Results for 12-month period ended 31 March 2019

30 July 2019

 

Myanmar Strategic Holdings Ltd.

("MSH" or the "Company" or the "Group")

 

Results for 12-month period ended 31 March 2019

The Board of Myanmar Strategic Holdings (LSE: SHWE), an independent developer and manager of consumer businesses located in Myanmar, is pleased to announce its audited results for the 12-month period ended 31 March 2019.

Copies of the annual report and accounts for the 12-month period ended 31 March 2019 will be posted to shareholders shortly and an electronic copy will shortly be made available on the Company's website.

HIGHLIGHTS

Financial Highlights

All dates refer to the financial year ended 31 March 2019 ("2019"), unless otherwise stated.

·    Group revenues increased 459% year on year ("YOY") to US$4.4 million, of which 78% derived from Services, 20% from Education and 2% from Hospitality.

·    Created a "Services" division following the successful acquisition in May 2018 of EXERA, one of Myanmar's leading providers of integrated security and risk management services, for US$2.2 million.

·    Received an investment permit from the Myanmar Investment Commission ("MIC") in April 2019 in relation to the Company's first international school, the Yangon American International School, which has been launched in June 2019.

·    Adjusted EBITDA loss widened to US$2.1 million (2018: US$1.5 million), primarily due to the pre-opening operating losses of Yangon American (US$0.4 million), the reorganisation of EXERA and a slower tourism market.

·    Net loss amounted to US$2.5 million (2018: US$2.1 million).

·    Underlying revenues, an indicator of the volume of business generated by the managed and owned businesses, increased 130% YOY to ca. US$7.3 million of which 47% derived from Services, 36% from Education and 17% from Hospitality.

·    The Company raised US$3.07 million (153,500 new shares at a price of US$20 per share) as part of its share issuance programme announced in March 2018.

·    A new share issuance programme of up to 480,000 shares at a price of not less than US$20 per share was launched in July 2018.

·    Loans of up to US$3 million with Macan Pte. Ltd., of which US$2 million was drawn immediately, were also secured in July 2019.

Operational Highlights

Education
 

·    Group revenues arising from the management of the education businesses for the year were US$874,737 (2018: US$611,870).

·    Through its Education division, the Group is currently active in (i) English language learning (Wall Street English), (ii) higher education (Auston College Myanmar) and (iii) K-12 international school (Yangon American International School).

·    Under the Wall Street English brand ("WSE"), the Group manages three retail English language centres and one corporate centre.  As at 31 March 2019, WSE served ca. 1,400 registered students across its retail and corporate centres and has established itself as the leading private English language education provider in Myanmar.

·    The Group continues to seek opportunities to expand the WSE franchise as it holds the exclusive rights to develop a further seven WSE retail centres (up to a total of 10) over the next eight years. In December 2018 the Company also purchased the remaining minority non-controlling interest of 8% in MS English, yielding full ownership.

·    Within its higher education portfolio, MSH manages Auston College Myanmar ("Auston"), a private school offering foundation and diploma programs in engineering. The first campus opened in Yangon in May 2018, spans over three floors and covers 700 sqm.

·    In April 2019, the Group has also received the MIC investment permit in relation to its first international school, the Yangon American International School ("Yangon American"). The school is centrally located in Yangon in a campus of over 3,000 sqm. Its planned capacity is 400 students and operations will commence on time in August 2019.

·    During the financial year, the education businesses generated underlying revenues of US$2.6 million (2018: US$1.5 million).

 

Services

 

·    Group revenues arising from rendering of services from the date of acquisition to the reporting date were US$3.4 million (For the financial year ended 31 March 2019: US$4.1 million; 2018: US$4.0 million).

·    Through its Services division, the Group provides a range of integrated security, risk management, journey management and cash in transit services under the EXERA brand.

·    Acquired by the Group in May 2018, EXERA is an internationally managed provider of security and risk management services, operating exclusively in Myanmar. With an experienced workforce of over 1,000 security officers as at 31 March 2019, EXERA provides guarding, protective services, transportation, training, and nationwide risk consulting, to a wide range of international and local clients.

·    Its customer base includes multi-national corporations, large oil and gas companies, established local businesses and governmental bodies and international organisations such as WFP, UNHCR, UNICEF and the EU. It is worth noting that, since its acquisition in May 2018, EXERA has been able to retain 80% of the contracts that came up for renewal or retention.

·    In May 2019 EXERA has been awarded the prestigious contract for the provision of security guarding services at the Singapore Embassy in Yangon for a period of three years. The total tendered price was ca. US$478,000 for the initial period of three years.

 

Hospitality

 

·    Management and technical assistance fees to the Group for the year were US$105,000 (2018: US$180,000). The reduction in fees was mainly due to a broader decline in tourist arrivals in Myanmar linked to the political uncertainty and the conflicts in Rakhine State.

·    Under its Hospitality division, the Group manages four boutique hostels across three of the most popular tourist destinations in Myanmar. Following the opening of its fourth boutique hostel, Ostello Bello Bagan Pool, the Group raised the number of beds under management to 474, spread over 108 rooms in 4 locations across Bagan, Mandalay and Nyaung Shwe.

·    During the financial period, the number of beds sold amounted to 65,763 (2018: 84,824) and the underlying revenues of managed businesses were US$1.2 million (2018: US$1.7 million).

·    The Group's main focus is to maintain a strong operating performance and generate operational synergies to offset the currently challenging operating environment in the Myanmar tourism sector.

·    Management maintains a positive outlook on the long-term prospects of the Myanmar tourism sector and is pursuing expansion opportunities in both established tourist hubs (e.g. Yangon and Ngapali) as well as up and coming destinations (e.g. Hpa-An and Ngwe Saung).

·    It is worth noting that in July 2019, Bagan was approved for inclusion on UNESCO's World Heritage List, more than two decades after it was first nominated. This strong vote of confidence is expected to drive an increase in overall tourism inflows in the next 12 months.

 

New Business Development

 

·    As demonstrated by the post period events listed below, MSH continues to develop its business network and expand its pipeline within the Company's existing sectors (e.g. Services, Education and Hospitality) and new sectors (e.g. Technology).

·    On 21 May 2018, MSH agreed to make a strategic minority investment of US$150,000 in NEXLABS, one of Myanmar's leading digital consulting firms. The firm was founded in 2013 in Yangon by Ye Myat Min, one of Forbes Asia's 30 under 30 in 2016 and employs over 80 experienced professionals.

·    Management will also routinely conduct in-depth studies of new sectors (e.g. Healthcare, Retail and Financial Services) and determine whether to allocate additional human and financial resources to selected initiatives.

 

Post Period End Events

 

Proposed acquisition of Myanmar Investments Limited

 

·    On 18 June 2019, the Board of MSH announced that it had made an indicative proposal to the Board of Myanmar Investments International Limited ("MIL") suggesting a combination of MSH and MIL.

·    The Board of MSH believes that a combination of MSH and MIL would generate significant value to both companies and their respective shareholders by:

§ preserving the legacy and the goodwill of the MIL and the MSH franchises;

§ unlocking further value within the MIL and MSH investment portfolios;

§ leveraging the experience of the MSH team and the combined investor base in Mergers and Acquisitions and Equity Capital Markets transactions to maximise the value of each company's investments;

§ accessing a portfolio of attractive investment and consolidation opportunities in high-growth sectors such as microfinance, consumer retail, education, hospitality and security;

§ attracting, developing and retaining high quality talent as one of the leading employers in Myanmar;

§ driving significant revenue and cost synergies through the cross-fertilisation of customer bases and the removal of duplicated functions and expenses;

§ potentially generating greater liquidity for shareholders by virtue of a larger market capitalisation; and

§ improving the overall attractiveness of the combined business to new investors thanks to the significantly larger size and a diversified portfolio of operating businesses and strategic investments.

·    MSH's indicative proposal to the Board of MIL comprised a cash and share offer to be effected by way of a British Virgin Islands Scheme of Arrangement or Takeover Offer. MSH's indicative proposal would value MIL at US$0.75 per share, an implied premium of 23% vs. the block trade conducted on 30 April 2019 at US$0.61 per share, and comprised of: (i) Cash: US$0.10 per MIL share, and (ii) MSH shares: one newly issued MSH share for 16 MIL shares (equivalent to ca. US$0.65 per MIL share based on MSH's closing share price of US$10.50 (as at 17 June 2019) or ca. US$1.25 per MIL share based on MSH's latest share issuance at US$20.00 per share).

·    On 18 and 19 June 2019, MIL issued statements in which the Board of MIL and its Shareholders rejected MSH's unsolicited approach "as it significantly undervalues the Company and does not attribute fair value to the Company's assets, nor their future upside".

 

Share issuance programme and loan facility

 

·    On 1 July 2019, the Company announced the launch of a share issuance programme (the "Share Issuance Programme") for up to four hundred and eighty thousand (480,000) new ordinary shares in the Company over the next 12 months at a an issue price which is not less than US$20 per share.

·    The Share Issuance Programme is being implemented to provide the Company with flexibility should it wish to raise further capital as new investment opportunities arise in Myanmar over the next 12 months and to provide the Company with additional working capital.

·    In addition to the Share Issuance Programme, the Company has put in place a Loan Facility of up to US$3.0 million with MACAN Pte. Ltd., the Company's largest shareholder and a related party. The Loan Facility will have a tenure of up to 3 years, may be repayable earlier at the Company's discretion and will have an interest rate of 6.0% per annum. The Company has drawn down US$2.0 million immediately.

MIC permit in relation to Yangon American and opening of the international school

 

·    In April 2019, the Group received an investment permit from the Myanmar Investment Commission.

·    The permit was granted under the 2016 Investment Law, following the issue of MIC Notification No. 7 of 2018 for carrying out investment activities in education services and private international school(s) and provides the Company with additional investment protection and tax benefits.

·    Yangon American was officially launched in June 2019 and is scheduled to commence full operations in August 2019.

 

Myanmar Macroeconomic Highlights

 

·    The World Bank projects global economic growth to slow down to 2.6% in 2019 from 3.0% in 2018, reflecting a broad-based weakness in the global economy, global trade uncertainty and global financial markets volatility.

·    The World Bank expects Myanmar's economic growth to pick up to 6.8% in 2018/2019. The Asian Development Bank expects similar rates of 6.6% for 2019 and 6.8% in 2020. This is a testament to the stability of Myanmar's growth, despite unrest in relation to the conflict in Rakhine State, of which the Company is acutely aware.

·    Core inflation remains stable, with the Asian Development Bank forecasting inflation rates of 6.8% in 2019 and 7.5% in 2020 (vs. 7.1% in 2018).

·    Opening of the Myanmar insurance sector in April 2019, as Myanmar's government provisionally authorised five multinational insurance companies to establish wholly owned subsidiaries. Operations are expected to commence by the end of 2019.

·    Further liberalisation of the Myanmar banking and financial services sector announced. Plans to award additional foreign bank branch licenses and allow foreign banks to apply for and operate as a subsidiary of a foreign bank. In June 2019 the International Finance Corporation ("IFC") also converted a loan to Yoma Bank into a 5% equity shareholding.

·    Relaxation of visa requirements for citizens of Australia, Germany, Italy, Russia, Spain and Switzerland, with effect from 1 October 2019, and approval for inclusion of Bagan on UNESCO's World Heritage List in July 2019 expected to further boost international tourism arrivals.

·    Significant increase in subsidised power tariffs, with effect from 1 July 2019, showing the strong commitment of Myanmar's government towards sustainability. This is also expected to attract additional investment into the energy sector.

 

Enrico Cesenni, Chief Executive Officer of Myanmar Strategic Holdings, commented: 

"I am very pleased to announce the Company's full year results, which represent a truly transformational period of growth for the overall business. Over the course of the year, we have not only focused upon the improvement and management of the Group's existing businesses, but also remained prudent to new potential opportunities, as proven by the acquisition of EXERA in May 2018.

"We believe we have been successful in providing the Group's businesses with a solid platform from which to grow organically. For the year ahead, we will be focused on further developing the Company's presence as a leading provider of education services in Myanmar, as well as broadening the Company's customer base and product portfolio across the Group's Services division.  

"The Board is confident that the Company's consumer-focused businesses are well positioned both to contribute to, and also benefit from, the favourable outlook for economic growth in Myanmar, and we look forward to updating shareholders on our progress in due course."

 

For more information please visit www.ms-holdings.com or contact:

Myanmar Strategic Holdings Ltd. Richard Greer, Independent Non-Executive Chairman Enrico Cesenni, Founder and CEO	[email protected] [email protected]
Allenby Capital Limited (Broker) Nick Athanas Nick Naylor Nicholas Chambers	+44 (0)20 3328 5656
Yellow Jersey PR (Financial PR) Felicity Winkles Henry Wilkinson	+44 (0)20 3004 9512

 

 

CHAIRMAN'S STATEMENT

Strategy

Myanmar Strategic Holdings' vision is to become the leading developer and manager of consumer businesses in Myanmar while maintaining an asset light strategy.

Since the Company's inception, our focus has been on building committed and experienced management teams capable of starting and growing businesses, while benefiting from the tailwinds of a positive macroeconomic environment. I am very pleased to report that all the businesses we manage are now in their expansion phase and we are generating synergies across the different products and divisions. We are confident that our growth will continue both organically and through acquisitions.

Focused diversification is and will remain at the core of our strategy as it allows MSH to stabilise its expected growth while at the same time capitalising on the opportunities currently available in Myanmar's dynamic economy. In line with this strategy, in May 2018 MSH concluded the acquisition of EXERA, one of Myanmar's leading providers of security and risk management services. EXERA brings to the Group a large base of corporate customers with opportunities for cross-fertilisation across the divisions of the Group.

It is also key for MSH to source and evaluate transformational acquisition opportunities that can deliver scale and liquidity to MSH's businesses and stakeholders in the next 24 to 36 months. In June 2019, MSH announced the proposed acquisition of Myanmar Investments International Limited ("MIL"), an investing company listed on the AIM segment of the London Stock Exchange. We believe that a combination of MSH and MIL would create one of the largest listed companies focused on Myanmar and deliver significant strategic benefits and increased liquidity to the combined shareholder base. While the MIL Board has announced its initial rejection of our approach, we continue to believe that a combination of MSH and MIL would benefit both companies and be attractive to both our and MIL's shareholders.

 

Board's responsibility

The Board is fully aware of the responsibility that it carries in ensuring that all of our businesses operate in a manner that reflects our corporate and social responsibility to all of our stakeholders. We target sectors that positively contribute to the overall development of Myanmar and within these sectors we aim to build businesses that embody the best terms of business, environmental, social and governance practices.

The Board and the Group's management actively promote sustainability and diversity as we believe it is a core strategic advantage that will enable the Group to maintain its leading competitive position in the future.

Equal opportunities are promoted across the Group and we are proud to report that female representation across our workforce is approximately 46% (excluding EXERA).

Training programs are being implemented across the Group to foster an environment where talent can emerge and flourish. We are proud to report that the local workforce represents over 95% of MSH's workforce.

 

Outlook

In the financial year ended 31 March 2019, MSH focused on the growth of its Education division and the integration of EXERA into its newly created Services division. Key appointments have been made across the organisation, the most senior being Alain Thibault as CEO of Wall Street English Myanmar, Mark Wakeford as CEO of EXERA Myanmar and Francesco Romagnoni as General Manager of Ostello Bello Myanmar.

The expansion of our business portfolio and the growth of our management team has lead to a temporary growth in the Group's net losses. This trend may revert in 2019/2020.

The next twelve months will be dedicated to expanding MSH's customer base while at the same time adding complementary products (e.g. English for children) and capabilities (e.g. facilities management) to MSH's portfolio.

While we are acutely aware of the complex political and social environment, we continue to maintain an optimistic stance on Myanmar's economic prospects, and we aim to contribute to its positive development as a responsible investor in the region.

As Myanmar's economy continued to develop at high single digit rates, management will increasingly focus on businesses targeting the population's primary needs such as education, security and healthcare.

I am very confident that Myanmar Strategic Holdings is building one of the most committed and aligned management teams in Myanmar. This will enable us to evaluate and approach investment opportunities with a unique strategic and data driven angle, which will significantly differentiate MSH from the other providers of capital and / or technical expertise in the country.

Our management depth will also enable the Group to evaluate its involvement in minority investment opportunities in which it could play a significant role as a strategic shareholder. As local companies evolve, the Board expects in fact more sophisticated and structured companies to approach the market looking for strategic investors.

The Board wants to thank our shareholders, for their continued support and encouragement, and our staff and partners, for their relentless commitment and effort.

 

RICHARD GREER

Independent Non-Executive Chairman

29 July 2019

 

OPERATIONAL REVIEW

EDUCATION DIVISION

The Group's objective is to become one of the leading private operators of educational institutions in Myanmar through the identification and expansion of opportunities in the sector, focusing initially on English language learning and higher education.

Within its Education division, the Group is currently active in (i) English language learning (Wall Street English), (ii) higher education (Auston College) and (iii) K-12 international school (Yangon American International School).

The Group generates revenues through management fees, technical assistance fees, royalty fees and other one-off fees ("Fees to the Group") from the operations it manages. These fees are variable in nature and typically linked to the operating performance and, ultimately, the revenue generation of the underlying managed operations (hereby reported as "Underlying Revenues").

 

Wall Street English

During the financial period, the Group's Education division managed three English language retail centres and one corporate centre under the well-established Wall Street English brand. As at 31 March 2019, total registered students amounted to ca. 1,400.

The flagship WSE centre opened in Yangon at the Junction Square Shopping Centre in February 2017 and spans five floors over 800 sqm. The second WSE centre opened in Yangon at City Mall St. John in December 2017 and is located on an open floor of ca. 600 sqm. A third WSE centre opened in Yangon at Myanmar Plaza in August 2018 and is located on an open floor of 350 sqm.

Pursuant to a strategic partnership with MCTA:RVi Academy Mandalay announced in July 2018, WSE has also agreed to provide English language training within the premises of MCTA's Mandalay campus.

Over the financial year ended 31 March 2019, the Wall Street English business generated underlying revenues of US$2.6 million (2018: US$1.5 million) with fees and royalties to the Group of US$874,737 (2018: US$611,870).

From an operational perspective, we are proud to report that Myanmar currently ranks as one of the top countries in the Wall Street English network in terms of student progress: student satisfaction is key to establishing Wall Street English as the leading English language education provider in Myanmar. From a global perspective, it is also worth noting that in May 2019, Wall Street English was awarded "Best Education Platform of the Year" at the EducationInvestor Asia Awards 2019.

Management is in the process of assessing further growth opportunities for Wall Street English business in order to meet the average development targets stated under the area development agreement with Pearson of approximately one new centre per year up to a total of ten centres. Further sub-franchising opportunities in Myanmar will be evaluated in due course.

Finally, the Board is also evaluating how to further expand nationwide coverage through innovative digital solutions such as WSE's digital classroom.

Auston College Myanmar

Auston College ("Auston") is the result of a strategic collaboration signed in April 2018 between Myanmar Strategic Holdings (70% equity interest) and Auston Institute of Management (30% equity interest), an operator of private schools in Singapore and Sri Lanka that prepares students for careers in Engineering, IT Technology and Project management through higher education learning.

The first campus opened in Yangon in May 2018, spans over three floors and covers 700 sqm. The initial product portfolio includes foundation programs and diplomas in Infrastructure & Networks, Mechanical Engineering, Engineering Technology and Construction Project Management.

Auston has also partnered with WSE for Auston's students to achieve a high level of English proficiency to ensure they are qualified to take on roles at leading local and international companies.

No fees and royalties to the Group were generated by Auston as the business is still in its ramp-up phase.
 

Yangon American

In December 2018, the Group announced its intention to launch its first international school, the Yangon American International School.

The first Yangon American campus, with planned capacity of up to 400 students, will be positioned as a leading educational institution. The school is centrally located and only 4 km from MSH's educational hub of Wall Street English and Auston Institute of Management in Junction Square.

It has 17 classrooms spread over 2,000 sqm, plus a multi-use playground of more than 1,000 sqm. In its first year of operation, Yangon American will operate classes from nursery through to the third grade, serving students from the age of two to eight with revenues for MSH being generated from student fees, admission fees and ancillary services.

In April 2019, the Group received an investment permit from the Myanmar Investment Commission. The permit granted under the 2016 Investment Law, following the issue of MIC Notification No. 7 of 2018 for carrying out investment activities in education services and private international school(s) and allows the Group to directly own and operate the School business.

Yangon American will also become an IB-PYP candidate in August 2019 and may receive full accreditation by June 2020.

Yangon American has been officially opened on schedule and on budget in June 2019. Operations are scheduled to commence in August 2019.

For the financial period ended 31 March 2019, Yangon American incurred pre-opening losses (mainly rental expenses, salaries and other pre-opening expenses) of US$0.4 million. Yangon American is expected to continue to incur operating losses for the next 18-24 months as the number of students ramps up towards capacity.

Capital expenditures in relation to Yangon American were forecasted at up to US$1 million and management expects to complete the project on budget.

 

SERVICES DIVISION

The Group's objective is to become the leading provider of integrated security services in Myanmar.

Founded in 2012 and acquired by the Group in May 2018 for US$2.2 million, resulting in goodwill of US$1.4 million and other intangibles of US$0.3 million. EXERA provides risk management, consulting, integrated security, manned guarding, secure logistics and cash in transit services to a wide range of international and local clients across Myanmar. EXERA is seeking to acquire other Myanmar businesses that will build capability and accelerate its strategy of targeting key growth sectors including Oil & Gas, Mining, Energy and Telecoms.

As the business is fully owned, the Group generates revenues through the provision of security services to its clients. Typical contracts have a term of 1-3 years with predictable monthly revenues, particularly for core manned guarding services. Risk management services are also provided on a consulting basis.

Since the completion of its acquisition at the end of May 2018, EXERA generated revenues of US$3.4 million (For the financial year ended 31 March 2019: US$4.1 million; 2018: US$4.0 million).

Security Officers and Manned Guarding Services

Through an experienced network of over 1,000 security officers active across 130 sites as at 31 March 2019, EXERA is the largest provider of security services in Myanmar.

EXERA's customer base includes multi-national corporations, large oil and gas companies, established local businesses and governmental bodies and international organisations such as WFP, UNHCR, UNICEF and the EU.

Most recently EXERA was awarded the prestigious contract for the provision of security guarding services at the Singapore Embassy in Yangon for a period of three years. The total tendered price was ca. US$478,000 for the initial period of three years.

EXERA's Security Officers are highly trained in accordance with the guidelines from the British Security Industry Association. Furthermore, EXERA strives to achieve excellence in its systems and processes and has been awarded ISO 9001, OHSAS 18000 and ASNSI/ASIS PSC 1. EXERA is also the only company in Myanmar accredited to "ISO 18788 Management System for Private Security Companies". These accreditations are the hallmark of a company intent on delivering high quality services for the benefit of our customers.

 

Secured Logistics and Cash in Transit Services

EXERA provides a number of customers with English speaking security trained drivers and vehicles on a long-term contract basis. Our services include emergency management and crisis intervention designed to help our clients in the event of a serious accident, medical emergency or natural disaster.

EXERA was one of the very first international providers of cash-in-transit ("CIT") services in Myanmar.  EXERA's CIT services are fully insured from pick-up to drop-off and are executed by a highly trained team including an operations manager and Cash Escort Officers.

Our cash in transit operations are continuously monitored by EXERA's 24/7 command centre. This combination of international standards with local expertise and knowledge makes our team perfectly tailored to conduct CIT operations in Myanmar. The team's training and knowledge spans all elements of CIT services, including equipment and vehicle use, standard operating procedures and fail-safe systems designed to prevent theft and thwart any attempted robberies.

EXERA operates the most sophisticated and secure CIT vehicle in Myanmar.

Security features include:

·    Remote-authorised access control facilitated by Salto™, one of the world's top manufacturers of electronic access control systems

·    360° CCTV camera coverage (internal & external)

·    Air-lock multi-stage entry system and anti-cut panels

·    Geofencing / distance limitations paired with continuous tracking

EXERA is currently in discussion with a number of financial institutions to evaluate transformational outsourcing opportunities in relation to cash management and movement services.

Facilities Management and New Services

EXERA's strategy is to develop new services that differentiate it from its competitors, build barriers to entry and provide a wider range of support services to existing and new customers. As part of this strategy, EXERA is developing a comprehensive facilities management capability. EXERA is now providing Facility Management services to Yangon American International School and the wider MSH Group.

 

HOSPITALITY DIVISION

The Group's objective to become a leading independent hospitality operator in Myanmar by initially focusing on boutique hostels and expanding into other categories as new opportunities are identified.

The Group generates revenues through management fees, technical assistance fees, royalty fees and other one-off fees ("Fees to the Group") from the operations it manages. These fees are variable in nature and typically linked to the operating performance and, ultimately, revenue generation of the underlying managed operations (hereby reported as "Underlying Revenues").

During the previous financial year, the Group signed up a fourth boutique hostel, the second in New Bagan. The property re-opened as Ostello Bello Bagan Pool in November 2017, featuring 58 beds across 13 rooms with en-suite bathrooms. Following the opening of this fourth hostel, the Group currently manages 474 beds over 108 rooms in four hostels across three of the most popular tourist destinations in Myanmar. No new properties have been opened in 2019 as management expect further pressure on prices.

The four hostels under management generated underlying revenues of US$1.2 million (2018: US$1.7 million) with Fees to the Group of US$105,000 (2017: US$180,000) for the financial year ended 31 March 2019. In line with the previous year all the Fees to the Group for the Hospitality division were generated by Ostello Bello Bagan as the other three properties were still in a start-up phase. The US$75,000 decline in the fees generated by Ostello Bello Bagan was due, primarily, to a contraction in its underlying revenues by ca. US$0.5 million (-46% vs. the previous financial year) which was partially offset by a range of cost control initiatives and operational synergies.

The properties sold 65,763 beds (2018: 84,824) generating a revenue per bed of US$18.4 (2018: US$19.8). Occupancy rates sustained a much stronger decline than prices, mainly due to the overall slowdown in Myanmar's tourism market. It is worth noting that the decline in bed revenues was partially offset by the increase in food and beverage and ancillary revenues, such as travel and tours, sold to guests.

International visitor arrivals for the first five months of 2019 have shown a strong increase of ca. 28% (Source: Myanmar's Ministry of Hotel and Tourism), though this trend is mainly driven by an increase in arrivals from China (+137% YOY). Arrivals from Europe and the U.S. have remained depressed: U.S. (+3% YOY), Canada (-4% YOY), Western Europe (-2.5% YOY). This trend is expected to partially reverse in 2019- 2020 as the unrest in Rakhine State moves towards a long-term resolution.

The Board also notes that in July 2019 Bagan was finally approved for inclusion on UNESCO's World Heritage List, more than two decades after it was first nominated. The Board believes that this will drive a renewed wave of interest in Myanmar and its heritage sites.

The Group intends to expand its boutique hostel model across Myanmar focusing on core locations (such as Bagan, Mandalay and Inle Lake/Nyaung Shwe) and secondary locations (Hpa-An, Hsipaw, Pyin Oo Lwin, Mrauk-U, Nat Ma Taung and Ngwe Saung). While being optimistic on the long-term opportunity, Management is currently evaluating new locations on an opportunistic basis.

 

 

SUSTAINABILITY AND DIVERSITY

Diversity

Maintaining diversity at all levels is pivotal to the Group's success. Myanmar Strategic Holdings believes that an inclusive, service-oriented culture is fundamental to attracting and retaining skilled and talented people, generate long-term value to its shareholders and make lasting and meaningful contributions to the surrounding communities.

As at 31 March 2019, the Group directly and indirectly employed over 1,400 full-time employees ("FTEs") (incl. 300 FTEs employed within the businesses under management) with over 10 nationalities. Female representation amount to ca. 46% of the total workforce (excluding EXERA), a remarkable achievement for a market at this stage of development. While female participation is lower in MSH's integrated security services business, management encourages higher female participation through targeted hiring initiatives.

With regards to gender pay, we believe that men and women with similar roles and similar responsibilities should be paid equally. At this stage we are not aware of any gap between the pay of male and female employees.

While the representation of female employees in senior management roles is already significant, Myanmar Strategic Holdings remains committed to increase participation of women in senior roles by developing specific training and talent programmes in line with the organisation's size and stage.

 

Environment

Myanmar Strategic Holdings is very aware of the environment it operates in. Its managed Hospitality operations are spread across Bagan, Nyaung Shwe and Mandalay, some of the country's most beautiful and untarnished touristic sights.

The preservation of the natural environment and respect for the local community is key to the Group's long-term sustainability. In its operations, MSH seeks to have as low an impact on its surroundings as possible, limiting the use of plastic and sorting waste. During the course of 2018, Ostello Bello substituted plastic water bottles with water jars and joined the "No Straw" and "Bring your own bottle" campaigns. Furthermore, MSH's staff frequently participate in local litter collection initiatives such as "Trash hero" in Mandalay and environmental workshops in Bagan.

MSH will seek to introduce similar initiatives across the Group. Our ultimate objectives are to reduce overall plastic usage and eradicate single-use plastics.

 

Community

In addition to reducing its environmental footprint, the Group remains also committed to contributing to the development of Myanmar's society. MSH works closely with village leaders to support the communities in which it operates and has sponsored multiple activities benefiting the local communities including, among others, health and safety trainings such as the Red Cross' first aid training.

Ostello Bello often partners with leading international NGOs to promote sustainable development. For example, all Ostello Bello locations offer MBoutik souvenirs manufactured by independent women producers in villages across Myanmar.

MBoutik is a social enterprise initiative of Action Aid Myanmar, whereby women were trained in artisan crafts of weaving, tailoring, jewellery making and rattan, with the ultimate objective of promoting women's and local communities' development.

Through its Wall Street English language centres, MSH is also contributing to accelerating capacity building through the provision of English language courses. A partnership with the Directorate of Investment and Corporate Administration to train ten of its senior officials was announced in July 2018.

Finally, throughout the education division, the Group routinely offers scholarships for underprivileged and talented students.

 

FINANCIAL REVIEW

The revenues generated by the Group in relation to the businesses owned and managed grew to US$4.4 million for the financial year ended 31 March 2019 (a 459% YOY increase) as a result of the acquisition of EXERA at the end of May 2018 and the higher fees generated by the Education businesses under management, following the expansion of Wall Street English.

The fees generated by the Group in relation to the businesses under management were US$1.0 million for the financial year ended 31 March 2019 (2018: US$0.8 million). The 43% YOY increase in the fees generated by Wall Street English was partially offset the 42% decline in the fees generated by Ostello Bello Bagan as outlined in the Review of Operations.

 

RESULTS OF OPERATIONS

The Group's Adjusted EBITDA loss, which excludes expenditure of a one-off nature and therefore shows a clearer picture of the performance of the operations, widened to US$2.1 million (2018: US$1.5 million), mainly due to (i) Yangon American pre-opening losses US$0.4 million, (ii) the re-organisation of EXERA and (iii) certain one-off expenses.

The Group's net loss amounted to US$2.5 million for the financial year ended 31 March 2019 vs. US$2.1 million for the previous financial year.

 

 

 

 

 

 

	Audited Year ended 31 March 2017	Audited Year ended 31 March 2018	Audited Year ended 31 March 2019
	US$	US$	US$
Revenue	330,074	791,870	4,424,892
Other income	1,255	13,182	4,932
Employee benefits expense	(504,379)	(1,236,442)	(3,847,090)
Other expenses (Excl. one-off expenses pursuant to the listing application, deal-related expenses and losses on disposals)	(1,741,010)	(1,100,624)	(2,638,392)
Adjusted EBITDA	(1,914,060)	(1,532,014)	(2,055,658)
One-off expenses pursuant to the listing application, deal-related expenses and loss on disposals	(428,476)	(360,994)	(321,523)
Depreciation expense	(7,295)	(11,406)	(61,484)
Finance cost	(31,522)	(140,718)	-
Amortisation expense	(3,611)	(21,667)	(128,229)
Loss before income tax	(2,384,964)	(2,066,799)	(2,566,894)
Income tax	553	-	30,330
Loss for the financial year, representing total comprehensive income for the financial year	(2,384,411)	(2,066,799)	(2,536,564)
Loss and total comprehensive income attributable to:
Owner of the parent	(2,372,969)	(2,050,432)	(2,534,646)
Non-controlling interests	(11,442)	(16,367)	(1,918)
Loss per share
- Basic	(1.28)	(0.95)	(1.03)
- Diluted	(1.28)	(0.95)	(1.03)

 

 

While revenues grew by 459% vs. the previous year, the acquisition of EXERA and the expansion of the existing businesses, lead to a 211% YOY increase in employee benefit expenses and a 140% YOY increase in other expenses.

Direct and indirect Full Time Employees ("FTEs") increased to ca. 1,400 (ca. 250 as at 31 March 2018), of which ca. 300 FTEs (2018: ca. 230) employed within the operations under management and ca. 1,100 FTEs (2018: ca. 20) employed in the owned operations. Such exponential growth was due to the acquisition of EXERA (over 1,000 security officers as at 31 March 2019) and the growth in the education businesses, including Yangon American.

As detailed in the Financial Statements, the growth in other expenses, was mainly due to the additional expenses in relation to EXERA (e.g. operating leases of motor vehicles of US$0.3 million in 2019), higher rental expenses for the international school and the offices (US$0.3 million in 2019 vs. US$0.1 million in 2018) and higher hostel related expenses (US$0.3 million in 2019 vs. US$0.2 million in 2018).

The Group also incurred one-off expenses and losses on disposals of US$0.3 million (2018: US$0.4 million), mainly due to the one-off deal-related expenses for the acquisition of EXERA.

During the financial year, the Company raised US$3.07 million (153,500 shares at a price of US$20 per share) within the Share Issuance Programme announced in March 2018.

In line with the Group's dividend policy, the Board is not declaring the payment of a dividend.

UNDERLYING REVENUE

The Underlying Revenues are an indicator of the total volume of business generated in each division. The operating businesses managed and owned by the Group generated revenues ("Underlying Revenues") of US$7.3 million for the financial year ended 31 March 2019 (2018: US$3.2 million), an increase of ca. 130% YOY.

The growth of the existing Education and Hospitality businesses was further enhanced by (i) the opening of Auston College Myanmar in May 2018, (ii) the opening of a third WSE retail centre in August 2018 and (ii) the launch of the MCTA:RVi WSE corporate centre in November 2018.

The businesses owned by the Group generated revenues of US$3.4 million since EXERA's acquisition (For the financial year ended 31 March 2019: US$4.1 million, 2018: US$4.0 million). This relates exclusively to EXERA, the integrated security services company operating within MSH's Services division.

 

	Unaudited Year ended 31 March 2017	Unaudited Year ended 31 March 2018	Unaudited Year ended 31 March 2019
Underlying Revenue	US$	US$	US$
Managed Businesses
Hospitality	1,238,046	1,679,852	1,209,258
Education	33,041	1,483,851	2,618,741
Food and Beverage (Discontinued Operations)	105,914	-	-
Total managed businesses	1,377,001	3,163,703	3,827,999
Owned Businesses	-	-	3,445,155
Total underlying revenues	1,377,001	3,163,703	7,273,154
Growth %	59%	130%	130%

 

GROUP REVENUE

The operating businesses managed by the Group generated Fees to the Group of US$1.0 million in the financial year ended 31 March 2019 (2018: US$0.8 million). The Fees to the Group comprised of US$0.9 million fees generated by Wall Street English and US$0.1 million generated by Ostello Bello Bagan. No fees were generated by the other hostels and education businesses as they are still in a start-up phase.

Group revenues are formed by the Fees generated by the Managed Businesses and the Revenues generated by the Owned Businesses. Group revenues for the financial year ended 31 March 2019 amounted to US$4.4 million (+459% YOY) and were composed of US$1.0 million in fees generated by the Managed Businesses and US$3.4 million in revenues generated by the Owned Businesses.

 

	Audited	Audited	Audited
	Year ended 31 March 2017	Year ended 31 March 2018	Year ended 31 March 2019
Fees Generated by Managed Businesses	US$	US$	US$
Hospitality	227,000	180,000	105,000
Education	93,074	611,870	874,737
Food & Beverage (Discontinued Operations)	10,000	-	-
Fees Generated by Managed Businesses	330,074	791,870	979,737
Growth %	400%	140%	24%

 

 

The operations under management for the financial year ended 31 March 2017 included two Indian restaurants. These Food and Beverage activities were discontinued in March 2017 as they were not generating the targeted Fees to the Group and were deemed by management to be non-core.

 

LIQUIDITY AND CAPITAL RESOURCES

With regards to the investing activities, the Group advances funds to the owners of the relevant managed operations to fund refurbishment expenses, improvements and general working capital. Such advances are unsecured and interest free and there is a risk that the Group may not be repaid some or all of these monies.

The significant growth in cash used in investing activities in 2019 was mainly due to the acquisition of EXERA for US$2.2 million in cash and shares (impact of US$1.9 million on cash flow, net of cash acquired), the purchase of plant and equipment for Yangon American and the fit- out of the WSE corporate centre at MCTA:RVi.

With regards to the Group's financing activities, the Group's principal sources of liquidity in the financial year ended 31 March 2019 has been the issuance of ordinary shares. It is worth noting that in 2019 the Company purchased a 8% non-controlling interest in MS English.

During the financial year, the net reduction in cash and cash equivalents was US$2.6 million. This negative trend was due to the negative operating cash flow and the continued investments in the managed operations as demonstrated by the increase in advances to related parties and third parties for the build-up of further Wall Street English centres and Auston college Myanmar.

On 1 July 2019, the Company announced a new Share Issuance Programme for up to US$480,000 shares at a price of not less than US$20 per share. On the same date, the Company put in place a Loan Facility of up to US$3.0 million with MACAN Pte. Ltd., the Company's largest shareholder and a related party. The Loan Facility will have a tenure of up to 3 years, may be repayable earlier at the Company's discretion and will have an interest rate of 6.0% per annum. The Company has drawn down US$2.0 million since the year end.

 

	Audited Year ended 31 March 2017	Audited Year ended 31 March 2018	Audited Year ended 31 March 2019
	US$	US$	US$
Operating activities
Loss before income tax	(2,384,964)	(2,066,799)	(2,566,894)
Adjustment for:
Share-based compensation	-	180,893	138,675
Amortisation of intangible assets	3,611	21,667	128,229
Impairment loss of financial assets	12,000	-	28,657
Allowance for impairment of receivable	550,327	-	-
Depreciation of plant and equipment	7,295	11,406	61,484
Interest income	(1,255)	(2,380)	(2,099)
Interest expense	31,522	140,718	-
Loss on disposal of plant and equipment	-	430	1,015
Plant and equipment written off	-	893	19,801
Gain on liquidation of a subsidiary	-	-	(1,663)
Operating cash flows before working capital changes	(1,781,464)	(1,713,172)	(2,192,795)
Working capital changes:
Trade and other receivables	(15,353)	(70,151)	(344,546)
Trade and other payables	64,761	186,080	139,077
Deferred revenue	-	-	184,525
Cash used in operations	(1,732,056)	(1,597,243)	(2,213,739)
Interest received	1,255	2,380	2,099
Income tax paid	(9,947)	-	(51,512)
Net cash used in operating activities	(1,740,748)	(1,594,863)	(2,263,152)
Investing activities
Purchase of plant and equipment	(13,006)	(12,677)	(480,279)
Purchase of intangible assets	(170,000)	-	(90,000)
Advances to related parties	(1,065,681)	(856,153)	(770,811)
Advances to third parties	(265,869)	(90,585)	29,112
Net cash outflow on acquisition of a subsidiary	-	-	(1,937,040)
Purchase of other investments	-	-	(150,000)
Net cash used in investing activities	(1,514,556)	(959,415)	(3,399,018)
Financing activities
Acquisition of equity interest from non-controlling interest	(1)	-	(80)
Proceeds from subscription of shares by non-controlling interests	-	-	300
Proceeds from issuance of convertible loans	1,717,300	40,000	-
Proceeds from issuance of ordinary shares	3,711,400	1,421,353	3,070,000
Proceeds from disposal of interest in a subsidiary without loss of control	-	80	-
Net cash generated from financing activities	5,428,699	1,461,433	3,070,220
Net changes in cash and cash equivalents	2,173,395	(1,092,845)	(2,591,950)
Cash and cash equivalents at beginning of financial year	2,289,247	4,462,642	3,369,797
Cash and cash equivalents at end of financial year	4,462,642	3,369,797	777,847

 

 

 

OUTLOOK

The Company's ambition is to become the leading developer and manager of consumer businesses in Myanmar.

In line with this vision, management is looking at opportunities to grow the Group through both organic and acquisitive means, in sectors which target the population's primary needs. The Group will continue to pursue an asset light strategy and increase the portfolio of businesses under management.

As the scale of the operations under management grows, the Group may decreasingly rely on external financing and instead finance its organic growth through the Fees to the Group generated by the managed operations and the profits earned by the owned businesses.

Management will also continue to build and train the relevant human resources to sustain and accelerate the Group's growth. Operational and financial sustainability are key strategic priorities communicated at all levels within the organisation.

Notwithstanding the recent political and economic uncertainty, the Board and management continue to remain positive on the overall macroeconomic environment underpinning the broader investment opportunity.

DENNIS YEO

Chief Financial Officer

29 July 2019

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019

 

	2019	2018
	US$	US$
Revenue	4,424,892	791,870
Other income	4,932	13,182
Employee benefits expense	(3,847,090)	(1,236,442)
Depreciation expense	(61,484)	(11,406)
Amortisation expense	(128,229)	(21,667)
Other expenses	(2,931,258)	(1,461,618)
Impairment loss on financial assets	(28,657)	-
Finance cost	-	(140,718)
Loss before income tax	(2,566,894)	(2,066,799)
Income tax	30,330	-
Loss for the year, representing total comprehensive income for the year	(2,536,564)	(2,066,799)
Loss and total comprehensive income attributable to:
Owners of the Company	(2,534,646)	(2,050,432)
Non-controlling interests	(1,918)	(16,367)
	(2,536,564)	(2,066,799)
Loss per share attributable to the owners of the Company (US$)
- Basic and diluted	(1.03)	(0.95)

 

 

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2019

 

	2019	2018
ASSETS	US$	US$
Non-current assets
Plant and equipment	536,556	17,203
Intangible assets	1,839,608	144,722
Financial asset at FVOCI	150,000	-
Total non-current assets	2,526,164	161,925
Current assets
Trade and other receivables	4,166,647	2,400,886
Cash and cash equivalents	777,847	3,369,797
Total current assets	4,944,494	5,770,683
Total assets	7,470,658	5,932,608
LIABILITIES AND EQUITY
Liabilities
Non-current liabilities
Deferred revenue	57,291	-
Deferred tax liabilities	46,196	-
Total non-current liabilities	103,487	-
Current liabilities
Trade and other payables	783,766	348,784
Deferred revenue	173,692	-
Total current liabilities	957,458	348,784
Total liabilities	1,060,945	348,784
Equity
Share capital	14,016,058	10,746,042
Equity reserves	(118,061)	(37,457)
Share option reserve	319,568	180,893
Accumulated losses	(7,860,436)	(5,279,332)
Equity attributable to owners of the Company	6,357,129	5,610,146
Non-controlling interests	52,584	(26,322)
Total equity	6,409,713	5,583,824
Total liabilities and equity	7,470,658	5,932,608

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019

 

	Share capital	Equity reserves	Share option reserve	Accumulated losses	Equity attributable to owners of the Company	Non- controlling interests	Total equity
2019	US$	US$	US$	US$	US$	US$	US$
Equity
Balance as at 1 April 2018, as previously stated	10,746,042	(37,457)	180,893	(5,279,332)	5,610,146	(26,322)	5,583,824
Effect of transition to IFRS 15	-	-	-	(46,458)	(46,458)	-	(46,458)
Balance as at 1 April 2018, as restated	10,746,042	(37,457)	180,893	(5,325,790)	5,563,688	(26,322)	5,537,366
Loss for the financial year, representing total comprehensive income for the financial year	-	-	-	(2,534,646)	(2,534,646)	(1,918)	(2,536,564)
Contribution by owners of the Company
Issuance of shares	3,270,016	-	-	-	3,270,016	-	3,270,016
Recognition of share- based payments	-	-	138,675	-	138,675	-	138,675
	3,270,016	-	138,675	-	3,408,691	-	3,408,691
Change in ownership interest in a subsidiary
Issuance of shares	-	(60,541)	-	-	(60,541)	60,841	300
Acquisition of non- controlling interest	-	(20,063)	-	-	(20,063)	19,983	(80)
Balance as at 31 March 2019	14,016,058	(118,061)	319,568	(7,860,436)	6,357,129	52,584	6,409,713

 

	Share capital	Equity reserves	Share option reserve	Accumulated losses	Equity attributable to owners of the Company	Non- controlling interests	Total equity
2018	US$	US$	US$	US$	US$	US$	US$
Equity
Balance as at 1 April 2017	5,401,049	(47,492)	-	(3,228,900)	2,124,657	-	2,124,657
Loss for the financial year, representing total comprehensive income for the financial year	-	-	-	(2,050,432)	(2,050,432)	(16,367)	(2,066,799)
Contribution by owners of the Company
Issuance of shares	5,344,993	-	-	-	5,344,993	-	5,344,993
Recognition of share- based payments	-	-	180,893	-	180,893	-	180,893
	5,344,993	-	180,893	-	5,525,886	-	5,525,886
Change in ownership interest in a subsidiary
Disposal of interest in a subsidiary without loss of control	-	10,035	-	-	10,035	(9,955)	80
Balance as at 31 March 2018	10,746,042	(37,457)	180,893	(5,279,332)	5,610,146	(26,322)	5,583,824

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019

 

	2019	2018
	US$	US$
Operating activities
Loss before income tax	(2,566,894)	(2,066,799)
Adjustments for:
Interest income	(2,099)	(2,380)
Gain on liquidation of a subsidiary	(1,663)	-
Share-based compensation	138,675	180,893
Interest expense	-	140,718
Impairment loss of financial assets	28,657	-
Loss on disposal of plant and equipment	1,015	430
Plant and equipment written off	19,801	893
Depreciation of plant and equipment	61,484	11,406
Amortisation of intangible assets	128,229	21,667
Operating cash flows before working capital changes	(2,192,795)	(1,713,172)
Working capital changes:
Trade and other receivables	(344,546)	(70,151)
Deferred revenue	184,525	-
Trade and other payables	139,077	186,080
Cash used in operations	(2,213,739)	(1,597,243)
Interest received	2,099	2,380
Income tax paid	(51,512)	-
Net cash used in operating activities	(2,263,152)	(1,594,863)
Investing activities
Purchase of plant and equipment	(480,279)	(12,677)
Purchase of intangible assets	(90,000)	-
Advances to related parties	(770,811)	(856,153)
Advances to third parties	29,112	(90,585)
Acquisition of subsidiaries, net of cash acquired	(1,937,040)	-
Purchase of financial asset, at FVOCI	(150,000)	-
Net cash used in investing activities	(3,399,018)	(959,415)

 

	2019	2018
	US$	US$
Financing activities
Acquisition of equity interest from non-controlling interests	(80)	-
Proceeds from subscription of shares by non-controlling interests	300	-
Proceeds from issuance of convertible bonds	-	40,000
Proceeds from issuance of ordinary shares	3,070,000	1,421,353
Proceeds from disposal of interest in a subsidiary without loss of control	-	80
Net cash generated from financing activities	3,070,220	1,461,433
Net changes in cash and cash equivalents	(2,591,950)	(1,092,845)
Cash and cash equivalents at beginning of year	3,369,797	4,462,642
Cash and cash equivalents at end of year	777,847	3,369,797
Note A: Reconciliation of liabilities arising from financing activities

 

Non-cash changes
	Balance as at 1 April 2017	Financing cash flows	Interest expense	Conversion of convertible bonds	Balance as at 31 March 2018
As at end of reporting period 31 March 2018	US$	US$	US$	US$	US$
Convertible bonds (Note 18)	3,742,922	40,000	140,718	(3,923,640)	-

 

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019

GENERAL

Myanmar Strategic Holdings Limited (the "Company") (Registration Number 201302159D) is a public company limited by shares incorporated and domiciled in Singapore with its principal place of business and registered office 80 Raffles Place #32-01, UOB Plaza, Singapore 048624. The Company was listed on Main Market of London Stock Exchange on 22 August 2017.

The principal activities of the Company is investment and trading in Myanmar related investment projects. The principal activities of the subsidiaries are set out in Note 12 to the financial statements.

The Company's immediate and ultimate holding company is Macan Pte. Ltd., a company incorporated and domiciled in Singapore. Related companies in these financial statements refer to the members of the Macan Pte. Ltd. Group.

SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PREPARATION

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and are prepared under the historical cost convention, except as disclosed in the accounting policies below.

The consolidated financial statements of the Group are presented in United States dollar ("US$") which is the functional currency and the presentation currency for the consolidated financial statements.

The preparation of financial statements in compliance with IFRS requires management to make judgements, estimates and assumptions that affect the Group's application of accounting policies and reported amounts of assets, liabilities, revenue and expenses. Although these estimates are based on management's best knowledge of current events and actions, actual results may differ from those estimates. The areas where such judgements or estimates have significant effect on the financial statements are disclosed in Note 3 to the financial statements.

(a) Going concern

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated financial statements.

(b) Changes in accounting policy and disclosures

In the current financial year, the Group has adopted all the new IFRS that are relevant to its operations and effective for the current financial year. The adoption of the new IFRS did not result in changes to the Group's accounting policies and has no material effect on the amounts reported for the current or prior financial years, except for IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers as disclosed below:

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments was effective for accounting periods commencing on or after 1 April 2018. The standard addresses the classification, measurement and recognition of financial assets and liabilities. IFRS 9 retains and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of the classification depends on the business model and the contractual cash flow characteristics of the financial asset. A revised expected credit loss model replaces the incurred loss impairment model used in IAS 39. As at the date of initial application, the adoption of the expected credit loss model has no material effect on the financial statements.

 

IFRS 15 Revenue from Contracts with Customers

 

IFRS 15 supersedes IAS 18 Revenue and related interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflect the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

 

IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires extensive disclosures.

 

The Group adopted IFRS 15 using the modified retrospective method of adoption with the date of initial application of 1 April 2018. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed at this date. The Group elected to apply the standard to contracts that are not completed as at 1 April 2018.

 

The cumulative effect of initially applying IFRS 15 is recognised at the date of initial application as an adjustment to the opening balance of retained earnings. Therefore, the comparative information was not restated and continues to be reported under IAS 18 and related interpretations.

 

The effect of transition to IFRS 15 as at 1 April 2018 was as follows:

 

Increase/(Decrease) US$
Non-current liabilities
Deferred revenue	41,458
Current liabilities
Deferred revenue	5,000
Equity
Accumulated losses	(46,458)

 

 

 

The following shows the amount by which each financial statement line item is affected for the financial year ended 31 March 2019 as a result of the transition to IFRS 15. The third column shows amounts prepared under IFRS 15 and the first column shows what the amounts would have been had IFRS 15 not been adopted:

 

Consolidated statement of comprehensive income
	Reported under IAS 18 2019	IFRS 15 adjustments	Reported under IFRS 15 2019
	US$	US$	US$
Revenue	4,429,892	(5,000)	4,424,892
Loss before income tax	(2,561,894)	(5,000)	(2,566,894)
Loss for the year, representing total comprehensive income for the financial year	(2,531,564)	(5,000)	(2,536,564)

 

 

The following shows the amount by which each financial statement line item is affected as at 31 March 2019 as a result of the adoption of IFRS 15:

 

 

Consolidated statement of financial position
			Reported
	Reported		under
	under IAS 18	IFRS 15	IFRS 15
	2019	adjustments	2019
	US$	US$	US$
Non-current liabilities
Deferred revenue	-	(36,458)	(36,458)
Current liabilities
Deferred revenue	-	(5,000)	(5,000)
Equity
Accumulated losses	(7,855,436)	(5,000)	(7,860,436)

 

 

The nature of the adjustment as at 1 April 2018 and the reasons for the significant changes in the statement of financial position as at 31 March 2019 and the statements of comprehensive income for the financial year ended 31 March 2019 are described below:

 

New centre fee

 

New centre fee was received for the opening of new "Wall Street English" language centres in Myanmar. Under IAS 18, the revenue was recognised upon the new opening of language centres. Upon adopting IFRS 15, the Company recognised the new centre fee as deferred revenue and will recognise income over the period of 10 years, representing the rights to develop and operate the "Wall Street English" language centre in Myanmar.

 

On 1 April 2018, advanced payment received from customers of US$46,458 was recognised as deferred revenue. The adjustment was made against accumulated losses.

 

There was no impact on other revenue streams on the adoption of IFRS 15 as the point of transfer of risks and rewards under IAS 18 is the same as when the control was transferred under IFRS 15, and that both methods are over time.

 

IFRS issued but not yet effective

At the date of authorisation of these financial statements, the following IFRS that are relevant to the Group were issued but not yet effective, and have not been adopted early in these financial statements:

 

Effective date

(annual periods

beginning on or after)

 

IFRS 16	: Leases	1 January 2019
IFRIC 23	: Uncertainty over Income Tax Treatments	1 January 2019
Amendments to References to the Conceptual Framework in IFRS Standards
- IFRS 9 (Amendments)	: Prepayment Features with Negative Compensation	1 January 2019
- IAS 28 (Amendments)	: Long-term interests in Associates and Joint Ventures	1 January 2019
- IAS 19 (Amendments)	: Plan Amendment, Curtailment or Settlement	1 January 2019

 

Consequential amendments were also made to various standards as a result of these new or revised standards.

Management anticipates that the adoption of the above IFRS and IFRIC in future periods will not have a material impact on the financial statements of the Group in the period of their initial adoption except as disclosed below.

 

IFRS 16 LEASES

IFRS 16 supersedes IAS 17 Leases and introduces a new single lessee accounting model which eliminates the current distinction between operating and finance leases for lessees. IFRS 16 requires lessees to capitalise all leases on the statement of financial position by recognising a 'right-of-use' asset and a corresponding lease liability for the present value of the obligation to make lease payments, except for certain short-term leases and leases of low- value assets. Subsequently, the lease assets will be depreciated and the lease liabilities will be measured at amortised cost. IFRS 16 also requires enhanced disclosures by the lessees.

The Group has performed an assessment on the adoption of IFRS 16 based on currently available information as well as recognition exemptions under IFRS 16. The Group expects to capitalise the operating lease of the international school on the statement of financial position by recognising a 'right-of-use' asset of US$3,533,000 and the corresponding lease liabilities present valued based on the future lease payments of US$4,560,000. The lease liability was calculated with consideration of the likelihood of exercising the first and second extension period of 3 years and 5 years, respectively. This assessment may be subject to changes from the ongoing analysis until the finalisation transition entries.

The Group plans to adopt the standard in the financial year beginning on 1 April 2019 using the modified retrospective method in accordance with the transitional provisions, and therefore will only recognise leases on statement of financial position as at 1 April 2019. The Group will include the required additional disclosures in its financial statements for the financial year ending 31 March 2020.

 

BASIS OF CONSOLIDATION

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. Subsidiaries are entities over which the Group has control. The Group controls an investee if the Group has power over the investee, exposure to variable returns from the investee, and the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

Subsidiaries are consolidated from the date on which control is obtained by the Group up to the effective date on which control is lost, as appropriate.

Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred.

The financial statements of the subsidiaries are prepared for the same reporting period as that of the Company, using consistent accounting policies. Where necessary, accounting policies of subsidiaries are changed to ensure consistency with the policies adopted by other members of the Group.

 

NON-CONTROLLING INTERESTS

Non-controlling interests in subsidiaries relate to the equity in subsidiaries which is not attributable directly or indirectly to the owners of the parent. They are shown separately in the consolidated statements of comprehensive income, financial position and changes in equity.

Non-controlling interests in the acquiree that are a present ownership interest and entitle its holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the fair value, of the acquiree's identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, it derecognises the assets and liabilities of the subsidiary and any non-controlling interest. The profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investments retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 Financial Instruments or, when applicable, the cost on initial recognition of an investment in an associate or joint venture.

 

REVENUE RECOGNITION

Revenue is recognised when a performance obligation is satisfied. Revenue is measured based on consideration of which the Group expects to be entitled in exchange for transferring promised good or services to a customer, excluding amounts collected on behalf of third parties (i.e. sales related taxes). The consideration promised in the contracts with customers are derived from fixed price contracts.

Deferred revenue comprise management fees, new centre fee and other advance consideration received from customers and a related party. Deferred revenue are recognised as revenue when performance obligations under its contracts are satisfied.

 

Rendering of services

The Group provides security guarding, risk management and security training services to the customer over a specified contract period. The performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits of the Group's performance in providing the security services.

As the Group's efforts or inputs are expended throughout the performance period, revenue is recognised on a straight-line basis over the specified contract period.

For certain contracts where the Group supplies security equipment and provides ad-hoc services such as journey management, revenue is recognised at point in time when goods and services are delivered.

 

Technical support service fees

Technical support service fees earned from hostels and language centres managed by the Group are recognised over time and when services are rendered with reference to the terms of the contracts.

 

Management fees

Management fees earned from hostels, engineering college and language centres managed by the Group, under long-term contracts with the owners, are recognised over time as and when services are rendered with reference to the terms of the contracts. The fees are incentive fees, which are based on the profitability of these business operations and the amount of course modules to be delivered.

 

Royalty income

Royalty income is recognised over time on an accrual basis with reference to the terms of the "Wall Street English" Centre Franchise Agreement. Royalty is determined based on the agreed royalty rate and the annual total gross revenue of the managed language centres in Myanmar.

 

New centre fee

New centre fee for the opening of new "Wall Street English" language centre in Myanmar are recognised over the exclusive rights to develop and operate for a period of 10 years.

 

Accounting policy for revenue recognition prior to 1 April 2018

Revenue is measured at the fair value of the consideration received or receivable. Revenue is presented net of discounts, other similar allowances and sales related taxes. The revenue recognition policies for management fees, technical support services fees and royalty income are the same as the current financial year.

 

EMPLOYEE BENEFITS

Retirement benefit costs

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state- managed retirement benefit schemes, such as the Singapore Central Provident Fund and Myanmar Social Security Benefit, are dealt with as payments to defined contribution plans where the Group's obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan.

 

Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated undiscounted liability for annual leave expected to be settled wholly within 12 months from the reporting date as a result of services rendered by employees up to the end of the financial year.

 

SHARE-BASED PAYMENTS

The Group issues equity-settled share-based payments to certain employees.

Equity-settled share-based payments are measured at fair value of the equity instruments (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period with a corresponding credit to the share-based payment reserve, based on the Group's estimate of the number of equity instruments that will eventually vest and adjusted for the effect of non-market- based vesting conditions. At the end of each financial year, the Group revises the estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period with a corresponding adjustment to the share-based payment reserve.

Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

 

TAXES

Income tax expense comprise current tax expense and deferred tax expense.

 

Current income tax

Current income tax expense is the amount of income tax payable in respect of the taxable profit for a period. Current income tax liabilities for the current and prior periods shall be measured at the amount expected to be paid to the taxation authorities, using the tax rates and tax laws in the countries where the Group operates, that have been enacted or substantively enacted by the end of the reporting period.

Current income tax expenses are recognised in profit or loss, except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity.

 

Deferred tax

Deferred tax is recognised on all temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases of asset and liabilities, except when the temporary difference arises from the initial recognition of goodwill or other assets and liabilities that is not a business combination and affects neither the accounting profit nor taxable profit.

Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the timing of reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured using the tax rates expected to apply for the period when the asset is realised or the liability is settled, based on tax rate and tax law that have been enacted or substantially enacted by the end of reporting period. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects to recover or settle its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Deferred tax is recognised in profit or loss, except when it relates to items recognised outside profit or loss, in which case the tax is also recognised either in other comprehensive income or directly in equity, or where it arises from the initial accounting for a business combination. Deferred tax arising from a business combination, is taken into account in calculating goodwill on acquisition.

 

Sales tax

Revenue, expenses and assets are recognised net of the amount of sales tax except:

·    when the sales taxation that is incurred on purchase of assets or services is not recoverable from the taxation authorities, in which case the sales tax is recognised as part of cost of acquisition of the asset or as part of the expense item as applicable; and

·    receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

 

FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency ("foreign currencies") are recorded at the rate of exchange prevailing on the date of the transaction. At the end of each financial year, monetary items denominated in foreign currencies are retranslated at the rates prevailing as of the end of the financial year. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

 

PLANT AND EQUIPMENT

All items of plant and equipment are initially recognised at cost. The cost includes its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Dismantlement, removal or restoration costs are included as part of the cost if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the plant and equipment.

Subsequent expenditure on an item of plant and equipment is added to the carrying amount of the item if it is probable that future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. All other costs of servicing are recognised in profit or loss when incurred.

Plant and equipment are subsequently stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is calculated using the straight line method to allocate the depreciable amounts over their estimated useful lives on the following basis:

 

Computers	3 years
Furniture and fittings	3 years
Motor vehicles	5 years

 

 

No depreciation is charged on construction-in-progress as they are not yet ready for their intended use as at the end of the reporting period.

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The estimated useful lives, residual values and depreciation methods are reviewed, and adjusted as appropriate, at the end of each financial year.

An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.

The gain or loss arising on disposal or retirement of an item of plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

 

INTANGIBLE ASSETS

 

Area development and centre fees

An area development fee is paid for the exclusive rights to develop and operate the "Wall Street English" language centres in Myanmar while the centre fee is required to be paid in respect for the opening of a new "Wall Street English" language centre in Myanmar. The area development fee and centre fee are capitalised and amortised over the period of 10 years from the date operation commences and when the new centre commences operations, respectively.

The area development fee and centre fee are initially capitalised at cost and subsequently measured at cost less any accumulated amortisation and any accumulated losses.

 

Set-up fee and brand licensing fee

Set-up fee is paid for the exclusive rights to develop and operate the "Auston" college in Myanmar. Brand licensing fee is paid for the exclusive, irrecoverable, non-transferrable rights of use of the licensed intellectual property and trademark for the operations of the Auston college. The set-up and brand licensing fees are capitalised and amortised over the period of 10 years from the date operation commences.

The set-up and brand licensing fees are initially capitalised at cost and subsequently measured at cost less any accumulated amortisation and any accumulated losses.

 

Computer software licence

Acquired computer software licence is initially capitalised at cost which includes the purchase price (net of any discounts and rebates) and other directly attributable costs of preparing the software for its intended use. Direct expenditure which enhances or extends the performance of computer software beyond its specifications and which can be reliably measured is added to the original cost of the software. Costs associated with maintaining computer software are recognised as an expense as incurred.

Computer software licence is subsequently carried at cost less accumulated amortisation and accumulated impairment losses. These costs are amortised to profit or loss using the straight-line method over their estimated useful lives of 3 years.

 

Customer-related assets (Services segment)

Customer-related assets comprise customer contracts and customer relationship arising from business combinations. These assets are capitalised at fair value as at acquisition date and subsequently measured at cost less any accumulated amortisation and any accumulated losses.

Amortisation is recognised in profit or loss on a straight-line basis over their estimated useful lives of 3 years.

 

Goodwill (Services segment)

Goodwill arising on the acquisition of a subsidiary or business represents the excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition date fair value of any previously held equity interest in the acquiree over the acquisition date fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition.

Goodwill on subsidiary is recognised separately as intangible assets. Goodwill is initially recognised at cost and subsequently measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro- rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gain or loss on disposal.

Intangible assets except goodwill with finite useful lives are amortised over the estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year- end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method , as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite useful lives is recognised in profit or loss or expected category consistent with the function of the intangible asset.

An item of intangible asset is derecognised upon disposal or when no future economic benefits are expected from its use of disposal. Any gain or loss on derecognition of the asset is included in profit or loss in the financial year the asset is derecognised.

 

IMPAIRMENT OF NON-FINANCIAL ASSETS EXCLUDING GOODWILL

At the end of each financial year, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.

The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

 

FINANCIAL INSTRUMENTS

The Group recognises a financial asset or a financial liability in its statement of financial position when, and only when, the Group becomes party to the contractual provisions of the instrument.

 

FINANCIAL ASSETS

The Group classifies its financial assets into one of the categories below, depending on the Group's business model for managing the financial assets as well as the contractual terms of the cash flows of the financial asset. The Group shall reclassify its affected financial assets when and only when the Group changes its business model for managing these financial assets. The Group's accounting policy for each category is as follows:

 

Amortised cost

These assets arise principally from provision of services to customers, but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process, the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being presented in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Impairment provisions for other receivables and amounts due from related parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether at each reporting date, there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

The Group's financial assets measured at amortised cost comprise trade and other receivables (excluding prepayment and advances for hostel operations) and cash and cash equivalents in the consolidated statement of financial position.

 

Financial asset at fair value through other comprehensive income ("FVOCI")

The Group has a strategic investment in the equity securities of an unlisted entity which is not accounted for as a subsidiary, associate or jointly controlled entity. The Group has made an irrevocable election to classify the investment at fair value through other comprehensive income rather than through profit or loss as the Group considers this measurement to be the most representative of the business model for these assets. They are carried at fair value with changes in fair value recognised in other comprehensive income and accumulated in the fair value through other comprehensive income reserve. Upon disposal, any balance within fair value through other comprehensive income reserve is reclassified directly to retained earnings and is not reclassified to profit or loss.

Dividends are recognised in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment, in which case the full or partial amount of the dividend is recorded against the associated investment carrying amount.

Purchases and sales of financial assets measured at fair value through other comprehensive income are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the fair value through other comprehensive income reserve.

 

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

 

ACCOUNTING POLICY FOR FINANCIAL ASSETS PRIOR TO 1 APRIL 2018

Financial assets and financial liabilities are recognised on the statements of financial position when the Group becomes a party to the contractual provisions of the instrument.

 

FINANCIAL ASSETS

All financial assets are initially recognised at fair value, plus transaction costs which are initially recognised at fair value.

The Group classifies its financial assets as loans and receivables. The classification depends on the nature and purpose for which these financial assets were acquired and is determined at the time of initial recognition.

 

Loans and receivables

Non-derivative financial assets which have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost, using the effective interest method, less impairment. Interest is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

The Group's loans and receivables in the statements of financial position comprise trade and other receivables (excluding prepayments and advances for hostel operations) and cash and cash equivalents.

 

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each financial year. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investment have been impacted.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amounts of all financial assets are reduced by the impairment loss directly with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the financial assets at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

 

FINANCIAL LIABILITIES AND EQUITY INSTRUMENTS

 

Classification as debt or equity

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

 

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. The Company classifies ordinary shares as equity instruments.

 

Financial liabilities

The Group classifies all financial liabilities as subsequently measured at amortised cost.

 

Trade and other payables

Trade and other payables, excluding advances received, are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, where applicable, using the effective interest method.

 

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount and the consideration paid is recognised in profit or loss.

 

CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the statement of financial position comprise of cash on hand, cash at bank and demand deposits which are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value.

 

LEASES

 

OPERATING LEASES

Rentals payable under operating leases (net of any incentives received from lessors) are charged to profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

 

PROVISIONS

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the financial year, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. The increase in the provision due to the passage of time is recognised in the statement of comprehensive income as finance expense.

Changes in the estimated timing or amount of the expenditure or discount rate are recognised in profit or loss when the changes arise.

 

SEGMENT REPORTING

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group Chief Executive Officer who makes strategic decisions.

 

LOSS PER SHARE

The calculation of the basic and diluted loss per share attributable to the ordinary equity holders of the Company is based on the following data:

 

	2019	2018
Loss
Loss for the financial year attributable to the owners of the Company (US$)	(2,534,646)	(2,050,432)
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted loss per share	2,453,229	2,157,340
Loss per share (US$)
Basic and diluted	(1.03)	(0.95)

 

In the current and previous financial years, diluted loss per share is the same as the basic loss per share because the dilutive potential ordinary shares to be exercised are anti-dilutive as the effect of the shares conversion would be to decrease the loss per share.