YEAR ENDED 30 JUNE 2015
1. GENERAL INFORMATION
Fijian Holdings Limited (“the Company”) is incorporated and domiciled in Fiji and its registered office and principal place of business is located at 7th Floor, Ra Marama House, 91 Gordon Street, Suva, Fiji.The consolidated financial statements of the Company as at and for the year ended 30 June 2015 comprise the Company and its subsidiaries (together referred to as “the Group” and individually as “group entities”) and the group’s interest in associates. The Company and its subsidiaries are incorporated and domiciled in Fiji and Papua New Guinea.The principal activity of the Company is investment. The principal activities of the Group are the production and sale of cement, concrete and concrete products, investment and rental of property, fund management, stock brooking, asset and loan financing and acceptance of term deposits, provision of sea transportation services and boat charters, cruise ship operations, commercial free to air and subscription television broadcasting services, selling and servicing of radio, television and communications, retailing and wholesaling of general merchandise, and owners and administrators of properties.The Company is listed on the South Pacific Stock Exchange.These consolidated financial statements were authorized for issue by the Board of Directors on 28th August 2015.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
he principal accounting policies adopted in the preparation of these Company and consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2014.
• Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
• Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)
• Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)The only changes arising from adoption of these standards are in relation to expanding the disclosures in the financial statements.
Statement of compliance
The Company and consolidated financial statements are general purpose financial statements which have been prepared in accordance with International Financial Reporting Standards(IFRSs) adopted by the International Accounting Standards Board and the Companies Act 1983.
2.1 Basis of accounting
The financial statements have been prepared under the historical cost basis, as modified by the revaluation of available-for-sale financial assets and certain other financial assets at fair value.Despite the deficiency in net current assets of $35,846,000 (2014: $13,298,000) in the Company, the financial statements have been prepared on a going concern basis, which contemplates that the Company will be able to pay its debts as and when they fall due. The directors believe that this basis is appropriate as the Company has the ability to upstream dividends from its subsidiary companies, there are currently undrawn banking facilities totaling $3,000,000 available, and an amount of $14,315,000 is due to related parties which the directors believe is capable of being renegotiated as to payment date. The Company also has a positive cash flows from operating activities and can call upon related party receivables of $12,437,000 (classified as non-current due to management’s expectation of realization) when the need arises.The Group net current asset deficiency of $12,585,000 (2014: $16,464,000) is due to short term fixed term deposits totaling $56,516,000 (2014: $72,847,000) in respect of Merchant Finance & Investment Company Limited which the directors expect will be rolled over at maturity.
Standards, amendments and interpretations issued but not yet effective
The following standards, amendments and interpretations to existing standards have been published and are mandatory for accounting periods beginning after 1 July 2014 which are relevant to the Group, but the Group does not plan to early adopt them. The impact of these standards and interpretations on the financial statements of the Company and the Group has not yet been fully determined.
|Standard/ Interpretation||Content||Applicable for financial yearsbeginning on/ after|
|IFRS 9 Financial Instruments||IFRS 9, published in July 2014 replaces The existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carried forward the guidance on recognition and derecognition of financial instruments from IAS 39.||01-Jan-18|
|IFRS 15 Revenue from Contracts With Customers||IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.||01-Jan-18|
2.2 Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are included in the following notes:
Note 2.3 – Acquisitions
Note 2.8.3 – Provision for impairment
Note 2.9 – Property, plant and equipment impairment
Note 2.10 – Investment properties impairment
Note 2.14 – Intangible assets impairment
Note 2.8 – Available for sale financial assets
2.3 Principles of consolidation
Subsidiaries are all those entities over which the group has control. The Group controls an entity when it is exposed to, or has rights to,variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statements of profit or loss and other comprehensive income. Transaction costs, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination are expensed as incurred.
Intra-group transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealised losses on these transactions are also eliminated.
(ii) Transactions and non-controlling interests
The group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the group. Disposals to non-controlling interests result in gains and losses for the group and are recorded in the statements of profit or loss and other comprehensive income. Purchases from non-controlling interests, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary, is recorded directly in equity.
(iii) Interests in equity accounted investees
Associates are those entities over which the group has significant influence but not control over the financial and operating policies. Significant influence is presumed to exist when the group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost which includes transaction costs.
The group’s share of its associates’ post-acquisition profits or losses is recognized in the statements of profit or loss and other comprehensive income, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group’s interest in the associates.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Dilution gains and losses arising on investments in associates are recognized in the statements of profit or loss and other comprehensive income.
2.4 Foreign currency
(a) Functional and presentation currency
Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Fijian Dollars, which is the Company’s and the Group’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. 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 recognized in the statements of profit or loss and other comprehensive income.
2.5 Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisitions, are translated to the functional currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Fijian dollars at exchange rates at the dates of the transactions.
Foreign currency differences are recognized in other comprehensive income and presented in the foreign currency translation reserve in equity. If the foreign operation is a non-wholly-owned subsidiary, then the relevant proportion of the translation difference is allocated to the non-controlling interests.
2.6 Segment information
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are 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 that are different from those of segments operating in other economic environments.
|Construction||Sales of cement, concrete and concrete products|
|Property||Owners and administrators of properties, and rental of property|
|Finance||Asset and loan financing, and acceptance of term deposits|
|Tourism||Provision of sea transportation services and boat charters|
|Media||Television and communications|
|Retail||Retailing and wholesaling of general merchandise|
2.7 Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date. For the purposes of the statements of cash flows, cash and cash equivalents comprise cash on hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet.
2.8 Financial assets
Financial assets are classified into the following categories: at fair value through profit and loss, held-to-maturity, available-for-sale, and loans and receivables. The classification is dependent on the purpose for which the financial assets are acquired. Management determines the classification of investments at the time of the purchase and re-evaluates such designation on a regular basis. Purchases and sales of investments are recognized on the trade date, which is the date the group commits to purchase or sell the asset. Cost of purchase includes transaction costs.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Assets in this category are classified as current assets.
(b) Held-to-maturity investments
Investments which management has the intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortised cost.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.
(d) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current. The group’s loans and receivables comprise ‘loans, advances and receivables’ in the balance sheet.
2.8.2 Recognition and measurement
Regular purchases and sales of financial assets are recognized on the trade-date – the date on which the group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statements of profit or loss and other comprehensive income. Financial assets are recognized when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity assets are subsequently carried at amortised cost using the effective interest method.
Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the statements of profit or loss and other comprehensive income within ‘fair value (losses)/gains’ in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statements of profit or loss and other comprehensive income as part of income when the group’s right to receive payments is established.
Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in income.
Interest on available-for-sale securities calculated using the effective interest method is recognised in the statements of profit or loss and other comprehensive income as part of other income. Dividends on available-for-sale equity instruments are recognised in the statements of profit or loss and other comprehensive income as part of other income when the Group’s right to receive payments is established
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the statements of profit or loss and other comprehensive income. Impairment losses recognised in the statements of profit or loss and other comprehensive income on equity instruments are not reversed through the statements of profit or loss and other comprehensive income.
An allowance for impairment of receivables is established when there is objective evidence that the Group will not be able to 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 statements of profit or loss and other comprehensive income as part of provision for doubtful debts. 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 against provision for doubtful debts in the statements of profit or loss and other comprehensive income.
Loans and advances are recognised at recoverable amount, after assessing the required allowance for impairment. Impairment of a loan is recognised when there is reasonable doubt that not all the principal and interest can be collected in accordance with the terms of the loan agreement. Impairment is assessed by specific identification in relation to individual loans and estimation of expected losses in relation to loan portfolios where specific identification is impracticable. Bad debts are written off when identified. If an allowance for impairment has been recognised in relation to a loan, write-offs for bad debts are made against the allowance. If no allowance for impairment has previously been recognised, write-offs for bad debts are recognised as expenses in the statements of profit or loss and other comprehensive income.
Property, plant and equipment
Items of property, plant and equipment are stated at cost and deemed cost less accumulated depreciation and impairment losses.Freehold land and improvements are shown at deemed cost less accumulated depreciation. Island properties are shown at fair value based on valuations by external independent valuers. All other items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
The value of property, plant and equipment recognized as a result of a business combination is the estimated amount for which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably. Subsequent to initial recognition, increases in the carrying amount arising on revaluation are credited to other comprehensive income in the statements of profit or loss and other comprehensive income and recorded as revaluation reserve in shareholders’ equity. Decreases that off-set previous increases of the same asset are charged against other comprehensive income and revaluation reserves in equity; all other decreases are charged as an expense in the statements of profit or loss and other comprehensive income.
Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds with the carrying amount and are recognised in the statements of profit or loss and other comprehensive income.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount .
ii) Subsequent expenditure
Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major improvements, renovations and overhaul expenditure, is capitalized. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the statements of profit or loss and other comprehensive income during the financial period in which they are incurred
iii) Depreciation and amortization
Freehold land is not depreciated. Leasehold properties, plant and equipment and other assets are depreciated and amortised on the straight line basis over their estimated useful lives, using the following depreciation rates:
|Rate Leasehold land and improvements||Term of lease|
|Buildings||1.25% – 10%|
|Plant and equipment:|
|-machinery, furniture & fittings and office equipment||2.50% – 40%|
|-motor vehicles||15% – 33 %|
|-vessels||3% – 33 %|
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted as appropriate.
2.10 Investment properties
Investment property is stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Rental income from investment property is accounted for as described in accounting policy 2.20.
Investment property includes both land and buildings. Buildings are depreciated on a straight-line basis at an annual rate between 1.25% and 2.50%. Freehold land is not depreciated. Leasehold land is amortized in accordance with the term of the lease.
When an item of plant and equipment (refer to accounting policy 2.9) becomes an investment property following a change in its use, such investment property is stated at its cost.
2.11 Assets held for sale and discontinued operations
Non-current assets (or disposal groups comprising assets and liabilities) are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Assets classified as held for sale are stated at the lower of their carrying amount and fair value less costs to sell and are no longer amortised or depreciated.
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:
- represents a separate major line of business or geographical area of operations;
- is part of a single co-ordination plan to dispose of a separate major line of business or geographical area of operations; or
- is a subsidiary acquired exclusively with a view to re-sale.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.
When an operation is classified as discontinued operations, the statements of profit or loss and other comprehensive income is represented as if the operations had been discontinued from the start of the comparative year.
Inventories are stated at lower of cost and net realisable value. The cost of raw materials, stores and supplies includes all costs of acquisition, calculated on the first-in-first-out basis. Finished goods and work in process are valued at the actual cost of conversion, including a proportion of fixed and variable factory overheads. Net realisable value is the estimated selling price in the ordinary course of business less applicable variable selling expenses.
(a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.
The gain or loss on disposal of an entity includes the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.
(b) Management rights Management rights represent the initial cost paid in acquiring the rights and interest in the Management Agreement between R B Patel Group Limited (a subsidiary of FHL Retailing Ltd) and R B Patel & Co., a New Zealand partnership. Management rights is carried at cost less accumulated amortisation (based on the contract period of the management right) and impairment losses and is subject to annual impairment testing.
2.14 Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and depreciation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount exceeds its recoverable amount. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Any impairment losses are recognised in the statements of profit or loss and other comprehensive income in the period in which they arise. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separate identifiable cash flows.
2.15 Trade and other creditors
Trade and other creditors are stated at amortised cost. These amounts represent liabilities for goods and services provided to the group prior to the end of the financial year and which are unpaid.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statements of profit or loss and other comprehensive income over the period of the borrowings using the effective interest method.
2.17 Current and deferred income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the respective countries, where the company’s subsidiaries and associates operate and generate taxable 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 on the basis of amounts expected to be paid to the tax authorities.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the deferred tax assets can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.
2.18 Employee entitlements
Liability for annual leave is recognised and measured as the amount unpaid at the reporting date at current pay rates in respect of employees’ services up to that date.
A liability for long service leave is recognised as the present value of estimated future cash outflows to be made in respect of services provided by employees up to the reporting date. The estimated future cash outflows are discounted using interest rates on government bonds which have terms to maturity that match, as closely as possible, the estimated future cash outflows. Factors which affect the estimated cash outflows, such as expected future salary increases, experience of employee departures and period of service, are incorporated in the measurement.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the statements of profit or loss and other comprehensive income when they are due.
A group company is the lessee
Assets acquired under finance leases are included as property, plant and equipment in the statement of financial position. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased assets. Where assets are acquired by means of finance leases, the lower of the asset’s fair value or the present value of the minimum lease repayments is recognised as an asset at the beginning of the lease term and amortised on a straight line basis over the expected useful life of the leased asset. A corresponding liability is also established and each lease payment is allocated between the liability and interest expense.
Other leases under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Operating lease payments are charged to expense in the periods in which they are incurred.
A group company is the lessor
Assets leased out under operating leases are included in property, plant and equipment in the statement of financial position. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income is recognised on a straight-line basis over the lease term.
2.20 Revenue recognition
Revenue comprises the fair value for the sale of goods and services, net of value added tax, rebates and discounts and after eliminating sales within the group. Revenue is recognised as follows:
Sales of goods
Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer.
Sales of services
Revenue is generally recognised when services are rendered. Fees such as brokerage income and commission arising from negotiating or participating in the negotiation of a transaction for a third party are recognised on completion of the underlying transaction.
Interest income is recognised on a time-proportion basis using the effective interest or compound interest method which matches income earned to the funds employed on a constant basis.
Dividend income is recognised when the right to receive payment is established.
Rental income Rental income is recognised when due. Rental income from investment property is recognised in the statements of profit or loss and other comprehensive income on a straight-line basis over the term of the lease.
Revenue from subscription television services is initially deferred and is recognised as revenue in the period(s) that the related service is provided to subscribers.
2.21 Dividend distribution
Provision is made for the amount of any dividend declared, determined or publicly recommended by the directors on or before the end of the financial year but not distributed at balance date.
Dividends are subject to the provisions of the Fiji Income Tax Act and Income Tax (Dividend) Regulations 2001.
Provisions are recognised when the company has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.
2.23 Basic and diluted earnings per share
Basic and diluted earnings per share is determined by dividing profit after income tax attributable to shareholders of the holding company by the weighted average number of ordinary shares outstanding during the financial year.
2.24 Functional and presentation currency
These consolidated financial statements are presented in Fijian dollars, which is the Company’s functional currency. All amounts have been rounded to the nearest thousand.
2.25 Comparative figures
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.
2.26 Business combinations
Acquisition of FHL Media Limited (formerly Yasana Holdings Limited)
The acquisition of FHL Media in 2013 has been accounted for as a common control transaction as at the time of this transaction both FHL Media and the Company were controlled by the same shareholder group. As a common control transaction, the acquisition does not reflect the fair value of assets and liabilities acquired or any recording of additional goodwill at the time of the acquisition of FHL Media. The acquisition balance sheet of FHL Media reflects the values for assets and liabilities acquired from FHL Media’s consolidated accounting records. The difference between the fair value of the consideration given and the carrying value of the assets and liabilities acquired is recognised as a common control reserve in the consolidated financial statements.
Except for the acquisition of FHL Media, all acquisitions are accounted for by applying the acquisition method.
For every business combination, the Group identifies the acquirer, which is the combining entity that obtains control of the other combining entities or businesses. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another.
The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. If the cost of the acquisition is less than the Group’s share of the fair value of the identifiable net assets of the acquiree, the difference is recognised directly in profit or loss, but only after a reassessment of the identification and measurement of the net assets acquired.
The fair value of the identifiable net assets is based on valuations performed by independent experts.
Consideration transferred includes the fair values of the assets transferred and liabilities incurred by the Group to the previous owners of the acquiree. Consideration transferred also includes the fair value of any contingent consideration.
The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.
Transaction costs that the Group incurs in connection with a business combination are expensed as incurred.
Acquisitions completed during the year are set out below.
3.1 Acquisition of subsidiary – Life Cinema Limited
On 24th November 2014, the Group obtained control of Life Cinema Limited (LCL), a company involved in the entertainment industry, by acquiring 60 percent of the shares and voting interests in LCL for a consideration of $600,000.
Acquisition of LCL will provide the Group with increased access to the entertainment industry.
LCL commenced operations on 19th December 2014 and the results since that date have been consolidated in the Group results.
3.2 Acquisition of associate – Pernix (Fiji) Limited
On 17th November 2014, the Group acquired a 21 per cent interest in Pernix (Fiji) Limited (PFL), a company involved in the energy industry for a consideration of $3.76m. The Group has determined that it has significant influence over Pernix (Fiji) Limited and will therefore account for PFL’s results as an associated company.
4. FINANCIAL RISK MANAGEMENT
4.1 Risk Management Framework
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Audit Sub- Committee, which is responsible for developing and monitoring the Group’s risk management policies. The committee reports regularly to the Board of Directors on its activities.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and control, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
Risk management is also carried out by Group Finance & Audit Division (GFAD). The GFAD monitors compliance with the Group’s risk management policies and framework in relation to risks faced by each company in the Group. A Risk and Compliance Officer who is also part of the Audit Sub-Committee, is responsible for monitoring compliance with Group risk management policies and procedures and for reviewing the risk management framework in relation to the risks faced by the Group. The Group management team is assisted in these functions by an Internal Audit function (established by the Company and an outsourced internal audit team for Merchant Finance & Investment Company Limited) which undertakes both regular and ad-hoc reviews of management controls and procedures, the results of which are reported directly to the Audit Sub-Committee of the Board.
(a). Market risk
Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit spreads will affect the group’s income or the value of its holdings of financial instruments. The objective of market risk management is to control market risk exposures within acceptable parameters while optimising the return on risk.
Unfavourable changes to duty and tax regulations may expose the Group to a decline in revenues. To minimise this risk, the Group implements appropriate strategies to ensure that products and prices remain attractive. The Group operates in Fiji and Papua New Guinea, and changes to governments and the policies they implement affect the economic situation and ultimately the revenues of the Group. To address this, the Group reviews its pricing and product range regularly and responds appropriately to these changes.
(i). Foreign exchange risk
The Group undertakes certain transactions denominated in foreign currencies hence exposures to exchange rate fluctuations arise. Exchange rate exposures are closely managed within approved policy parameters. Major foreign exchange transactions relate to importation of goods and services with settlement based on spot rates. Foreign currency risk arises from recognised assets and liabilities that are denominated in a currency that is not the Group’s functional currency (refer note 2.4)
Pacific Cement Ltd and Basic Industries Ltd operate in Fiji and procure assets, raw materials and supplies from principal suppliers based predominantly in New Zealand, Australia and Japan. Basic Industries (PNG) Limited and Media Nuigini Limited operate in PNG and procure assets and supplies from principal suppliers based predominately in Fiji, New Zealand and Australia. As a measure, prompt settlement of liabilities (and assets if necessary) is exercised by management to minimise the exposure to foreign exchange losses. As an additional measure, the companies negotiate competitive rates with their bankers to minimise losses and maximise gains when foreign exchange receipts and payments become due.
The Group’s exposure to foreign exchange risk is not material.
(ii). Price risk
The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet either as available-for-sale or at fair value through profit or loss. To manage its price risk arising from investment in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group.
The Group’s investments in equity of other entities that are publicly traded are quoted on the South Pacific Stock Exchange.
(iii). Interest rate risk
The principal risk to which investments and lending portfolios are exposed is the risk of loss from fluctuations in future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits from re-pricing bonds.
In Merchant Finance & Investment Company Limited (MFICL) the management of interest rate risk against interest rate gap limits is supplemented by management’s regular monitoring of the sensitivity of MFICL financial assets and liabilities to various standard interest scenarios and market offerings.
Interest rate risk is managed through: 1) investments; 2) loan pricing; and 3) deposit pricing. MFICL always tries to maintain an interest spread that it believes is sufficient to cater for the risk it is taking and is above the cost of its funds and is sufficient to cover operating costs. Interest spread is monitored monthly and is submitted to the Reserve Bank of Fiji (RBF) for monitoring purposes.
The carrying amounts of the Company’s and Group’s financial instruments are set out below:
As all the above loans are fixed interest, neither the Company nor the Group is subject to material interest rate risk.
(b). Credit risk
Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the group’s receivables and loans and advances to customers and investees.
Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, including outstanding receivables and committed transactions. For potential rental tenants, a screening process, similar to a due diligence is performed, prior to their being granted leases. Checks are made as to their background, as well as their credit histories, with the Data Bureau. For banks and financial institutions, only reputable parties are acceptable. As far as practicable, if wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent ranking, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with set limits. The utilisation of credit limits is regularly monitored. Sales to retail customers are settled in cash or using major credit cards.
The summary of the Group’s exposure to credit risk is as follow:
The details of impairment provisions for loans and receivables are provided for in Notes 12 and 13.
Details relating to MFICL are set out below:
Financial assets relating to MFICL classified as neither past due nor impaired are fully operational loan facilities. Management reviews all accounts at balance date and where necessary makes a provision for impairment.
Financial assets classified as past due but not impaired are further classified as Standard or Special Mention with arrears below 60 days. These accounts are closely monitored to ensure that they do not deteriorate further. Security inspections are undertaken on these accounts to verify the value of the collateral pledged. These assets are monitored by specialist collection teams on a daily basis and further monitored by management at each month end. Where necessary management restructures these loans to enhance recovery.
Individually assessed loans are those that have arrears exceeding 60 days and/or those which in the view of management have a higher probability of failure in the near term beyond its control and where a loss is expected to arise.
In order to manage credit risk, MFICL closely monitors existing customers in ensuring a debt service ratio greater than 1 and loan value ratio of 85% is maintained and ensuring that all new customers go through comprehensive credit screening including Data Bureau checks. Furthermore, customer accounts are graded internally and all existing customers are categorised as excellent, good, satisfactory or limited. Further the individual accounts/customer groups are classified as Standard, Special Mention, Sub Standard, Doubtful and Loss for credit risk management purposes. All loans and advances are secured by collateral.
MFICL employs a range of policies and practices to mitigate credit risk with the most common practice being the taking of collateral with guidelines on the acceptability of specific classes of collateral for credit risk mitigation. The principal collateral types for loans and advances are:
- Mortgages over residential properties.
- Hire Purchase Agreements and Bill of Sale over vehicles and machinery.
- Charges over business assets such as premises, inventory and accounts receivable.
- Charges over financial instruments such as debt securities and equities and term deposits.
Longer-term finance and lending to corporate entities are generally secured. In addition, in order to further minimise the potential for credit loss MFICL will seek additional collateral from the counterparty once impairment indicators are identified for the relevant individual loans and advances.
Collateral held as security for financial assets other than loans and advances depends on the nature of the instrument.
Credit risk concentration
The credit risk concentration for MFICL is as follows:
Credit concentration is determined based on the industry for which the loan is given.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting its obligations arising from its financial liabilities. Prudent and careful management of the Group’s liquidity position is essential in order to ensure that adequate funds are available to meet the Group’s ongoing financial obligations.
A summary of the contractual maturity analysis of the Group’s borrowings and other non-derivative financial liabilities as at 30 June is set out below on an undiscounted basis including estimated interest payments:
Additional details relating to MFICL are set out below:
In order to comply with the Reserve Bank’s requirements and the Banking Act 1995, MFICL must hold as liquid deposits an amount equivalent to 10% of its total borrowed funds. The MFICL Board ensures that the investment standalone is sufficient to meet the Unimpaired Liquid Assets Ratio requirements which are covered entirely by long term bonds.
The daily liquidity position is monitored. For MFICL, the key measure used for managing liquidity risk is the ratio of net liquid assets to deposits from customers. Monthly maturity mismatch reports are prepared and analysed. Maturity reports of term deposits are actioned via pre-analysis (calling customer to determine the status of re-investment) and MFICL Board Asset and Liability Committee (ALCO) is kept informed.
MFICL Liquidity exposure is measured by calculating its Net Liquidity Gap and by comparing current ratios with targets. MFICL Board/ ALCO monitors the Company’s liquidity position by reviewing the Net Liquidity Gap expressed as a percentage of liabilities:
The Cash Reserve ratio is calculated by expressing cash reserves (comprising of cash book balance and short term deposits) as a percentage of total deposits. Other ratios are calculated according to RBF guidelines on liquidity risk management for credit institutions. The loans to deposit ratio and unimpaired liquid assets ratio are monitored daily whilst other ratios are monitored monthly.
Any variance in the above ratios are actioned immediately by management.
4.2 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 and be in compliance with statutory requirements.
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.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated statement of financial position) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated statement of financial position plus net debt.
The gearing ratio of the Group at balance date is as follows:
MFICL is subject to externally imposed capital requirements by the Reserve Bank of Fiji. MFICL’s objectives when managing capital are:
- To comply with the capital requirements set by the Reserve Bank of Fiji:
- To safeguard the company’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
- To maintain a strong capital base to support the development of the business.
Capital adequacy and the use of regulatory capital are monitored daily by MFICL’s management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the Reserve Bank of Fiji, for supervisory purposes.
The Reserve Bank of Fiji requires MFICL to (a) hold at least 10% of its total holdings in liquid assets and (b) maintain a ratio of total regulatory capital to risk-weighted assets at or above 15%. MFICL complied with these requirements during the year.
MFICL also measures its Credit Loss Reserve requirement on an annual basis and during the current year transferred an amount of $621,000 to this reserve in compliance with Reserve Bank of Fiji guidelines.