.
4. To authorise the Directors to determine the remuneration of Ernst & Young LLP.
5. To re-appoint Chris Russell, who retires as a Director of the
Company, in accordance with Articles 20.3 of
the Articles of Incorporation of the Company.
6. To re-appoint Wilfred Woo, who retires as a Director of the
Company, in accordance with Articles 20.3 of
the Articles of Incorporation of the Company.
7. To re-appoint Alan Clifton, who retires as a Director of the
Company in accordance with the Alternative Investment Company Code
of Corporate Governance ("AIC Code").
8. To re-appoint Thomas Ashworth, who retires as a Director of
the Company, in accordance with the AIC Code and UKLA Listing Rules
15.2.12A (1) and 15.2.1.13A.
Special Business
The following resolutions will be proposed as special
resolutions:
9. THAT the Company in accordance with Section 315 of The
Companies (Guernsey) Law, 2008 (as amended) (the "Law") be approved
to make market purchases (as defined in Section 316 of the Law) of
its own ordinary shares either for retention as treasury shares or
for cancellation, provided that:
i) the maximum number of shares authorised to be purchased is
the lower of 11,457,301 ordinary shares and 14.99 percent of the
ordinary shares in issue immediately following the passing of this
resolution;
ii) the minimum price which may be paid for a share is
GBP0.01;
iii) the maximum price which may be paid for an ordinary share
is an amount equal to the higher of (a) 105 percent of the average
of the middle market quotations for a share as derived from the
London Stock Exchange Daily Official List for the five business
days immediately preceding the day on which that ordinary share is
purchased; and (b) either the higher of the price of the last
independent trade and the highest current independent bid at the
time of purchase;
iv) subject to paragraph (v) below, such authority shall expire
at the next Annual General Meeting of the Company unless such
authority is varied, revoked or renewed prior to such date by a
special resolution of the Company in general meeting;
v) notwithstanding paragraph (iv), the Company may make a
contract to purchase ordinary shares under such authority prior to
its expiry which will or may be executed wholly or partly after its
expiration and the Company may make a purchase of shares pursuant
to any such contract.
Heritage International Fund Managers Limited
Company Secretary
Heritage Hall, Le Marchant Street
St Peter Port, Guernsey
GY1 4HY
27 September 2017
Notes to the Notice of the Annual General Meeting
1. A member is entitled to attend and vote at the Annual General
Meeting provided that all calls due from him in respect of his
shares have been paid. A member is also entitled to appoint one or
more proxies to attend and, on a poll, vote instead of him. The
proxy need not be a member of the Company.
2. Pursuant to Article 18.7 of the Company's Articles of
Incorporation, a resolution put to the vote shall be decided on a
show of hands or by a poll at the option of the Chairman.
3. A form of proxy is enclosed with this notice. To be
effective, the instrument appointing a proxy (together with any
power of attorney or other authority under which it is executed or
a duly certified copy of such power) must be sent to Capita Asset
Services, PXS1, The Registry, 34 Beckenham Road, Beckenham, Kent,
BR3 4ZF, no later than 2.30pm on Monday, 6 November 2017, or not
less than 48 hours before the time for holding any adjourned
meeting, as the case may be. A corporation may execute a proxy
under its common seal or by the hand of a duly authorised officer
or other agent. Completion and return of the form of proxy will not
preclude shareholders from attending and voting in person at the
meeting.
4. The quorum for the Annual General Meeting is at least two
shareholders present in person or by proxy.
5. Resolutions 1 to 8 are proposed as ordinary resolutions and
will be passed if approved by a simple majority. The ordinary
resolutions will be passed at the meeting on a show of hands if
they are approved by a simple majority of the members voting in
person or by proxy. The ordinary resolutions, if passed on a poll
taken at the Annual General Meeting, will be passed if approved by
the members representing a simple majority of the total voting
rights of members voting in person or by proxy. Resolution 9 is
proposed as a special resolution and will be passed if approved by
a majority of not less than 75%. The special resolution will be
passed at the meeting on a show of hands if it is approved by not
less than 75% of the members voting in person or by proxy. The
special resolution, if passed on a poll taken at the Annual General
Meeting, will be passed if approved by members representing not
less than 75% of the total voting rights of members voting in
person or by proxy.
6. In accordance with the Regulation 41 of the Uncertificated
Securities (Guernsey) Regulations 2009 and Article 19.5 of the
Company's Articles of Incorporation, only those members entered in
the Register of Members of the Company at close of business on
Friday, 3 November 2017 shall be entitled to attend or vote at the
Meeting in respect of the number of shares registered in their name
at that time. Changes to entries on the Register of Members after
that time shall be disregarded in determining the rights of any
person to attend or vote at the Annual General Meeting.
7. CREST members who wish to appoint and/or give instructions to
a proxy or proxies through the CREST electronic proxy appointment
service may do so for the Annual General Meeting to be held on 8
November 2017 and any adjournment(s) thereof by using the
procedures described in the CREST Manual. CREST Personal Members or
other CREST sponsored members, and those CREST members who have
appointed a voting service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.
8. In order for a proxy appointment made by means of CREST to be
valid, the appropriate CREST message (the CREST Proxy Instruction)
must be properly authenticated in accordance with Euroclear UK
& Ireland Limited's ("Euroclear") specifications and must
contain the information required for such instructions, as
described in the CREST Manual. The message, regardless of whether
it constitutes the appointment of a proxy or an amendment to the
instruction given to a previously appointed proxy must, in order to
be valid, be transmitted so as to be received by Capita Asset
Services (Crest Participant RA10) by no later than 2.30pm on 6
November 2017. For this purpose, the time of receipt will be taken
to be the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which Capita Asset
Services is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST. After this time, any change of
instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
9. CREST members and, where applicable, their CREST sponsors or
voting service providers should note that Euroclear does not make
available special procedures in CREST for any particular messages.
Normal system timings and limitations will therefore apply in
relation to the input of CREST Proxy Instructions, it is the
responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member or sponsored member or has
appointed a voting service provider(s), to procure that his or her
CREST sponsor or voting service provider(s) take(s)) such action as
is necessary to ensure that a message is transmitted by means of
the CREST system by any particular time. In this regard, CREST
members and, where applicable, their CREST sponsors or voting
service providers are referred, in particular, to those sections of
the CREST Manual concerning practical limitations of the CREST
system and timings. The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation 34(1) of the
Uncertificated Securities (Guernsey) Regulations, 2009.
10. The Register of Directors' Interests kept by the Company
shall be available for inspection at the Registered Office of the
Company by any member between the hours of 10.00am and 12.00 noon
on any business day for a period of 14 days before and ending 3
days after the Annual General Meeting. The Register of Directors'
Interests shall be produced at the commencement of the Annual
General Meeting and shall remain open and accessible during the
continuance of the Annual General Meeting to any person attending
such meeting.
Explanatory Note
Directors' remuneration report - resolution 2
It is a requirement of Listing Rule 9.8.6 R (7) that all quoted
companies produce a board-approved report on Directors'
remuneration in respect of each financial year. This report is set
out in the Annual Report and Accounts. An ordinary resolution will
be put to shareholders seeking approval of the remuneration
report.
Authority to buyback shares - resolution 9
This resolution renews the share buyback authority that was
given by Shareholders at the Annual General Meeting held on 14
November 2016. Resolution 9 gives the Directors authority to make
market purchases of the Company's own shares, up to 14.99 percent
of the Company's issued share capital (as at the time immediately
following the passing of the resolution) and subject to minimum and
maximum purchase prices. This authority will only be invoked if,
after taking proper advice, the Directors consider that benefits
will accrue to shareholders generally.
DIRECTORS AND COMPANY INFORMATION
Directors
Chris Russell (Chairman)
Thomas Ashworth
Alan Clifton
Wilfred Woo
Audit Committee
Alan Clifton (Chairman)
Wilfred Woo
Chris Russell
Management Engagement Committee
Alan Clifton (Chairman)
Chris Russell
Wilfred Woo
Nomination and Remuneration Committee
Alan Clifton (Chairman)
Thomas Ashworth
Wilfred Woo
Chris Russell
Manager
Sniper Capital Limited
Vistra Corporate Services Centre
Wickhams Cay II
Road Town, Tortola
VG 1110
British Virgin Islands
Investment Adviser
Sniper Capital (Macau) Limited
918 Avenida da Amizade
14/F World Trade Centre
Macau
Corporate Broker
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Independent Auditors
Ernst & Young LLP
P.O. Box 9
Royal Chambers
St. Julian's Avenue
St. Peter Port
Guernsey GY1 4AF
Property Valuers
Savills (Macau) Limited
Suite 1309-10
13/F Macau Landmark
555 Avenida da Amizade
Macau
Solicitors to the Group as to English Law
Norton Rose LLP
3 More London Riverside
London SE1 2AQ
Advocates to the Group as to Guernsey Law
Carey Olsen
Carey House
Les Banques, St. Peter Port
Guernsey GY1 4BZ
Administrator and Company Secretary
Heritage International Fund Managers Limited
Heritage Hall
P.O. Box 225
Le Marchant Street
St. Peter Port, Guernsey
Channel Islands GY1 4HY
Macau and Hong Kong Administrator
Adept Capital Partners Services Limited
26/F Jubilee Centre
42-46 Gloucester Road
Hong Kong
Registered Office
Heritage Hall
P.O. Box 225
Le Marchant Street
St. Peter Port, Guernsey
Channel Islands GY1 4HY
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR OKODBKBKBFCB
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