FINANCIAL STATEMENTS
FINANCIAL STATEMENTS I N D E X PAGE Independent Auditors' Report to the Members 1-2 FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income 3 Consolidated Statement of Financial Position 4 Consolidated Statement of Changes in Equity 5 Consolidated Statement of Cash Flows 6 Statement of Profit or Loss and Other Comprehensive Income 7 Statement of Financial Position 8 Statement of Changes in Equity 9 Statement of Cash Flows 10 Notes to the Financial Statements 11-50
Page 3 LASCO FINANCIAL SERVICES LIMITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME YEAR ENDED Note 2016 2015 $ 000 $ 000 REVENUE: Income 6 805,751 681,031 Other operating income 7 64,258 32,446 870,009 713,477 EXPENSES: Administrative and other expenses (307,261) (224,183) Selling and promotion expenses (341,460) (298,062) 8 (648,721) (522,245) PROFIT FROM OPERATIONS 221,288 191,232 Finance costs 10 ( 318) ( 160) PROFIT BEFORE TAXATION 220,970 191,072 Taxation 11 ( 17,591) - NET PROFIT FOR THE YEAR 12 203,379 191,072 OTHER COMPREHENSIVE INCOME: Item that will or may not be reclassified to profit or loss Share option plan 26(b) 2,834 6,838 TOTAL COMPREHENSIVE INCOME 206,213 197,910 EARNINGS PER STOCK UNIT 13 Basic 16.55 15.55 Diluted 16.19 15.21
Page 5 LASCO FINANCIAL SERVICES LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED Share Other Retained Note Capital Reserve Earnings Total $ 000 $ 000 $ 000 $ 000 BALANCE AT 1 APRIL 2014 50,523-600,745 651,268 TOTAL COMPREHENSIVE INCOME Net profit - - 191,072 191,072 Other comprehensive income - 6,838-6,838-6,838 191,072 197,910 TRANSACTION WITH OWNERS Dividends paid 28 - - ( 36,844) ( 36,844) BALANCE AT 31 MARCH 2015 50,523 6,838 754,973 812,334 TOTAL COMPREHENSIVE INCOME Net profit - - 203,379 203,379 Other comprehensive income - 2,834-2,834-2,834 203,379 206,213 TRANSACTION WITH OWNERS Issued shares 25 14,667 - - 14,667 Transfer from other reserve 26(c) 3,345 (3,345) - - Dividends paid 28 - - ( 38,195) ( 38,195) 18,012 (3,345) ( 38,195) ( 23,528) BALANCE AT 68,535 6,327 920,157 995,019
Page 6 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 2016 2015 $ 000 $ 000 CASH FLOWS FROM OPERATING ACTIVITIES: Net profit 203,379 191,072 Items not affecting cash resources: Effects of exchange rate translation 178 3,258 (Gain)/loss on disposal of property, plant and equipment ( 165) 54 Stock options value of service expensed 2,834 6,838 Fair value gain on investment property ( 15,000) - Amortisation of intangible asset 3,600 1,080 Depreciation 5,617 4,612 Interest income ( 10,784) ( 9,584) Taxation expense 16,285 - Deferred taxation 1,306-207,250 197,330 Changes in operating assets and liabilities: Receivables (112,948) ( 65,454) Related companies ( 827) ( 902) Payables ( 62,917) 41,232 Inventories ( 23,686) - 6,872 172,206 Taxation paid ( 5,114) ( 2,115) Cash provided by operating activities 1,758 170,091 CASH FLOWS FROM INVESTING ACTIVITIES: Interest received 10,784 9,584 Acquisition of intangible asset ( 1,803) ( 17,312) Additions to property, plant and equipment ( 35,609) ( 7,888) Proceeds from disposal of property, plant and equipment 335 - Short term deposits 62,992 (117,708) Cash provided by/(used in) investing activities 36,699 (133,324) CASH FLOWS FROM FINANCING ACTIVITIES: Issued shares 14,667 - Dividends paid ( 38,195) ( 36,844) Cash used in financing activities ( 23,528) ( 36,844) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 14,929 ( 77) Exchange gain/(loss) on cash balances 328 ( 160) Cash and cash equivalents at beginning of year 318,803 319,040 CASH AND CASH EQUIVALENTS AT END OF YEAR (note 14) 334,060 318,803
Page 7 LASCO FINANCIAL SERVICES LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME YEAR ENDED Note 2016 2015 $ 000 $ 000 REVENUE: Income 6 799,304 676,715 Other operating income 7 64,258 32,446 863,562 709,161 EXPENSES: Administrative and other expenses (304,449) (221,690) Selling and promotion expenses (341,460) (297,800) 8 (645,909) (519,490) PROFIT FROM OPERATIONS 217,653 189,671 Finance costs 10 ( 318) ( 160) PROFIT BEFORE TAXATION 217,335 189,511 Taxation 11 ( 17,014) - NET PROFIT FOR THE YEAR 12 200,321 189,511 OTHER COMPREHENSIVE INCOME: Item that will or may not be reclassified to profit or loss Share option plan 26(b) 2,834 6,838 TOTAL COMPREHENSIVE INCOME 203,155 196,349
Page 9 LASCO FINANCIAL SERVICES LIMITED STATEMENT OF CHANGES IN EQUITY YEAR ENDED Share Other Retained Note Capital Reserve Earnings Total $ 000 $ 000 $ 000 $ 000 BALANCE AT 1 APRIL 2014 50,523-603,660 654,183 TOTAL COMPREHENSIVE INCOME Net profit - - 189,511 189,511 Other comprehensive income - 6,838-6,838-6,838 189,511 196,349 TRANSACTION WITH OWNERS Dividends paid 28 - - ( 36,844) ( 36,844) BALANCE AT 31 MARCH 2015 50,523 6,838 756,327 813,688 TOTAL COMPREHENSIVE INCOME Net profit - - 200,321 200,321 Other comprehensive income - 2,834-2,834-2,834 200,321 203,155 TRANSACTION WITH OWNERS Issued shares 25 14,667 - - 14,667 Transfer from other reserve 26(c) 3,345 (3,345) - - Dividends paid 28 - - ( 38,195) ( 38,195) 18,012 (3,345) ( 38,195) ( 23,528) BALANCE AT 68,535 6,327 918,453 993,315
Page 10 STATEMENT OF CASH FLOWS YEAR ENDED 2016 2015 $ 000 $ 000 CASH FLOWS FROM OPERATING ACTIVITIES: Net profit 200,321 189,511 Items not affecting cash resources: Effects of exchange rate translation 178 3,258 (Gain)/loss on disposal of property, plant and equipment ( 165) 54 Stock options value of services expensed 2,834 6,838 Fair value gain on investment property ( 15,000) - Amortisation of intangible asset 3,600 1,080 Depreciation 5,588 4,605 Interest income ( 10,784) ( 9,584) Taxation expense 15,708 - Deferred taxation 1,306-203,586 195,762 Changes in operating assets and liabilities: Receivables ( 99,750) ( 63,653) Related companies ( 7,931) ( 2,130) Payables ( 63,517) 37,164 Inventories ( 23,686) - 8,702 167,143 Taxation paid ( 5,114) ( 2,115) Cash provided by operating activities 3,588 165,028 CASH FLOWS FROM INVESTING ACTIVITIES: Interest received 10,784 9,584 Acquisition of intangible asset ( 1,803) (17,312) Additions to property, plant and equipment ( 35,609) ( 7,600) Proceeds from disposal of property, plant and equipment 335 - Short term deposits 62,992 (117,708) Cash provided by/(used in) investing activities 36,699 (133,036) CASH FLOWS FROM FINANCING ACTIVITY: Issued shares 14,667 - Dividends paid ( 38,195) ( 36,844) Cash used in financing activities ( 23,528) ( 36,844) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 16,759 ( 4,852) Exchange gain/(loss) on foreign cash balances 328 ( 160) Cash and cash equivalents at beginning of year 312,422 317,434 CASH AND CASH EQUIVALENTS AT END OF YEAR (note 14) 329,509 312,422
Page 11 1. IDENTIFICATION AND PRINCIPAL ACTIVITIES: (a) (b) Lasco Financial Services Limited ( the Company ) is a limited liability company incorporated and domiciled in Jamaica. The registered office of the company is 27 Red Hills Road, Kingston 10. The company is listed on the Junior Market of the Jamaica Stock Exchange. The principal activities of the company are: i. The company is a licenced Cambio dealer regulated by the Bank of Jamaica. The Cambio facilitates the sale and purchase of foreign currencies. ii. iii. The provision of services as an agent of MoneyGram International Money Transfer which is a remittance company facilitating person to person transfers for a fee, in accordance with licences issued by the Bank of Jamaica. The rental of properties. iv. The granting of loans for personal and business purposes. By Order dated 10 March 2016, the company received an exemption from the provisions of the Money Lending Act by the Minister of Finance for one year from 21 March 2016, renewable annually. (c) Remission of income tax: The company s shares were listed on the Jamaica Stock Exchange Junior Market, effective 12 October 2010. Consequently, the company is entitled to a remission of taxes for ten (10) years in the proportions set out below, provided the shares remain listed for at least 15 years. Years 1 to 5 100% Years 6 to 10 50% The financial statements have been prepared on the basis that the company will have the full benefit of the tax remissions. (d) Lasco Financial Services (Barbados) Limited is incorporated in Barbados under the Companies Act Cap. 308 of the Laws of Barbados and is a 100% owned subsidiary of the company. The company and its subsidiary are referred to as the Group.
Page 12 2. REPORTING CURRENCY: Items included in the financial statements of the group are measured using the currency of the primary economic environment in which the group operates ( the functional currency ). These financial statements are presented in Jamaican dollars, which is considered the group s functional and presentation currency. 3. SIGNIFICANT ACCOUNTING POLICIES: The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied to all the years presented. Where necessary prior year comparatives have been restated and reclassified to conform to current year presentation. Amounts are rounded to the nearest thousand, unless otherwise stated. (a) Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and have been prepared under the historical cost convention as modified by the revaluation of investment property. They are also prepared in accordance with requirements of the Jamaican Companies Act. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group s accounting policies. Although these estimates are based on management s best knowledge of current events and action, actual results could differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 4. Amendments to published standards effective in the current year that are relevant to the group s operations Annual improvements to IFRS, 2010-2012 and 2011-2013 cycles contain amendments to certain standards and interpretations and are effective for accounting periods beginning on or after 1 July 2014. The main amendments applicable to the group are as follows: IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets, the standards have been amended to clarify that when an item of property, plant and equipment or an intangible asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount.
Page 13 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (a) Basis of preparation (cont d) Amendments to published standards effective in the current year that are relevant to the group s operations (cont d) Annual improvements to IFRS, 2010-2012 and 2011-2013 cycles (cont d) IAS 24, Related Party Disclosures, has been amended to extend the definition of related party to include a management entity that provides key management personnel services to the reporting entity, either directly or through a group entity. For related party transactions that arise when key management personnel services are provided to a reporting entity, the reporting entity is required to separately disclose the amounts that it has recognized as an expense for those services that are provided by a management entity; however, it is not required to look through the management entity and disclose compensation paid by the management entity to the individuals providing the key management personnel services. IAS 40, Investment Property, has been amended to clarify that when determining whether a specific transaction meets the definition of both an investment property as defined in IAS 40 and a business combination as defined in IFRS 3, Business Combinations, the separate application of both standards is required independently of each other. IFRS 13, Fair Value Measurement, has been amended to clarify that issuing of the standard and consequential amendments to IAS 39 and IFRS 9 did not intend to prevent entities from measuring short-term receivables and payables that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is immaterial. The amendments did not result in any effect on the group s financial statements. Standards and amendments to published standards that are not yet effective and have not been early adopted by the group IAS 1, Presentation of Financial Statements, (effective for annual periods beginning on or after 1 January 2016), has been amended to clarify guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The amendment also clarifies that the share of other comprehensive income (OCI) of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, classified between those items that will or will not be subsequently reclassified to profit or loss.
Page 14 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (a) Basis of preparation (cont d) Standards and amendments to published standards that are not yet effective and have not been early adopted by the group (cont d) IFRS 9, Financial Instruments, (effective for annual reporting periods beginning on or after 1 January 2018), replaces the existing guidance in IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial assets and liabilities, including a new expected credit loss model for calculating impairment of financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. Although the permissible measurement bases for financial assets amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) - are similar to IAS 39, the criteria for classification into the appropriate measurement category are significantly different. IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss model, which means that a loss event will no longer need to occur before an impairment allowance is recognized. IFRS 15, Revenue from Contracts with Customers, (effective for periods beginning on or after 1 January 2018), replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC 31 Revenue Barter Transactions involving Advertising Services. The new standard applies to contracts with customers. However, it does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. It also does not apply if two companies in the same line of business exchange non-monetary assets to facilitate sales to other parties. Furthermore, if a contract with a customer is partly in the scope of another IFRS, then the guidance on separation and measurement contained in the other IFRS takes precedence. IFRS 16, Leases, (effective for annual periods beginning on or after 1 January 2019), replaces IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC 15 Operating Leases-Incentives and SIC 27 Evaluating the Substance of Transactions involving the Legal Form of a Lease. The new standard eliminates the classification by a lessee of leases as either operating or finance. Instead all leases are treated in a similar way to finance leases in accordance with IAS 17. Leases are now recorded in the statement of financial position by recognizing a liability for the present value of its obligation to make future lease payments with an asset (comprised of the amount of the lease liability plus certain other amounts) either being disclosed separately in the statement of financial position (within right-of-use assets) or together with property, plant and equipment. The most significant effect of the new requirements will be an increase in recognized lease assets and financial liabilities.
Page 15 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (a) Basis of preparation (cont d) Standards and amendments to published standards that are not yet effective and have not been early adopted by the group (cont d) Annual improvements to IFRS, 2012-2014 cycle contain amendments to certain standards and interpretations and are effective for accounting periods beginning on or after 1 January 2016. The main amendments applicable to the group are as follows: IAS 34, Interim Financial Reporting, has been amended to clarify that certain disclosures, if they are not included in the notes to interim financial statements, may be disclosed elsewhere in the interim financial report and requires a cross-reference to the information. IFRS 7, Financial Instruments: Disclosures, has been amended to clarify that the additional disclosures required by the amendment to IFRS 7, Disclosures: Offsetting Financial Assets and Financial Liabilities are not specifically required for inclusion in condensed interim financial statements for all interim periods; however, they are required if the general requirements of IAS 34, Interim Financial Reporting, require their inclusion. The directors anticipate that the adoption of the standards, amendments and interpretations, which are relevant in future periods, is unlikely to have any material impact on the financial statements. (b) Basis of consolidation Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiary ( the Group ) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. The consolidated financial statements incorporate the results of business combinations using the purchase method. In the statement of financial position, the acquiree s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of profit or loss and other comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases. The group uses the audited financial statements of its subsidiary, Lasco Financial Services (Barbados) Limited, at 31 March 2016 for the purpose of consolidation.
Page 16 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (c) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Operating segments are reported in a manner consistent with internal reporting to the group s chief operating decision maker. (d) Foreign currency translation Foreign currency transactions are accounted for at the exchange rates prevailing at the dates of the transactions. Monetary items denominated in foreign currency are translated to Jamaican dollars using the closing rate as at the reporting date. Non-monetary items measured at historical cost denominated in a foreign currency are translated using the exchange rate as at the date of initial recognition; non-monetary items in a foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising from the settlement of transactions at rates different from those at the dates of the transactions and unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities are recognized in profit or loss. (e) Property, plant and equipment Items of property, plant and equipment are recorded at historical cost, less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on the straight line basis at such rates as will write off the carrying value of the assets over the period of their expected useful lives. The expected useful lives of property, plant and equipment are as follows: Leasehold improvements Furniture, fixtures and equipment Computer hardware Motor vehicle 40 years 10 years 5 years 5 years Gains and losses on disposal are determined by comparing proceeds with carrying amounts and are included in profit or loss.
Page 17 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (f) Intangible asset Intangible asset which represents computer software is deemed to have a finite useful life of five years and is measured at cost, less accumulated amortisation and accumulated impairment losses, if any. (g) Investment property Investment property is initially recognised at cost and subsequently carried at fair value with changes in the carrying value recognised in the statement of profit or loss. Fair value is determined periodically by an independent registered valuer. Fair value is based on current prices in an active market for similar properties in the same location and condition. Rent receivable is spread on a straight-line basis over the period of the lease. (h) Provisions Provisions are recognized when the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognized for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. (i) Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand and short term deposits with original maturity of 90 days or less. (j) Impairment of non-current assets Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the greater of an asset s net selling price and value in use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identified cash flows.
Page 18 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (k) Inventories Inventories are stated at the lower of cost and fair value less costs to sell, cost being determined on the first-in, first-out basis. Fair value less costs to sell is the estimated selling price in the ordinary course of business, less selling expenses. (l) Current and deferred income taxes Current tax charges are based on taxable profits for the year, which differ from the profit before tax reported because taxable profits exclude items that are taxable or deductible in other years, and items that are never taxable or deductible. The group s liability for current tax is calculated at tax rates that have been enacted at the reporting date. Deferred tax is the tax that is expected to be paid or recovered on differences between the carrying amounts of assets and liabilities and the corresponding tax bases. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax is charged or credited to profit or loss, except where it relates to items charged or credited to other comprehensive income or equity, in which case deferred tax is also dealt with in other comprehensive income or equity. Deferred income tax liabilities are not recognized for the withholding tax and other taxes that would be payable on the unremitted earnings of subsidiaries as such amounts are permanently reinvested and are not subject to tax. (m) Employee benefits Defined contribution plan The company operates a defined contribution pension plan which is funded by employees contribution of 5% of salary and employer s contribution of 5%. Once the contributions have been paid, the company has no further obligations. Contributions are charged to the statement of profit or loss, in the year to which they relate.
Page 19 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (m) Employee benefits (cont d) Share-based compensation The company operates an equity-settled share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense, with corresponding increase in equity, over the period in which the employee becomes unconditionally entitled to the options. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. At the end of each reporting period, the company revises its estimates of the number of options that are expected to become exercisable. It recognizes the impact of the revision of original estimates, if any, in the statement of profit or loss, and a corresponding adjustment to equity over the remaining vesting period. The fair value of employee stock options is measured using the Black-Scholes-Merton formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility), weighted average expected life of the instruments (based on historical experience and general option holder behaviours), expected dividends, and the risk-free interest rate (based on treasury bill rates). Service and non-market performance conditions attached to the transactions are not taken into account in determining the fair value. Other Other employee benefits that are expected to be settled wholly within 12 months after the end of the reporting period are presented as current liabilities. The group recognises a liability and an expense for bonuses and profit-sharing based on a formula that takes into consideration profit attributable to the group s stockholders after certain adjustments. The group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (n) Revenue recognition Revenue from the provision of services is measured at the fair value of the consideration received or receivable. Revenue is shown net of General Consumption Tax. Income is recognised upon delivery of funds and/or customer acceptance. Interest earned on the provision of loans is recognised as it accrues unless it is impaired.
Page 20 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (n) Revenue recognition (cont d) When a loan is classified as impaired, recognition of interest in accordance with the original terms and conditions of the loan ceases and interest is taken into account on the cash basis. IFRS requires that where loans become doubtful of collection, they are written down to their recoverable amounts and interest income on loans is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount. However, such amounts as would have been determined under IFRS are considered to be immaterial. Interest income is recognised in the statement of profit or loss for all interest bearing instruments on an accrual basis unless collectibility is doubtful. (o) Financial instruments A financial instrument is any contract that gives rise to both a financial asset in one entity and a financial liability or equity in another entity. Financial assets (i) Classification The group classifies its financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The group s loans and receivables comprise trade and other receivables, related company balances, short term deposits and cash and cash equivalents. (ii) Recognition and Measurement Regular purchases and sales of financial assets are recognized on the tradedate the date on which the group commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method.
Page 21 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (o) Financial instruments (cont d) Financial assets (cont d) (ii) Recognition and Measurement (cont d) The group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment testing of trade receivables is described in note 3(p). Financial liabilities The group s financial liabilities are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost using the effective interest method. At the reporting date, the following items were classified as financial liabilities: trade payables and related company balances. (p) Trade receivables Trade receivables are carried at original invoiced amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the group will not collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the expected cash flows discounted at the effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in profit or loss. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited to profit or loss. (q) Trade and other payables Trade and other payables are stated at amortised cost. (r) Leases Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to profit or loss on a straight line basis. The finance charges are charged to profit or loss over the period of the lease. (s) Share capital Ordinary shares are classified as equity. Incremental costs directly attributed to the issue of ordinary shares are recognised as a deduction from equity.
Page 22 3. SIGNIFICANT ACCOUNTING POLICIES (CONT D): (t) Investment in subsidiary Investment by the company in subsidiary is stated at cost. (u) Dividend distribution Dividends are recorded as a deduction from equity and recognised as a liability in the group s financial statements in the period in which the dividends are declared or approved. In the case of interim dividends to shareholders, this is when declared by the directors and final dividends when approved by the group s shareholders. Dividend for the year that are declared after the reporting date are dealt with in the subsequent events note. 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY: Judgements and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Critical judgements in applying the group s accounting policies In the process of applying the group s accounting policies, management has not made any judgements that it believes would cause a significant impact on the amounts recognized in the financial statements. (b) Key sources of estimation uncertainty The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (i) Fair value estimation A number of assets and liabilities included in the group s financial statements require measurement at, and/or disclosure of fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market price is used to determine fair value where an active market (such as a recognized stock exchange) exists as it is the best evidence of the fair value of a financial instrument.
Page 23 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONT D): (b) Key sources of estimation uncertainty (cont d) (i) Fair value estimation (cont d) The fair value measurement of the group s financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorized into different levels based on how observable the inputs used in the valuation technique utilised are. The standard requires disclosure of fair value measurements by level using the following fair value measurement hierarchy: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The classification of an item into the above level is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur. The group measures the following item at fair value Investment property (note 19) The investment property was valued on 21 March 2016 using the Highest and Best Use Analysis carried out by external independent qualified valuers with recent experience valuing investment properties in the location held by the group.
Page 24 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONT D): (b) Key sources of estimation uncertainty (cont d) (i) Fair value estimation (cont d) The fair value of investment property is categorised as a level 3 recurring fair value measurement. A reconciliation of the opening and closing fair value balance is provided below: 2016 2015 $ 000 $ 000 Opening balance (level 3 recurring fair value) 100,000 100,000 Gain: Included in other operating income Unrealised change in fair value 15,000 - Closing balance (level 3 recurring fair value) 115,000 100,000 The valuation techniques and significant unobservable inputs used in determining the fair value measurement of investment property, as well as the inter-relationship between key unobservable inputs and fair value, is detailed below: The fair value of investment property was derived using the income approach based on the estimated rental value of the property; comparison approach based on the sale price of similar recently sold properties in same location; and cost approach based on the principle of substitution whereby a purchaser with knowledge would pay no more than the cost of constructing a substitute facility with same utility as the subject. These were weighted, adjusted and reconciled to arrive at the fair value. There were no changes to the valuation techniques of level 3 fair value measurement in the period. The fair value measurement is based on the above item s highest and best use, which does not differ from its actual use. The fair values of financial instruments that are not traded in an active market are deemed to be determined as follows: The face value, less any estimated credit adjustments, for financial assets and liabilities with a maturity of less than one year are estimated to approximate their fair values. These financial assets and liabilities include cash and cash equivalents, receivables, payables and related company balances.
Page 25 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONT D): (b) Key sources of estimation uncertainty (cont d) (ii) Depreciable assets Estimates of the useful life and the residual value of property, plant and equipment are required in order to apply an adequate rate of transferring the economic benefits embodied in these assets in the relevant periods. The group applies a variety of methods in an effort to arrive at these estimates from which actual results may vary. Actual variations in estimated useful lives and residual values are reflected in profit or loss through impairment or adjusted depreciation provisions. (iii) Income taxes 5. FINANCIAL RISK MANAGEMENT: Estimates are required in determining the provision for income tax. There are some transactions and calculations for which the ultimate tax determination is uncertain. The company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The group is exposed through its operations to the following financial risks: - Credit risk - Fair value or cash flow interest rate risk - Foreign exchange risk - Other market price, and - Liquidity risk In common with all other businesses, the group s activities expose it to a variety of risks that arise from its use of financial instruments. This note describes the group s objectives, policies and processes for managing those risks to minimize potential adverse effects on the financial performance of the group and the methods used to measure them. There have been no substantive changes in the group s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Page 26 5. FINANCIAL RISK MANAGEMENT (CONT D): (a) Principal financial instruments The principal financial instruments used by the group, from which financial instrument risk arises, are as follows: - Trade and other receivables - Cash and cash equivalents - Trade and other payables - Due to/from related companies (b) Financial instruments by category Financial assets Loans and Receivables The Group The Company 2016 2015 2016 2015 $ 000 $ 000 $ 000 $ 000 Receivables 419,714 311,692 403,141 308,317 Related companies 352-13,859 6,403 Short term deposits 125,538 193,842 125,538 193,842 Cash and cash equivalents 339,372 318,803 334,821 312,422 Total financial assets 884,976 824,337 877,359 820,984 Financial liabilities Financial liabilities at amortised cost The Group The Company 2016 2015 2016 2015 $ 000 $ 000 $ 000 $ 000 Related companies 1,230 1,705 1,230 1,705 Payables 119,138 191,864 114,215 187,594 Total financial liabilities 120,368 193,569 115,445 189,299
Page 27 5. FINANCIAL RISK MANAGEMENT (CONT D): (c) Financial instruments not measured at fair value Financial instruments not measured at fair value includes cash and cash equivalents, short term deposits, receivables, payables and related company balances. Due to their short-term nature, the carrying value of cash and cash equivalents, short term deposits, receivables, payables and related company balances approximate their fair value. (d) Financial risk factors The Board of Directors has overall responsibility for the determination of the group s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the group s finance function. The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investments of excess liquidity. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the group's competitiveness and flexibility. Further details regarding these policies are set out below: (i) Market risk Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates. Currency risk arises from property rental income, trade receivables, payables and foreign currency cash and cash equivalents. The group manages this risk by ensuring that the net exposure in foreign assets and liabilities is kept to an acceptable level by monitoring currency positions. The group further manages this risk by maximizing foreign currency earnings and holding net foreign currency assets.
Page 28 5. FINANCIAL RISK MANAGEMENT (CONT D): (d) Financial risk factors (cont d) (i) Market risk (cont d) Currency risk (cont d) Concentration of currency risk The table below summarises the group s exposure to foreign currency rate risk at 31 March 2016. At 31 March 2016 - The Group US GBP Euro Cayman CAN Barbados J$ 000 J$ 000 J$ 000 J$ 000 J$ 000 J$ 000 Financial assets: Cash and cash equivalents 116,850 1,941 223 27 1,108 4,550 Short term deposits 130,850 - - - - - Accounts receivable 130,324 - - - - 13,485 Total financial assets 378,024 1,941 223 27 1,108 18,035 Financial liability: Payables 7,502 - - - - 4,987 Total financial liability 7,502 - - - - 4,987 Net financial position 370,522 1,941 223 27 1,108 13,048 At 31 March 2015 Total financial assets 424,635 893 149 24 648 7,537 Total financial liability 67,689 - - - - 4,270 Net financial position 356,946 893 149 24 648 3,267
Page 29 5. FINANCIAL RISK MANAGEMENT (CONT D): (d) Financial risk factors (cont d) (i) Market risk (cont d) Currency risk (cont d) Concentration of currency risk (cont d) The table below summarises the company s exposure to foreign currency rate risk at 31 March 2016. At 31 March 2016 The Company US GBP Euro Cayman CAN J$ 000 J$ 000 J$ 000 J$ 000 J$ 000 Financial assets: Cash and cash equivalents 116,850 1,941 223 27 1,108 Short term deposits 130,850 - - - - Accounts receivable 127,235 - - - - Total financial assets 374,935 1,941 223 27 1,108 Financial liability: Payables 7,502 - - - - Total financial liability 7,502 - - - - Net financial position 367,433 1,941 223 27 1,108 At 31 March 2015 Total financial assets 422,416 893 149 24 648 Total financial liability 67,689 - - - - Net financial position 354,727 893 149 24 648
Page 30 5. FINANCIAL RISK MANAGEMENT (CONT D): (d) Financial risk factors (cont d) (i) Market risk (cont d) Currency risk (cont d) Foreign currency sensitivity The following table indicates the sensitivity of profit before taxation to changes in foreign exchange rates. The change in currency rate below represents management s assessment of the possible change in foreign exchange rates. The sensitivity analysis represents outstanding foreign currency denominated cash and bank balances, short term deposits, payables and receivable balances, and adjusts their translation at the year-end for 6% (2015 10%) depreciation and a 1% (2015 1%) appreciation of the Jamaican dollar against the various currencies. The changes below would have no impact on other components of equity. The Group Effect on Effect on % Change in Profit before % Change in Profit before Currency Currency Rate Taxation Currency Rate Taxation 2016 2016 2015 2015 $ 000 $ 000 USD +1 (3,705) +1 ( 3,569) GBP +1 ( 19) +1 ( 9) CAN +1 ( 11) +1 ( 6) Euro +1 ( 2) +1 ( 1) Barbados +1 ( 130) +1 ( 33) USD -6 22,231-10 35,694 GBP -6 116-10 89 CAN -6 66-10 65 Euro -6 13-10 14 Cayman -6 2-10 2 Barbados -6 783-10 376
Page 31 5. FINANCIAL RISK MANAGEMENT (CONT D): (d) Financial risk factors (cont d) (i) Market risk (cont d) Currency risk (cont d) Foreign currency sensitivity (cont d) The Company Effect on Effect on % Change in Profit before % Change in Profit before Currency Currency Rate Taxation Currency Rate Taxation 2016 2016 2015 2015 $ 000 $ 000 USD +1 (3,674) +1 ( 3,547) GBP +1 ( 19) +1 ( 9) CAN +1 ( 11) +1 ( 6) Euro +1 ( 2) +1 ( 1) USD -6 22,046-10 35,473 GBP -6 116-10 89 CAN -6 66-10 65 Euro -6 13-10 14 Cayman -6 2-10 2 Price risk Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The group does not have a significant exposure and as such, market price fluctuations are not expected to have a material effect on the net results or stockholders equity. Cash flow and fair value interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Floating rate instruments expose the group to cash flow interest rate risk, whereas fixed rate instruments expose the group to fair value interest rate risk.
Page 32 5. FINANCIAL RISK MANAGEMENT (CONT D): (d) Financial risk factors (cont d) (i) Market risk (cont d) Cash flow and fair value interest rate risk (cont d) Short term deposits are the only interest bearing assets within the group. The group s short term deposits are due to mature and re-price respectively, within 12 months of the reporting date. Interest rate sensitivity There is no significant exposure to interest rate risk on short term deposits, as these deposits have a short term to maturity and are constantly reinvested at current market rates. (ii) Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit risk arises from trade receivables, short term deposits and bank balances. Trade receivables Revenue transactions in respect of the group s primary operations are settled in cash. For its operations done on a credit basis, the group has policies in place to ensure that sales of services are made to customers with an appropriate credit history. Cash and bank balances Cash transactions are limited to high credit quality financial institutions. The group has policies that limit the amount of credit exposure to any one financial institution. Maximum exposure to credit risk The maximum exposure to credit risk is equal to the carrying amount of trade and other receivables, short term deposits and cash and bank balances in the statement of financial position.
Page 33 5. FINANCIAL RISK MANAGEMENT (CONT D): (d) Financial risk factors (cont d) (ii) Credit risk (cont d) Trade receivables that are past due but not impaired As at 31 March 2016, trade receivables of $7,079,992 (2015 - $9,023,255) were past due but not impaired. These relate to independent customers for whom there is no recent history of default. Trade receivables that are past due and impaired As of 31 March 2016, the company had trade receivables of $9,894,308 (2015 - $7,131,724) that were impaired. The amount of the provision was $9,894,308 (2015 - $7,131,724). These receivables were aged over 30 days. Movements on the provision for impairment of trade receivables are as follows: The Group and the Company 2016 2015 $ 000 $ 000 At 1 April 7,132 3,351 Provision for receivables impairment 3,181 3,781 Receivables written off during the year as uncollectible ( 419) - At 31 March 9,894 7,132 The creation and release of provision for impaired receivables have been included in expenses in profit or loss. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. Impairment estimates have been adjusted based on actual collection patterns.
Page 34 5. FINANCIAL RISK MANAGEMENT (CONT D): (d) Financial risk factors (cont d) (ii) Credit risk (cont d) Concentration of risk trade receivables The following table summarises the company s credit exposure for trade receivables at their carrying amounts, as categorized by the customer sector: The Group The Company 2016 2015 2016 2015 $ 000 $ 000 $ 000 $ 000 International: MoneyGram 130,273 118,822 127,185 116,604 Local: Loans to individuals 206,915 154,335 206,915 154,335 Other 47,420 25,667 33,935 24,510 384,608 298,824 368,035 295,449 Less: Provision for credit losses ( 9,894) ( 7,132) ( 9,894) ( 7,132) 374,714 291,692 358,141 288,317 (iii) Liquidity risk Liquidity risk is the risk that the group will be unable to meet its payment obligations associated with its financial liabilities when they fall due. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. Liquidity risk management process The group s liquidity management process, as carried out within the group and monitored by the Finance Department, includes: (i) (ii) (iii) (iv) Monitoring future cash flows and liquidity on a daily basis. Maintaining a portfolio of short term deposit balances that can easily be liquidated as protection against any unforeseen interruption to cash flow. Maintaining committed lines of credit. Optimising cash returns on investments.