PRASETHPHEAP FINANCE PLC. Financial Statements for the year ended 31 December 2017 and Report of the Independent Auditors

Transcription

1 PRASETHPHEAP FINANCE PLC. Financial Statements for the year ended 31 December 2017 and Report of the Independent Auditors

2 Corporate Information Company Registration No Registered office Shareholders Board of Directors #B78, street 199, Sangkat Tomnup Teuk, Khan Chamkarmorn, Phnom Penh, Cambodia Oknha Dr. Quach Mengly PFSA Plc. Oknha Dr. Quach Mengly Chairman Mr. Leak Veasna Director (resigned on 5 July 2017) Mr. Moc Nach Director (resigned on 1 August 2017) Mr. Kim Tevin Director (resigned on 30 November 2017) Mr. Keo Lundi Independent Director (resigned on 28 August 2017) Mr. Kang Hemchon Independent Director (resigned on 5 June 2017) Mr. Suos Sovann Independent Director (resigned on 10 August 2017) Mr. Long Pisey Director (appointed on 13 April 2018) Mr. Kong Vara Independent Director (appointed on 13 April 2018) Management team Mr. Moc Nach Chief Executive Officer (resigned on 22 June 2017 and reappointed on 4 January 2018, with pending approval from NBC) Mr. Kim Tevin Chief Finance Officer (resigned on 1 February 2017) Mr. Eap Bunthan Chief Executive Officer (appointed on 8 May 2017, resigned on 4 January 2018) Mr. Sen Chettana Chief Finance Officer (appointed on 1 April 2017, resigned on 31 August 2017) Mr. Kuch Kunthen Chief Operation Officer (appointed on 1 June 2017) Ms. Buon Chansophea Head of Finance Mr. Heng Tola Human Resource and Admin Unit Manager Mr. Po Chandarith Credit Unit Manager (appointed on 1 August 2017) Principal banker Auditors ACLEDA Bank Plc. KPMG Cambodia Ltd

3 Contents Page 1. Report of the Board of Directors 1 2. Report of the independent auditors 6 3. Balance sheet 9 4. Income statement Statement of changes in equity Statement of cash flows Notes to the financial statements 15

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12 Balance sheet as at 31 December December December 2016 Note ASSETS Cash on hand 37, ,843 13,286 53,636 Deposits and placements with NBC 5 146, ,270 50, ,028 Deposits and placements with banks 6 144, , ,408 3,207,025 Loans to customers - net 7 3,907,858 15,776,023 2,868,658 11,580,772 Other assets 8 152, ,047 89, ,116 Property and equipment 9 153, ,655 23,191 93,622 Intangible assets 10 3,668 14,808 5,720 23,092 Deferred tax asset - net 11 6,916 27, ,156 TOTAL ASSETS 4,552,744 18,379,428 3,845,788 15,525,447 LIABILITIES AND EQUITY Liabilities Dividend payable 12 54, , Other payables 13 28, ,889 12,983 52,413 Current income tax liabilities 11 8,099 32, , ,495 Borrowings 14 1,127,392 4,551, ,949 1,747,815 Total liabilities 1,218,402 4,918, ,762 2,255,723 Equity Share capital 15 2,915,766 11,770,947 1,000,000 4,037,000 Share premium 63, ,646 63, ,646 Other capital , ,030 2,105,766 8,500,977 Reserves 3(r) 6,901 27,859 5,909 23,855 Retained earnings 158, , , ,246 Total equity 3,334,342 13,460,738 3,287,026 13,269,724 TOTAL LIABILITIES AND EQUITY 4,552,744 18,379,428 3,845,788 15,525,447 The accompanying notes form an integral part of these financial statements. 9

13 Income statement Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Note Interest income ,290 3,057, ,395 2,238,093 Interest expense (104,545) (422,048) (47,329) (191,067) Net interest income 652,745 2,635, ,066 2,047,026 Fee and commission income 44, , Fee and commission expense (15,408) (62,202) - - Net fee and commission income 29, , Other operating income 7,156 28,889 2,374 9,584 Operating profit 689,307 2,782, ,440 2,056,610 Allowance for bad and doubtful loans to customers 7 (33,115) (133,685) (16,489) (66,566) General and administrative expenses 18 (619,668) (2,501,600) (345,891) (1,396,362) Profit before income tax 36, , , ,682 Income tax credit/(expense) 11 65, ,390 (28,878) (116,580) Net profit for the year/period 101, , , ,102 The accompanying notes form an integral part of these financial statements. 10

14 Statement of changes in equity for the year ended 31 December 2017 Share Share Other Retained capital premium capital Reserves earnings Total US$ US$ US$ US$ US$ US$ At 1 January ,000,000 63,078 2,105,766 5, ,273 3,287,026 Transfers 1,915,766 - (1,915,766) 992 (992) - Dividends distributions (Note 12) (54,452) (54,452) Net profit for the year , ,768 At 31 December ,915,766 63, ,000 6, ,597 3,334,342 (KHR'000 equivalents) (Note 4) 11,770, , ,030 27, ,256 13,460,738 The accompanying notes form an integral part of these financial statements. 11

15 Statement of changes in equity (continued) for the year ended 31 December 2017 Share Share Other Legal Retained capital premium capital reserve earnings Total US$ US$ US$ US$ US$ US$ At 2 March 2016 (date of incorporation) Initial capitalisation 1,000,000 65,122 2,081, ,146,563 Additional contribution during the period - 1,982 40, ,411 Capital withdrawn - (4,026) (16,104) - - (20,130) Net profit for the period , ,182 Transfers ,909 (5,909) - At 31 December ,000,000 63,078 2,105,766 5, ,273 3,287,026 (KHR'000 equivalents) (Note 4) 4,037, ,646 8,500,977 23, ,246 13,269,724 The accompanying notes form an integral part of these financial statements. 12

16 Statement of cash flows Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Note Cash flows from operating activities Net cash used in operating activities 19 (1,056,020) (4,263,153) (2,703,119) (10,912,490) Cash flows from investing activities Purchases of property and equipment (168,201) (679,027) (33,506) (135,264) Purchases of intangible assets - - (7,430) (29,995) Statutory deposit with NBC (95,788) (386,696) (50,000) (201,850) Withdraw/(deposit) with banks 300,000 1,211,100 (300,000) (1,211,100) Net cash generated from/(used in) investing activities 36, ,377 (390,936) (1,578,209) Cash flows from financing activities Proceeds from borrowings 2,098,147 8,470, ,945 2,623,828 Repayment of borrowings (1,403,704) (5,666,753) (216,996) (876,013) Share capital - - 1,000,000 4,037,000 Other capital - - 2,105,766 8,500,977 Share premium , ,646 Net cash generated from financing activities 694,443 2,803,466 3,601,793 14,540,438 Net (decrease)/increase in cash and cash equivalents (325,566) (1,314,310) 507,738 2,049,739 Cash and cash equivalent at the beginning of the year/period 507,738 2,049, Cash and cash equivalents at the end of the year/period , , ,738 2,049,739 13

17 Statement of cash flows (continued) Significant non-cash transactions During the year, there were the following significant non-cash transactions: Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Note Increase in share capital as a result of transfer from other capital 1,915,766 7,733, Increase in reserves as a result of transfer from retained earnings 992 4, Dividends declared but not yet paid 54, , The accompanying notes form an integral part of these financial statements. 14

18 Notes to the financial statements 1. Reporting entity ( the Company ) was incorporated as a public liability company on 2 March 2016 under registration No with the Ministry of Commerce. On 31 August 2016, the National Bank of Cambodia ( the Central Bank or NBC ) granted the Company a permanent licence to conduct business as a micro-finance institution in the Kingdom of Cambodia. The principal activities of the Company are to provide credit service and other financial services to low income families in the Kingdom of Cambodia. It currently operates through its head office in Phnom Penh and four branches which is one branch located in Phnom Penh and the other three located in provinces. Prior to 2 March 2016 the Company s activities were carried out by the Pracheacheat Finance Organisation ( PFO ). The Company was initially capitalised by transferring into the Company substantially all the net assets of the PFO as of 1 March The registered Head Office of the Company is located at House No. B78, Street 199, Sangkat Tomnup Teuk, Khan Chamkarmorn, Phnom Penh, Kingdom of Cambodia. On 26 September 2017, the NBC approved on the new head office of the Company which is located at #132, Street 193, Cornor of Street 388, Sangkat Tuol Svay Prey I, Khan Chamkarmorn, Phnom Penh, Cambodia. The Company is under process to obtain the endorsement from the Ministry of Commerce ( MoC ) as at the date of this report. 31 December 2017, the Company had 67 employees (2016: 39 employees). 2. Basis of preparation (a) Statement of compliance The financial statements have been prepared in accordance with Cambodian Accounting Standards ( CAS ) and the guidelines of the National Bank of Cambodia ( NBC ) relating to the preparation and presentation of financial statements. The financial statements of the Company were authorised for issue by the Board of Directors on 27 April (b) Basis of measurement The financial statements of the Company have been prepared on the historical cost basis. 15

19 2. Basis of preparation (continued) (c) Functional and presentation currency The national currency of Cambodia is the Khmer Riel ( KHR ). However as the Company transacts it business and maintains its accounting records in two currencies, Khmer Riel ( KHR ) and United States Dollars ( US$ ). Management has determined the US$ to be the Company s functional and presentation currency as it reflects the economic substance of the underlying events and circumstances of the Company. Transactions in currencies other than US$ are translated into US$ at the exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in currencies other than US$ at the balance sheet date are translated into US$ at the exchange rates ruling at that date. Exchange differences arising on translation are recognised in the income statement. (d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, and 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 recognised in the year in which the estimates are revised and in any future periods affected. Key accounting estimates and judgements applied in the preparation of the financial statements include estimates of recoverable amounts for loans and advances which have a separate accounting policy stated in Note 3(g). 3. Significant accounting policies The accounting policies set out below have been applied consistently in these financial statements. (a) Financial instruments The Company s financial assets and liabilities include cash and cash equivalents, loans to customers and other receivables, deposits, borrowings and payables. The accounting policies for the recognition and measurement of these items are disclosed in the respective accounting policies. (b) Basis of aggregation The Company s financial statements comprise the financial statements of the head office and its branches. All inter-branch balances and transactions have been eliminated. 16

20 3. Significant accounting policies (continued) (c) Cash and cash equivalents Cash and cash equivalents consist of cash and bank balances, demand deposits and shortterm highly liquid investments with original maturities of three months or less when purchased, and that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. (d) Deposits and placements with banks Deposits and placements with banks are stated at cost less allowance for any uncollectable amounts. (e) Deposits and placements with NBC Deposits and placements with the NBC, including capital guarantee deposit, are carried at cost. Capital guarantee deposit is maintained in compliance with the Cambodian Law on Banking and Financial Institutions and are determined by defined percentages of minimum share capital as required by the NBC. (f) Loans to customers Loans to customers are stated in the balance sheet at the amount of principal outstanding less any amounts written off and allowance for specific and general allowances. (g) Allowance for bad and doubtful loans In compliance with the NBC guidelines, a specific allowance for bad and doubtful loans is made on loans that are identified as non-performing as follows: Classification Number of days past due Allowance Short-term loans (less than one year): Standard 0 29 days 0% Sub-standard days 10% Doubtful days 30% Loss 90 days or more 100% Long-term loans (more than one year): Standard 0 29 days 0% Sub-standard days 10% Doubtful days 30% Loss 360 days or more 100% 17

21 3. Significant accounting policies (continued) (g) Allowance for bad and doubtful loans (continued) The allowance will be calculated as a percentage of the loan amount outstanding at the time the loan is classified, excluding accrued interest. The allowance is recorded in the Company s accounts and charged to the income statement for the month during which the corresponding loan has been classified below standard. In addition, the Company makes a general allowance for bad and doubtful loans as at balance sheet date which is over the mandatory specific level of provisioning as required by the NBC above at the rate of 1% of total outstanding of standard loans. Management believes that this more reasonably reflect the allowance necessary to absorb risks relating to problems in the macroeconomic environment, natural disasters, and widespread deterioration in rural household income, which would render customers incapable of reimbursing their outstanding loans. Recoveries on loans previously written off and reversal of previous allowances are disclosed as other income in the income statement. New NBC Credit Risk Grading and Provision on Impairment not yet adopted: The NBC issued Prakas No. B dated 1 December 2017 on Credit Risk Grading and Provision on Impairment and Circular No. B dated 16 February 2018 on the Implementation of Prakas on Credit Risk Grading and Provision on Impairment, which require all banks and financial institutions ( Institution ) to measure the impairment and provide sufficient allowance for bad and doubtful loans based on the new credit risk grading and provision as follows: Classification Number of days past due Allowance Short-term loans (less than or equal one year): Normal/standard 14 days 1% Special mention 15 days 30 days 3% Substandard 31 days 60 days 20% Doubtful 61 days 90 days 50% Loss 91 days 100% Long-term loans (more than one year): Normal/standard <30 days 1% Special mention 30 days 89 days 3% Substandard 90 days 179 days 20% Doubtful 180 days 359 days 50% Loss More than 359 days 100% 18

22 3. Significant accounting policies (continued) (g) Allowance for bad and doubtful loans (continued) New NBC Credit Risk Grading and Provision on Impairment not yet adopted (continued) Based on Section 1 of the Circular No. B , the Company decided to adopt prospectively all requirements of Prakas No. B including the calculation of provision on impairment in its 2018 financial statements. Management is assessing the potential impact on its financial statements resulting from the application of this new credit risk grading and provision on impairment. (h) Interest in suspense Interest in suspense represents interest on non-performing loans to customers, that is recorded as a provision rather than income until it is realised on a cash basis. Interest in suspense is disclosed as a deduction from interest receivables. (i) Other assets Other assets are carried at cost less allowance for impairment loss if any. An estimate is made for doubtful receivables based on a review of outstanding amounts at the reporting date. (j) (i) (ii) Property and equipment Items of property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Where an item of property and equipment comprises major components having different useful lives, the components are accounted for as separate items of property and equipment. Depreciation of property and equipment is charged to the income statement on a straight-line basis over the estimated useful lives of the individual assets as follows: Leasehold improvements 20% Furniture and fittings 25% Office equipment 25% Computer equipment 25% 19

23 3. Significant accounting policies (continued) (j) (iii) (iv) (v) (k) Property and equipment (continued) Subsequent expenditure relating to an item of property and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Company. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. Gains or losses arising from the retirement or disposal of an item of property and equipment are determined as the difference between the estimated net disposal proceeds and the carrying amount of the assets and are recognised in the income statement on the date of retirement or disposal. Fully depreciated items of property and equipment are retained in the financial statements until disposed of or written off. Intangible assets Intangible assets consist of computer software license and related costs are stated at cost less accumulated amortisation and accumulated impairment losses, if any. Acquired computer software license is capitalised on the basis of the cost incurred to acquire the specific software and bring it into use. Intangible assets are amortised over an estimate useful life of five years using a straight-line method. If there is an indication that there has been a significant change in amortisation rate, useful life or residual value of an intangible asset, the amortisation is revised prospectively to reflect the new expectations. (l) (i) Impairment Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimate future cash flows of that asset. This does not apply to loans to customers which has a separate accounting policy stated in Note 3(g). Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement. 20

24 3. Significant accounting policies (continued) (l) (i) Impairment (continued) Financial assets (continued) An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. (ii) Non-financial assets The carrying amounts of the Company s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, 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 cost to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit ). An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement. (m) Other payables Other payables are stated at their cost. (n) Pension fund The Company provides pension fund to all eligible employees equalling 6% of the employee s base salary (3% from the Company and 3% from employee s monthly salary). Fund will be paid to employees upon retirement age of 60. If the employee is terminated, the pension fund will be paid only the portion deducted from his/her salary. (o) Borrowings Borrowings are stated at the amount of the principal outstanding. 21

25 3. Significant accounting policies (continued) (p) Provisions Provisions are recognised in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (q) Dividends Dividends declared and approved by the Company s shareholders before the end of reporting date are recognised as a liability and accounted for as a deduction from the retained earnings in the financial statements. Dividends declared and approved by the Company s shareholders after the reporting date are not recognised as a liability but disclosed as the subsequent events note in the financial statements. (r) (i) Reserves Legal reserve Based on the Memorandum and Articles of Association, the Company shall transfer from retained earnings based on the rate of 5% of the current year net profit (after tax) to legal reserve. (ii) Reserve for social mission development Based on the Memorandum and Articles of Association, the Company shall transfer from retained earnings based on the rate of 3% of the current year net profit (after tax and after deduct 5% for legal reserve) to reserve for social development. (s) Income and expense recognition Interest income on loans, balance with the NBC and balances with other banks are recognised on an accruals basis. Where a loan becomes non-performing, the recording of interest as income is suspended until it is realised on a cash basis. Interest on loans is calculated on daily accrued basis. Loan fee income is recognised as income when the loan is disbursed to customers. The loan fee income is calculated using the principal and fee rate. Expenses are recognised on an accrual basis. 22

26 3. Significant accounting policies (continued) (t) Operating leases Leases when substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease commitments are not recognised as liabilities until the obligation to pay become due. (u) Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised as a component of shareholders equity, in which case it is also disclosed as a component of shareholders equity. Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available to permit the realisation of the asset. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (v) Related parties Parties are considered to be related to the Company if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions, or where the Company and the other party are subject to common control or significant influence. Related parties may be individuals or corporate entities and include close family members of any individual considered to be a related party. Under the Law on Banking and Financial Institutions, related parties include individuals who hold directly or indirectly a minimum of 10% of the capital of the Company or voting rights therefore, or who participates in the administration, direction, management or the design and implementation of the internal controls of the Company. 23

27 4. Translation of US$ into KHR The financial statements are stated in United States Dollar ( US$ ). The translations of United States Dollar amount into Khmer Riel ( KHR ) are included solely for convenient purposes and have been made using the prescribed official exchange rate as of 31 December 2017 of US$ 1: KHR4,037 (2016 US$1: KHR4,037) published by the NBC. These convenience translations should not be construed as representations that the US$ amounts have been, could have been, or could in the future be, converted into KHR at this or any other rate of exchange. 5. Deposits and placements with NBC 31 December December 2016 Capital guarantee (i) 145, ,546 50, ,850 Current accounts (ii) 427 1, , ,270 50, ,028 (i) The capital guarantee deposit is maintained with the NBC in compliance with Prakas No. B on the Licensing of Micro-Finance Institutions, the amounts of which are determined at 5% of the Company s registered share capital. The guarantee deposit will be refunded to the Company when the Company decides to close the business which is not contained the deposit from customers. The capital guarantee deposit earns interest at the rate of 0.36% per annum. (ii) Current account earns no interest. 6. Deposits and placements with banks 31 December December 2016 Fixed deposits ,000 1,211,100 Current accounts ,654 1,605,329 Savings deposits 144, ,913 96, , , , ,408 3,207,025 24

28 6. Deposits and placements with banks (continued) Deposits and placements with banks are analysed as follows: (a) By maturity: 31 December December 2016 Within 1 month 144, , ,408 1,995,925 4 to 12 months ,000 1,211, , , ,408 3,207,025 (b) By interest rate (per annum): Fixed deposits 3% 5.50% Current accounts 0.00% 0.00% Savings deposits 0.015% % 0.015% % 7. Loans to customers net 31 December December 2016 Individual loans 3,984,957 16,087,271 2,975,971 12,013,995 Group loans 2,778 11,215 7,868 31,763 Gross loans 3,987,735 16,098,486 2,983,839 12,045,758 Allowance for bad and doubtful loans: General (39,074) (157,742) (28,402) (114,660) Specific (40,803) (164,721) (86,779) (350,326) (79,877) (322,463) (115,181) (464,986) Loans to customers - net 3,907,858 15,776,023 2,868,658 11,580,772 25

29 7. Loans to customers net (continued) Movements of loans to customers are as follows: 31 December December 2016 At 1 January 2017/2 March 2016 (date of incorporation) 2,983,839 12,045, Transfer from PFO - - 3,464,622 13,986,679 Additions during the year/period 7,500,583 30,279,854 5,144,248 20,767,329 Repayments during the year/period (6,431,526) (25,964,071) (5,623,020) (22,700,132) Loan written off (65,161) (263,055) (2,011) (8,118) At 31 December 3,987,735 16,098,486 2,983,839 12,045,758 Movements of allowances for bad and doubtful loans to customers are as follows: Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 At 1 January 2017/2 March 2016 (date of incorporation) 115, , Transfer from PFO , ,257 Allowance during the year/period 33, ,685 16,489 66,566 Loans written off (68,189) (275,279) (2,105) (8,498) Currency translation difference (230) (929) (84) (339) At 31 December 79, , , ,986 26

30 7. Loans to customers net (continued) Gross loans to customers are analysed as follows: (a) By maturity 31 December December 2016 Within 1 month 10,563 42,643 19,914 80,393 1 to 3 months 19,230 77,632 16,991 68,593 3 to 12 months 226, , , ,033 Over 12 months 3,731,764 15,065,131 2,757,181 11,130,739 3,987,735 16,098,486 2,983,839 12,045,758 (b) By currency Khmer riels 173, ,026 32, ,333 US dollars 3,813,837 15,396,460 2,951,059 11,913,425 3,987,735 16,098,486 2,983,839 12,045,758 (c) By economic sector: Household/family 1,964,675 7,931,393 1,456,987 5,881,857 Agriculture 249,866 1,008, , ,531 Transportation 111, ,085 82, ,352 Trade and commerce 835,105 3,371, ,278 3,323,573 Service 22,517 90,901 48, ,761 Construction 717,561 2,896, , ,320 Staff loans 86, , , ,364 3,987,735 16,098,486 2,983,839 12,045,758 (d) (e) By residency status: Residents 3,987,735 16,098,486 2,983,839 12,045,758 By relationship Related parties (Note 21(b)) 39, ,599 43, ,957 External customers 3,948,201 15,938,887 2,940,253 11,869,801 3,987,735 16,098,486 2,983,839 12,045,758 27

31 7. Loans to customers net (continued) Gross loans to customers are analysed as follows: (continued) (f) Loan by performance 31 December December 2016 Standard loans - Secured 2,859,265 11,542,854 2,840,226 11,465,992 - Unsecured 1,048,172 4,231, Sub-standard loans - Secured 11,955 48,262 46, ,184 - Unsecured 24,543 99, Doubtful loans - Secured ,578 87,110 - Unsecured 9,495 38, Loss loans - Secured , ,813 - Unsecured 34, ,489 6,356 25,659 3,987,735 16,098,486 2,983,839 12,045,758 (g) By interest rates (per annum): Group loans 32.4% % 32.4% % Individual loans 14.4% % 14.4% % 8. Other assets 31 December December 2016 Interest receivables 46, ,968 26, ,125 Rental deposits 94, ,900 35, ,102 Others 12,182 49,179 28, , , ,047 89, ,116 28

32 9. Property and equipment Leasehold Furniture Office Computer Improvements and fittings equipment equipment Total 31 December 2017 US$ US$ US$ US$ US$ KHR 000 (Note 4) Cost At 1 January ,414 6,274 17,393 18,343 53, ,673 Additions 131,050-24,057 13, , ,027 Written-off (9,771) (9,771) (39,446) At 31 December ,693 6,274 41,450 31, , ,254 Accumulated depreciation At 1 January ,772 3,489 10,253 9,719 30, ,050 Depreciation charge for the year 19,755 1,445 7,872 6,736 35, ,557 Written-off (7,681) (7,681) (31,008) At 31 December ,846 4,934 18,125 16,455 58, ,599 Carrying amounts At 31 December ,847 1,340 23,325 14, , ,655 29

33 9. Property and equipment (continued) Leasehold Furniture Office Computer Improvements and fittings equipment equipment Total 31 December 2016 US$ US$ US$ US$ US$ KHR 000 (Note 4) Cost At 2 March 2016 (date of incorporation) Transferred from PFO 10,644 5,472 15,860 16,572 48, ,989 Additions ,533 1,771 4,876 19,684 At 31 December ,414 6,274 17,393 18,343 53, ,673 Accumulated depreciation At 2 March 2016 (date of incorporation) Transferred from PFO 4,893 2,278 6,794 5,953 19,918 80,409 Depreciation charge for the period 1,879 1,211 3,459 3,766 10,315 41,642 At 31 December ,772 3,489 10,253 9,719 30, ,051 Carrying amounts At 31 December ,642 2,785 7,140 8,624 23,191 93,622 30

34 10. Intangible assets Cost 31 December December 2016 At 1 January 2017/2 March 2016 (date of incorporation) 10,250 41, Transferred from PFO ,250 41,379 At 31 December 10,250 41,379 10,250 41,379 Accumulated amortisation At 1 January 2017/2 March 2016 (date of incorporation) 4,530 18, Transferred from PFO - - 2,820 11,384 Amortisation for the year/period 2,052 8,284 1,710 6,903 At 31 December 6,582 26,571 4,530 18,287 Carrying amounts At 31 December 3,668 14,808 5,720 23, Income tax (a) Current income tax liability 31 December December 2016 At beginning of the year/period 112, , Transferred from PFO , ,380 Current income tax (credit)/expense (58,862) (237,626) 29, ,736 Income tax paid (45,869) (185,173) (2,631) (10,621) At end of the year/period 8,099 32, , ,495 31

35 11. Income tax (continued) (b) Income tax expense In accordance with Cambodian Law on Taxation, the Company has an obligation to pay corporate income tax of either the profit tax at the rate of 20% of taxable profits or the minimum tax at 1% of gross revenues, whichever is higher. Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Current income tax (credit)/expense (58,862) (237,626) 29, ,736 Deferred tax assets (6,382) (25,764) (534) (2,156) (65,244) (263,390) 28, ,580 The reconciliation of income tax expense computed at the statutory tax rate to the income tax expense shown in the income statement is as follows: Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 % US$ KHR 000 % US$ KHR 000 Profit before income tax 36, , , ,682 Income tax 20.00% 7,305 29, % 29, ,736 Non-deductible expenses 9.87% 3,606 14, % (11,202) (45,222) Over provision in prior year % (74,866) (302,234) Others -3.53% (1,289) (5,203) 7.25% 10,668 43,066 Current income tax (credit)/expense % (65,244) (263,390) 19.64% 28, ,580 The calculation of taxable income is subject to the review and approval of the tax authorities. 32

36 11. Income tax (continued) (c) Deferred tax asset, net Deferred tax assets are attributable to the following: 31 December December 2016 Depreciation and amortisation (1,079) (4,356) (109) (440) Allowance for bad and doubtful loans 1,749 7, Unearned income 462 1, Unrealised exchange loss 1,546 6, ,575 Provision for provident funds 2,808 11, Interest limitation 896 3, ,382 25, ,156 Movements of deferred tax assets during the year are as follows: 31 December December 2016 At 1 January 2017/2 March 2016 (date of incorporation) 534 2, Charged to income statement 6,382 25, ,156 At 31 December 6,916 27, , Dividends On 28 August 2017, the Board of Directors and shareholders approved and declared the dividend of US$54,452 from the Company s 2016 net profit (2016: US$118,182) and had fully paid to the shareholders on 5 January

37 13. Other payables 31 December December 2016 Pension fund payables (*) 14,040 56, Accrued expenses 4,428 17,876 8,379 33,826 Interest payable 4,326 17,464 3,276 13,225 Other tax liabilities 2,426 9, ,962 Others 3,239 13, ,400 28, ,889 12,983 52,413 (*) The movements in the provision for pension fund are as follows: 31 December December 2016 At 1 January 2017/2 March 2016 (date of incorporation) Transferred from staff pension fund account 9,541 38, Addition during the year 6,332 25, Payment during the year (1,833) (7,400) ,040 56,

38 14. Borrowings 31 December December 2016 Related parties: Oknha Dr. Quach Mengly 400,000 1,614, Mengly J. Quach Education 200, , ,000 2,422, Non-related parties: Rural Development Bank 167, , ,499 1,059,708 Individual 360,147 1,453, , , ,392 2,129, ,949 1,747,815 1,127,392 4,551, ,949 1,747,815 Borrowings are analysed as follows: (a) By maturity: 31 December December to 3 months 164, ,919 40, ,480 4 to 12 months 795,193 3,210, , ,627 1 to 3 years 167, , ,499 1,059,708 1,127,392 4,551, ,949 1,747,815 (b) By currency: Khmer riels 11,147 45,000 5,450 22,002 US dollars 1,116,245 4,506, ,499 1,725,813 1,127,392 4,551, ,949 1,747,815 35

39 14. Borrowings (continued) (c) By relationship: 31 December December 2016 Related parties 600,000 2,422, External borrowers 527,392 2,129, ,949 1,747,815 1,127,392 4,551, ,949 1,747,815 (d) By interest rate (per annum): Khmer riels 11.76%-15.53% 13.20% US dollars 6%-14.12% 8% - 12% 15. Share capital 31 December December ,000,000 shares of US$1 each: Registered, issued and fully paid 2,915,766 11,770,947 1,000,000 4,037,000 The shareholding structure of the Company is as follows: % of Number of Amount % of Number of Amount Ownership shares US$ Ownership shares US$ Oknha Dr. Quach Mengly ,749,338 2,749, , ,200 PFSA Plc , , ,800 50, ,915,766 2,915, ,000,000 1,000,000 According to Article 6 of the Prakas No. B Pro.Kor issued by the NBC on 22 March 2016 on Minimum registered capital of banking and financial institutions states that Microfinance institution shall have a minimum registered capital of at least KHR6 billion riel (equivalent to US$1.5 million). 36

40 15. Share capital (continued) According to Circular No. B issued by the NBC on 16 June 2016 on Implementation of Prakas on minimum registered capital of banking and financial institutions states that the financial institutions are required to increase its minimum registered capital by half of the difference between their current registered capital and new minimum registered capital, at the latest by end of March 2017, and in full, at the latest by 22 March On 17 March 2017, the NBC approved to the Company s request dated 15 December 2016 to revise the Company s share capital and shareholding structure as follows: Increase share capital from US$1,000,000 to US$2,915,766 through transferred from other capital amounting to US$1,315,766 and additional cash injection of US$600,000 on 24 March 2017; and Amend the shareholding structure to reflect the change in share capital. The Amendment of Memorandum and Articles of Association was approved by the NBC on 17 March 2017 and endorsed by the Ministry of Commerce ( MoC ) on 5 July Other capital This represents the transferred capital contribution from PFO which had not been sought approval to legalise the share capital from NBC and the MoC. During the year, the Company has transferred the amount of US$1,915,766 to share capital (Note 15) following the NBC approval letter dated 17 March December December 2016 Oknha Dr. Quach Mengly 179, ,233 1,998,793 8,069,127 PFSA Plc. 10,849 43, , , , ,030 2,105,766 8,500,977 37

41 17. Interest income Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Loans to customers 751,212 3,032, ,707 2,174,760 Deposit with banks 5,651 22,813 15,644 63,155 Capital guarantee 427 1, ,290 3,057, ,395 2,238, General and administrative expenses Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Personnel 362,923 1,465, , ,177 Rental 88, ,723 14,933 60,285 Depreciation and amortisation 37, ,841 12,025 48,545 Travel expense 31, ,478 14,864 60,006 Professional fee 15,971 64,475 79, ,165 License and membership 15,119 61,035 3,258 13,153 Penalties and fines 10,590 42, Utilities expenses 10,008 40,402 4,822 19,466 Tax expenses 9,046 36, Office supplies and printing 8,056 32,522 2,783 11,235 Communication 6,630 26,765 5,721 23,096 Insurance and security 5,722 23,100 5,662 22,857 Repairs and maintenance 2,744 11,078 2,080 8,397 Promotion and advertisement 2,661 10,742 2,865 11,566 Property and equipment written-off 2,090 8, Pension fund 1,833 7, Others 8,722 35,211 9,268 37, ,668 2,501, ,891 1,396,362 38

42 19. Net cash used in operating activities Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Cash flows from operating activities Profit before income tax 36, , , ,682 Adjustments for: Allowance for bad and doubtful loans 33, ,685 16,489 66,566 Depreciation and amortisation 37, ,841 12,025 48,545 Property and equipment written-off 2,090 8, Pension fund 6,332 25, Interest income (757,290) (3,057,180) (554,395) (2,238,093) Changes in: (641,369) (2,589,207) (378,821) (1,529,300) Loans to customers (1,072,315) (4,328,936) (2,885,147) (11,647,338) Other assets (43,123) (174,087) (63,659) (256,991) Current income tax liability , ,380 Other payables 10,977 44,314 12,983 52,412 (1,745,830) (7,047,916) (3,228,595) (13,033,837) Interest income received 737,512 2,977, ,107 2,131,968 Income tax paid (45,869) (185,173) (2,631) (10,621) Pension fund paid (1,833) (7,400) - - Net cash used in operating activities (1,056,020) (4,263,153) (2,703,119) (10,912,490) 39

43 20. Cash and cash equivalents 31 December December 2016 Cash on hand 37, ,843 13,286 53,636 Deposits and placements with NBC 427 1, Deposits and placements with other banks 144, , ,408 1,995, , , ,738 2,049, Related party transactions and balances (a) Related party transactions With shareholders have interest in : Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Loan to MJQ Education 600,000 2,422,200 2,500,000 10,092,500 Repayment of loan from MJQ Education 600,000 2,422,200 3,200,000 12,918,400 Interest income from loan to MJQ Education 61, ,044 28, ,371 Borrowing from MJQ Education 1,000,000 4,037, Repayment of borrowing to MJQ Education 800,000 3,229, Interest expense to MJQ Education 8,244 33, Borrowing from Oknha Dr. Quach Mengly 400,000 1,614, Interest expense to Oknha Dr. Quach Mengly 6,916 27,

44 21. Related party transactions and balances (continued) (a) Related party transactions (continued) With the Company s Board of Directors: Period from 2 March 2016 Year ended (date of incorporation) 31 December 2017 to 31 December 2016 Loan to a director 15,000 60,555 5,800 23,415 Repayment from directors 58, ,512 29, ,028 Interest income from loan to directors 2,618 10,569 6,947 28,045 Repayment of borrowing from a director - - 5,000 20,185 Interest expense of borrowing from a director Directors and key management personnel compensation 127, ,623 39, ,902 (b) Related party balances 31 December December 2016 Loan to related parties 39, ,599 43, ,957 Borrowing from related parties (Note 14) 600,000 2,422, Loan to related parties are secured, bear interest rate at 14.40% to 21.60% per annum and repayable in 2018 to

45 22. Commitments and contingencies (a) Commitments The Company leases office premises under an operating lease arrangement with minimum lease commitments as follows: 31 December December 2016 Within 1 year 193, ,126 42, ,239 2 to 5 years 635,280 2,564, , ,763 Over 5 years 154, , , , ,099 3,972, ,762 1,375,656 (b) Tax contingencies Taxes are subject to review and investigation by a number of authorities, who are enabled by law to impose severe fines, penalties and interest charges. The application of tax laws and regulations to many types of transactions are susceptible to varying interpretations. These facts may create tax risks in Cambodia materially more significant than in other countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation. However, the relevant authorities may have different interpretations and the effects could be significant. 23. Financial risk management The guidelines and policies adopted by the Company to manage the risks that arise in the conduct of their business activities are as follows: (a) Credit risk Credit risk is the financial loss to the Company if a borrower or counterparty fails to meet its contractual obligations, and arises principally from the loans to customers. 42

46 23. Financial risk management (a) (i) Credit risk (continued) Management of credit risk The lending activities are guided by the Company s credit policy to ensure that the overall objectives in the area of lending are achieved; i.e., that the loan portfolio is strong and healthy and credit risks are well diversified. The credit policy documents the lending policy, collateral policy and credit approval processes and procedures implemented to ensure compliance with the NBC Guidelines. (ii) Risk limit control and mitigation policies The Company operates and provides loans to group, individuals or enterprises within the Kingdom of Cambodia. The Company manages limits and controls the concentration of credit risk whenever it is identified. Large exposure is defined by the NBC as overall credit exposure to any single beneficiary which exceeds 2% for individual loans and 3% for group loans of the Company s net worth under the conditions of Prakas No. B of the NBC. The Company employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security in the form of collateral for loans to customers, which is a common practice. The Company implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types to secure for loans to customers are: Mortgages over residential properties (land, building and other properties); and Charges over business assets such as land and buildings. (iii) Exposure to credit risk: 31 December December 2016 Loans to customers Neither past due nor impaired 3,867,911 15,614,757 2,803,841 11,319,106 Past due but not impaired 39, ,566 36, ,886 Individually impaired 80, , , ,766 3,987,735 16,098,486 2,983,839 12,045,758 43

47 23. Financial risk management (continued) (a) (iii) Credit risk (continued) Exposure to credit risk: (continued) Impaired loans to customers Individually impaired loans to customers are loans to customers for which the Company determines that there is objective evidence of impairment and it does not expect to collect all principal and interest due according to the contractual terms of the loans to customers. In compliance with NBC Guidelines, an allowance for doubtful loans to customers is made for loan to customers with payment overdue more than 29 days. A minimum level of specific allowance for impairment is made depending on the classification concerned, unless other information is available to substantiate the repayment capacity of the counterparty. Refer to separate accounting policy stated in Note 3(g). Past due but not impaired loans to customers Past due but not impaired loans to customers are those for which contractual interest or principal payments are past due less than 30 days, unless other information is available to indicate otherwise. Neither past due nor impaired Neither past due nor impaired loans to customers are good quality loans to customers for which there is no experience of default and management views that likelihood of default is relatively low. (b) Operational risk The operational risk losses which would result from inadequate or failed internal processes, people and systems or from external factors is managed through established operational risk management processes, proper monitoring and reporting of the business activities by control and support units which are independent of the business units and oversight provided by the management. The operational risk management entails the establishment of clear organisational structure, roles and control policies. Various internal control policies and measures have been implemented. These include the establishment of signing authorities, defining system parameters controls, streamlining procedures and documentation. These are reviewed continually to address the operational risks of its micro-finance business. 44

48 23. Financial risk management (continued) (c) Market risk Market risk is the risk of loss arising from adverse movement in the level of market prices or rates, the two key components being foreign currency exchange risk and interest rate risk. (i) Foreign currency exchange risk The Company s revenue is principally earned in US$. The Company s expenditure is principally paid in US$. Monetary assets and liability are significantly dominated in US$. The Company does not therefore have significant exposure to foreign currency risk. (ii) Interest rate risk Interest rate risk refers to the volatility in net interest income as a result of changes in the levels of interest rate and shifts in the composition of the assets and liabilities. The exposure to interest rate risk relate primarily to its loans and bank deposits. Since the majority of financial assets are short-term and the interest rates are subject to change with the market rates, the Company does not use derivative financial instruments to hedge such risk. The following table indicates the effective interest rates at the reporting date and the periods in which the financial instruments re-price or mature, whichever is earlier. 45