Professional Documents
Culture Documents
2020 DITO CME SEC FS REISSUED - Separate - Final
2020 DITO CME SEC FS REISSUED - Separate - Final
2020 DITO CME SEC FS REISSUED - Separate - Final
for
Audited Financial Statements
8 0 8
COMPANY NAME
D I T O C M E H O L D I N G S C O R P . ( F O R M E R L Y ,
I S M C O M M U N I C A T I O N S C O R P O R A T I O N )
2 1 S T F L O O R U D E N N A T O W E R , R I Z A L D R .
C O R . 4 T H A V E N U E B O N I F A C I O G L O B A L
C I T Y , T A G U I G C I T Y , 1 6 3 4
A A F S C R M D N / A
COMPANY INFORMATION
21st Flr. Udenna Tower Rizal Drive cor. 4th Avenue Bonifacio Global City, Taguig City, 1634
NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within
thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.
2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission
and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.
18 AUGUST
Grace Banta - Cahucom <grace.banta@udenna.ph>
1 message
Valid files
EAFS000162935OTHTY122020.pdf
EAFS000162935TCRTY122020-02.pdf
EAFS000162935RPTTY122020.pdf
EAFS000162935TCRTY122020-03.pdf
EAFS000162935ITRTY122020.pdf
EAFS000162935TCRTY122020-01.pdf
EAFS000162935AFSTY122020.pdf
Invalid file
<None>
Please be reminded that you accepted the terms and conditions for the use of this portal and expressly agree, warrant and certify that:
The submitted forms, documents and attachments are complete, truthful and correct based on the personal knowledge and the same
are from authentic records;
The submission is without prejudice to the right of the BIR to require additional document, if any, for completion and verification
purposes;
The hard copies of the documents submitted through this facility shall be submitted when required by the BIR in the event of
audit/investigation and/or for any other legal purpose.
==========
DISCLAIMER
==========
This email and its attachments may be confidential and are intended solely
If you are not the intended recipient of this email and its attachments, you
must take no action based upon them, nor must you disseminate, distribute or
copy this e-mail. Please contact the sender immediately if you believe you
recipient should check this email and any attachments for the presence of
viruses. The Bureau of Internal Revenue does not accept liability for any
of e-mail transmission.
Punongbayan & Araullo (P&A) is the Philippine member firm of Grant Thornton International Ltd
Punongbayan & Araullo
20th Floor, Tower 1
Report of Independent Auditors The Enterprise Center
6766 Ayala Avenue
1200 Makati City
Philippines
Opinion
We have audited the financial statements of DITO CME Holdings Corp. (the Company), which
comprise the statements of financial position as at December 31, 2020 and 2019, and the
statements of comprehensive income, statements of changes in equity and statements of
cash flows for each of the three years in the period ended December 31, 2020, and notes
to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects,
the financial position of the Company as at December 31, 2020 and 2019, and its financial
performance and its cash flows for each of the three years in the period ended
December 31, 2020 in accordance with Philippine Financial Reporting Standards (PFRS).
We conducted our audits in accordance with Philippine Standards on Auditing (PSA). Our
responsibilities under those standards are further described in the Auditors’ Responsibilities
for the Audit of the Financial Statements section of our report. We are independent of the
Company in accordance with the Code of Ethics for Professional Accountants in the Philippines
(Code of Ethics) together with the ethical requirements that are relevant to our audits of the
financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the Code of Ethics. We believe that the audits
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter
As discussed in Note 1 to the financial statements, subsequent to the issuance of the 2020
financial statements, on which we have rendered our report dated March 26, 2021, the
Company’s management revised its 2020 financial statements to reflect the result of the
reassessment of the ownership interest of Dennison Holdings Corp. (Dennison) over the
Company, which required additional disclosures regarding the control obtained by Dennison
over the Company starting in 2020.
Except for the revisions mentioned above, there are no other events since the reporting date,
which would require any revisions on the amounts and disclosures in the financial statements.
Our opinion is not modified in respect of these matters.
Other Information
Management is responsible for the other information. The other information comprises the
information included in the Company’s Securities and Exchange Commission (SEC) Form 20-IS
(Definitive Information Statement), SEC Form 17-A and Annual Report for the year ended
December 31, 2020, but does not include the financial statements and our auditors’ report
thereon. The SEC Form 20-IS, SEC Form 17-A and Annual Report for the year ended
December 31, 2020 are expected to be made available to us after the date of this auditors’ report.
Our opinion on the financial statements does not cover the other information and we will not
express any form of assurance conclusion thereon.
In connection with our audits of the financial statements, our responsibility is to read the other
information identified above when it becomes available and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.
Management is responsible for the preparation and fair presentation of the financial statements
in accordance with PFRS, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial
reporting process.
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with PSA will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with PSA, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control.
Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information for the year ended
December 31, 2020 required by the Bureau of Internal Revenue as disclosed in Note 19 to the
financial statements is presented for purposes of additional analysis and is not a required part of
the basic financial statements prepared in accordance with PFRS. Such supplementary information
is the responsibility of management. The supplementary information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial statements taken as a whole.
The engagement partner on the audits resulting in this independent auditors’ report is
Ramilito L. Nañola.
ASSETS
CURRENT ASSETS
Cash in banks 4 P 25,678,140 P 4,544,941
Receivables - net 5 4,105,645,381 3,982,305,900
Other current assets - net 6 4,695,666 7,232,344
NON-CURRENT ASSETS
Financial assets at fair value through
other comprehensive income 8 103,817,770 101,173,927
Investment in and advances to subsidiaries 7 1,311,846 465,918
Receivables - net 5 - 37,482,274
Other non-current assets - net 6 - 25,267
CURRENT LIABILITIES
Accrued expenses and other payables 9 P 25,522,815 P 811,810
Income tax payable 5,278,135 1,233,709
EQUITY
Capital stock 12 2,800,000,000 2,800,000,000
Additional paid-in capital 2 785,205,350 785,205,350
Revaluation reserves 8 ( 124,591,266 ) ( 127,235,109 )
Retained earnings 2 749,733,769 673,214,811
EXPENSES
Professional fees P 9,936,776 P 5,583,476 P 6,798,651
Salaries and other employee benefits 11 4,837,530 5,804,871 15,527,907
Impairment loss 5, 6, 7 3,892,438 32,136,891 -
Contracted services 2,818,767 2,235,649 1,521,421
Listing fee 750,620 1,155,510 274,278
Transportation and travel 244,500 258,413 861,844
Utilities 59,190 565,118 546,694
Representation and entertainment 25,482 993,469 2,340,137
Depreciation and amortization 6 25,267 78,993 1,367,843
Taxes and licenses 18 12,278 7,352,743 14,255
Rent 13 - 809,064 787,900
Trust fees - - 272,339
Miscellaneous 683,187 1,103,374 439,140
Additional
Capital Stock Paid-in Capital Treasury Stock Revaluation Reserves Retained Earnings
(see Note 12) (see Note 2) (see Note 12) (see Note 8) (see Note 2) Total
Net Cash From (Used in) Investing Activities 38,445,147 ( 3,618,098,235 ) 73,106,345
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,133,199 ( 3,628,948,066 ) 2,527,661,708
Other Information −
In 2018, the interest-bearing repurchase agreement are included as part of Cash and Cash Equivalents for cash flows purposes but are presented
as Short-term receivables under Receivables account in the 2018 statement of financial position. Furthermore, the Company holds
cash equivalents amounting to P667.0 million as of December 31, 2018 (see Note 5).
1. GENERAL INFORMATION
DITO CME Holdings Corp. (formerly ISM Communications Corporation) (DITO CME or the
Company) was, originally, a mining company incorporated under the name “Itogon-Suyoc
Mines, Inc."
During meetings held on June 22 and July 25, 2001, the Board of Directors (BOD) and
stockholders of DITO CME approved a Memorandum of Agreement (MOA) between DITO
CME and PhilWeb Corporation (PhilWeb). Under the terms of the MOA, PhilWeb shall
manage the transformation of DITO CME from a mining company to a company engaged
in information technology, multimedia, telecommunications, and other similar industries,
including the identification of and negotiation with potential investors who will infuse the
necessary capital or assets for projects in such industries. Any project identified by
PhilWeb shall be subject to the approval of the BOD and stockholders of DITO CME. As
consideration for the services to be rendered by PhilWeb, and in order to generate
investor confidence in the new corporate direction of DITO CME, PhilWeb was granted the
right to subscribe to 12,000,068,290 shares of the unissued capital stock of DITO CME at
par value, by making an initial payment of 25% on such subscription.
a. amended its articles of incorporation and by-laws to enable it to undertake its new
projects in a manner acceptable to the new investors;
b. completely divested its mining operations, as well as all mining-related assets and
liabilities to a third party such that, at the time of the commencement of the new
projects and/or the entry of the new investors, it would have substantially no assets
and no liabilities; and,
c. allowed the new investors to have majority control of its voting shares of stock and
control the management of its operations.
On July 25, 2001, the stockholders of DITO CME also approved the following:
(i) the declassification of the capital stock (common "A” and common “B") into
just one class of common stock;
b. The granting of authority to the BOD to sell, alienate, and/or dispose of any or all of
its assets to repay maturing loan obligations.
On April 10, 2002, the stockholders of DITO CME approved a Restructuring Plan, which
involved, among others, the following:
b. change in the primary purpose from a company engaged in the business of mining
to a company engaged in the business of telecommunications, multimedia and
information technology.
The Securities and Exchange Commission (SEC) subsequently approved such Restructuring
Plan on June 7, 2002.
On November 19, 2013, PhilWeb sold its entire equity interest in DITO CME to Monfortino
Holdings, Inc. Accordingly, the MOA with PhilWeb has been terminated.
On May 24, 2016, the stockholders of DITO CME approved the following amendments to
the articles of incorporation of the Company:
b. Change in the principal address of the Company to 2F PBCom Tower, 6795 Ayala
Ave. cor. V.A. Rufino St., Makati City; and,
c. Reduction in the number of members of the BOD of the Company from fifteen to
nine, which shall consist of such number of regular and independent directors as the
stockholders may elect from time to time. In no case shall the number of
independent directors be less than two.
On December 10, 2019, upon the recommendation of the management, the BOD and
stockholders approved the subsequent amendments to the AOI of DITO CME:
a. Change its corporate name from ISM Communications Corporation to DITO CME
Holdings Corp.;
b. Change its principal address from 3rd Floor Alegria Alta Building, 2294 Don Chino
Roces Extension, Makati City to 21st Floor, Udenna Tower, Rizal Drive corner
4th Avenue, Bonifacio Global City, Taguig City, 1634; and,
c. Increase the authorized capital stock from 2.8 billion to 40.0 billion shares with a par
value of P1.0 per share.
- 3-
On March 6, 2020, the application for the change in name and principal address was
approved by the SEC. As of the date of the issuance of the financial statements, the change
in corporate name and principal address was not yet approved by the Bureau of Internal
Revenue (BIR).
On July 28, 2020, the stockholders approved the amendments to the AOI of the Company:
a. Anew the approval of increase the authorized capital stock from 2.8 billion to
40.0 billion shares with a par value of P1.0 per share (see Note 12.1) since the
Revised Corporation Code requires the Corporation to file the application with the
SEC within six months from shareholders’ approval; and,
Prior to the execution of the share-swap transaction, a Deed of Assignment to transfer the
combined 60% share ownership of Chelsea Logistics and Infrastructure Holdings Corp.
(CLIHC) and Udenna of Dito Telecommunity Corporation’s (Dito Tel) capital stock to Dito
Holdings Corporation (DHC) was executed on November 11, 2020. On the same date,
UCME executed a Subscription Agreement with DHC, whereby UCME subscribed to an
additional 7,379,166,900 common shares of DHC at the subscription price of P1.00 per
share, leading to an increase in its existing shareholdings from approximately 58.3% to
approximately 89.5%.
Based on the foregoing facts and upon execution of the share-swap transaction, the
Company’s ultimate parent company will be Udenna, and the Company will also gain an
indirect interest and will become a holding entity for approximately 53.7% of the shares in
Dito Tel.
On November 2020, the Company submitted its application for the increase in the
authorized capital stock and for the share swap transaction to SEC. As of the date of the
issuance of the financial statements, the approvals on these applications, including the
approval on the valuation basis of the consideration on the purchase of 100% shares of
UCME, are not yet obtained from the SEC.
The Company is a publicly-listed company and its shares are listed in the Philippine Stock
Exchange (PSE).
- 4-
The Company holds ownership interest in the following subsidiaries and an associate
(see Note 7):
Percentage
of Ownership Country of
Subsidiaries/Associate Notes 2020 2019 Incorporation
Subsidiaries:
ISM Equities Corporation
(ISMEC) (a) 100.0% 100.0% Philippines
Wagas Consultants
Limited (Wagas) (b) 100.0% 100.0% British Virgin
Islands
Host Union International
Limited (Host Union) (c) 100.0% 100.0% Hong Kong
Associate –
Acentic Holdings
Limited (Acentic) (d) - 32.5% United Kingdom
(a) ISMEC is a domestic corporation registered with the SEC on May 27, 2015, primarily
engaged in investing, purchasing, using, and selling real and personal property of
every kind. As at December 31, 2020, ISMEC has not started yet its operations.
(b) Wagas is a special-purpose entity, organized and existing under the laws of the
British Virgin Islands.
(d) Acentic is an associate of Host Union, organized in the laws of England and Wales,
engaged in the production, sale and operation of media and information systems,
particularly for hotels and tourism business, as well as development of software and
hardware internet solutions. As of December 31, 2019, the management of Acentic
has determined that a material uncertainty exists, which may cause significant doubt
on its ability to continue as a going concern due to continuous operating losses.
In 2020, the Company and its subsidiaries sold all of its interests in Acentic, inclusive
of investment in ordinary and preferred shares, notes receivables and the related
interest receivables in exchange for proceeds amounting to USD 0.75 million
(P36.49 million) (see Note 5).
The previously issued financial statements of the Company as of and for the year ended
December 31, 2020, dated March 26, 2021, have been revised to disclose the control
obtained by Dennison Holdings Corp. (Dennison) over the Company starting in 2020.
- 5-
As of December 31, 2020 and 2019, Dennison directly owns 31.6% of the Company’s voting
interest. As of December 31, 2019, Dennison only exercised significant influence over the
Company due to the presence of other significant stockholders such as Accion Common
Development Fund SPC (Accion) and a certain director owning 30.1% and 8.4%,
respectively. However, on February 4, 2020, Accion disposed of its ownership interest in
DITO CME, and as result of these changes in the ownership of the Company’s stockholders,
management assessed that Dennison has effectively obtained de facto control over the
Company, being the stockholder with the most significant ownership interest over the
Company. Consequently, Dennison is able to exercise control over the Company as it is
exposed, or has rights, to variable returns from its involvement with the Company and has
ability to affect those returns through its power over the Company. Management also
assessed that any of the Company's non-majority stockholders, or a combination thereof,
may not be sufficient to block or prevent Dennison in exercising control over the Company
due to their dispersed ownership interests.
Dennison is presently engaged in the business of a holding company. The registered office
address of Dennison, which is also its principal place of business, is located at Stella Hizon
Reyes Road, Bo. Pampanga, Davao City.
The financial statements of the Company as of and for the year ended December 31, 2020
(including the comparative financial statements as of December 31, 2019 and for the years
ended December 31, 2019 and 2018) were authorized for issue by the Company’s BOD on
March 26, 2021. The subsequent reissuance of the 2020 financial statements were
authorized for issue by the Company’s BOD on June 30, 2021.
The significant accounting policies that have been used in the preparation of these
financial statements are summarized below and in the succeeding pages. These policies
have been consistently applied to all the years presented, unless otherwise stated.
The financial statements of the Company have been prepared in accordance with
Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the Financial
Reporting Standards Council (FRSC) from the pronouncements issued by the
International Accounting Standards Board and approved by the Philippine Board of
Accountancy.
- 6-
The financial statements have been prepared using the measurement bases
specified by PFRS for each type of asset, liability, income and expense. The
measurement bases are more fully described in the accounting policies that follow.
Items included in the financial statements of the Company are measured using its
functional currency. Functional currency is the currency of the primary economic
environment in which the Company operates.
The Company adopted for the first time the revisions and amendments to existing
conceptual framework and standards, which are mandatorily effective for annual
periods beginning on or after January 1, 2020:
Discussed below and in the succeeding page are the relevant information about
these pronouncements.
These financial statements are prepared as the Company’s separate financial statements.
The Company also prepares consolidated financial statements being a publicly-listed
entity.
Subsidiaries are entities (including structured entities) over which the Company has
control. The Company controls an entity when (i) it has power over the entity, (ii) it is
exposed, or has rights to, variable returns from its involvement with the entity, and,
(iii) it has the ability to affect those returns through its power over the entity.
The Company reassesses whether or not it controls an entity if facts and circumstances
indicate that there are changes to one or more of the three elements of controls indicated
above.
Financial assets and financial liabilities are recognized when the entity becomes a party to
the contractual provisions of the financial instrument.
the asset is held within the Company’s business model whose objective
is to hold financial assets in order to collect contractual cash flows
(“hold to collect”); and
For purposes of cash flows reporting and presentation, cash in banks generally
include demand deposits that are unrestricted and readily available for use in
the Company’s operation.
The Company accounts for financial assets at fair value through other
comprehensive income (FVOCI) if the assets meet the following conditions:
they are held under a business model whose objective is to hold to collect
the associated cash flows and sell (“hold to collect and sell”); and
the contractual terms of the financial assets give rise to cash flows that
are SPPI on the principal amount outstanding.
Financial assets at FVOCI are initially measured at fair value plus transaction
costs. Subsequently, they are measured at fair value, with no deduction for
any disposal costs. Gains and losses arising from changes in fair value,
including the foreign exchange component, are recognized in other
comprehensive income, net of any effects arising from income taxes, and are
reported as part of Revaluation Reserves account in equity. When the asset is
disposed of, the cumulative gain or loss previously recognized in the
Revaluation Reserves account is not reclassified to profit or loss but is
reclassified directly to Retained Earnings account, except for those debt
securities classified as FVOCI wherein cumulative fair value gains or losses are
recycled to profit or loss.
The Company can only reclassify financial assets if the objective of its business
model for managing those financial assets changes. Accordingly, the Company
is required to reclassify financial assets: (i) from amortized cost to FVTPL, if the
objective of the business model changes so that the amortized cost criteria
are no longer met; and, (ii) from FVTPL to amortized cost, if the objective of
the business model changes so that the amortized cost criteria start to be met
and the characteristic of the instrument’s contractual cash flows meet the
amortized cost criteria.
A change in the objective of the Company’s business model will take effect
only at the beginning of the next reporting period following the change in the
business model.
At the end of the reporting period, the Company assesses and recognizes
allowance for ECL on its financial assets measured at amortized cost. The
measurement of ECL involves consideration of broader range of information
that is available without undue cost or effort at the reporting date about past
events, current conditions, and reasonable and supportable forecasts of future
economic conditions (i.e., forward-looking information) that may affect the
collectability of the future cash flows of the financial assets.
For other financial assets at amortized cost, ECLs are recognized in two stages.
For credit exposures for which there has not been a significant increase in
credit risk since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next 12-months
(a 12-month ECL). For those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a loss allowance is
required for credit losses expected over the remaining life of the exposure,
irrespective of the timing of the default (a lifetime ECL).
The Company recognizes an impairment loss in profit or loss for all financial
instruments subjected to impairment assessment with a corresponding
adjustment to their carrying amount through a loss allowance account.
- 13 -
The financial assets (or where applicable, a part of a financial asset or part of
a group of financial assets) are derecognized when the contractual rights to
receive cash flows from the financial instruments expire, or when the financial
assets and all substantial risks and rewards of ownership have been
transferred to another party. If the Company neither transfers nor retains
substantially all the risks and rewards of ownership and continues to control
the transferred asset, the Company recognizes its retained interest in the
asset and an associated liability for amounts it may have to pay. If the
Company retains substantially all the risks and rewards of ownership of a
transferred financial asset, the Company continues to recognize the financial
asset and also recognizes a collateralized borrowing for the proceeds received.
Accrued expenses and other payables are recognized initially at their fair values and
subsequently measured at amortized cost, using effective interest method for those with
maturities beyond one year, less settlement payments.
Financial liabilities are classified as current liabilities if payment is due to be settled within
one year or less after the end of the reporting period (or in the normal operating cycle of
the business, if longer), or the Company does not have an unconditional right to defer
settlement of the liability for at least twelve months after the end of the reporting period.
Otherwise, these are presented as non-current liabilities.
Financial liabilities are derecognized from the statement of financial position only when
the obligations are extinguished either through discharge, cancellation or expiration. The
difference between the carrying amount of the financial liability derecognized and the
consideration paid or payable is recognized in profit or loss.
Financial assets and financial liabilities are offset and the resulting net amount, considered
as a single financial asset or financial liability, is reported in the statement of financial
position when the Company currently has legally enforceable right to set-off the
recognized amounts and there is an intention to settle on a net basis, or realize the asset
and settle the liability simultaneously. The right of set-off must be available at the end of
the reporting period, that is, it is not contingent on future event. It must also be
enforceable in the normal course of business, in the event of default, and in the event of
insolvency or bankruptcy; and, must be legally enforceable for both entity and all
counterparties to the financial instruments.
- 14 -
Other assets pertain to other resources controlled by the Company as a result of past
events. They are recognized at cost in the financial statements when it is probable that
the future economic benefits will flow to the Company and the asset has a cost or value
that can be measured reliably.
Other recognized assets of similar nature, where future economic benefits are expected
to flow to the Company beyond one year after the end of the reporting period or in the
normal operating cycle of the business, if longer, are classified as non-current assets.
Other assets, which include property and equipment (consisting of computer software and
leasehold improvement), are carried at cost less accumulated depreciation, amortization
and impairment losses, if any. The cost of an asset comprises its purchase price and
directly attributable costs of bringing the asset to working condition for its intended use.
Expenditures for additions, major improvements and renewals are capitalized while
expenditures for repairs and maintenance are charged to expense as incurred.
Depreciation and amortization is computed on the straight-line basis over the estimated
useful lives of the assets of three to 10 years. Leasehold improvements are amortized over
the estimated useful lives of 5 years or the term of the lease, whichever is shorter.
Provisions are recognized when present obligations will probably lead to an outflow of
economic resources and they can be estimated reliably even if the timing or amount of the
outflow may still be uncertain. A present obligation arises from the presence of a legal or
constructive obligation that has resulted from past events.
Provisions are measured at the estimated expenditure required to settle the present
obligation, based on the most reliable evidence available at the end of the reporting
period, including the risks and uncertainties associated with the present obligation. Where
there are a number of similar obligations, the likelihood that an outflow will be required
in settlement is determined by considering the class of obligations as a whole. When time
value of money is material, long-term provisions are discounted to their present values
using a pretax rate that reflects market assessments and the risks specific to the obligation.
The increase in the provision due to passage of time is recognized as interest expense.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the
current best estimate.
In those cases, where the possible outflow of economic resource as a result of present
obligations is considered improbable or remote, or the amount to be provided for cannot
be measured reliably, no liability is recognized in the financial statements. Similarly,
possible inflows of economic benefits to the Company that do not yet meet the recognition
criteria of an asset are considered contingent assets, hence, are not recognized in the
financial statements. On the other hand, any reimbursement that the Company can be
virtually certain to collect from a third party with respect to the obligation is recognized as
a separate asset not exceeding the amount of the related provision.
- 15 -
Revenue is recognized only when (or as) the Company satisfies a performance obligation
by transferring control of the promised services to the customer. A contract with a
customer that results in a recognized financial instrument in the Company’s financial
statements may be partially within the scope of PFRS 9 and partially within the scope of
PFRS 15. In such case, the Company first applies PFRS 9 to separate and measure the part
of the contract that is in-scope of PFRS 9, and then applies PFRS 15 to the residual part of
the contract.
Expenses and costs, if any, are recognized in profit or loss upon utilization of the assets or
services or at the date these are incurred. All finance costs are reported in profit or loss
on accrual basis.
For any new contracts entered into, the Company considers whether a contract is, or
contains, a lease. A lease is defined as a contract, or part of a contract, that conveys the
right to use an asset (the underlying asset) for a period of time in exchange for
consideration. To apply this definition, the Company assesses whether the contract meets
three key evaluations which are whether:
the contract contains an identified asset, which is either explicitly identified in the
contract or implicitly specified by being identified at the time the asset is made
available to the Company;
the Company has the right to obtain substantially all of the economic benefits from
use of the identified asset throughout the period of use, considering its rights within
the defined scope of the contract; and,
the Company has the right to direct the use of the identified asset throughout the
period of use. The Company assess whether it has the right to direct ‘how and for
what purpose’ the asset is used throughout the period of use.
The Company’s current lease agreement was assessed as a short-term lease and was
accounted for using the practical expedients available for short-term leases such as the
use of hindsight in determining the lease term where the contract contains an option to
terminate the lease. Instead of recognizing a right-of-use asset and lease liability,
the payments in relation to these are recognized as an expense in profit or loss on a
straight-line basis over the lease term.
The accounting records of the Company are maintained in Philippine pesos. Foreign
currency transactions during the year are translated into the functional currency at
exchange rates which approximate those prevailing on transaction dates.
Foreign currency gains and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in profit or loss.
- 16 -
Changes in the fair value of monetary financial assets denominated in foreign currency
classified as financial assets at FVOCI are analyzed between translation differences
resulting from changes in the amortized cost of the security and other changes in the
carrying amount of the security. Translation differences related to changes in amortized
cost are recognized in profit or loss, and other changes in the carrying amount are
recognized in other comprehensive income.
The Company’s investments in subsidiaries and other non-financial assets are subject to
impairment testing. All other individual assets are tested for impairment whenever events
or changes in circumstances indicate that the carrying amount of those assets may not be
recoverable.
For purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). As a result, assets are
tested for impairment either individually or at the cash-generating unit level.
Impairment loss is recognized in profit or loss for the amount by which the asset’s or
cash-generating unit’s carrying amount exceeds its recoverable amounts which is the
higher of its fair value less costs to sell and its value in use. In determining value in use,
management estimates the expected future cash flows from each cash-generating unit
and determines the suitable interest rate in order to calculate the present value of those
cash flows. The data used for impairment testing procedures are directly linked to the
Company’s latest approved budget, adjusted as necessary to exclude the effects of asset
enhancements. Discount factors are determined individually for each cash-generating unit
and reflect management’s assessment of respective risk profiles, such as market and asset-
specific risk factors.
All assets are subsequently reassessed for indications that an impairment loss previously
recognized may no longer exist. An impairment loss is reversed if the asset’s or cash
generating unit’s recoverable amount exceeds its carrying amount.
Tax expense recognized in profit or loss comprises the sum of current tax and deferred tax
not recognized in other comprehensive income or directly in equity, if any.
Current tax assets or liabilities comprise those claims from, or obligations to, fiscal
authorities relating to the current or prior reporting period, that are uncollected or unpaid
at the end of the reporting period. They are calculated using the tax rates and tax laws
applicable to the fiscal periods to which they relate, based on the taxable profit for the
year. All changes to current tax assets or liabilities are recognized as a component of tax
expense in profit or loss.
- 17 -
Deferred tax is accounted for using the liability method, on temporary differences at the
end of each reporting period between the tax base of assets and liabilities and their
carrying amounts for financial reporting purposes. Under the liability method, with certain
exceptions, deferred tax liabilities are recognized for all taxable temporary differences and
deferred tax assets are recognized for all deductible temporary differences and the
carryforward of unused tax losses and unused tax credits to the extent that it is probable
that taxable profit will be available against which the deductible temporary differences
can be utilized. Unrecognized deferred tax assets are reassessed at the end of each
reporting period and are recognized to the extent that it has become probable that future
taxable profit will be available to allow such deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
in the period when the asset is realized or the liability is settled provided such tax rates
have been enacted or substantively enacted at the end of the reporting period.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is probable that sufficient taxable profit will be available
to allow all or part of the deferred tax asset to be utilized.
Most changes in deferred tax assets or liabilities are recognized as a component of tax
expense in profit or loss, except to the extent that it relates to items recognized in other
comprehensive income or directly in equity. In this case, the tax is also recognized in other
comprehensive income or directly in equity, respectively.
Deferred tax assets and deferred tax liabilities are offset if the Company has a legally
enforceable right to set off current tax assets against current tax liabilities and the deferred
taxes relate to the same entity and the same taxation authority.
Related party transactions are transfers of resources, services or obligations between the
Company and its related parties, regardless whether a price is charged.
Parties are considered to be related if one party has the ability to control the other party
or exercise significant influence over the other party in making financial and operating
decisions. These parties include: (a) individuals owning, directly or indirectly through one
or more intermediaries, control or are controlled by, or under common control with the
Company; (b) associates; and, (c) individuals owning, directly or indirectly, an interest in
the voting power of the Company that gives them significant influence over the Company
and close members of the family of any such individual.
All individual material related party transactions shall be approved by at least two-thirds
(2/3) vote of the Company’s board of directors, with at least a majority of the independent
directors, with at least a majority of the independent directors voting to approve the
material related party transactions. In case that a majority of the independent directors’
vote is not secured, the material related party transaction may be ratified by the vote of
the stockholders representing at least two-thirds of the outstanding capital stock. For
aggregate related party transactions within a 12-month period that breaches the
materiality threshold of ten percent of the Company’s total assets based on the latest
consolidated financial statements, the same board approval would be required for the
transactions that meet and exceeds the materiality threshold covering the same related
party.
2.13 Equity
Capital stock represents the nominal value of shares that have been issued.
Additional paid-in capital includes any premium received on the issuance of capital stock.
Any transaction costs associated with the issuance of shares are deducted from additional
paid-in capital.
Treasury shares are stated at the cost of reacquiring such shares and are deducted from
equity attributable to the Company’s equity holders until the shares are cancelled,
reissued or disposed of.
Revaluation reserves comprise of unrealized fair value gains and losses from revaluation
of financial assets at FVOCI.
Retained earnings represent all current and prior period results of operations as reported
in the statement of profit or loss, reduced by the amounts of dividends declared.
Any post-year-end event that provides additional information about the Company’s
financial position at the end of the reporting period (adjusting event) is reflected in the
financial statements. Post-year-end events that are not adjusting events, if any, are
disclosed when material to the financial statements.
The preparation of the Company’s financial statements in accordance with PFRS requires
management to make judgments and estimates that affect the amounts reported in the
financial statements and related notes. Judgments and estimates are continually
evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. Actual
results may ultimately differ from these estimates.
- 19 -
In the process of applying the Company’s accounting policies, management has made the
following judgments, apart from those involving estimation, which have the most
significant effect on the amounts recognized in the financial statements:
The Company uses modified loss rate to calculate ECL for all financial assets at
amortized cost other than advances to related parties. The allowance for
impairment is based on the ECLs associated with the probability of default of a
financial instrument in the next 12 months, which is equal to the lifetime ECL.
For advances to related parties, PFRS 9 notes that the maximum period over which
expected impairment losses should be measured is the longest contractual period
where an entity is exposed to credit risk. In the case of advances to related parties,
which are repayable on demand, the contractual period is the very short period
needed to transfer the cash once demanded. The management’s assessment for
possible impairment is based on the sufficiency of the related parties’ highly liquid
assets in order to repay the loan if demanded at the reporting date taking into
consideration the historical defaults of the related party.
The Company has established a policy to perform an assessment, at the end of each
reporting period, whether a financial instrument’s credit risk has increased
significantly since initial recognition, by considering the change in the risk of default
occurring over the remaining life of the financial instrument.
As of December 31, 2020 and 2019, the Company has provided allowance for
impairment on its receivables and advances to related parties amounting to
P1.26 billion and P1.32 billion, respectively. The analysis of the allowance for
impairment are shown in Notes 5.3 and 7.
(b) Evaluation of Business Model Applied in Managing Financial Instruments and Testing
the Cash Flow Characteristics of Financial Instruments
The Company developed business models which reflect how it manages its portfolio
of financial instruments. The Company’s business models need not be assessed at
entity level or as a whole but shall be applied at the level of a portfolio of financial
instruments (i.e., group of financial instruments that are managed together by the
Company) and not on an instrument-by-instrument basis (i.e., not based on
intention or specific characteristics of individual financial instrument).
- 20 -
The assessment as to whether the cash flows meet the test is made in the currency
in which the financial asset is denominated. Any other contractual term that
changes the timing or amount of cash flows (unless it is a variable interest rate that
represents time value of money and credit risk) does not meet the amortized cost
criteria. In cases where the relationship between the passage of time and the
interest rate of the financial instrument may be imperfect, known as modified time
value of money, the Company assesses the modified time value of money feature to
determine whether the financial instrument still meets the SPPI criterion. The
objective of the assessment is to determine how different the undiscounted
contractual cash flows could be from the undiscounted cash flows that would arise
if the time value of money element was not modified (the benchmark cash flows).
If the resulting difference is significant, the SPPI criterion is not met. In view of this,
the Company considers the effect of the modified time value of money element in
each reporting period and cumulatively over the life of the financial instrument.
In addition, PFRS 9 emphasizes that if more than an infrequent sale is made out of a
portfolio of financial assets carried at amortized cost, an entity should assess
whether and how such sales are consistent with the objective of collecting
contractual cash flows. In making this judgment, the Company considers certain
circumstances documented in its business model manual to assess that an increase
in the frequency or value of sales of financial instruments in a particular period is
not necessary inconsistent with a held-to-collect business model if the Company can
explain the reasons for those sales and why those sales do not reflect a change in
the Company’s objective for the business model.
The following are the key assumptions concerning the future and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the
next reporting period:
The measurement of the allowance for ECL on financial assets at amortized cost is
an area that requires the use of significant assumptions about the future economic
conditions and credit behavior (e.g., likelihood of customers defaulting and the
resulting losses). Explanation of the inputs, assumptions and estimation used in
measuring ECL is further detailed in Note 14.2.
- 21 -
The carrying values of the Company’s financial assets at FVOCI and the amounts of
fair value changes recognized on those assets are disclosed in Note 8.
The Company reviews its deferred tax assets at the end of each reporting period and
reduces the carrying amount to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be
utilized. Based on the management’s assessment as of December 31, 2020 and
2019, the Company may not have sufficient taxable profits against which its deferred
tax asset can be utilized within the prescribed period. Accordingly, the Company did
not recognize the deferred tax asset. The carrying value of unrecognized deferred
tax assets, is disclosed in Note 10.
4. CASH IN BANKS
This account consists of demand deposits amounting to P25.68 million and P4.54 million
as of December 31, 2020 and 2019, respectively. Cash in banks generally earned interest
based on daily bank deposit rates.
Prior to December 31, 2019, the Company held short-term investments with an effective
interest rates ranging from 2.15% to 6.00%.
- 22 -
Interest income earned from demand deposits and short-term investments in 2020, 2019
and 2018 amounted to P6,866, P14.28 million, and P9.14 million, respectively. Such are
presented as part of Interest Income under Other Income (Charges) – Net section in the
statements of comprehensive income.
5. RECEIVABLES
P 4,105,645,381 P 4,019,788,174
Receivables from sale of ETPI pertains to the outstanding proceeds from the sale of the
Company’s investment in ETPI. The amount is noninterest-bearing. On March 25, 2015,
the Company and the buyer entered into an agreement on the payment schedule to be
made in relation to the aforementioned receivable. Schedule of payment is as follows:
Amount of Payment
Payment Date
P 800,000,000 2015
50,444,462 2016
48,000,000 2017
P 898,444,462
- 23 -
The receivables from sale of ETPI was collected as per the agreed payment schedule above.
However, in 2015, the Company provided allowance for impairment loss amounting to
P307.78 million pertaining to the remaining balance of receivable, which was not included
in the payment schedule, as management deemed the amount is doubtful of collection.
As of December 31, 2020, the Company and ETPI are still discussing for the repayment plan
on the remaining receivable. The receivable is still uncollected; hence, the corresponding
allowance for impairment loss has not been reversed (see Note 5.3).
P 69,619,165
During 2017, the Company and its subsidiary, Wagas, have an outstanding notes receivable
from Acentic GmbH amounting to EUR 5,741,653, inclusive of EUR 746,429 accrued
interest. As part of the restructuring, Acentic GmbH assigned to Acentic the accrued
interest plus a portion of the principal amounting to EUR 114,022 or with a total amount
of EUR 860,451 due to the Company. Such loan bears a fixed interest of 5.00% and will
mature on December 31, 2022 (“EUR Loan 1”). The restructuring is discussed in detail in
Note 7.
On March 22, 2018 and May 2, 2018, the Company granted additional loans to Acentic
amounting to EUR 250,000 ("EUR Loan 2") and EUR 125,000 (“EUR Loan 3”), respectively.
Both loans bear an annual fixed interest of 10.00% and will supposedly mature on
March 31, 2020. However, on March 2020, upon the agreement of Acentic and the
Company, the maturity date for EUR Loan 2 and EUR Loan 3 is extended to
December 31, 2021.
On August 24, 2020, the net outstanding receivable was sold to a certain third party in
exchange for proceeds amounting to USD 0.75 million (P36.49 million) resulting in a loss
of P8.10 million, which is presented as Loss on disposal of financial assets at amortized
cost under Other Income (Charges) – Net section in the 2020 statement of comprehensive
income.
Interest income earned from these receivables amounted to (nil in 2020), P4.65 million
and P5.08 million in 2019 and 2018, respectively and are presented as part of Interest
income under Other Income (Charges) – Net section in the statements of comprehensive
income. The management opted not to accrue any interest for 2020 due to the
remoteness of the possibility to collect. The outstanding interest receivable amounting to
P6.30 million as of December 31, 2019 is presented as Interest receivable under
Receivables account in the 2019 statement of financial position.
- 24 -
The Company’s notes receivables have been assessed by management for expected credit
losses on December 31, 2019. The notes receivables were found to be impaired as
determined by the management; hence, adequate amounts of allowance for impairment
have been recognized, which was based on the days past due (see Note 14.2).
A reconciliation of the allowance for impairment at the beginning and end of 2020 and
2019 is shown below:
P 308,742,555 P - P 308,742,555
The impairment loss amounting to P0.96 million and P32.14 million for 2020 and 2019,
respectively, and is presented as part of Impairment loss under Expenses section in the
2020 and 2019 statements of comprehensive income. No impairment loss was recognized
in 2018.
All of the Company’s receivables have been reviewed for impairment. Certain receivables
were found to be impaired as determined by the management; hence, adequate
allowance for impairment have been recognized (see Note 14.2).
Prior to December 31, 2019, the Company held short-term receivables, pertaining to interest
bearing repurchase agreements entered by the Company with Philippine Bank of
Communications (PBCom), which earns effective interest ranging from 2.13% to 4.50% and
mature within 30 to 85 days. These were fully settled in 2019. Interest earned from these
short-term receivables amounted to P13.78 million and P21.02 million in 2019 and 2018,
respectively, and are presented as part of Interest Income under Other Income
(Charges) – Net section in 2019 and 2018 statements of comprehensive income.
- 25 -
6. OTHER ASSETS
2020 2019
Current:
Input value-added tax (VAT) P 9,090,177 P 8,916,825
Prepaid assets - 2,710,030
9,090,177 11,626,855
Allowance for impairment
losses on Input VAT ( 4,394,511) ( 4,394,511)
4,695,666 7,232,344
Non-current –
Property and equipment
Cost 5,794,013 5,794,013
Accumulated depreciation and
amortization ( 5,794,013) ( 5,768,746)
- 25,267
P 4,695,666 P 7,257,611
In 2020, the Company written-off the long outstanding prepaid assets amounting to
P2.70 million, as the management assessed that it will not be recovered. The related
impairment loss is presented as part of Impairment loss under Expenses section in the
2020 statement of comprehensive income.
The Company’s depreciation and amortization expense incurred from the property and
equipment, which is presented as Depreciation and amortization under Expenses section
in the statements of comprehensive income, amounted to P0.03 million, P0.08 million and
P1.37 million in 2020, 2019 and 2018, respectively.
P 1,311,846 P 465,918
- 26 -
The reconciliation of the carrying amounts of the advances to subsidiaries are as follows:
2020 2019
The reconciliation of the allowance for impairment at the beginning and end of 2020 and
2019 is shown below.
2020 2019
Part of the advances to subsidiaries pertains to the advances provided by the Company to
Wagas amounting to USD 14.15 million, with an outstanding balance of P680.26 million
and P718.31 million, as at December 31, 2020 and 2019, respectively, which was used by
Wagas to invest thru its subsidiary, Host Union, on the 32.5% interest in Acentic GmbH,
which was later on replaced by shares of Acentic (see Note 1.1); and, loans which were
transferred to Wagas due to the restructuring of the notes receivable to Acentic GmbH
amounting to EUR 4.68 million, with an outstanding balance of P274.90 million and
P263.94 million as at December 31, 2020 and 2019, respectively.
Prior to restructuring in 2018, the Company and its subsidiary, Wagas, have an outstanding
notes receivable from Acentic GmbH amounting to EUR 5,741,653, inclusive of
EUR 746,429 accrued interest. The restructuring agreement provides that the Company
will assume the portion of accrued interest receivable amounting to EUR 197,325 of Wagas
from Acentic GmbH. On the other hand, Acentic GmbH assigned to Acentic the total
accrued interest and a portion of the principal amounting to EUR 114,022 or with a total
amount of EUR 860,451 due to the Company. As such, Acentic now owes the Company
for the equivalent amount. In 2020, the net outstanding receivable was sold to a certain
third party (see Note 5.2).
The remaining portion of the principal amounting to EUR 4,881,202 was transferred to
Wagas, whereby, Wagas, as lender, agreed to accept settlement of the loan balance,
originally due from Acentic GmbH, via the issuance of 4,150,682 preference shares from
Acentic worth EUR 4,150,682 in its favor as full and final settlement. Wagas hereby agrees
that there are no longer due any sums from Acentic GmbH. As such, Wagas waives any
rights to receive this remaining loan balance other than the said preference share
consideration.
- 27 -
The breakdown of the notes receivable, interest receivable, and the amounts converted
to preferred shares and new loans are as follows:
Amount Amount
Accrued Converted to Converted to
Lender Principal Interest Preferred Shares New Loans
DITO CME EUR 3,946,500 EUR 491,536 EUR 3,946,500 EUR 491,536
Wagas - 197,325 - 197,325
DITO CME 222,029 26,352 222,029 26,352
DITO CME 450,000 31,216 450,000 31,216
DITO CME 376,695 - 262,673 114,022
2020 2019
P 103,817,770 P 101,173,927
The investment in equity securities consist of quoted and unquoted shares. Quoted shares
consist of 4,806,987 shares of stock in PBCom. Unrealized fair value changes on these
investment amounted to P2.64 million gain, P1.44 million gain, and P18.27 million loss in
2020, 2019 and 2018, respectively. Such amounts are presented as part of Fair Value Gains
(Losses) on Equity Securities at Other Comprehensive Income (OCI) in the statements of
comprehensive income.
Unquoted equity securities pertain to the investment in common stock of Alpha Force
Security Agency. In 2019, the fair value of these securities are determined using adjusted
net book value method (see Note 16.2). Unrealized fair value changes from these shares
amounting to nil in 2020, P2.57 million loss in 2019 and P0.44 million gain in 2018, are
presented as part of Fair Value Gains (Losses) on Equity Securities at OCI in the statements
of comprehensive income.
Prior to December 31, 2019, the Company held government and corporate bonds and unit
investment trust funds (UITF) under an Investment Management Agreement (IMA)
(see Note 13.3). Accordingly, fair value losses amounting to P22.65 million have been
recorded in the 2018 statement of comprehensive income as Fair Value Losses on Debt
Securities at FVOCI. In 2019 and 2018, the Company disposed government and corporate
bonds in exchange of P254.25 million and P109.97 million, respectively, realizing losses
amounting to P7.47 million and P1.56 million, respectively. Such amounts are presented
as Loss on disposal of financial assets at FVOCI under Other Income (Charges) – Net section
in the 2019 and 2018 statements of comprehensive income. The related fair value losses
amounting to P28.10 million and P1.43 million were reclassified in the profit or loss in 2019
and 2018, respectively. Interest income earned from the government and corporate bonds
amounted to P5.82 million and P10.59 million in 2019 and 2018, respectively. These
amounts are presented as part of Interest Income under Other Income (Charges) – Net
section in 2019 and 2018 statements of comprehensive income.
In 2018, the UITF held by the Company was redeemed at a realized loss of P3.79 million
and is presented as Loss in disposal of financial assets at FVTPL under Other Income
(Charges) – Net section in the 2018 statement of comprehensive income.
On June 26, 2019, the BOD passed and approved the resolution to terminate the
Company’s existing IMAs (see Note 13.3).
P 25,522,815 P 811,810
Deferred output VAT pertains to the output VAT on accruals of interest earned by the
Company. These will be subsequently reported as output VAT upon collection.
Accounts payables and accrued expenses consist of liabilities related to professional, legal
and other services.
Payables to government agencies pertain to payables to BIR, SSS, HDMF, and PhilHealth.
- 29 -
The reconciliation of the income tax expense computed at statutory income tax rate and
the income tax expense as shown in profit or loss for the years ended December 31 is as
follows:
In 2020 and 2019, the Company has not recognized the related deferred tax assets of the
following temporary differences as management believes that it is not probable that the
Company can utilize the related net tax benefits:
2020 2019 2018
Unrecognized deferred
tax asset P 380,489,010 P 408,035,470 P 411,739,596
In 2020, 2019 and 2018, the Company is subject to MCIT, which is computed at 2% of gross
income net of allowable deductions, as defined under tax regulations, or to RCIT,
whichever is higher. The Company is subject to RCIT for 2020. No RCIT was reported in
2019 and 2018 as the MCIT was higher than RCIT in both years.
- 30 -
P 1,551,248 (P 1,551,248 ) P -
In 2020, 2019 and 2018, the Company claimed itemized deductions in computing for its
income tax due.
The Company’s related parties include its subsidiaries, associate, the Company’s key
management personnel and others as described in Note 2.12. The summary of the
Company’s transactions and outstanding balances with its related parties follows:
Amount of Transaction Outstanding Balance
Notes 2020 2019 2018 2020 2019
Subsidiaries:
Advances * 11.1 (P 37,203,465) (P 27,995,462) P 70,662 P 681,510,269 P 718,713,734
Restructuring * 7 10,956,525 ( 18,481,781) - 274,898,615 263,942,090
Allowance * 7 27,092,868 46,551,246 ( 42,860,404) ( 955,159,637 ) ( 982,252,505)
Associate:
Interest-bearing loan 11.2 ( 69,619,165) ( 4,892,140) 12,074,602 - 69,619,165
Allowance 11.2 32,136,891 ( 32,136,891) - - ( 32,136,891)
Interest Income 11.2 - 4,651,704 5,078,138 - 6,300,999
Others:
Advances granted 11.3 (P 2,579,314) P3,911,552,876 P 964,863 P3,908,973,562 P3,911,552,876
Interest on advances 11.3 112,115,010 63,042,899 - 196,176,858 63,042,899
Advances received 11.4 125,000 - - ( 125,000 ) -
Key management
compensation 11.5 4,563,890 2,400,000 9,100,000 - -
* Movements in outstanding balance were also due to changes in foreign currency exchange rates.
- 31 -
The Company grants cash advances to its subsidiaries for working capital purposes. These
advances are noninterest-bearing, unsecured and repayable in cash within 12 months.
Outstanding balance of advances to related parties in relation to this amounted to
P1.25 million and P0.40 million, as at December 31, 2020 and 2019, respectively, and are
presented as part of Advances to subsidiaries under Investment in and Advances to
Subsidiaries account in the statements of financial position (see Note 7).
Included in the cash advances is the amount provided by the Company to its subsidiary,
Wagas, amounting to USD 14.16 million and USD 14.15 million as at December 31, 2020
and 2019, respectively, with an outstanding balance of P680.26 million and P718.30 million
as at December 31, 2020 and 2019, respectively, and is presented as part of Advances to
subsidiaries under Investment in and Advances to Affiliates account in the statements of
financial position (see Note 7). As of December 31, 2020 and 2019, these advances were
fully impaired by the management.
The Company has been granting various unsecured foreign currency denominated
interest-bearing loans to its associate for its working capital requirements. As of
December 31, 2019, the outstanding, unimpaired receivable from Acentic amounted to
P37.48 million and is shown under the non-current portion of the Receivables account in
the 2019 statement of financial position of the Company.
In 2019, these receivables were assessed by the management for expected credit losses
based on the days past due (see Notes 5.2 and 14.2).
Interest income on these loans amounted to nil, P4.65 million and P5.08 million in 2020,
2019 and 2018, respectively are presented as part of Interest Income under the Other
Income (Charges) – Net section in the statements of comprehensive income.
On August 24, 2020, the net outstanding receivable were sold to a certain third party
(see Note 5.2).
The Company grants cash advances to its related parties under common ownership for
working capital requirements and other purposes. The outstanding advances in 2020 and
2019 are subject to 3% interest rate per annum, unsecured and payable in cash on
demand. In 2019, the Company granted Udenna and CLIHC advances amounting to
P3,696.55 million and P215.0 million, respectively. Interest earned on these advances in
2020 and 2019, which is presented as part of Interest Income under Other Income
(Charges) section in the 2020 and 2019 statements of comprehensive income, amounted
to P112.11 million and P63.04 million, respectively. The outstanding balance, including
the accrued interest, as of December 31, 2020 and 2019 is presented as Advances to
affiliates under Receivables account in the statements of financial position. Out of the
P3,911.55 million principal amount, P215.0 million is assigned to a related party in 2019 to
accommodate a loan facilities agreement (see Note 13.2).
- 32 -
2020 2019
Management has determined that there is no impairment loss to be provided from the
aforementioned advances as of December 31, 2020 and 2019.
In 2020, the Company obtains cash advances, which are unsecured, noninterest-bearing
and generally payable on demand from its related party under common ownership for
working capital requirements. The outstanding liability as of December 31, 2020 is
presented as Advances from affiliates under Accrued Expenses and Other Payables
account in the 2020 statement of financial position.
Key management compensation amounting to P4.6 million, P2.4 million and P9.1 million
in 2020, 2019 and 2018, respectively, are presented as part of Salaries and Administrative
under Operating Costs and Expenses section in the statements of comprehensive income.
11.6 Other
In 2020, the Company holds office in an office space owned by a related party under
common ownership. There was no consideration paid by the Company for this
transaction.
12. EQUITY
Common shares –
P1 par value
Authorized –
2,800,000,000 shares
Issued:
Balance at beginning
of year 2,800,000,000 2,800,000,000 1,916,269,341 P 2,800,000,000 P 2,800,000,000 P 1,916,269,341
Issued during the year - - 883,730,659 - - 883,730,659
Treasury shares:
Balance at beginning
of year - - 841,945,107 P - P - P 1,279,786,026
Reissued during
the year - - ( 841,945,107) - - ( 1,279,786,026)
On August 15, 2018, the BOD approved the subscription by Dennison Holdings Corporation
to all of the Company’s 883,730,659 unissued common shares at a subscription price of
P1.45 per share or a total subscription of P1,281.41 million, 25% of which is payable upon
subscription and the 75% balance no later than the end of 2018. Such subscription is
equivalent to 45% of the resulting outstanding capital stock of the Company. The total
amount of subscription price was received as of December 31, 2018. The related stock
issuance cost amounting to P8.84 million were deducted from additional paid-in capital.
On July 28, 2020, the BOD and stockholders approved the plan to increase the authorized
capital stock of the Company from 2.8 billion to 40.0 billion shares with a par value of
P1.0 per share. As of the date of issuance of the financial statements, the proposed
amendments were not yet submitted to the SEC.
On November 28, 2014, the BOD of the Company approved the conduct of an issuer tender
offer for 1,200,000,000 of its common shares at an offer price equivalent to the prevailing
market price of P1.52 per share. From a total of 1,412,212,410 tendered shares received,
1,199,999,993 shares were accepted at a price of P1.52 per share or for a total
consideration of P1,823,999,989. The accepted shares were crossed on the Philippine
Stock Exchange on February 2, 2015. As a result of the tender offer, the outstanding
shares of the Company are 716,216,156 common shares as of December 31, 2015.
On January 26, 2016, the BOD approved the reissuance of a total of 358,108,078
Treasury Shares (Safe Shares) to its shareholders of record as of February 5, 2016
(“Eligible Shareholders”). Under the terms approved by the Board, Eligible Shareholders
were entitled to buy one Treasury Share for every two common shares held as of February
5, 2016 at a price of Php1.00 per share. The offer period of the sale began last February
9, 2015 and ended last March 15, 2016. The Company successfully concluded the sale of
the Safe Shares and were successfully transferred to the participating shareholders via the
facilities of the Exchange on March 21, 2016. As a result, the remaining treasury shares as
of December 31, 2017 and 2016 is 841,945,107.
On August 24, 2018, the Executive Committee, pursuant to the authority granted by BOD
on June 22, 2018, approved the proposed sale of the Company’s treasury shares to Accion
Common Development Fund SPC at a purchase price of P1.45 per share or for a total price
of P1,220.80 million. The agreement further provides that both parties shall agree when
to transact the transfer of treasury shares through the facilities of PSE. On June 10, 2019,
the transfer of treasury shares was executed in accordance with the agreement of both
parties through the facilities of the PSE.
- 34 -
The following are the significant commitments and contingencies involving the Company:
P 1,041,144
On January 31, 2020, a deed of assignment was executed between the Company and a
third party (Assignee) whereas the former assigned, transferred, conveyed, all of its rights
and interest over the offices and parking slots to the Assignee. Starting January 1, 2020,
the Assignee has been responsible to the monthly rentals until the expiration of the
contract of lease on August 31, 2020.
Total rent expense for short-term lease amounted to P0.81 million and P0.79 million for
the years ended December 31, 2019 and 2018, respectively and is presented as Rent under
Expenses section in the 2019 and 2018 statements of comprehensive income.
On September 12, 2019, the BOD approved the assignment of the Company’s Advances to
CLIHC, a related party under common ownership, amounting to P215.0 million for the
benefit of Emerald Development Holdings Limited (EDHL), also a related party under
common ownership.
In 2015, the Company entered into an IMA whereby the Company availed the services of
a trustee bank (investment manager) relative to the management and investment of funds
amounting to P351.00 million (the Fund). The Fund, without distinction to principal and
income, are invested and reinvested in one or more fixed income placements and
securities, other money market or direct placements, or in government securities, and
other duly registered commercial papers, whether singly or commingled with other IMA
accounts, upon written instruction and/or confirmation of the Company. The agreement
further clarified that it is an agreement of agency whereby, the legal title to the Fund
should retain to the Company. Accordingly, each financial instrument in the portfolio of
investments shall be recorded directly in the books of the Company, classified and
measured depending on the type of each financial instruments. Income arising from
interests and dividends shall be measured as interest income and dividend income,
respectively, and expenses such as trust fees and taxes, shall be recorded in the profit or
loss while any fair value gains or losses shall be recorded under other comprehensive
income.
On June 26, 2019, the BOD passed and approved the resolution to terminate the
Company’s existing IMAs with the trustee bank. On July 9, 2019, all fixed income
placements and securities, other money market or direct placements, or in government
securities, and other duly registered commercial papers have been disposed realizing a
loss amounting to P7.47 million and is presented as Loss on disposal of Financial Assets at
FVOCI under Other Income (Charges) - Net section in the 2019 statement of
comprehensive income (see Note 8).
13.4 Others
There are other commitments and contingent liabilities that may arise in the normal
course of the Company’s operations which are not reflected in the financial statements.
As of December 31, 2020 and 2019, management is of the opinion that losses, if any, from
these commitments and contingencies will not have material effects on the Company’s
financial statements at the end of the reporting period.
The BOD has overall responsibility for the establishment and oversight of the Company’s
risk management framework. The BOD has established the Executive Committee, which
is responsible for developing and monitoring the Company’s risk management policies.
The committee identifies all issues affecting the operations of the Company and reports
regularly to the BOD on its activities.
The Company does not actively engage in the trading of financial assets for speculative
purposes nor does it write options. The most significant financial risks to which the
Company is exposed to are described in the succeeding pages.
- 36 -
The Company is exposed to market risk through its use of financial instruments and
specifically to foreign currency risk and certain other price risk which result from both its
investing and financing activities.
Most of the Company’s transactions are carried out in Philippine pesos, its functional
currency. To mitigate the Company’s exposure to foreign currency risk, non-Philippine
peso cash flows are monitored.
In 2019, exposures to currency exchange rates arise, primarily, from its notes receivables
and its corresponding interest from Acentic, which were transacted in Euro (see Note 5),
and from U.S. dollar-denominated cash and cash equivalents. Meanwhile, in 2020,
exposures are arise primarily from the U.S. dollar-denominated and Euro-denominated
cash in banks and advances to subsidiaries (see Notes 4 and 7).
2020 2019
U.S. U.S.
Dollar Euro Dollar Euro
The following table illustrates the sensitivity of the Company’s income before tax with
respect to changes in Philippine peso against U.S. dollar and Euro exchange rates.
The percentage changes in rates have been determined based on the average market
volatility in exchange rates, using standard deviation, in the previous 12 months at a
99% confidence level.
2020 2019
Reasonably Reasonably
possible Effect in possible Effect in
change profit before Effect in change profit before Effect in
in rate tax equity in rate tax equity
Exposures to foreign exchange rates vary during the year depending on the volume of
foreign currency denominated transactions. Nonetheless, the analysis above is
considered to be representative of the Company’s currency risk.
The Company’s market price risk arises from its investments carried at fair value. The
Company manages exposures to price risk by monitoring the changes in the market price
of the investments.
The observed volatility rates of the fair values of the Company’s investment securities and
their impact on the Company’s other comprehensive income before tax and equity as at
December 31, 2020 and 2019 are summarized below. These percentages have been
determined using standard deviation based on the average market volatility in security
prices in the previous 12 months at 99% confidence level.
- 37 -
In accordance with the Company’s policies, no specific hedging activities are undertaken
in relation to these investments. The investments are continuously monitored and voting
rights arising from these equity instruments are utilized in the Company’s favor.
Credit risk is the risk that a counterparty may fail to discharge an obligation to the
Company. The Company is exposed to this risk for various financial instruments arising
from granting of advances and placing deposits with banks.
The maximum credit risk exposure of financial assets is the carrying amount of the financial
assets as shown in the statements of financial position or in the detailed analysis provided
in the notes to the financial statements, as summarized below.
P 4,132,572,768 P 4,024,736,434
The credit risk for cash in banks is considered negligible, since the counterparties are
reputable banks with high quality external credit ratings. Cash in banks are insured by the
Philippine Deposit Insurance Corporation up to a maximum coverage of P0.50 million for
every depositor per banking institution.
In 2020 and 2019, the Company applies the simplified approach using a provision matrix
in measuring ECL, which uses a lifetime expected credit loss allowance for its notes and
interest receivables. To measure the ECL, these receivables have been grouped based on
shared credit risk characteristics and the days past due.
- 38 -
On that basis, the Company recognized loss allowance for the notes and interest receivable
as at December 31, 2019, in addition to the existing loss allowance for the receivables from
sale of ETPI amounting to P307.78 million. In 2020, the Company sold its notes and
interest receivable to a certain third party which resulted to the derecognition of
previously recognized allowance (see Notes 5.1 and 5.2). The loss allowance as at
December 31, 2019 is as follows for notes and interest receivable:
In measuring the ECL for its advances to related parties, which are repayable on demand,
the Company based the expected credit loss allowance based on the related party’s ability
to repay the advances upon demand at the reporting date taking into consideration
historical defaults from the related parties. No impairment was recognized for these
advances to related parties aside from the outstanding advances to Wagas as the
management assessed these receivables to be recoverable since these related parties
have the capacity to pay advances upon demand. Moreover, for the year ended
December 31, 2020, the Company took into consideration the ongoing restructuring
related to the share-swap transaction of the Company together with the same related
parties, UCME and DHC (see Note 1.1). On the other hand, Wagas, a subsidiary, was
assessed to have no capacity to pay the advances upon demand; therefore, recognizing an
impairment in full.
The Company manages its liquidity needs by carefully monitoring scheduled debt servicing
payments for long-term financial liabilities as well as cash outflows due in a
day-to-day business. Liquidity needs are monitored in various time bands, on a
day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.
Long-term liquidity needs for a six-month and one-year period are identified monthly.
The Company maintains cash to meet its liquidity requirements for up to 60-day periods.
Excess cash are invested in time deposits, mutual funds or short-term marketable
securities. Funding for long-term liquidity needs is additionally secured by an adequate
amount of committed credit facilities and the ability to sell long-term financial assets.
As of December 31, 2020 and 2019, the Company’s financial liabilities, which pertain to
accrued expenses and other payables (excluding payable to government agencies),
amounting to P3.38 million and P0.50 million, respectively, have contractual maturities of
six months to one year.
These contractual maturities reflect the gross cash flows, which may differ from the
carrying values of the liabilities at the end of the reporting periods.
- 39 -
The Company has no financial assets and financial liabilities carried at fair value, other than
its financial assets at FVOCI, which has a fair value of P103.82 million and P101.17 million
as at December 31, 2020 and 2019, respectively.
See Note 2.4 for the description of the accounting policies for each category of financial
instruments including the determination of fair values. A description of the Company’s
risk management objectives and policies for financial instruments is provided in Note 14.
The Company has not set-off financial instruments in 2020 and 2019 and does not have
relevant offsetting arrangements. Currently, financial assets and financial liabilities are
settled on a gross basis; however, each party to the financial instrument (particularly
related parties) will have the option to settle all such amounts on a net basis in the event
of default of the other party through approval by both parties’ BOD and stockholders.
There was no potential offsetting as at December 31, 2020 and 2019.
In accordance with PFRS 13, Fair Value Measurement, the fair value of financial assets and
financial liabilities and non-financial assets which are measured at fair value on a recurring
or non-recurring basis and those assets and liabilities not measured at fair value but for
which fair value is disclosed in accordance with other relevant PFRS, are categorized into
three levels based on the significance of inputs used to measure the fair value. The fair
value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
that an entity can access at the measurement date;
Level 2: inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from
prices); and
Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The level within which the asset or liability is classified is determined based on the lowest
level of significant input to the fair value measurement.
- 40 -
For purposes of determining the market value at Level 1, a market is regarded as active if
quoted prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service, or regulatory agency, and those prices represent actual and
regularly occurring market transactions on an arm’s length basis.
For investments which do not have quoted market price, the fair value is determined by
using generally acceptable pricing models and valuation techniques or through the use of
net asset values or by calculating based on the expected cash flows of the underlying net
asset base of the instrument.
When the Company uses valuation technique, it maximizes the use of observable market
data where it is available and rely as little as possible on entity specific estimates.
However, areas such as credit risk (both own and counterparty), volatilities and
correlations require management to make estimates. If all significant inputs required to
determine the fair value of an instrument are observable, the instrument is included in
Level 2. Otherwise, it is included in Level 3. Changes in assumptions could also affect the
reported fair value of the financial instruments. The Company uses judgment to select a
variety of valuation techniques and to make assumptions that are mainly based on market
conditions existing at the end of each reporting period.
The table below shows the fair value hierarchy of the Company’s classes of financial assets
and financial liabilities measured at fair value in the statement of financial position on a
recurring basis as of December 31, 2020 and 2019.
Level 1 Level 2 Level 3 Total
The fair values of quoted equity securities classified as financial assets at FVOCI as of
December 31, 2020 and 2019 were valued based on their market prices quoted in the PSE
at the end of each reporting period; hence, categorized within Level 1.
For equity securities which are not traded in an active market and with fair value
categorized within Level 3, their fair value is determined through valuation techniques
such as adjusted net book value method. Increase or decrease in the adjusted net book value
would result in higher or lower fair values, all else equal.
2020 2019
The Company has no financial liabilities measured at fair value as of December 31, 2020
and 2019.
- 41 -
There were neither transfers between Levels 1 and 2 nor changes in Level 3 instruments
in during the year.
16.3 Financial Instruments Measured at Amortized Cost for which Fair Value is Disclosed
Management considers that due to the short duration of financial assets and financial
liabilities measured at amortized cost, as disclosed in Notes 14 and 15, their carrying
amounts as of December 31, 2020 and 2019 approximate their fair value. Except for cash
in banks which is classified under Level 1, all other financial instruments are classified
under Level 3 wherein inputs are not based on observable data.
The Company has no financial assets and financial liabilities measured at fair value as of
December 31, 2020 and 2019.
The Company’s capital management objectives are to ensure the Company’s ability to
continue as a going concern and to provide an adequate return to shareholders by pricing
products and services commensurate with the level of risk.
The Company monitors capital on the basis of the carrying amount of equity as presented
in the statement of financial position. Capital for the reporting periods under review is
summarized as follows:
2020 2019
The BOD’s policy is to maintain a strong capital base so as to maintain investor, creditor
and market confidence and to sustain future development of the business.
The BOD has overall responsibility for monitoring of capital in proportion to risk. Profiles
for capital ratios are set in the light of changes in the Company’s external environment and
the risks underlying the Company’s business operations and industry.
BOD uses debt-to-equity ratio to monitor and review, on a regular basis, the Company’s
capital, defined as total equity includes capital stock, additional paid-in capital, cumulative
unrealized fair value loss on financial assets at FVOCI and retained earnings.
- 42 -
On March 26, 2021, R.A. No. 11534, Corporate Recovery and Tax Incentives for Enterprises
(CREATE) Act, amending certain provisions of the National Internal Revenue Code of 1997,
as amended, was signed into law with veto on certain provisions and shall be effective
15 days after its publication. The CREATE Act has several provisions with retroactive effect
beginning July 1, 2020. The following are the major changes brought about by the CREATE
Act that are relevant to the Company:
Given that the CREATE Act was signed after the end of the current reporting period, the
Company determined that this event is a non-adjusting subsequent event. Accordingly, its
impact was not reflected in the Company’s financial statements as of and for the year
ended December 31, 2020, and instead, will be taken up prospectively in the next
applicable reporting period. The Company used the prevailing tax rates as of
December 31, 2020 in determining its current in its 2020 financial statements.
As a result of the application of the lower RCIT rate of 25% starting July 1, 2020, the current
income tax expense and income tax payable as presented in the 2020 annual income tax
return (ITR) of the Company, would be lower than the amount presented in the 2020
financial statements.
Presented below is the reconciliation of the impact of the application of CREATE Act
between the Company’s 2020 financial statements and 2021 annual ITR.
Amount per
2020 Financial Impact of Amount per
Statements CREATE Act 2020 ITR
Presented below and in the succeeding page is the supplementary information on taxes,
duties and license fees paid or accrued during the taxable year required by the BIR under
Revenue Regulations (RR) No. 15-2010 to be disclosed as part of the notes to financial
statements. This supplementary information is not a required disclosure under PFRS.
In 2020, the Company declared output VAT amounting to P11,289 arising from its
service income worth P94,076. The tax bases for Rendering of Services are based on
the Company’s gross receipts for the year, hence, may not be the same as the
amounts of revenues reported in the 2020 statement of comprehensive income.
- 43 -
The outstanding balance of Input VAT is presented under Other Current Assets in the
2020 statement of financial position.
The Company did not have any transactions in 2020, which are subject to excise tax.
The Company has not paid or accrued documentary stamp tax for the year ended
December 31, 2020.
P 12,278
This amount is presented as Taxes and licenses under Operating Costs and Expenses
section in the 2020 statement of comprehensive income.
The details of total withholding taxes for the year ended December 31, 2020
are shown below.
P 2,585,351
The Company has no income payments subject to final withholding taxes in 2020.
As of December 31, 2020, the Company does not have any final deficiency tax
assessments from the BIR nor does it have cases outstanding or pending in courts or
bodies outside of the BIR in any of the open taxable years.