CIMB ISLAMIC ENHANCED SUKUK FUND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018

Transcription

1 FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018

2 CONTENTS PAGE(S) INVESTORS LETTER 1 MANAGER S REPORT 2-8 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 9 TRUSTEE'S REPORT 10 SHARIAH ADVISER S REPORT 11 INDEPENDENT AUDITORS REPORT STATEMENT OF COMPREHENSIVE INCOME 16 STATEMENT OF FINANCIAL POSITION 17 STATEMENT OF CHANGES IN EQUITY 18 STATEMENT OF CASH FLOWS 19 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 48

3 INVESTORS' LETTER Dear Valued Investor, Thank you for your continued support and for the confidence that you have placed in us. We are pleased to share that CIMB-Principal Asset Management Berhad ("CIMB-Principal") Malaysia concluded the 1 st Quarter of 2018 with RM52.06 billion in Asset under Management ( AUM ). Our AUM for Private Retirement Scheme ("PRS") business increased by 33% year-on-year ( y-o-y ) to RM541 million as at 31 March We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards as follows: The Edge Thomson Reuters Lipper Malaysia Fund Awards 2018 Best Fund Over 5 Years, Equity Global - Malaysia : CIMB-Principal Global Titans Fund Best Fund Over 5 Years, Equity Asia Pacific ex Japan - Malaysia : CIMB-Principal Asian Equity Fund Best Fund Over 5 Years, Equity Asia Pacific ex Japan - Malaysia : CIMB Islamic Asia Pacific Equity Fund Best Fund Over 5 Years, Equity Malaysia Diversified - Malaysia : CIMB-Principal Equity Growth & Income Fund Best Fund Over 5 Years, Mixed Asset MYR Bal - Malaysia : CIMB-Principal Income Plus Balance Best Fund Over 3 Years, Equity Global - Malaysia : CIMB-Principal Global Titans Thomson Reuters Lipper Fund Award Global Islamic 2017 Best Equity Asia Pacific Ex-Japan (Islamic), Best Fund over 5 years : CIMB Islamic Asia Pacific Equity Fund These prestigious awards are a celebration of the trust that you have placed in us and testament to our capability in bringing potential value to your financial goals and needs. CIMB-Principal was also awarded Fund House of the Year in Malaysia by AsianInvestor for the Asset Management Awards 2017, its second consecutive win and The Employees' Provident Fund ("EPF") External Portfolio Managers Awards 2017 for the Best Global Bond Portfolio Manager. These industry recognitions reflect our success in scaling up our investment capabilities while building a solid track record and earning the trust of our clients over time. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer 1

4 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims Tto grow the value of Unit holders investments over the medium-term in Sukuk portfolio with most tenures ranging from 3-10 years as well as to provide regular income. Has the Fund achieved its objective? For the financial year under review, the Fund has achieved its objective. What are the Fund investment policy and principal investment strategy? A minimum of 70% and up to a maximum of 98% of the Fund s Net Asset Value ( NAV ) may be invested in Sukuk carrying at least a BBB3 or P2 rating by RAM ratings ( RAM ) or equivalent rating by Malaysian Rating Corporation Bhd ( MARC ) or by local rating agency(ies) of the country of issuance; or BBB- by Standard & Poor's ( S&P ) or equivalent rating by Moody s or Fitch. The Fund may invest up to 40% of its NAV in Unrated Sukuk*. The Fund may also invest between 0% to 20% (both inclusive) of its NAV in Shariah-compliant equities, of which up to 10% of its NAV may be invested in warrants of Shariah-compliant companies. The investment strategy and policy of the Fund is biased towards Shariah-compliant fixed income investments that aim to provide consistency in income, while allowing some exposure in Shariah-compliant equities and warrants that aim to provide the added return in a rising market. The Fund may also opt to seek investment exposure via Shariahcompliant Collective Investment Scheme ( CIS ) that is in line with the Fund s objective, subject to the requirements of the Securities Commission Malaysia ( SC ) Guidelines. * With effective 1st January 2018, the investment limit in Unrated Sukuk will be changed from 25% to 40%. Fund category/type Sukuk/Income How long should you invest for? Recommended three (3) years or more Indication of short-term risk (low, moderate, high) Moderate When was the Fund launched? 23 February 2005 What was the size of the Fund as at 31 March 2018? RM32.79 million (31.15 million units) What is the Fund s benchmark? 85% CIMB Islamic 1-Month Fixed Return Income Account i ( FRIA-I ) + 15% Financial Times Stock Exchange ( FTSE ) Bursa Malaysia ( FBM ) EMAS Shariah ( FBMS ) Index Note: The Fund s benchmark is for performance comparison purpose only. The benchmark is customised as such to align it closer to the structure of the portfolio and the objective of the Fund. Investors are cautioned that the risk profile of the Fund is higher than the risk profile of the bencmark. What is the Fund distribution policy? Distribution (if any) is expected to be distributed annually at the Manager s discretion*. * Note: Pursuant to the Master Deed, the Manager has the right to make provisions for reserves in respect of distribution of the Fund. If the distribution available is too small or insignificant, any distribution may not be of benefit to the Unit holders as the total cost to be incurred in any such distribution may be higher than the amount for distribution. The Manager has the discretion to decide on the amount to be distributed to the Unit holders. 2

5 FUND OBJECTIVE AND POLICY (CONTINUED) What was the net income distribution for the financial year ended 31 March 2018? The Fund distributed a total net income of RM1.84 million to unit holders for the financial year ended 31 March As a result, the NAV per unit dropped from RM to RM on 21 April PERFORMANCE DATA Details of portfolio composition of the Fund for the last three financial years are as follows: % % % Shariah-compliant quoted securities - Construction Consumer Products Finance Industrials Infrastructure Project Company ( IPC ) Plantation Properties Technology Trading/Services Unquoted Sukuk Cash and other net assets Performance details of the Fund for the last three financial years are as follows: NAV (RM Million) Units in circulation (Million) NAV per unit (RM) Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) 0.25 (0.57) (2.17) - Income distribution (%) Management Expense Ratio ("MER") (%) Portfolio Turnover Ratio ("PTR") (times) # # The Fund s PTR increased from 0.50 times to 0.78 times due to higher trading activities during the financial year under review. Date of distribution Gross/Net distribution per unit (sen) % % % % % Annual total return (Launch date : 23 February 2005) Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial year have been extracted from Lipper. 3

6 MARKET REVIEW (1 APRIL 2017 TO 31 MARCH 2018) Equity During the financial year under review (1 April 2017 to 31 March 2018), the FBMS Index (the Index ) rose by 3.3% from 12,811.3 points to 13,230.7 points. The Index rose 1.3% in April 2017, driven by inflows from foreign funds. The Malaysian Ringgit ( MYR ) strengthened 1.9% from RM4.425 to RM4.341 during the month. Government-Linked Companies ( GLC ) restructuring was a key theme as UMW Holdings Bhd and Sime Darby Bhd led gainers for the consumer discretionary and industrial sectors. The Index s performance was rather flat from May 2017 to October 2017, rising only 0.8% over the period. The key highlight during the period was the listing of Lotte Chemical Titan ( Lotte ) in July 2017, the largest initial public offering ( IPO ) since The stock fell at debut due to weak investor demand and suffered another sharp drop after it announced a 72% decline in its second quarter net profit. Malaysia released its first quarter of 2017and second quarter of 2017 Gross Domestic Product ( GDP ) during the period under review. GDP growth was 5.6% and 5.8% in first quarter of 2017 and second quarter of 2017, respectively, underpinning Malaysia s strong macroeconomic fundamentals. This led to various economists upgrading their full year GDP forecast for Malaysia from 5.2% to 5.5% (government estimate 4.3% to 4.8%). On the policy front, Bank Negara Malaysia ( BNM ) kept the Overnight Policy Rate ( OPR ) unchanged at 3.00% during its monetary policy meeting in September Budget 2018 was tabled on 27 October 2017 and was regarded as both expansionary and people-centric. Fiscal discipline was maintained as shown by a smaller deficit target of 2.8% for 2018 from 3.0% this year. In November 2017, the Index fell points or 1.2% to 12,920.2 pts. The third quarter of 2017 result season failed to re-rate the market. In addition to this, the Sime Darby Bhd demerger exercise failed to lift sentiments in the market. But the Index bounced back 3.0% in December 2017 to close the year at 13,302.9 points on the back of window dressing activities, driven by banking and technology stocks. January 2018 was a strong month as the Index jumped 2.7% on the back of a stronger MYR, higher oil prices, net foreign inflows, hike in OPR and overall stronger economies. In January 2018, foreign investors were net buyers of RM3.40 billion versus RM10.30 billion in the whole of Brent crude oil price closed at USD69.05 per barrel, while the MYR appreciated 3.8% to close at RM against US Dollar ( USD ). However, February 2018 was a volatile month as investors began re-pricing more interest rate hikes in the United States ( US ), earlier than expected, on the back of higher inflation expectations. In line with the global rout, the Index corrected points or 1.7% to 13,427.5 points. The Index had fallen sharply from a high of 13,651.8 points (2 February 2018) to a low of 13,214.1 (6 February 2018), before recouping some of its losses by month end. March 2018 was also a negative month as the Index shed points or 1.5% to 13,230.7 points on the back of rising concerns of escalating US-China trade disputes. Large caps continued to outperform the broader market and small caps. For the first quarter of 2018, the Index slipped 0.5%. 4

7 MARKET REVIEW (1 APRIL 2017 TO 31 MARCH 2018) (CONTINUED) Fixed Income CIMB ISLAMIC ENHANCED SUKUK FUND For the financial year under review, the Government Investment Issues ( GII ) yield curve traded lower from the short to mid tenor while the longer tenor moved higher. Overall, the GII yields for the 3-year, 5- year, 10-year, 15-year and 30-year closed 3.69%, 3.87%, 4.20%, 4.55% and 4.95% respectively at the end of March Improved sentiment in the domestic sovereign market was seen in April 2017 after 5 consecutive months of outflows. We saw rally in the short end of the curve driven by strong buying interest from local and some foreign investors following the announcement by BNM to allow flexibility on currency trading on the onshore market. In October 2017, the local sovereign bond yields rose taking cue from weakened US Treasury ( UST ) amid optimism over the progress of tax reforms and the imminent appointment of the next US Federal Reserve (the Fed ) Chair. Bond yields were pressured along the curve and the market was seen to be in a trimming mode. Towards the end of 2017, the GII traded tighter as the market responded to the strong movement in MYR in December 2017 with yields dropping around 2 to 7 basis points ( bps ) in exception to the 1- year and 2-year GII which closed higher by 8 and 4 bps respectively. Generally, Budget 2018, is supportive of Malaysia s sovereign rating as the Government remains on course in its fiscal consolidation drive in 2017 and In continuation with fiscal consolidation, budget deficit will see a 0.2% cut for 2018 to 2.8% from the yearend target of 3.0% in Given a projected funding requirement capped at RM39.79 billion in 2018, total gross Malaysian Government Securities ( MGS )/GII supply is estimated to be around RM106.6 billion, broadly similarly to 2017 (RM107.5 billion). With the high concentration of MGS/GII maturities worth RM24.8 billion in first quarter of 2018 the Government may front load its offerings in the early part of the year on the back of potential reinvestments from scheduled govvies maturities. BNM s 2018 MGS/GII auction calendar came in within our expectations with total gross issuances of RM103.0 billion, down from RM107.5 billion in 2017 following BNM s bond switching exercise which has reduced the amount of MGS/GII maturity in The target issuances continue to be skewed towards the longer duration. Private placements seen targeted for first quarter of 2018 but we expect more to come over the rest of BNM s Monetary Policy Committee ( MPC ) raised the OPR by 25bps to 3.25% on 25 January 2018, citing the steady growth path for the economy and as a pre-emptive move to prevent a build-up of risks that could arise from low interest rates for a prolonged period of time. The Central Bank views that global growth will accelerate in It views that the global economy has continued to strengthen, with global trade performing at a sustained pace. On the domestic front, BNM expects the strong growth momentum to carry on into 2018, on the back of spillovers from the external sector to the domestic economy. On the price front, the Central Bank expects the inflation rate to moderate in 2018, on account of a reduced effect of global cost factors, while the stronger MYR would also translate to lower import prices. BNM released its 2017 Annual Report and upgraded the 2018 growth forecast on the Malaysian economy to 5.50% to 6.00% from the previous forecast of 5.0% to 5.5%. Growth will be anchored by private domestic demand with external demand providing additional impetus. While growth forecast has been revised higher, inflation outlook is reduced to 2% to 3% in 2018 from the previous forecast of 2.5% to 3.5%. The moderation is mainly due to lower contribution from energy prices and imported inflation capped by the stronger MYR. 5

8 FUND PERFORMANCE 1 year to years to years to Since inception to % % % % Income Capital 0.25 (2.48) Total Return Benchmark Average Total Return For the financial year under review, the Fund delivered a total return of 4.65% outperformed its benchmark by 1.58%. Since inception, the Fund reported a return of 87.09% as compared to its benchmark s return of 53.98%. Changes in NAV Changes % NAV (RM Million) (24.08) NAV/Unit (RM) During the financial year under review, the Fund s NAV decreased by 24.08% to RM32.79 million from RM43.19 million. The Fund also saw net unit redemption of 9.97 million units. As at 31 March 2018, the Fund ranked at 4 out of 11 Funds in the second quartile on a one year basis in the Lipper s ranking Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the Fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial year have been extracted from Lipper. 6

9 PORTFOLIO STRUCTURE Asset Allocation (% of NAV) Shariah-compliant quoted securities Unquoted Sukuk Cash and other net asset TOTAL As at 31 March 2018, the Fund was 76.49% invested in unquoted sukuk and 16.34% in Shariahcompliant quoted securities with the remaining 7.17% held in cash and other net asset. MARKET OUTLOOK* Equity We expect market to be volatile in the immediate term. However, market should rebound as similar government changes in other countries were brief. This is further supported by Malaysia s strong domestic liquidity in the form of large local government funds on the back of robust macroeconomic fundamentals. The key point here is that both foreign and local investors favour political change, if tangible policies such as transparency and corporate governance are delivered. Fixed Income In BNM s 2017 Annual Report, the Central Bank upgraded its 2018 growth forecast to 5.50% to 6.00% from 5.00% to 5.50% on upbeat assessment for private consumption and private investment, but the inflation forecast for 2018 was revised lower to 2.00% to 3.00% from 2.50% to 3.50% amid smaller contribution from global cost factors. Better growth outlook, softer inflationary pressure and contained financial imbalances risks should all be supportive for the OPR to be stable for the remainder of Net supply of government bonds for the coming quarter is expected to be high in second quarter of 2018 with only one GII maturity of RM7.5 billion while the gross supply is estimated to be around RM29 billion. In the primary issuance space, the corporate bonds supply pipeline is expected to remain active with issuances primarily from the high grade segments. The influx of supply from primary issuances could pave way for higher adjusted yields. * This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. INVESTMENT STRATEGY Equity We continue to invest in big cap companies with strong fundamentals and to focus on medium to longterm investment themes, such as Consumer, Technology and Industrials. We maintain our view that, despite the short term volatility, investors should relook at the longer term, where risk premiums may potentially reduce as a result of better governance. Fixed Income We continue to maintain overweight on corporate sukuk for a more stable and higher yield pick-up and to trade on government securities if opportunity arises. We have a preference on AA-rated corporate sukuk for better total return as we expect potentially less issuances relative to the government guaranteed s and AAA-rated in

10 UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 31 March 2018 are as follows: Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,001 and above Total 1, SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the "Manager") and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial year under review, the Manager and the Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 8

11 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB ISLAMIC ENHANCED SUKUK FUND CIMB ISLAMIC ENHANCED SUKUK FUND We, being the Directors of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying audited financial statements set out on pages 16 to 48 are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 March 2018 and of its financial performance, changes in equity and cash flows for the financial year then ended in accordance with the provisions of the Malaysian Financial Reporting Standards ("MFRS") and International Financial Reporting Standards ("IFRS"). For and on behalf of the Manager CIMB-Principal Asset Management Berhad (Company No.: K) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 18 May

12 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC ENHANCED SUKUK FUND We have acted as Trustee of CIMB Islamic Enhanced Sukuk Fund (the Fund ) for the financial year ended 31 March To the best of our knowledge, CIMB-Principal Asset Management Berhad (the Manager ) has operated and managed the Fund in accordance with the following:- a) limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; b) valuation/pricing is carried out in accordance with the Deeds and any regulatory requirements; and c) creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirements. During the financial year, a total distribution of 4.45 sen per unit (gross) has been distributed to the unit holders of the Fund. We are of the view that the distribution is not inconsistent with the objective of the Fund. For HSBC (Malaysia) Trustee Berhad Tan Bee Nie Head, Trustee Operations Kuala Lumpur 18 May

13 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC ENHANCED SUKUK FUND CIMB ISLAMIC ENHANCED SUKUK FUND We have acted as the Shariah Adviser of CIMB Islamic Enhanced Sukuk Fund (the Fund ) for the financial year ended 31 March Our responsibility is to ensure that the procedures and processes employed by CIMB-Principal Asset Management Berhad (the Manager ) are in accordance with Shariah and Shariah Investment Guidelines. In our opinion, the Manager has managed and administered the Fund in accordance with the Shariah Investment Guidelines of the Fund and complied with applicable guidelines, rulings or decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial year ended 31 March In addition, we confirm that the investment portfolio of the Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia and where applicable the Shariah Advisory Council of Bank Negara Malaysia with exception to Digi.Com Bhd. However, the securities have been disposed on 15 February For investments other than the abovementioned, we have reviewed the same and are of the opinion that these investments were in accordance with the Shariah Investment Guidelines of the Fund. This report is made solely to the unit holders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report and we shall not be liable for any errors or non-disclosure on the part of the Manager. For and on-behalf of Shariah Adviser CIMB Islamic Bank Bhd ASHRAF GOMMA ALI Director/Regional Head, Shariah & Governance/Designated Person Responsible for Shariah Advisory Kuala Lumpur 18 May

14 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC ENHANCED SUKUK FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion CIMB ISLAMIC ENHANCED SUKUK FUND In our opinion, the financial statements of CIMB Islamic Enhanced Sukuk Fund (the Fund ) give a true and fair view of the financial position of the Fund as at 31 March 2018, and of its financial performance and its cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund, which comprise the statement of financial position as at 31 March 2018, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 16 to 48. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. 12

15 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC ENHANCED SUKUK FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Information other than the financial statements and auditors report thereon CIMB ISLAMIC ENHANCED SUKUK FUND The Manager of the Fund is responsible for the other information. The other information comprises Manager s report, but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Manager for the financial statements The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so. 13

16 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC ENHANCED SUKUK FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements CIMB ISLAMIC ENHANCED SUKUK FUND Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (a) (b) (c) (d) (e) Identify and assess the risks of material misstatement of the financial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Fund s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 14

17 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC ENHANCED SUKUK FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements (continued) CIMB ISLAMIC ENHANCED SUKUK FUND We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. OTHER MATTERS This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS PLT LLP LCA & AF 1146 Chartered Accountants Kuala Lumpur 18 May

18 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018 CIMB ISLAMIC ENHANCED SUKUK FUND Note RM RM INVESTMENT INCOME Dividend income 177, ,266 Profit income 4 1,506,013 1,627,271 Net gain on financial assets at fair value through profit or loss 9 604, ,134 Other income 80-2,287,765 2,115,671 EXPENSES Management fee 5 382, ,860 Trustee s fee 6 26,758 28,760 Audit fee 12,900 12,220 Tax agent s fee 3,100 3,600 Transaction costs 60,190 71,066 Other expenses 47,176 52, , ,918 PROFIT BEFORE TAXATION 1,755,384 1,536,753 Taxation PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 1,755,384 1,536,753 Profit after taxation is made up as follows: Realised amount 2,006,112 1,110,169 Unrealised amount (250,728) 426,584 1,755,384 1,536,753 The accompanying notes to the financial statements form an integral part of the audited financial statements. 16

19 STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH Note RM RM ASSETS Cash and cash equivalents (Shariah-compliant) 10 2,551,984 6,344,725 Financial assets at fair value through profit or loss (Shariah-compliant) 9 30,437,668 36,780,398 Amount due from stockbrokers 5,325 80,890 Amount due from Manager - 143,455 Dividends receivable 3, TOTAL ASSETS 32,998,444 43,349,900 LIABILITIES Amount due to stockbrokers - 51,307 Amount due to Manager 157,356 54,061 Accrued management fee 27,826 36,576 Amount due to Trustee 1,948 2,560 Other payables and accruals 19,515 19,527 TOTAL LIABILITIES 206, ,031 NET ASSET VALUE OF THE FUND 32,791,799 43,185,869 EQUITY Unit holders capital 29,948,290 40,262,016 Retained earnings 2,843,509 2,923,853 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 32,791,799 43,185,869 NUMBER OF UNITS IN CIRCULATION (UNITS) 11 31,147,969 41,115,862 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of the audited financial statements. 17

20 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018 CIMB ISLAMIC ENHANCED SUKUK FUND Unit holders Retained capital earnings Total Note RM RM RM Balance as at 1 April 2017 Movement in unit holders contributions: 40,262,016 2,923,853 43,185,869 - Creation of units from applications 15,496,702-15,496,702 - Creation of units from distribution 1,816,748-1,816,748 - Cancellation of units (27,627,176) - (27,627,176) Total comprehensive income for the financial year - 1,755,384 1,755,384 Distribution 7 - (1,835,728) (1,835,728) Balance as at 31 March ,948,290 2,843,509 32,791,799 Balance as at 1 April 2016 Movement in unit holders contributions: 36,546,817 3,059,800 39,606,617 - Creation of units from applications 7,914,647-7,914,647 - Creation of units from distribution 1,653,279-1,653,279 - Cancellation of units (5,852,727) - (5,852,727) Total comprehensive income for the financial year - 1,536,753 1,536,753 Distribution 7 - (1,672,700) (1,672,700) Balance as at 31 March ,262,016 2,923,853 43,185,869 The accompanying notes to the financial statements form an integral part of the audited financial statements. 18

21 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018 CIMB ISLAMIC ENHANCED SUKUK FUND Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of Shariah-compliant quoted securities 9,322,748 20,618,126 Proceeds from disposal of unquoted Sukuk 23,292,228 Proceeds from redemption of unquoted Sukuk 1,000,000 2,001,216 Purchase of Shariah-compliant quoted securities (8,113,203) (21,605,497) Purchase of unquoted Sukuk (18,587,930) Profit income received from Shariah-compliant deposits with licensed Islamic financial institutions 110, ,650 Profit income received from unquoted Sukuk 1,392,855 1,592,990 Other income received 80 Dividends received 174, ,137 Management fee paid (391,007) (409,997) Trustee s fee paid (27,370) (28,700) Payments for other fees and expenses (63,188) (67,763) Net cash generated from operating activities 8,109,963 2,396,162 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 15,640,157 7,773,692 Payments for cancellation of units (27,523,881) (5,809,386) Distribution paid (18,980) (19,421) Net cash (used in)/generated from financing activities (11,902,704) 1,944,885 Net (decrease)/increase in cash and cash equivalents (3,792,741) 4,341,047 Cash and cash equivalents at the beginning of the financial year 6,344,725 2,003,678 Cash and cash equivalents at the end of the financial year 10 2,551,984 6,344,725 Cash and cash equivalents comprises of Shariah-compliant deposits with licensed Islamic financial institutions 2,520,525 6,318,601 Bank balances 31,459 26,124 Cash and cash equivalents at the end of the financial year 10 2,551,984 6,344,725 The accompanying notes to the financial statements form an integral part of the audited financial statements. 19

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MARCH THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB ISLAMIC ENHANCED SUKUK FUND CIMB Islamic Enhanced Sukuk Fund (the Fund ) is governed by a Principal Master Deed dated 15 May 2008, a Third Supplemental Master Deed dated 25 June 2008, a Sixth Supplemental Master Deed dated 14 July 2008, a Seventh Supplemental Master Deed dated 19 November 2008, a Twelfth Supplemental Master Deed dated 14 June 2010, a Fourteenth Supplemental Master Deed dated 26 June 2012 and a Seventeenth Supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds ), made between CIMB- Principal Asset Management Berhad (the Manager ) and HSBC (Malaysia) Trustee Berhad (the Trustee ). A minimum of 70% and up to a maximum of 98% of the Fund s NAV may be invested in Sukuk carrying at least a BBB3 or P2 rating by RAM or equivalent rating by MARC or by local rating agency(ies) of the country of issuance; or BBB- by Standard & Poor's ( S&P ) or equivalent rating by Moody s or Fitch. The Fund may invest up to 40% of its NAV in Unrated Sukuk*. The Fund may also invest between 0% to 20% (both inclusive) of its NAV in Shariahcompliant equities, of which up to 10% of its NAV may be invested in warrants of Shariahcompliant companies. The investment strategy and policy of the Fund is biased towards Shariah-compliant fixed income investments that aim to provide consistency in income, while allowing some exposure in Shariah-compliant equities and warrants that aim to provide the added return in a rising market. The Fund may also opt to seek investment exposure via Shariah-compliant CIS that is in line with the Fund s objective, subject to the requirements of the SC Guidelines. All investments are subjected to the SC Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is jointly owned by CIMB Group and The Principal Financial Group. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and IFRS. The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported year. 20

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and assumptions are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(l). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial year beginning 1 April 2017: Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative introduce an additional disclosure on changes in liabilities arising from financing activities. The adoption of these amendments did not have any impact on the current financial year or any prior financial year and is not likely to affect future years. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 April 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments 1 are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument 2 is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest 3. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives 1. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. ¹ For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-compliant equity instruments and Shariah-compliant derivatives. ² For the purposes of the investments made by the Fund, debt instruments refers to Sukuk. ³ For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. 21

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (i) Financial year beginning on/after 1 April 2018 (continued) MFRS 9 introduces an expected credit loss ( ECL ) model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund has reviewed its financial assets and liabilities and has assessed the impacts from the adoption of the new standard on 1 January 2018: There will be no impact on the Fund's accounting for financial assets as the Fund's equity investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. There will be no impact on the Fund's accounting for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on ECL rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessments undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. (b) Financial assets and financial liabilities Classification The Fund designates its investments in Shariah-compliant quoted securities and unquoted Sukuk as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Financing and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s financing and receivables comprise cash and cash equivalents, amount due from stockbrokers, amount due from Manager and dividends receivable. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to Manager, accrued management fee, amount due to Trustee, amount due to stockbrokers, and other payables and accruals as other financial liabilities 22

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Shariah-compliant investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the Shariah-compliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial year which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Shariah-compliant quoted securities in Malaysia are valued at the last done market price quoted on Bursa Malaysia Securities Bhd ( Bursa Securities ) at the date of the statement of financial position. If a valuation based on the market price does not represent the fair value of the Shariah-compliant securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the Shariah-compliant securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the securities are valued as determined in good faith by the Manager, based on the methods or basis approved by the Trustee after appropriate technical consultation. Unquoted Sukuk denominated in Ringgit Malaysia ( RM ) are revalued on a daily basis based on fair value prices quoted by a Bond Pricing Agency ( BPA ) registered with the SC as per the SC Guidelines on Unit Trust Funds. Refer to Note 2(l) for further explanation. Shariah-compliant deposits with licensed Islamic financial institutions are stated at cost plus accrued profit calculated on the effective profit method over the financial year from the date of placement to the date of maturity of the respective deposits. Financing and receivables and other financial liabilities are subsequently carried at amortised cost using the effective profit method. 23

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) Impairment for assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting year whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective profit rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If financing and receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (c) Income recognition Dividend income is recognised on the ex-dividend date when the right to receive payment is established. Profit income from Shariah-compliant deposits with licensed Islamic financial institutions and unquoted Sukuk are recognised on a time proportionate basis using the effective profit method on an accrual basis. Realised gain or loss on disposal of Shariah-compliant quoted securities is accounted for as the difference between the net disposal proceeds and the carrying amount of Shariah-compliant quoted securities, determined on a weighted average cost basis. Realised gain or loss on disposal of unquoted Sukuk is accounted for as the difference between the net disposal proceeds and the carrying amount of unquoted Sukuk, determined on cost adjusted for accretion of discount or amortisation of premium. (d) Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia ( RM ), which is the Fund s functional and presentation currency. 24