Vision. Mission. Page 2

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3 This report has been prepared by Human Resources Department of NIRON MIKRO- HERANHVATHO PLC., to whom any comments or requests for further information should be sent. HEAD OFFICE # , St.598, Sangkat Phnom Penh Thmey, Khan Sen Sok, Phnom Penh, Cambodia. Tel: (+855) info@niron.com.kh, Website: Page 1

4 Vision NIRON s vision is to become Cambodia leading financial institution which operates closely with public stakeholders through providing highly transparent and effective financial services to enhance the standard of living and contribute to overall economic development. Mission Each of us will contribute wholeheartedly in strengthening and extending the best quality, transparent, and easiest accessible financial services toward all citizens. By doing so, NIRON will develop human resources, extend their branches network, diversify products to meet all demands, and adhere firmly to Laws, Morality, Society and Environment. Page 2

5 Financial Summary Audited As at December 31, 2014 KHR (000) USD Assets 19,941,677 4,893,663 Loans (Net of Provision) 10,726,887 2,632,365 Liabilities 13,855,966 3,400,237 Paid-up Capital 6,112,500 1,500,000 Shareholders Equity 6,085,711 1,493,426 Gross Income 6,669,756 1,636,750 Profit Before Income Tax (30,905) (7,584) Profit for the Period (94,499) (23,190) Page 3

6 Achievement in 2014 Description Dec-2014 Key Operational Indicators Number of Offices 11 Number of Staffs 270 Male 232 Female 38 CO per Total Staff Member 32.96% Total Number of Clients 12,789 Total Loan Outstanding (in USD) $ 2,696,049 Number of Active Clients per Average CO 144 Total Loan Outstanding per Average CO (in USD) $ 30, Total Loan Outstanding per Average Clients (in USD) $ Key Financial Indicators Net Income (after tax in USD) -$ 23, Return on Average Asset (ROA) -0.47% Return of Average Equity (ROE) -1.55% PAR % Percentage of Loan Written-Off 1.14% Capital Adequacy Ratio (CAR) 30.03% Net Open Position (NOP) 64.71% Page 4

7 CONTENTS Cambodia Key Economic Indicators 6 Chairman and CEO s Report 7 Organization Chart 9 Operational Network 10 Board of Directors 11 Executive Management 13 Independent Auditor s Report 17 Statement of Financial Position 19 Statement of Comprehensive Income 20 Statement of Changes in Equity 21 Statement of Cash Flows 22 Notes to Financial Statements 23 Page 5

8 Cambodia Key Economic Indicators F 2014 F 1. Gross Domestic Product (GDP) GDP % Change Per Capita GDP (in U.S Dollar) n/a 1, , Consumer Price Index (CPI) n/a 3. Inflation Inflation (End Period) Inflation (Annual Average) Government Budge (in % of GDP) Revenue Expenditure Saving and Investment Balance (in % of GDP) Gross national Saving Gross fixed Saving Money and Credit (% Change) (M2) Total Deposits in the Banking System Total Credit in the Banking System Credit to Deposit (In %) Private Sector Credit Deposits to GDP Loans to GDP Balance of Payment (In Millions USD) Exports 3, , , , , Imports 5, , , , , Trade Balance (1,581.60) (1,490.10) (1,949.20) (1,928.80) (3,132.00) Current Account (Excluding Official Transfers) (1,171.40) (1,122.20) (1,316.20) (1,468.90) (1,905.00) Nominal Account 11, , , , , Exchange Rate (Riel per Dollar End Period) 4, , , , , Source: IMF and National Bank of Cambodia Page 6

9 Chairman and CEO s Report Achievements in 2014 Competitions In 2014, there is a significant increase in number of MFIs in Cambodia, both local and international, which open the door to serve financial products especially loans. This situation leads to high competition in loan sector including micro, small and medium loans. However, we still see little opportunity for our Cambodian citizens to seek financial sources for establishing or extending their business, especially those living in rural areas and having low income. In order to help solve this issue, in mid 2013 our shareholders agreed to apply for license from the National Bank of Cambodia to establish NIRON MIKRO- HERANHVATHO PLC. Although 2014 is our first year in microfinance sector, we have already been well prepared by recruiting and training capable and professional human resources, matching loan products to target markets and equipping with modern technology in order to help smooth the operation. As a result, by the end of 2014 NIRON has achieved tremendous results as follows: Total Staff: 270 staff Page 7

10 Total Operational Network: 11 Offices Total number of Active Client: 12,789 Clients Total Loan Outstanding: 2,696,049 USD, of which 85% were disbursed to low income people and those living in remote areas. Priority Strategies for 2015 The following priority strategies have been developed for the year 2015: Continuously develop staff capacity; Improve existing products to make it easier in response to customers demand; Introduce new products, providing more choices for customers; Continuously establish and update policies and procedures ensuring transparent and effective implementation; Enhance risk management function and include risk awareness in daily process; Seek more opportunities in extending operational areas. Finally, I would like to express my sincere appreciation toward customers, board of directors, executive managements and all staff members, the government and the National Bank of Cambodia, for their continued confidence in, and support for, NIRON. I would like to take this opportunity to wish everyone and families happiness, prosperity and luck. Lay Kimchhen Chairman of Board of Directors and CEO 28 June, 2015 Page 8

11 Organizational Structure Shareholders Board of Directors Chief Executive Officer Executive Committee Business Development Committee Chief Internal Audit Officer Chief Operation Officer Chief Human Resources Officer Chief Financial Officer Internal Audit Department Operation Department Human Resources Department Administration Department Finance Department Information Technology Department Senior Branch Manager Branch Management Senior Chief Auditor Senior Chief Credit Officer Senior Chief Administrator Senior Chief Accountant IT Staff Branch Manager Internal Audit Unit Credit Unit Administration Unit Accountant Unit Page 9

12 Operational Network No. Branch Address 1 HEAD OFFICE #21, 23, 25, St. 598, Sangkat Phnom Penh Thmei, Khan Saensokh, Phnom Penh KHAN SAENSOKH BRANCH ANGK SNUOL DIS- TRICT BRANCH RATANAK KIRI PRO- VINCIAL BRANCH KRONG BATTAM- BANG BRANCH KRONG KAMPONG CHAM BRANCH PUOK DISTRICT BRANCH TAKEO PROVINCIAL BRANCH SOUTR NIKUM DIS- TRICT BRANCH KOH KONG PROVIN- CIAL BRANCH KROUCH CHHMAR DISTRICT BRANCH #21, 23, 25, St. 598, Sangkat Phnom Penh Thmei, Khan Saensokh, Phnom Penh Borei Kammeakkar Village, Baek Chan Commune, Angk Snoul District, Kandal Province 7 Makara Village, Sangkat Labansiek, Krong Ban Lung, Ratanak Kiri Province Rumchek 4 Village, Sangkat Rottanak, Krong Battambang, Battambang Province Phum Ti Boun, Sangkat Veal Vong, Krong Kampong Cham, Kampong Cham Province Kouk Thmei Village, Puok Commune, Puok District, Siem Reap Province Louri Village, Sangkat Roka Knong, Krong Doun Kaev, Takeo Province Doun Hong Village, Dam Daek Village, Soutr Nikum District, Siem Reap Province Street 48, Phum Ti Mouy, Sangkat Smach Mean Chey, Krong Khemara Phoumin, Koh Kong Province Krouch Chhmar Kraom Village, Krouch Chhmar Commune, Krouch Chhmar District, Tboung Khmum Province. Page 10

13 BOARD OF DIRECTORS 1. Mr. Lay Kimchhen Chairman of the Board of Directors Cambodian national, born in 1977, he obtained a Bachelor of General Management from Build Bright University in He has also attended various courses in microfinance management. Before founding NIRON, he worked as Retail Unit Manager for many years at Kampuchea Tela Co, Ltd. He is one of NIRON s founders and has been elected as Chairman of the Board of Directors and Chief Executive Officer since its inception in Mr. Chhun Sina Director Cambodian national, born in 1983, he obtained a Master of General Management from Build Bright University in He has also attended various courses in microfinance management. He is one of NIRON s founders since its inception in Before elected as a board member and Chief Financial Officer, he worked in various positions such as Credit Officer, Accountant and Head of Finance Department. 3. Mr. Chhun Srea Director Cambodian national, born in 1953, he has attended many courses in business management. At the moment, he is part of top management in one gasoline company. He is one of NIRON s founders and has been elected as a board member since its inception in Mr. Chhun Sopheak Director Cambodian national, born in 1985, he obtained a Bachelor of Business in Accounting from National University of Management in He has attended various courses in business management and has been elected as a board member since Page 11

14 BOARD OF DIRECTORS 5. Mr. Chhun Sophearak Director Cambodian national, born in 1989, he obtained a Bachelor of Information Technology from the Royal University of Phnom Penh in He has attended various courses in microfinance management. He have been appointed as a board member since its inception in Mr. Chuon Sophal Independent Director Cambodian national, born in 1954, he obtained a Bachelor of Business Management from University of Business in He has attended various courses in microfinance management from Institute of Microfinance Institution Development from Manchester, the United States, as well as many other related courses in the Philippines, Vietnam and Cambodia. He has a lot of working experience as Chief of Business Office in Koh Thom District, Chief Accountant, Assistant to General Manager, Head of Finance Department and Deputy Chief Executive Officer. Before appointed as Independent Director, he was a CEO of Thaneakea Phum (Cambodia) Co, Ltd. 7. Mr. Chourn Bamrong Independent Director Cambodian national, born in 1978, he obtained a Master of Finance from National University of Management in He has attended various courses in microfinance management. Before appointed as Independent Board of Director and Head of Internal Audit Department, he worked as an auditor for many years at Kapuchea Tela Co, Ltd. Page 12

15 Executive Management 1. Mr. Lay Kimchhen Chief Executive Officer Cambodian national, born in He obtained a Bachelor of General Management from Build Bright University in He has also attended various courses in microfinance management. Before founding NIRON, he worked as Retail Unit Manager for many years at Kampuchea Tela Co, Ltd. He is one of NIRON s founders and has been elected as Chairman of the Board of Directors and Chief Executive Officer since its inception in Mr. Chhun Sina Chief Financial Officer Cambodian national, born in 1983, he obtained a Master of General Management from Build Bright University in He has also attended various courses in microfinance management. He is one of NIRON s founders since its inception in Before elected as a board member and Chief Financial Officer, he worked in various positions such as Credit Officer, Accountant and Head of Finance Department. Page 13

16 Executive Management 3. Mr. Hing Kolsamnang Chief Operation Officer Cambodian national, born in 1976, he obtained a Bachelor of Agriculture from the Royal University of Agriculture in He has attended various courses in microfinance management. He is one of NIRON s founders and has been appointed as Chief Operational Officer in Before working at NIRON, he has many years of experience as doer and manager in Credit Work at ACLEDA Bank Plc. 4. Mr. Nguon Wattanak Head of Finance Department Cambodian national, born in 1988, he obtained a Master of Financial Management from Charles Sturt University, Australia. He has attended various courses in financial management, accounting and microfinance management. Currently, he is pursuing ACCA at CAMED Business School. He is one of NIRON s founders and has worked in various positions such as Credit Officer, Accountant and Chief Accountant, before he was appointed Head of Finance Department in Mr. Meas Vandeth Head of Information Technology Department Cambodian national, born in 1974, he obtained a Master of Information Technology from the Royal University of Phnom Penh in He has attended various courses in microfinance management. Beside working at NIRON, he is also a part-time lecturer of Information Technology at the Royal University of Phnom Penh. Page 14

17 Executive Management 6. Mr. Keath Virak Head of Administration Department Cambodian national, born in 1982, he obtained a Master of General Management from Build Bright University in He has attended various courses in microfinance management. He was appointed Head of Administration Department in Before joining NIRON, he had many years of experience as a doer and manager in Administration Work at ACLEDA Bank Plc. 7. Mr. An Bora Head of Operation Department Cambodian national, born in 1981, he obtained a Master of Finance from Paññāsāstra University of Cambodia in He has attended various courses in microfinance management. He is one of NIRON s founders and has been appointed Head of Operation Department since Before joining NIRON, he had many years of experience as a doer and manager in credit work at ACLEDA Bank Plc. 8. Mr. Chourn Bamrong Head of Internal Audit Department Cambodian national, born in 1978, he obtained a Master of Finance from National University of Management in He has attended various courses in microfinance management. Before appointed as Independent Director and Head of Internal Audit Department, he worked as an auditor for many years at Kapuchea Tela Co, Ltd. Page 15

18 Executive Management 9. Mr. Yorn Chantha Head of Human Resources Department Cambodian national, born in 1977, he obtained a Master of Finance and Banking from Western University in He has attended various courses in microfinance management. He has been appointed Head of Human Resources Department since Before joining NIRON, he has many years of experience as a doer and manager in Human Resources management at ACELDA Bank Plc. Page 16

19 INDEPENDENT AUDITORS REPORT Report on the financial statements We have audited the financial statements of Niron Mikroheranhvatho Plc., which comprise the statement of financial position as at 31 December 2014 and the statement of income, statement of changes in equity and statement of cash flow for the financial period from 1 March 2014 to 31 December 2014, and a summary of significant accounting policies and other explanatory information, as set out on Pages 9 to 26. Directors responsibility for the financial statements The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with the guidelines of the National Bank of Cambodia and Cambodian Accounting Standards, and for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud and error. In making those risk assessments, we consider the internal control relevant to the Company s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Page 17

20 INDEPENDENT AUDITORS REPORT (CONTINUED) Opinion In our opinion, the financial statements have been properly drawn up in accordance with the guidelines of the National Bank of Cambodia and Cambodian Accounting Standards so as to give a true and fair view of the financial position of the Company as at 31 December 2014 and of its financial performance and cash flows for the financial period from 1 March 2014 to 31 December Phnom Penh, Kingdom of Cambodia. Dated: 15 April 2015 Page 18

21 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 Un-audited Note USD KHR'000 USD Current assets Cash and bank balances 4 48, , ,902 Balance with NBC 5 80, ,265 80,004 Accounts with banks and other financial institutions 6 288,927 1,177, ,996 Advances, prepayments and deposits 7 275,823 1,123, ,315 Loans and advances to customers 8 2,713,931 11,059,269 2,361,685 Equivalence Foreign Exchange Position Account: USD Non-current assets 777,748 3,169,323 2,120,961 4,184,981 17,053,798 5,775,861 Intangible assets 9 145, ,947 69,218 Property, plant and equipment 9 563,419 2,295, , ,682 2,887, ,568 Total assets 4,893,663 19,941,677 6,227,429 Current liabilities Foreign Exchange Position Account: KHR 777,748 3,169,323 2,104,587 Interest in suspense 7,923 32,286 Other liabilities 10 7,430 30, Provision on tax 11 1,575 6,418 - Non-current liabilities 794,676 3,238,305 2,105,252 Subordinated debts 12 2,605,561 10,617,661 2,605,561 Shareholders' funds 2,605,561 10,617,661 2,605,561 Share Capital 13 1,500,000 6,112,500 1,500,000 Revenue Reserves 16,616 67,710 16,616 Retained profits (23,190) (94,499) - 1,493,426 6,085,711 1,516,616 Total liabilities and shareholders' funds 4,893,663 19,941,677 6,227,429 Page 19

22 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 1 MARCH 2014 TO 31 DECEMBER 2014 Note From to USD KHR'000 Revenue 14 1,600,177 6,520,721 Gross profit 1,600,177 6,520,721 Foreign exchange gain/loss 15 (42,987) (175,172) Non-interest income 16 35, ,436 Other income 1,374 5,599 Total other income (6,414) (26,137) Profit before operations 1,593,763 6,494,584 General and administrative expenses 17 (1,526,652) (6,221,107) Other operating expenses (569) (2,319) Profit after operation 66, ,158 Finance cost (74,126) (302,063) Profit before tax (7,584) (30,905) Income tax expense (15,606) (63,594) Profit after tax for the financial period (23,190) (94,499) Page 20

23 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD FROM 1 MARCH 2014 TO 31 DECEMBER 2014 Share capital Other reserves Retained profits / (accumulate d losses) Total USD USD USD USD As at 28 February ,500, ,500,000 Subordinated debts approved by NBC Change in other reserves - 16,616-16,616 As at 01 March ,500,000 16,616-1,516,616 Profit after tax for the financial period - - (23,190) (23,190) Change in other reserves As at 31 December ,500,000 16,616 (23,190) 1,493,426 As at 31 December 2014 (KHR'000) 6,112,500 67,710 (94,499) 6,085,711 Page 21

24 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD FROM 1 MARCH 2014 TO 31 DECEMBER 2014 Un-audited Note USD KHR'000 USD Cash flows from operating activities Loss before tax (7,584) (30,905) - Adjustment for: Depreciation and amortization 169, ,127 - Loss on disposal fixed assets 10,799 44,006 Accrued interest income (73,643) (300,095) Bad debts written off 74, ,063 - Operating profit before working capital changes 172, ,196 - Loans and advances to customer (344,806) (1,405,084) (2,361,685) Foreign exchange position 16,376 66,732 (16,376) Advance, prepayment and deposit (4,508) (18,369) (271,315) Other tax payable 8,338 33, Net cash used in operating activities (151,791) (618,548) (2,648,709) Operating activities (non-working capital changes) (15,606) (63,594) - Net cash used in operating activities (167,397) (682,142) (2,648,709) Cash flows from investing activities Purchase intangible assets (96,161) (391,856) (69,218) Purchase fixed assets (411,146) (1,675,420) (382,350) Disposals fixed assets 70, ,403 - Net cash used in investing activities (437,024) (1,780,873) (451,568) Cash flows from financing activities Paid up capital - - 1,500,000 Revenue reserves ,616 Subordinated debts - - 2,605,561 Net cash generated from financing activities - - 4,122,177 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial period Cash and cash equivalents at end of financial period (604,421) (2,463,015) 1,021,900 1,021,900 4,164, ,479 1,701,228 1,021,900 CASH AND CASH EQUIVALENTS COMPRISE: Accounts with banks and other financial institutions 288,927 1,177, ,996 Balance with NBC 80, ,265 80,002 Cash and bank balances 48, , , ,479 1,701,228 1,021,900 Page 22

25 NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2014 AND FOR THE PERIOD FROM 1 MARCH 2014 TO 31 DECEMBER GENERAL Niron Mikroheranhvatho Plc. ( the Company ) is engaged in the provision of microfinance activities in ten branches in Kandal, Ratanakiri, Battambang, Kampong Cham, Takeo, Koh Kong and Siem Reap provinces and through its head office in Phnom Penh. The Company was incorporated with the Ministry of Commerce on 18 October The Company obtained its license from the National Bank of Cambodia to operate as a microfinance institution on 12 February Under the microfinance license, the Company is authorised to grant credit services to improve living standards in term of rural development in the Kingdom of Cambodia. The registered office is located in Phnom Penh at Building , St. 598, Sangkat Phnom Penh Thmey, Khan Sen Sok, Phnom Penh. The Company has 280 employees as at 31 December BASIS OF PREPARATION AND AGGREGATION The financial statements of the Company are prepared under the historical cost convention in accordance with the guideline issued by the NBC and Cambodian Accounting Standards and practice within the microfinance industry. Those principles require that financial instruments be carried at cost less provision for impairment. This practice differs from the International Financial Reporting Standards which require that loans and receivables be carried at amortised cost using the effective interest method of any difference between the initial amount and maturity amount, and minus any reduction for impairment or uncollectability. The financial statements include the financial statements of the head office in Phnom Penh and branches in Kandal, Ratanakiri, Battambang, Kampong Cham, Takeo, Koh Kong and Siem Reap provinces. All significant inter-branch transactions are eliminated in full on aggregation of balances. 3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Cash and cash equivalents Cash and cash equivalents comprise cash, bank balances and short-term funds liquidable in less than one month. 3.2 Statutory deposits Statutory deposits represent mandatory reserve deposits and cash maintained with the NBC in compliance with the Law on Banking and Financial Institutions ( LBFI ) and are not available to finance the Company s day-to-day operations and hence are not considered as part of cash and cash equivalents for the purpose of the statement of cash flows. 3.3 Loans and advances Loans and advances are presented using the principal amounts outstanding at the end of the period after deducting any provisions for doubtful loans. Page 23

26 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.4 Allowance for bad and doubtful loans The Company records the mandatory credit classification and provisioning as required by Prakas B dated 13 September The Prakas requires microfinance institutions to classify their loan portfolio into the following four classes and ensure that the minimum mandatory level of specific provisioning is provided: Classification Short-term loans (less than one year): Number of days past due Allowance 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% The specific provision is calculated as a percentage of the loans outstanding at the time the loan is classified and is charged as expense in the income statement. Loans are written off when they are considered uncollectible. Loans written off are taken out of the outstanding loan portfolio and deducted from the allowance for loan loss. 3.5 Recognition of income and expense Interest income earned on loans is recognized on an accrual basis after offsetting Loans Incentive Expenses granted to borrowers for good performing loans upon their settlement. Expenses are recognized when incurred. 3.6 Interest and fee expenses Interest expense on deposits from borrowers is recognized on an accrual basis. 3.7 Property, plant and equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line and declining-balance basis over the estimated useful lives of the assets at the following rates per annum: Vehicle Declining balance 25% Leasehold improvement Straight line 5% Formation expenses Straight line 10% Computer equipment Declining balance 50% Equipment Declining balance 25% Page 24

27 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.7 Property, plant and equipment (continued) Other fixed assets Declining balance 20% Furniture and fixture Declining balance 25% Intangible assets Straight line 10% (unlimited useful life) Fully depreciated assets are retained in the accounts until they are no longer in use and no further charge for depreciation is made in respect of these assets. 3.8 Foreign currency translation The Company transacts essentially in US dollar (USD) and maintains its books of accounts in USD. Transactions arising in currencies other than USD during the period are converted into USD at the rates of exchange ruling at the transaction dates. Assets and liabilities in foreign currencies are translated into USD at the rate of exchange prevailing on the transaction dates. Exchange differences arising from conversion are reported on a net basis in the statement of income. In compliance with the requirement of the NBC, all assets, liabilities, profit and loss statement items in foreign currencies at the end of the period are converted into Khmer riel (KHR) using the official exchange rate announced by the NBC at the balance sheet date, of USD1 = KHR4,075. Such conversions should not be construed as representations that the KHR amounts have been, could be, or could in the future be, converted into USD at this or any other rate of exchange. 3.9 Related Parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions Deferred taxation Provision is made, where material, for deferred taxation in respect of timing difference arising from the recognition of items of income and expenditure in the financial statements on bases different form that used for taxation purposes. 4. CASH AND CASH EQUIVALENTS Un-audited USD KHR'000 USD Cash in Vault and on Hand: KHR 36, ,258 81,230 Cash in Vault and on Hand: USD 9,896 40,326 28,181 Petty Cash: KHR 2,454 10,000 2,491 48, , ,902 Page 25

28 5. BALANCE WITH NBC The Company is required to maintain a statutory deposit of 5% of its capital to comply with the NBC s Prakas No. B dated 11 January 2000 and Prakas No. B date 25 February No Interest is earned on this statutory deposit. Un-audited USD KHR'000 USD Capital Guarantee Deposit with NBC: USD 75, ,747 75,000 Other Demand Deposit with NBC: USD 5,035 20,518 5,004 80, ,265 80, ACCOUNTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS Un-audited USD KHR'000 USD Current Accounts (Nostro): ACLEDA: USD 286,093 1,165, ,996 Demand and Savings Deposits : ACLEDA: KHR 1,930 7,865 - Demand and Savings Deposits : ACLEDA: USD 904 3,684 - Time Deposits and Placements : HWANG DBS: USD , ,927 1,177, , ADVANCES, PREPAYMENTS AND DEPOSITS Un-audited USD KHR'000 USD Advance Payment / Deposits-Cash Advance: USD 12,832 52,290 82,685 Advance Payment / Deposits-Employee Advance: USD 566 2,306 - Advance Payment / Deposits-Office Rent: USD 250,692 1,021, ,630 Advance Payment / Deposits-Travelling: USD 3,869 15,766 - Prepaid License Fee: USD 2,998 12,217 - Prepaid Other: USD 1,194 4,866 - Stationary Supply & Inventory: USD 3,672 14, ,823 1,123, ,315 Page 26

29 8. LOANS AND ADVANCES Un-audited USD KHR'000 USD Individual loans 2,660,394 10,841,106 2,345,493 Group loans 35, ,294 16,192 2,696,049 10,986,400 2,361,685 Accrued interest standard 73, ,095 - Accrued interest sub-standard/double full/loss 7,923 32,286 Provision for loan losses: 2,769,692 11,286,495 2,361,685 At beginning of period Charge during the period (63,684) (259,512) - Write off during the period Net Loans 2,713,931 11,059,269 2,361,685 Further analysis of the above loans and advances is provided below. Note: comparative figures are not available. (a) By maturity period USD KHR'000 USD Within three months 462,325 1,883,975 - Four to twelve months 1,426,773 5,814,097 - One to three years 710,234 2,894,202 - Four years and more 96, ,126-2,696,049 10,986,400 - (b) By security Secured 22,653 92,313 - Unsecured 2,673,396 10,894,087 - (c) By Currency denomination 2,696,049 10,986,400 - US dollar 622,207 2,535, ,820 Khmer riel 2,073,843 8,450,910 2,020,865 2,696,049 10,986,400 2,361,685 (d) By status of residence Residents 2,696,049 10,986,400 2,361,685 2,696,049 10,986,400 2,361,685 (e) By relationship Related parties Non related parties 2,696,049 10,986,400 2,361,685 (f) By economic sectors 2,696,049 10,986,400 2,361,685 Household/Family 2,696,049 10,986,400 2,361,685 (g) By large exposure 2,696,049 10,986,400 2,361,685 Non large exposures 2,696,049 10,986,400 2,361,685 Page 27

30 9. PROPERTY, PLANT AND EQUIPMENT Vehicles Leasehold Improvement Formation Expenses Computer Equipment Equipment Other Fixed Assets Furniture and Fixtures Intangible Assets Total USD USD USD USD USD USD USD USD USD Cost At , ,787 79,360 66,351 31,371 27,232 23,371 2, ,759 Additions 336,260 13,598-27,855 24, ,088 96, ,307 Disposals (103,738) (1,085) - (104,823) Adjustment (12,062) - - (5,999) (16,116) 21,139 (3,984) (4,411) (21,433) At , ,385 79,360 87,122 40,200 48,771 27,475 93,750 1,142,810 Accumulated depreciation At ,383 11,146 10,142 36,740 21,223 9,902 11,655 2, ,191 Additions 106,208 5,508 6,530 21,325 4,135 11,489 4,741 9, ,111 Disposals (22,919) - - (823) (23,742) Adjustment (12,062) - - (6,653) (355) (2,232) (130) - (21,432) At ,610 16,654 16,672 50,589 25,003 19,159 16,266 11, ,128 Net book value At , ,731 62,688 36,533 15,197 29,612 11,209 82, ,682 Equivalent KHR'000 1,504, , , ,872 61, ,669 45, ,493 2,887,879 At (un-audited) 219,904 93,641 69,218 29,611 10,148 17,330 11, ,568 Page 28

31 10. OTHER LIABILITIES Un-audited USD KHR'000 USD Other WHD Taxes-Rent: USD 1,413 5, Other WHD Taxes-Salary: USD 5,841 23,802 - Other WHD Taxes-Services Resident: USD ,430 30, PROVISION FOR INCOME TAX 12. SUBORDINATED DEBTS Un-audited USD KHR'000 USD Balance at the beginning of the period Charge during the period 1,575 6,418 - Taxation paid during the period Balance at the end of the period 1,575 6,418 - Un-audited USD KHR'000 USD Mr. Lay Kimchhen 911,947 3,716, ,947 Mr. Chhun Sina 208, , ,445 Mr. Chhun Srea 521,112 2,123, ,112 Ms. Chhun Vannouch 52, ,352 52,111 Mr. Chhun Sopheak 521,112 2,123, ,112 Mr. Chhun Sopheareak 260,556 1,061, ,556 Ms. Chhun Sophearoth 130, , ,278 2,605,561 10,617,660 2,605,561 This subordinated debts start on 01 January 2014 with zero interest and will accumulate with 20% per year transfer to share capital. 13. SHARE CAPITAL Un-audited Authorised: USD KHR 000 USD Ordinary shares of USD1 each 1,500,000 6,112,500 1,500,000 Balance at the end of the period: 1,500,000 6,112,500 1,500,000 Page 29

32 14. INTEREST INCOME to USD KHR'000 Interest income 1,600,102 6,520,416 Other interest income ,600,177 6,520, FOREIGN EXCHAGE GAIN/LOSS to USD KHR'000 Gain on Foreign Exchange-Conversion: USD 5,767 23,501 Gain on Foreign Exchange-Realized: KHR Loss on Foreign Exchange-Realized: USD (78) (318) Loss on Foreign Exchange-Conversion: USD (48,699) (198,448) (42,987) (175,172) 16. NON-INTEREST INCOME to USD KHR'000 Other Non-Interest Income-Others: KHR 2 8 Other Non-Interest Income-Others: USD 1,124 4,580 Fees and Commissions on Loans: USD 2,320 9,454 Fees and Commissions on Loans: KHR 1,924 7,840 Other Non-Interest Income-Loan Early Payoff Penalty: KHR 23,597 96,158 Other Non-Interest Income-Loan Early Payoff Penalty: USD 6,232 25,395 35, , GENERAL AND ADMINISTRATIVE EXPENSES to USD KHR'000 Depreciation and amortization 169, ,127 Occupancy Expenses 172, ,303 Office expenses 78, ,848 Other general and administrative expenses 61, ,905 Personnel expenses 928,751 3,784,660 Travel Expense/Meal /per diem 24,187 98,562 Vehicle Operating Expense 91, ,702 1,526,652 6,221,107 Page 30

33 18. INCOME TAX EXPENSE This represents prepaid profit tax 1% and profit tax at 20% of the current s year profit before tax after a differences relating to items not allowed as deductions for tax purposes. 19. RELATED PARTY TRANSACTIONS (a) Parties are considered related to the Company if the company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other parties. Key management personnel comprise persons (including the directors of the Company) having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly. 20. TAXATION CONTINGENCIES The taxation system in Cambodia is relatively new and is characterized by numerous taxes and frequently changing legislation, which is often unclear, contradictory, and subject to interpretation, 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. These facts may create tax risks in Cambodia substantially 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 differing interpretations and the effects could by significant. 21. FINANCIAL INTRUMENTS (a) Categories of financial instruments USD KHR'000 USD Financial assets Cash on hand 48, , ,902 Balance with NBC 80, ,265 80,002 Accounts with banks and other financial institutions 288,927 1,177, ,996 Advances, prepayments and deposits 275,823 1,123, ,315 Loans to customers 2,713,931 11,059,269 2,361,685 3,407,233 13,884,474 3,654,900 Financial liabilities Subordinated debts 2,605,561 10,617,661 2,605,561 Other liabilities 16,928 68, ,622,489 10,686,643 2,606,228 Not financial (liabilities)/assets 784,744 3,197,832 1,048,672 Page 31

34 21. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies The Company s financial risk management objective is to optimize value creation for shareholders whilst minimizing the potential adverse impact arising from fluctuations in interest rates and the unpredictability of the financial markets. The Company operates within an established risk management framework and clearly defined guidelines that are regularly reviewed by the directors and does not trade in derivative financial instruments. Financial risk management is carried out through risk review programs, internal control systems and adherence to the Company financial risk management policies. The Company is exposed mainly to credit risk, interest rate risk and liquidity risk. Information on the management of the related exposures is detailed below. (i) Credit risk The Company assumes exposure to credit risk which is the risk that a counterparty will be unable to pay the amounts in full when due. The Company structures the levels of credit risk undertaken by placing limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and the geographical and industry segments. Procedures of risk limit setting, monitoring, usage, control are governed by internal regulations. Such risks are monitored on a regular basis. Exposure to credit risk is managed through regular analysis of the ability of the borrowers and potential borrowers to meet the interest and capital repayment obligations and reviewing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate or personal guarantees as well as by providing for loan losses. a. Risk limit control and mitigation policies The Company operated and provides loans to individuals or small-medium enterprises within the Kingdom of Cambodia. The Company manages limits and controls the concentration of credit risk wherever it is identified. 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 common practice. The Company implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types secured for loans to customers are: Collateral pledges over residential properties ( land, building and other properties); and Charges over business assets such as land and buildings Page 32

35 21. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (i) Credit risk (continued) b. Maximum exposure to credit risk before collateral held or other credit enhancements USD KHR'000 Credit exposure relating to on-balance sheet assets: Deposits and placements with banks 288,927 1,177,378 Loans to customers 2,713,931 11,059,269 Other receivables 275,823 1,123,979 3,278,681 13,360,625 The above table represents a worst case scenario for credit risk exposure to the Company at 31 December 2014, without taking into account any collateral held or other credit enhancement attached. For on-balance sheet assets, the exposure set out above is based on net carrying amounts. c. Loans to customers Loans to customers are summarized as follows USD KHR'000 Loans to customers neither past due nor impaired 2,716,542 11,069,907 Loans to customers past due but not impaired 14,276 58,175 Loans to customers individually impaired 46, ,701 Gross loan 2,777,615 11,318,783 Allowance for bad and doubtful loans (63,684) (259,512) Net loans to customers 2,731,931 11,059,270 For the purpose of loan provisioning, the expected recovery from collateral (except cash is not taken into consideration in accordance with the National Bank of Cambodia s requirements. The total allowance for bad and doubtful loans is USD63,684, which represents the mandatory provision required by the Central Bank and additional provision for the loan losses. (a) Loans to customers neither past due nor impaired Loans to customers not past due are not considered impaired, unless other information is available to indicate the contrary. Page 33

36 21. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (i) Credit risk (continued) c. Loans to customers (continued) (b) Loans to customers past due but not impaired Loans to customers which past due are not considered impaired, unless other information is available to indicate the contrary. (c) Loans to customers individually impaired In accordance with Prakas B dated 12 September 2002 on loan classification and provisioning loans past due more than 30days are considered impaired and a minimum level of specific provision for impairment is made depending on the classification concerned, unless other information is available to indicate the contrary USD KHR'000 Past due over days 46, ,701 (d) Loans to customers renegotiated There were no renegotiated loans to customers at 31 December d. Repossessed collateral During the period ended 31 December 2014, the Company did not obtain any assets by taking possession of collateral held as security. (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. Interest rate risk is managed through close monitoring of returns on investment, market pricing, cost of funds and through interest rate sensitivity gap analysis. The potential reduction in net interest income from an unfavorable interest rate movement is monitored against the risk tolerance limits set. An analysis of the interest rate risk pertaining to the Company s assets and liabilities is disclosed below. Page 34

37 21. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (ii) Interest rate risk (continued) Up to1 >1-3 >3-12 >1-5 Over 5 Non-interest Total Weighted month months months years years bearing average interest USD USD USD USD USD USD USD % Assets Cash in hand ,487 48,487 - Deposits and placements with banks , , % Statutory deposit with central bank ,065-80,065 - Loans and advances to customers: - Performing 6,054 32, , ,924 11,691-1,150,098 14% - Non-performing 57, ,589 1,019,710 64,441 30,813-1,493, Specific provision 35,703 8,971 5,307 2, , Accrual Interest 73,643 1,120 1,023 5,780 - (63,681) 17,885 Other Assets , , , ,354 1,427, , , ,556 3,407,233 Liabilities Subordinated debts ,605,561 2,605,561 0% Interest in suspense - 1,120 1,023 5, ,923 provision for income tax ,575 1,575 - Other liabilities ,430 7, ,120 1,023 5,780-2,614,566 1,154,753 Interest sensitivity gap 2014 (USD) 172, ,234 1,426, , ,569 (2,065,010) 2,252,480 Page 35

38 21. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (iii) Liquidity risk Liquidity risk relates to the ability to maintain sufficient liquid assets to meet its financial commitments and obligations when the y fall due at a reasonable cost. In addition to full compliance of all liquidity requirements, the management of the Company closely monitors all inflows and out flows and the maturity gaps through periodical reporting. Movements in loans and customers deposits are monitored and liquidity requirements adjusted to ensure sufficient liquid assets to meet its financial commitments and obligations as and when they fall due. The following table provides and analysis of the financial liabilities of the Company into relevant maturity groupings based on the remaining periods to repayment. Total Less than From No fixed 1 month 1 month to Over maturity 1 year 1 year date Assets Cash in hand 48,487 48, Deposits and placements with banks 288, , Statutory deposit with central bank 80, ,065 - Loans and advances - Performing 1,150,098 6, , , Non-performing 1,493,886 57,333 1,341,299 95, Specific provisions 52,062 35,703 14,278 2, Accrual interest 17,885 73,643 2,143 (57,901) Other Assets 275,823 17,107 5, ,992 3,672 Total Assets 3,407, ,254 1,797,201 1,079,106 3,672 Page 36

39 21. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (iii) Liquidity risk (continued) Total Less than From No fixed 1 month 1 month to Over maturity 1 year 1 year date Liabilities Subordinated debts 2,605, ,605,561 Interest in suspense 7,923-2,143 5,780 - Provision for income tax 1,575-1, Other liabilities 7,430 7, Total Liabilities 2,622,489 7,430 3,718 5,780 2,605,561 Net liquidity surplus/(gap) 784, ,824 1,793,483 1,073,326 (2,601,889) Net liquidity surplus/(gap) KHR'000 3,197,832 2,118,283 7,308,443 4,373,803 (10,602,698) Page 37

40 21. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (iv) Foreign currency risk Foreign currency risk is the risk that the value of financial instruments will fluctuate due to the changes in foreign exchange rates. The Company has no material exposures to currency risk as it transacts essentially in US Dollar. Significant presence of US dollar is a normal practice of banks operating in Cambodia as this is a currency widely in use in Cambodia. USD KHR'000 Total At 31 December 2014 USD Financial assets Cash and bank balances 9,896 38,591 48,486 Balance with NBC 75,030-75,030 Accounts with banks and other financial institutions 291,128 1, ,058 Advance, prepaid and deposits 276, ,727 Loans and advances to customers 622,207 2,073,843 2,696,049 Total financial assets 1,274,987 2,114,364 3,389,351 Financial liabilities Subordinated debts 2,605,561-2,605,561 Other liabilities 7,430 1,575 9,005 Total financial liabilities 2,612,991 1,575 2,614,566 Net on-balance sheet position (1,338,004) 994,714 (343,290) Gap-in KHR'000 equivalent (5,452,366) 4,053,460 (1,398,907) (v) Capital risk management policies and objectives The Company s objectives when managing capital are: (i) to safeguard the Company s ability to continue as a going concern, so that it can continue to provide returns for its shareholder and other stakeholders; and (ii) to provide an adequate return to its share holder by pricing products and services commensurately with the level risk. The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. 22. FAIR VALUES OF FINANCIAL INSTRUMENT Fair value represents the amount at which an asset could be exchanged or a liability settled on an arms-length basis. As verifiable market prices are not available, market prices are not availed for a significant proportion of the Company s financial assets and liabilities, Fair values, therefore, have been based on management assumptions according to the profile of the asset and liability base, In the opinion of the management, the carrying amounts of the financial assets and liabilities included in the balance sheet are reasonable estimation of their fair values. In making this assessment, the management assumes that loans and advances are mainly held to maturity with fair values equal to the book value of loans adjusted for allowance for loan losses, if any. Page 38

41 TRADING AND PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER USD KHR'000 USD Interest Income - Capital 447 1, Interest Income - Standard 140, , , , , ,089 Less: Cost of sales - Interest Expense - Borrow 98, ,510 96,400 Gross profit 43, ,572 80,689 Add: Other operating income Foreign Exchange Gains 312 1,246 4,202 43, ,818 84,891 Less: Expenses Depreciation expenses (6,292) (25,137) (6,292) Other operating expenses (20,153) (80,511) (48,630) Payroll and other staff costs (27,555) (110,082) (27,046) Income tax expense - - (2,400) (54,000) (215,730) (84,368) (Loss)/profit before tax (10,491) (41,912) 523 Page 39

42 STATEMENT OF EXPENSES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER USD USD Depreciation expenses Depre - Computer Equipment 2,986 11,929 2,986 Depre - Furniture and Fixture 1,438 5,745 1,438 Depre - Other Fixed Asset 1,868 7,463 1,868 6,292 25,137 6,292 Other operating expenses Audit and Tax Fees Expense 3,850 15,381 3,850 Business Meal & Entertain 4,423 17,670 16,981 Charitable Donation Expense Communication Expenses 1,490 5,953 2,087 Correspondent Bank Charge ,032 Dues & Memberships Expense 750 2,996 5,192 License Fees Expense Loss on Foreign Exchange 309 1,234 4,025 Miscellaneous Expense 456 1,822 (7,410) Motor Vehicle Operating Expense 2,251 8,993 3,220 Other Fee Penalties and Fines Expense Printing & Forms Expense Repair and Maintenance Ex 1,562 6,240 1,751 Stationery & Supplies Expense 910 3,635 2,094 Utility Expenses 3,720 14,861 4,090 20,153 80,511 48,630 Payroll and other staff costs Other Employee Expense 1,035 4, Salaries and Bonuses Expense 26, ,947 26,520 27, ,082 27,046 Income tax expense Income Tax - - 2,400 Total operating expenses 54, ,730 84,368 Page 40

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