SEC Number 808 File Number
______
DITO CME HOLDINGS CORP. (Formerly: ISM COMMUNICATIONS CORP.) ______(Company’s Full Name)
21 st Floor, Udenna Tower Rizal Dr. cor. 4 th Avenue Bonifacio Global City, Taguig City, 1634 ______(Company’s Address)
8403 - 4007 ______(Telephone Number)
December 31 2019
(Fiscal Year Ending) (month & day)
SEC Form 17-A (Annual Report) ______Form Type
______Amendment Designation (if applicable)
December 31, 2019 ______Period Ended Date
N/A ______(Secondary License Type and File Number)
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
SEC FORM 17-A
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended December 31, 2019
2. SEC Identification Number 808 3. BIR Tax Identification No. 000-162-935V
4. DITO CME HOLDINGS CORP. (FORMERLY ISM COMMUNICATIONS CORPORATION) Exact name of issuer as specified in its charter
Philippines 5. Province, country or other jurisdiction of incorporation or organization
6. Industry Classification Code: ______(SEC Use Only)
21st Floor, Udenna Tower Rizal Dr. cor. 4th Avenue Bonifacio Global City, Taguig City, 1634 7. Address of principal office
(632) 8403-4007 1634 8. Registrant’s telephone number Zip Code
ISM Communications Corporation, 3F Alegria Alta Building, 2294 Don Chino Roces Ave., Makati City 9. Former name, former address, and former fiscal year, if changed since last report
10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA
Title of each Class Number of shares of common stock outstanding as of December 31, 2019
Common 2,800,000,000
11. Are any or all of the securities listed on the Philippine Stock Exchange? Yes
12. Indicate whether the issuer:
a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period the registrant was required to file such reports) Yes b) has been subject to such filing requirements for the past 90 days Yes
13. The aggregate market value of the voting stock held by non-affiliates of the registrant.
Shares held by Market value Per Share Total Market Value Non-affiliates as of 31 December 2019 790,722,422 Php3.44 Php2,720,085,131.68
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
PART I - BUSINESS AND GENERAL INFORMATION
Item 1. Business
DITO CME Holdings Corporation (Formerly: ISM Communications Corporation) (“DITO” or the “Company”) was, originally, a mining company incorporated in March 1925, under the name “Itogon- Suyoc Mines, Inc.” In the early 2000, DITO was transformed to a company engaged in information technology, multimedia telecommunications, and other similar industries. On November 11, 2016, the Securities and Exchange Commission approved the amendment of the articles of incorporation of DITO to reflect its primary purpose as a holding company.
As of the date of this report, DITO continues to hold 32.5% in the German technology firm, Acentic GmbH (Acentic). Head quartered on Cologne, Germany, Acentic is a leading provider of Internet connectivity and in-room entertainment solutions for the hospitality industry offering digital and Internet protocol (IP) converged services to hotels, serviced apartments and healthcare facilities. Its digital television services and Internet access platforms are found in many of the world’s leading hotel rooms in more than 40 countries across Europe, the Middle East and Africa
Competitive Business Condition and the Registrant’s Competitive Position in the Industry and Methods of Competition
DITO currently has no operating business. It is currently doing business as a holding company.
Sources and Availability of Raw Materials and Names of Principal Supplier
DITO is a holding company that does not require raw materials in its operations. It is not dependent on any principal supplier.
Dependence on One or a Few Major Customers and Identification of Such
DITO, as a holding company, has no sales of its own hence, there are no customers that accounts for 20% or more of its sales.
Patents, Trademarks, Licenses, Franchises, Concessions, and Royalty Agreements
DITO’s application for registration of its trademarks with the Intellectual Property Office of the Philippines was approved by the said office last April 13, 2009.
Pending Applications for Registration of Trademarks
The Group has no pending trademark application.
Need for Governmental Approval of Principal Products or Services; Effect of Existing or Probable Governmental Regulations on the Business The Group does not need any governmental approval in its products or services. In the event any of its future operations require government approval, DITO intends to comply with such requirement.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Estimate of Amount Spent for Research and Development Activities in the Next Three Years
The Group does not expect to make any significant investment or expenditure for research and development.
Costs and Effects of Compliance with Environmental Laws The Group currently has no operations and thus do not require an environmental compliance certificate from the Department of Environment and Natural Resources. In the event that environmental laws and regulations cover any of its future operations, the Company intends to comply with such requirements.
Business Transactions with Related Parties
The Group grants cash advances amounting to ₱3,975.56 million to its related parties under common ownership for working capital requirements and other purposes.
Labor
There is no union and a collective bargaining agreement between the Company and its employees. There have been no strikes or threats to strike in the past four years.
Material Events
On January 26, 2016, the Board of Directors of DITO approved the sale of a total of 358,108,078 Treasury Shares (the “Sale Shares”) to its shareholders of record as of February 5, 2016 (the “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 ₱1.00 per Sale Share. The offer period of the sale began last February 9, 2015 and ended last March 15, 2016. With this sale, DITO intends to increase its cash reserves in preparation for certain investment opportunities, currently being evaluated by management. The sale of these shares will also provide DITO the opportunity to track down its dormant shareholders as part of its corporate housekeeping activities, and improve the liquidity of the tradable shares.
DITO successfully concluded the sale of the Sale Shares on March 21, 2016. The Sale Shares were fully taken up by the participating shareholders and were successfully transferred to the latter via the facilities of the Exchange on March 21, 2016. Effective March 21, 2016, the changes in the capital structure of DITO is outlined in the table below:
Before the Sale After the Sale Issued and Outstanding Shares 716,216,156 1,074,324,234 Treasury Shares 1,200,053,185 841,945,107 Issued and Subscribed Shares 1,916,269,341 1,916,269,341
On June 22, 2018, DITO’s Board of Directors authorized its Executive Committee to raise funds via the issuance of DITO’s 841,945,107 Treasury Shares and the remaining 883,730,659 unissued shares of its authorized capital stock via private placement at a minimum issue price of Php1.45 per share. This issue price was equivalent to a 20% discount to the 60-day volume weighted average price as of June 21, 2018 of DITO shares, and on such other terms and conditions as the Executive
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Committee may find appropriate and proper. The Executive Committee was given a period of 90 days from date of this approval to exercise this authority.
Hence, on August 15, 2018, the Executive Committee approved the subscription by Dennison Holdings Corporation to all of the Company's 883,730,659 unissued common shares at a subscription price of Php1.45 per share or a total subscription of Php1,281,455.55 (25% of which is payable upon subscription and the 75% balance payable on or before December 31, 2018). Dennison is a domestic company beneficially owned and controlled by Mr. Dennis A. Uy. The Company and Dennison executed the Deed of Subscription immediately after the approval was granted.
Effective August 15, 2018, the changes in the capital structure of DITO resulting from the subscription by Dennison is outlined in the table below:
Before the Private After the Private
Placement Placement Issued and Outstanding Shares 1,074,324,234 1,958,054,893 Treasury Shares 841,945,107 841,945,107 Issued and Subscribed Shares 1,916,269,341 2,800,000,000
On August 24, 2018, the Executive Committee, pursuant to the authority granted by the Board on June 22, 2018, approved the purchase by Accion Common Development Fund SPC ("Accion") of all of the Company's 841,945,107 treasury shares at a purchase price of Php1.45 per share or a total purchase price of Php1,222,820,405.15 (25% of which is payable upon purchase and the 75% balance no later than the end of the year). The Executive Committee mandated the Company's management to execute the sale and purchase documents no later than the end of September 2018. Accion is a special purpose company owned, controlled and managed by Accion Management Pte Ltd, a registered fund management company based in Singapore.
On December 10, 2019, the Board of Directors of the Company and the Shareholders approved the increase of the authorized capital stock of the Corporation from Two Billion Eight Hundred Million Pesos (Php2,800,000,000.00) divided into 2,800,000,000 common shares at Php1.00 per share to Forty Billion Pesos (Php40,000,000,000.00) divided into 40,000,000,000 common shares at Php1.00 per share. The terms and conditions of the increase, including the subscribers to the increase, are not yet final.
These will be disclosed when the terms are determined.
Item 2. Properties
As of December 31, 2019, the Company reported property and equipment (net of depreciation) of ₱25,267 primarily consisting of the Group’s transportation, computer equipment, furniture and fixture, and other fixed assets, net of accumulated depreciation and impairment losses.
No extraordinary purchase or sale of plant and equipment are expected beyond those in the regular course of operations of the Company. All purchases will be financed through internally generated funds and existing capitalization.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Item 3. Legal Proceedings
As of December 31, 2019, there are no material lawsuits or claims against DITO.
Item 4. Submission of Matters to a Vote of Security Holders
On 10 December 2019, the Board of Directors and Shareholders of the Company approved the amendment of the Company’s Articles of Incorporation to reflect the following changes: (a) to change the name of the Company from ISM Communications Corporation to Dito CME Holdings Corp., (b) to change the Company’s principal address from 3 rd Floor Alegria Alta Building, 2294 Chino Roces Avenue Extension, Makati City to 21 st Floor Udenna Tower Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City; and (c) to increase the Company’s authorized capital stock from Two Billion Eight Hundred Million Pesos (Php2,800,000,000.00) to Forty Billion Pesos (Php40,000,000.00) divided into 40,000,000,000 common shares.
The Shareholders likewise approved the acquisition of 100% of the issued and outstanding common shares of Udenna Communications Media and Entertainment Corp. at the terms and conditions and consideration determined by the Board of Directors.
Also, during the Annual Stockholders’ Meeting on 10 December 2019, the following were elected as members of the Board of Directors of the Company: Dennis A. Uy - Chairman Cherylyn C. Uy Eric O. Recto Adel A. Tamano Raouf A. Kizilbash Joseph John L. Ong Luis Y. Benitez - Independent Director Gregorio T. Yu - Independent Director Francis Chua - Independent Director
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market Price of and Dividends on the Company’s Common Equity Principal Market
The principal market for the Company’s common equity is the Philippine Stock Exchange.
Market Information The following table sets forth the high and low closing sales prices per share of the common shares listed on the PSE during the respective periods indicated according to published financial sources.
Price per Share High Low
2019
First Quarter (ending March 2019) 5.35 5.26 Second Quarter (ending June 2019) 6.92 6.72 Third Quarter (ending September 2019) 5.09 4.90 Fourth Quarter (ending December 2019) 3.46 3.31
2018
First Quarter (ending March 2018) 1.54 1.27 Second Quarter (ending June 2018) 3.30 2.62 Third Quarter (ending September 2018) 3.01 2.82 Fourth Quarter (ending December 2018) 8.62 2.32
2017
First Quarter (ending March 2017) 1.35 1.25 Second Quarter (ending June 2017) 1.4 1.36 Third Quarter (ending September 2017) 1. 33 1. 32 Fourth Quarter (ending December 2017) 1. 4 1. 37
2016
First Quarter (ending March 2016) 1.37 1.28 Second Quarter (ending June 2016) 1.69 1.64 Third Quarter (ending September 2016) 1.44 1.40 Fourth Quarter (ending December 2016) 1.31 1.29
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
The closing price of the Company’s common shares as of June 23, 2020 (the latest practicable trading date) was ₱3.71 per share (high of Php 3.92 and low of Php 3.66). Dividends
DITO has not declared any dividends for the last four (4) fiscal years and subsequent quarter. There are no restrictions that limits the ability to pay dividends on common equity or that are likely to do so in the future.
Holders There were 1,304 shareholders of record holding at least one board lot each of the Company’s outstanding capital stock of 2,800,000,000 common shares as of December 31, 2019.
Top 20 Stockholders
DITO has one class of common stock. The top 20 stockholders of record as of December 31, 2019 (based on an outstanding capital stock of 2,800,000,000) were: % of Name of Shareholder Citizenship Number of Shares Held ownerhsip 1. PCD Nominee Corporation: 1,853,508,900 66.20% Non-Filipino - 991,029,821 Dennison Holdings 2. Corporation Filipino 883,730,659 31.56% 3. Monfortino Holdings, Inc. Filipino 50,000,000 1.79% 4. Crisostomo, Emily A. Filipino 1,400,000 0.05% 5. Tan, Estate of Luciano H. Filipino 997,284 0.04% 6. Ortigas, Ignacio R. Filipino 571,879 0.02% 7. Cham, Estate of Allen Filipino 460,727 0.02% Young, Bartholomew Dy 8. Buncio Filipino 333,062 0.01% 9. Ortigas, Rafael B. Filipino 301,001 0.01% 10. Lim, Amparo C. Filipino 221,406 0.01% 11. Dees Securities Corporation Filipino 126,509 0.00% 12. Manotok Securities, Inc. Filipino 116,021 0.00% 13. Dee, K-Chiong Anthony Jr. Filipino 114,078 0.00% Alberto, Estate of Zoilo M. 14. &/or Marco Alberto Filipino 111,718 0.00% Pulp & Paper Distributors, 15. Inc. Filipino 109,655 0.00% 16. Alberto, Luis M. Filipino 100,198 0.00% Torrens, Estate of Oswaldo 17. Garcia Portuguese 97,476 0.00% 18. Viel, Mario S. Filipino 90,051 0.00% 19. Araneta, Cecile C. Filipino 90,000 0.00% 20. Rio, Alice del Filipino 90,000 0.00%
A total of 864,487,676 common shares of DITO, equivalent to 30,87% of its outstanding capital, are owned by foreigners as of December 31, 2019.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The current capitalization of the Company, and expected future revenues from its various investment activities are projected to sufficiently meet the Company’s operating cash requirements.
The Company intends to utilize internally generated funds to finance the acquisition of computer and other equipment, if any. These acquisitions, and facilities, are not expected to be of material amounts.
The Company does not expect to conduct any product research and development in the foreseeable future.
No extraordinary purchase or sale of plant and equipment are expected beyond those in the regular course of the Company’s operations. All purchases will be financed through internally- generated funds and existing capitalization.
Hiring of employees will be done in the regular course of business, if necessary.
There are no known trends, events or uncertainties that are reasonably expected to have a material impact on the Company’s revenues or continuing operations.
Performance for the Year Ended December 31, 2019 vs December 31, 2018
Income and Expenses
The Company ended 2019 with a net loss of ₱34.89 million. Cash and Cash Equivalents
The Company’s cash and cash equivalent stood at ₱4.59 million at the end of December 31, 2019 as compared to ₱2,871.65 million at December 31, 2018. The decrease is attributed to the increase in receivables arising from advances during the year.
Receivables – net
There is an increase in the net receivables of the Company from December 31, 2018 to the end of the current year due to advances made to Udenna Group amounting to ₱3,975.56 million during the year.
The Group grants cash advances to its related parties under common ownership for working capital requirements and other purposes. The advances are subject to 3% interest rate per annum, unsecured and payable in cash on demand. The advances are noninterest-bearing, unsecured and payable in cash on demand. In 2019, the Group granted Udenna Corporation, Chelsea Logistics and Infrastructure Holdings Corporation, and Chelsea Shipping Corporation advances amounting to ₱3,546.15 million, ₱332.40 million, and ₱33.0 million, respectively.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Interest earned on these advances in 2019 amounted to P63.04 million. The outstanding balance, including the accrued interest, amounted to ₱3,974.60 million and ₱1.0 million as of December 31, 2019 and 2018 and is presented as part of Receivables account in the consolidated statements of financial position.
Financial Assets at Fair Value Through Other Comprehensive Income
Financial assets at fair value through other comprehensive income amounting to ₱101.17 million and ₱563.71 million as of December 31, 2019 and 2018, respectively, represents the investment in equity shares and investment in preferred shares in Acentic GmbH, which are discussed below. The decline in this account primarily relates to the disposal of government and corporate bonds which are held under IMA from a trustee bank (investment manager) during the year. This resulted to a fair value loss amounting to ₱1.13 million in 2019. There was no similar transaction in 2018.
Investment in Associates and Shares of Stock
The account at December 31 consists of the following: a) Investment in Acentic as an Associate
On December 22, 2009, the Company entered into an agreement relating to the sale and purchase in January 2010 of certain shares of Acentic GmbH with LBC Capital Sarl (LBC Capital), Host Union and Philweb Corporation.
On January 11, 2010, the Company completed the acquisition on 32.5% of Acentic GmbH, a Germany based company engaged in hotels and other multi-dwelling establishment thru Host Union in the amount equivalent to ₱660 million.
On November 15, 2012, DITO entered into an Investment Agreement with Wagas Consultants Limited (WCL), a company organized and existing under the laws of the British Virgin Islands, whereby DITO acquired 100% of WCL in exchange for DITO’s 50% stake in Host Union. As a result, WCL became the 50% shareholder of Host Union. On December 29, 2016, Host Union became a fully-owned subsidiary of WCL.
On December 31, 2017, Acentic executed the restructuring plan of the Acentic Group, which includes among others, moving the headquarters from Germany to UK. In line with this restructuring, the Group, through Host Union, applied for the allotment and issuance of 325 ordinary shares of the Acentic’s new parent company, Acentic Holdings Limited.
In 2019 and 2018, the Company’s share in the net losses exceeded the carrying amount of the investment. Accordingly, the carrying value of investment in associate as at December 31, 2019 and 2018 is nil. b) Investment in Acentic GmbH’s Preferred Shares In 2017, some of the Group’s notes receivables and interest receivables were converted into investment in preferred shares and the remaining balance into a new loan agreement as a result of the proposed restructuring of Acentic.
Prior to restructuring, the Group has an outstanding notes receivable from Acentic GmbH amounting to EUR 5.74 million (P342.28 million), inclusive of EUR 0.7 million (P44.50 million)
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
accrued interest. The restructuring agreement provides that the Group agreed to accept settlement of the loan balance of EUR 4.88 million (P290.98 million) originally due from Acentic GmbH via the issuance of 4,150,682 preferred shares from Acentic worth EUR 4.15 million (P247.44 million) in its favor as full and final settlement. As such, the Group waives any rights to receive this remaining loan balance other than the said preference share consideration.
In 2019 and 2018, the share in the net losses which exceed the carrying amount of the investment in associate is absorbed in the investment in preferred shares amounting to ₱51.20 million and ₱14.70 million, respectively.
As of December 31, 2019 and 2018, the value in this investment amounted to nil and ₱199.69 million, respectively c) Investment in Philippine Bank of Communications (PBCOM) DITO acquired 36.64% equity interest in PBCOM in 2011. The transfer of ownership was approved by the Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corporation late in 2011 and the transaction was finally done at the facilities of the Philippine Stock Exchange on December 23, 2011.
On April 12, 2012, the Company invested additional ₱22.71 million representing 814,666 new voting shares at ₱27.88 per share. As at December 31, 2012, the equity interest of the Company remains the same as the application for the increase in the authorized capital stock of PBCOM is still pending approval from the SEC. The increase in the authorized capital stock of PBCOM was approved by the SEC on March 11, 2013. Thus, as a result, the Company’s stake in PBCOM was reduced to 21.38%.
On September 18, 2014, P.G. Holdings, Inc. (PGHI) subscribed 181,080,608 newly-issued common shares of PBCom. The subscription of PGHI was approved by the BSP on September 23, 2014. Subsequently, the Group’s interest in PBCom was diluted to 13.33%. Correspondingly, the Group recognized a loss on dilution totaling ₱82.8 million and the proportionate amount of its share in the cumulative other comprehensive income of PBCom amounting to ₱405.0 million was recycled to profit and loss.
The Group lost its significant influence over PBCom due to the dilution of the Company’s interest. Consequently, the Group’s remaining investment in PBCom was reclassified to AFS financial assets and recognized gain amounting to ₱764.0 million on the difference between the fair values of the investment over the carrying amount of the investment at the date the significant influence was lost. ( as reported in the 2014 audited FS )
As of December 31, 2019 and 2018, the value in this investment amounted to ₱98.54 million and ₱97.10 million, respectively. d) Investment in Alpha Force Security Agency Earlier in 2011, the Group acquired 10% equity interest in Alpha Force Security Agency, Inc. for a total consideration of ₱1.00 million. Additional investment in 2013 amounted to ₱1.0 million.
Capital stock
There is no increase in the capital stock structure of the Group that stood at ₱2,800.00 million at December 31, 2019.
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Additional Paid-in Capital
There is no increase in the additional paid-in capital stock structure of the Group that stood at ₱785.20 million at December 31, 2019.
Revaluation Reserves and Retained Earnings
All movements in the balances of Revaluation Reserves and Retained Earnings represent the total comprehensive loss reported during the year.
Performance for the Year Ended December 31, 2018 vs December 31, 2017
Income and Expenses
The Company ended 2018 with a net loss of ₱6.83 million.
Cash and Cash Equivalents
The Company’s cash and cash equivalent stood at ₱2.87 billion at the end of December 31, 2018 as compared to ₱37.00 million at December 31, 2017. The increase can be attributed to the proceeds received from the subscription of the Company’s authorized but unissued common stock; payments received for the sale of treasury shares, and transfer of funds from short-term receivables to short- term investments, the latter being classified as a cash equivalent.
Receivables – net
There is a decrease in the net receivables of the Company from December 31, 2017 to the end of the current year due to the transfer of funds from short-term receivables to short-term investments as stated in the foregoing discussion.
Financial Assets at Fair Value Through Other Comprehensive Income (2017: Available-for-sale Financial Assets)
Financial assets at fair value through other comprehensive income amounting to ₱563.71 million as of December 31, 2018 (Available-for-sale financial assets amounting to ₱738.44 million as of December 31, 2017) represents the outstanding balance of funds maintained at Security Bank under an Investment Management Agreement. The component of these invesments is discussed under Investment in Associate and Share of Stock part in the previous page. The decline in this account primarily relates to the effect of adoption of PFRS 9 during the current year. As allowed under PFRS 9, the Company adopted this new standard using the transitional relief; hence, prior period financial statements were not restated and the effect of the adoption was reflected in the year of change.
Capital stock
The increase in capital stock was due to the subscription of the Company’s authorized but unissued common stock.
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Additional Paid-in Capital stock
The increase in additional paid-in capital stock was due to the subscription of the Company’s authorized but unissued common stock and was partially offset by the difference of the payment received for the sale of treasury shares and the cost of reacquiring such shares.
Treasury Shares
As previously discussed, the Company sold all treasury shares during the year; hence, is nil as of the end of 2018.
Revaluation Reserves and Retained Earnings
All movements in the balances of Revaluation Reserves and Retained Earnings represent the effect of adoption of PFRS 9 and total comprehensive loss reported during the year.
The Company’s Key Performance Indicators for 2019 1. Current Ratio for 2019 was at 1,943:1 computed as current assets (₱3,993,969,084) divided by current liabilities (₱2,055,520).
2. Debt to equity ratio for 2019 was at 0.0005:1 computed as total liabilities (₱2,055,520) over total equity (₱4,130,595,033).
3. Debt to total asset ratio for 2019 was at 0.0005:1 computed as total liabilities (₱2,055,520) over total asset (₱4,132,650,553).
4. Asset to equity ratio for 2019 was 1.0005:1 computed as total asset (₱4,132,650,553) over total equity (₱4,130,595,033).
5. Return on asset for 2019 was at -0.845% computed as net loss (₱34,892,678) over total assets (₱4,132,650,553).
6. Return on equity for 2019 was -0.845% computed as net loss (₱34,892,678) over total equity (₱4,130,595,033).
7. Interest rate coverage ratio for 2019 was nil.
8. Market to book ratio of DITO’s common share was 1.475:1 as of December 31, 2019. Book value per share is computed as equity attributable to holders of the company (₱4,130,595,033) divided by total issued shares (2,800,000,000).
The Company’s Key Performance Indicators for 2018
1. Current Ratio for 2018 was at 2,536.42:1 computed as current assets (₱3,648,883,157) divided by current liabilities (₱1,438,593). The Group’s substantial assets are in cash and cash equivalents aggregating to ₱2.872 billion.
2. Debt to equity ratio for 2018 was at 0.0003:1 computed as total liabilities (₱1,438,593) over total equity (₱4,285,774,124).
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
3. Debt to total asset ratio for 2018 was at 0.0003:1 computed as total liabilities (₱1,438,593) over total asset (₱4,287,212,717).
4. Asset to equity ratio for 2018 was 1.0003:1 computed as total asset (₱4,287,212,717) over total equity (₱4,285,774,124).
5. Return on asset for 2018 was at -1.593% computed as net loss (-₱6,832,601) over total assets (₱4,287,212,717).
6. Return on equity for 2018 was -1.594% computed as net loss (-₱6,832,601) over total equity (₱4,285,774,124)
7. Interest rate coverage ratio for 2018 was nil.
8. Market to book ratio of DITO’s common share was 3.941:1 as of December 31, 2018. Book value per share is computed as equity attributable to holders of the company (₱4,285,774,124) divided by total issued shares (2,800,000,000).
Key variable and other qualitative and quantitative factors
There are no known trends, demands, commitments events, or uncertainties that will have a material impact on the Company’s liquidity.
There were no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created during the reporting period.
The current capitalization of the Company, and expected future revenues from its various activities are projected to sufficiently meet the Company’s operating cash requirements. The Company intends to utilize proceeds from private placements and internally generated funds to finance the acquisition of computer and other equipment, if any. These acquisitions and facilities are not expected to be of material amounts.
No extraordinary purchase of plant and equipment are expected beyond those in the regular course of the Company’s operations. All purchases will be financed through internally-generated funds and existing capitalization.
There are no known trends, events or uncertainties that have had or that are reasonably expected to have material impact on the Company’s revenues or continuing operations.
There are no significant elements of income that did not arise from the Company and its subsidiary’s continuing operations.
There are no seasonal aspects that had a material effect on the Company’s and its subsidiary’s financial conditions or results of operations.
Item 7. Financial Statements
See Attached.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Item 8. Changes in and Disagreements to Accountants on Accounting and Financial Disclosure
There were neither changes in nor disagreements with accountants on accounting/financial disclosure.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Registrant
Directors and Executive Officers
As of December 31, 2019, DITO’s Board of Directors was composed of nine (9) members. The Board is responsible for providing overall management and direction to the Company.
The names of the directors and officer of the Company, their respective ages, position, number of years in service and term of service is summarized below.
Dennis A. Uy 46 Chairman/CEO/President /Director/Filipino/2 years/2 years
Cherylyn C. Uy 40 Treasurer / Director /Filipino/2 years /2 years
Eric O. Recto 56 Director/Filipino/5 years
Adel A. Tamano 49 Director/Filipino/5 months
Joseph John L. Ong 60 CFO/Director /Filipino/5 months/
Raouf A. Kizilbash 52 Director/Indian/6 mo.
Francis Chua 71 Independent Director/Filipino/6 months
Gregorio T. Yu 61 Independent Director/Filipino/3 years
Leandro E. Abarquez 37 Corporate Secretary/CIO / Filipino / 2 years
Donald Patrick Lim 42 Chief Operating Officer/ Filipino/ 2 months
Luis Y. Benitez 1 72 Independent Director/ Filipino/ 3 years
Mr. Dennis A. Uy is the Chairman / CEO / President of the Company. He is also the Chairman and President of Udenna Corporation, which has businesses in petroleum, shipping, logistics, tourism, gaming, real estate, education, and other industries. Among the subsidiaries of Udenna Corporation are Phoenix Petroleum Holdings, Inc. (“PPHI”), Chelsea Logistics and Infrastructure Holdings Corp. (“Chelsea”), PH Resorts Group Holdings, Inc., Udenna Land, Inc., Le Penseur, Inc., among others. Mr. Uy is the President of PPHI, the holding company of Phoenix Petroleum Philippines, Inc. (“PNX”) and serves as the President and Chief Executive Officer of PPPI. He is currently the Chairman of CLC. He is likewise the Chairman of PH Resorts Group Holdings, Inc. ("PHR"). He is also Chairman of shipping and logistics provider 2Go Group, Inc. and serves as Independent Director of Apex Mining Corp.
He is a graduate of De La Salle University with a degree in Business Management.
1 Mr. Benitez tendered his resignation as an independent director of the Company effective 16 June 2020.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Ms. Cherylyn C. Uy is a Treasurer and Director of the Company. Ms. Uy is one of the pioneers/incorporators of Udenna Corporation, which has businesses in petroleum, shipping, logistics, tourism, gaming, real estate, education, and other industries. She is the Treasurer of various entities under the Udenna group. She is also a director of PNX, CLC, and PHR. She is also one of the Directors of Phoenix Philippines Foundation, Inc. and of Udenna Foundation, Inc., the corporate social responsibility entities of the Udenna Group.
Ms. Uy is a graduate of Business and Finance from Ateneo de Davao University.
Mr. Eric O. Recto is a Director of the Company. He is also the chairman of the Philippine Bank of Communications (PBC), chairman and president of Bedfordbury Development Corporation, vice chairman and director of Atok-Big Wedge Co., Inc., president and director of Q-Tech Alliance Holdings, Inc., and a director of Petron Corporation. Prior to joining the Company, Mr. Recto served as Undersecretary of Finance of the Republic of the Philippines from 2002 to 2005, in charge of handling both the International Finance Group and the Privatization Office. Before his stint with the government, he was chief finance officer of Alaska Milk Corporation and Belle Corporation. Mr. Recto has a degree in Industrial Engineering from the University of the Philippines as well as an MBA from the Johnson School, Cornell University.
Mr. Joseph John L. Ong is a Director and the Chief Financial Officer of the Company. He is also the Chief Financial Officer of DITO Telecommunity Corporation. Currently, Mr. Ong is also a member of the board of directors of Phoenix Petroleum Philippines, Inc., Phoenix LPG Philippines Inc. (PLPI) and South Pacific Inc. Prior to joining the Company, he was formerly the Treasurer and Head of Corporate Finance of Phoenix Petroleum Philippines Inc. He also served as the Vice President of La Tondena Distillers Inc. (currently Ginebra San Miguel Inc.) from the year 1995 to 1999. He is a graduate of the De La Salle University Manila with a Bachelor's Degree in Commerce - Management of Financial Institutions.
Mr. Raouf A. Kizilbash is a Director of the Company. Mr. Kizilbash is a seasoned executive with over 26 years industry experience in the Oil & Gas and Consumer Goods sectors. He has proven track record in driving growth, mergers and acquisitions, and managing marketing, sales and planning organizations. Mr. Kizilbash joined Udenna Corporation in January 2018 as Director for Business Development, based in Singapore and has been leading our international expansion. Prior to joining Udenna, he was with Sebrina Holdings Pte Ltd in Singapore, where he played a key role at the holding company managing the oil mid stream infrastructure business as President of Amity Energy, as well as the property development and venture capital portfolios. He was the head of ExxonMobil's LPG marketing and sales for Asia Pacific. Educated in the United Stated and graduated with a Bachelor of Economics (Magna Cum Laude) from Bowdoin College in 1990 and an MBA in Marketing and Finance (Beta Gamma Sigma) from Columbia Business School, New York in 1995.
Mr. Adel A. Tamano is a nominated director of the Company. He is currently the Chief Administrative Officer of Dito Telecommunity. Prior to that, he was the Vice President for Corporate Communications at Udenna Corporation and the Vice President for Public Affairs and Communications at Coca-Cola
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
FEMSA Philippines. Mr. Tamano obtained his bachelors degree in A.B. Economics in 1992, and earned his Juris Doctor degree from the Ateneo de Manila University. He obtained his Masters in Public Administration from the University of the Philippines in 2003, and Master of Laws, with Honors, from the Harvard Law School in Cambridge, Massachusetts in 2005.
Mr. Gregorio T. Yu was appointed as an independent director of the Company last December 1, 2016 to fill-up the vacancy left by the recent resignation of Mr. Gregorio Ma. A. Araneta III. Mr. Yu, Filipino, 59 years old, at present, is Chairman of the Board of Auto Nation Group Inc., CATS Automobile Corporation and American Motorcycles, Inc. and Vice Chairman of the Board and Chairman of the Executive Committee of Sterling Bank of Asia. He is also a Director of the Philippine Bank of Communications, PAL Holdings, Inc., CATS Asian Cars, Inc., PhilEquity Management Inc., Vantage Equities Inc., I-Remit Inc., Unistar Credit and Finance Corporation, Prople BPO Inc., Glyph Studios, Inc., WSI Corporation, Nexus Technologies and Jupiter Systems Corporation. Mr. Yu is a Board Member of Ballet Philippines and The Manila Symphony Orchestra. In the past, he was a member of the Board of Trustees of Xavier School Inc., and Chairman, Ways and Means of Xavier School Educational and Trust Fund, a member of the Board of Trustees of the Government Service Insurance System, President & CEO of Belle Corporation, Vice Chairman of APC Group and Philippine Global Communication. He was formerly a director of CATS Motors Inc., International Exchange Bank, Philequity Fund Inc., Filcredit Finance, Yehey Corporation, iRipple, RS Lim & Co., and a Director and Vice President at Chase Manhattan Asia Limited. Mr. Yu graduated summa cum laude with a degree of Bachelor of Arts in Economics from De La Salle University and holds a Master of Business Administration degree from the Wharton School of the University of Pennsylvania.
Mr. Francis C. Chua , is nominated as an independent director of the Company. He is also an Independent Director of 2GO Group Inc. since January 2011 and he is the Chairman of the Board Audit and Corporate Governance Committees. His other current positions include Honorary Consulate General of the Republic of Peru in Manila; President and Eminent Adviser of the Philippine Chamber of Commerce and Industry; Chairman of the Philippine Chamber of Commerce and Industry Foundation, CLMC Group of Companies, and Green Army Philippines Network Foundation; President of DongFeng Automotive, Inc. and Philippine Satellite Corporation; Director of Philippine Stock Exchange, National Grid Corporation of the Philippines, Bank of Commerce, Basic Energy, and Overseas Chinese University; and Trustee of Xavier School Educational Trust Fund, and Adamson University. He graduated with a Bachelor of Science degree in Industrial Engineering from the University of the Philippines
Mr. Luis Y. Benitez 3 was first elected as an independent director of DITO on December 3, 2013. He was a Senior Partner of SyCip Gorres Velayo & Co., where he served as Vice Chairman and Head of the Assurance & Advisory Business Services. He is a member of the Philippine Institute of Certified Public Accountants. Mr. Benitez holds a Master of Business Administration degree from New York University, Stern School of Business. He is a graduate of the Pacific Rim Bankers Program, University of Washington. He holds a Bachelor of Science in Business Administration degree, Major in Accounting from the University of the Philippines. Mr. Benitez is a Certified Public Accountant.
3 Mr. Benitez tendered his resignation as an independent director of the Company effective 16 June 2020.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Officer
Mr. Leandro E. Abarquez is the Corporate Secretary of the Company. He is also the Corporate Secretary of PH Resorts Group Holdings Inc. Prior to joining the Company, he was a Senior Associate at Romulo, Mabanta, Buenaventura, Sayoc & de los Angeles from 2010 to 2017, where he advised clients on various diverse matters and special projects including mergers and acquisitions, initial public offering, gaming regulatory advice, public-private partnerships, project finance, and dispute resolution matters. He received his bachelor’s degree in Biology from the Ateneo de Manila University in 2004, and his juris doctor degree from the same university in 2009. He is also the Compliance Officer of CLC.
No director has resigned or declined to stand for re-election to the Board of Directors since the date of the last annual stockholders’ meeting because of a disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.
As of the date of this Annual Report, the Company has two (2) incumbent independent directors, Messrs. Francis Chua and Gregorio T. Yu.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Directorships in Other Reporting Companies
The following are directorships held by the Directors in other reporting companies during the last five (5) years:
Name of Director Name of Reporting Company Position Held Phoenix Petroleum Philippines, Director, President and CEO Inc. Dennis A. Uy 2Go Group, Inc. Chairman of the Board Chelsea Logistics and Chairman of the Board Infrastructure Holdings Corp. PH Resorts Group Holdings, Inc. Chairman of the Board Apex Mining Co., Inc. Independent Director Phoenix Petroleum Philippines, Director Inc. Cherylyn C. Uy Chelsea Logistics and Director, Treasurer Infrastructure Holdings Corp. PH Resorts Group Holdings, Inc. Director Eric O. Recto Philippine Bank of Chairman of the Board Communications Petron Corporation Director Atok -Big Wedge Co., Inc. Director PH Resorts Group Holdings, Inc. Independent Director Gregorio T. Yu Philippine Bank of Director Communications PAL Holdings, Inc. Independent director I-Remit, Inc. Independent director Vantage Equities, Inc. Independent director
Shares of Phoenix Petroleum Philippines, Inc. (PNX), 2Go Group, Inc. (2Go),Chelsea Logistics and Infrastructure Holdings, Corp. (C), PH Resorts Group Holdings, Inc. (PHR), Philippine Bank of Communications (PBC), Atok-Big Wedge Co., Inc. (AB), Petron Corporation (PCOR and PPREF), I-Remit, Inc. (I), PAL Holdings, Inc. (PAL), Vantage Equities, Inc. (V), PhilWeb Corporation (WEB), are all listed with the Philippine Stock Exchange.
Significant Employees
Except for the foregoing, there are no other significant employees of the Company.
Family Relationships
Mr. Dennis A. Uy and Mrs. Cherylyn C. Uy are married to each other.
Other than the foregoing, none of the directors and officers is related to each other by consanguinity or affinity.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Involvement in Certain Legal Proceedings
The Company is not aware of any other legal proceeding including without limitation any (a) bankruptcy petition, (b) violation of a securities or commodities law, (c) criminal proceeding or (d) any other material pending litigation during the last five (5) years up to the date of the filing of this Statement, to which any of its Directors and Executive Officers is a party, except for the following:
1. People of the Philippines vs. Dennis Ang Uy, John Does and/or Jane Does, Criminal Case Nos. 75,834- 13 to 75,845-13 and 76,067-13 to 76,076-13, Regional Trial Court, 11 th Judicial Region, Davao City, Branch 14
On August 27, 2013, the DOJ filed twelve (12) Information before the Regional Trial Court of Davao (docketed as Criminal Case Nos.75,834-13 to 75,845-13) against Mr. Uy and several John Does and/or Jane Does in connection with the Resolutions dated April 24,2013 and August 13, 2013 issued by the SOJ, finding probable cause against Mr. Uy for alleged violation of Section 3602 in relation to Sections 3601, 2530 (I)(1), (3), (4), and (5)Sections 1801,1802, 3604; and 2530 of the TCCP, as amended, and AO No.243, CAO No.3-2010 and CAO No.18-2010.
On September 5, 2013, an Entry of Appearance with Omnibus Motion (for Judicial Determination of Probable Cause and to Suspend Issuance and/or Service of Warrant of Arrest) dated September 3, 2013 was filed by Mr. Uy’ counsel, which prayed for the dismissal of the criminal cases for lack of probable cause. Thereafter, on September 11, 2013, the DOJ filed ten (10) additional Information against. Uy and several John Does and/or Jane Does for alleged violations of the TCCP. These were docketed as Criminal Case Nos. 76,067-13 to 76,076-13.
On September 19, 2013, a Supplemental Motion for Judicial Determination of Probable Cause dated September 18, 2013 was filed by Mr. Uy’ counsel, seeking the dismissal of the ten (10) additional criminal cases for lack of probable cause. On October 4, 2013, the RTC issued an Order dismissing all the cases against Mr. Uy. On November 15, 2013, a copy of the plaintiff People of the Philippines' Motion for Reconsideration with Urgent Motion for Inhibition of Judge George E. Omelio dated November 12, 2013 was received, to which Motion, Mr. Uy filed his Opposition.
On August 18, 2014, the RTC issued an Order denying the Motion for Reconsideration ofthe plaintiff. The plaintiff People of the Philippines filed its Petition for Certiorari with the Court of Appeals for the reversal of the Orders dated October 4, 2013 and August 18, 2014issued by the trial court. Please see Item 3 below for status on the Petition for Certiorari.
2. People of the Philippines vs. Hon. George E. Omelio, in his capacity as Presiding Judge of the Davao City Regional Trial Court, Branch 14, Hon.Loida S. Posadas-Kahugan, in her capacity as Acting Presiding
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Judge of the Davao City RTC, Branch 14, Dennis Ang Uy, John Does and/or Jane Does, CA-G.R.SP No.06500-MIN, Court of Appeals, Cagayan de Oro City,23 rd Division
On October 27, 2014, petitioner People of the Philippines filed a Petition for Certiorari seeking the reversal of the Orders dated October 4, 2013 and August 18, 2014 issued by the trial court dismissing the cases filed against Dennis Ang Uy. The respondents filed their Comment to said Petition for Certiorari, and the parties subsequently filed their respective Memoranda. In its Decision dated October 12, 2016, the Court of Appeals denied the Petition for Certiorari filed by the People of the Philippines. On November 7, 2016, the People of the Philippines filed its Motion for Reconsideration of the Decision dated October 12, 2016. To date, the Court of Appeals has not acted on the Motion for Reconsideration dated November 7, 2016.
3. Dennis A. Uy vs. Hon. Secretary of the Department of Justice Leila M. De Lima and the Bureau of Customs, CA-G.R.SP No. 131702, Court of Appeals, Manila, Special Former Special Tenth Division
There being no appeal or any other plain, speedy and adequate remedy in the ordinary course of law available to question and seek the reversal of the Resolutions dated April24, 2013 and August 13, 2013 issued by the SOJ finding probable cause against Mr. Uy for alleged violation of the TCCP and other related rules and regulations, Dennis A. Uy filed a Petition for Certiorari with the Court of Appeals on September 4, 2013.
On September 10, 2013, petitioner filed a Motion for Consolidation seeking the consolidation of this case with the Petition for Certiorari (with Application for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction) filed by Jorlan Cabanes, docketed as CA-G.R.SP No.129740. The Motion for Consolidation was granted in the Resolution dated November 6, 2013. Thereafter, all the parties filed their respective Memoranda. On July 25, 2014, the Court of Appeals issued its Decision granting the Petition for Certiorari and declaring the Resolutions dated April 24, 2013 and August 13,2013 nullified and set aside and directing that the Information filed against Dennis Uy and Jorlan C. Cabanes before the Regional Trial Courts of Batangas City and Davao City be withdrawn and/or dismissed for lack of probable cause. A Motion for Reconsideration of the Decision dated July 25, 2014 was filed by respondents SOJ and Bureau of Customs. On July 23, 2015, the Court of Appeals issued its Resolution denying respondents' Motion for Reconsideration. On September 10, 2015, petitioner received a copy of the Motion for Extension to File Petition for Review on Certiorari filed by the respondents with the Supreme Court. To date, the Supreme Court has not acted on respondents’ Motion.
4. Secretary of the Department of Justice Leila M. De Lima and Bureau of Customs vs. Jorlan Cabanes, and Secretary of the Department of Justice Leila M. De Lima and Bureau of Customs vs. Dennis A. Uy, G.R. No. 219295-219296, Supreme Court, 2nd Division
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
On October 8, 2015, respondents Jorlan C. Cabanes and Dennis A. Uy received a copy of the Petition for Review on Certiorari dated September 8, 2015 filed by petitioners SOJ and Bureau of Customs seeking to set aside the Court of Appeals' Decision dated July 25, 2014and the Court of Appeals' Resolution dated July 2, 2015. The Supreme Court required the parties to file their respective Memoranda, which the parties complied with. On December 12, 2016, the Supreme Court issue.
None of the directors have been convicted by final judgment in any criminal proceeding or have been subject to any order, judgment or decree of competent jurisdiction, permanently or temporarily enjoining, barring, suspending, or otherwise limiting their involvement in any type of business, securities, commodities or banking activities, nor found in action by any court of administrative bodies to have violated a securities or commodities law.
Item 10. Executive Compensation
There were no compensations paid to its directors as a group for fiscal years 2016, 2017, and 2018. Directors are entitled to a per diem of Twenty Five Thousand Pesos (₱25,000.00) for their attendance in every board meeting. Except for this, the Company does not intend to pay any compensation for its directors for the fiscal year 2020. A fixed salary is provided for the Company’s Chairman and CEO and its corporate secretary.
Bonus/Other Name Year Salary Annual Compensation
2020 ₱3,650,900 ₱509,166.67 (Estimate)
2019 ₱3,650,900 ₱509,166.67
Aggregate compensation paid to all 2018 ₱9,606,900 ₱805,000 officers as a group unnamed 2017 ₱9,606,900 ₱805,000
2016 ₱10,561,800 ₱889,000
There are no standard arrangements with regard to election, bonus, profit sharing, pension/retirement plan granting or extension of any option, warrant or right to purchase any securities. There were no material terms of any other arrangement given to officers and directors.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
No executive officer has an employment contract with the Company.
There have been no terminations of employment and neither have there been any change-in-control arrangements with the present management.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Item 11. Security Ownership of Certain Record Beneficial Owners and Management
As of 31 December 2019, the Company knows of no one who beneficially owns more than 5% of
its common stock except as set forth in the table below:
Title of Name and Address of Name of Beneficial Owner Citizenship Amount and Nature Percent Class Record Owner and and Relationship with of Record/Beneficial of Class Relationship with the Record Owner Ownership Company (indicate “r” or “b”)
Common Dennison Holdings Corp. Mr. Dennis Uy& Filipino 883,730,659 31.56%
Stella Hizon Reyes Road, Mrs. Cherylyn C. Uy - (r) Bo. Pampanga, Davao City, Davao del Sur controlling shareholders
(Stockholder)
Common Monfortino Holdings, Inc. Mr. Eric O. Recto - Filipino 182,825,395 6.52% controlling shareholder 18/F, Liberty Center, 104 (r) H.V. dela Costa St., Salcedo Village, Makati City (Stockholder)
Common Accion Common Mr. Albert Subido - Singapore 791,944,792 28.28% Development Fund Director
9 Temasek Boulevard
#08-02, Suntec Tower 2
Singapore 38989
Mr. Dennis A. Uy is authorized to vote for the shares held by Dennison Holdings Corp. Mr. Eric O. Recto is authorized to vote for the shares held by Monfortino Holdings, Inc. and Mr. Albert Subido is authorized to vote for the shares held by Accion Common Development Fund.
Except as stated above, the Board of Directors and Management of the Company have no knowledge of any person who, as at Record Date, was indirectly or directly the beneficial owner of more than 5% of the Company’s outstanding shares of common stock or who has voting power or investment power with respect to shares comprising more than five percent of the outstanding shares of common stock. There are no persons holding more than 5% of the Company’s common stocks that are under a voting trust or similar agreement.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
2) Security Ownership of Management
(2) Security Ownership of Management
As of 31 December 2019, the security ownership of the members of the Board of Directors and that of management are as follows:
Title of Class Name of Director/Officer Citizenship Number of Shares and Nature of Percent of Beneficial Ownership Class
Common Dennis A. Uy Filipino 36,775,323 (direct) 23.40%
(Chairman/President/CEO/Director) 618,611,461 (indirect)
Common Cherylyn C. Uy Filipino 10,000 (direct) 9.47%
(Treasurer/Director) 265,119,198 (indirect)
Common Eric O. Recto Filipino 1,472,615 (direct) 6.57%
(Director) 182,825,395 (indirect)
Common Adel A. Tamano Filipino 1 (direct) 0.00%
(Director)
Common Joseph John L. Ong Filipino 1 (direct) 0.00%
(Director and CFO)
Common Raouf A. Kizilbash Filipino 1 (direct) 0.00%
(Director)
Common Gregorio T. Yu Filipino 68,090,704 (direct) 2.43%
(Independent Director)
Common Luis Y. Benitez 5 Filipino 100 (direct) 0.00%
(Independent Director)
Common Francis Chua Filipino 1,000 (direct) 0.00%
(Independent Director)
Common Donald Patrick Lim Filipino 30,000 (direct) 0.00%
(Chief Operating Officer)
Common Leandro E. Abarquez Filipino 0 (direct/indirect) 0.00%
(Corporate Secretary& CIO)
Aggregate Ownership of Directors and Officers as a Group 1,172,935,339 41.89%
5 Mr. Benitez tendered his resignation as an independent director of the Company effective 16 June 2020.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Item 12. Certain Relationships and Related Transactions
The Company is not aware of any transaction in the last two (2) years, or proposed transaction to which the registrant is a party, in which the following persons have direct or indirect material interest, that were out of the ordinary course of business:
1. any director or executive officer 2. any nominee for election as director 3. any security holder named above 4. any member of the immediate family of the above-named persons
Except as disclosed in the Company’s notes to financial statements contained in the Company’s audited financial statements, there has been no material transaction to which the Company was or is to be a party in which any of the incumbent directors or nominee director or executive officer of the Company or owners of more than ten percent of the Company’s voting shares has or is to have a direct or indirect material interest. In the ordinary course of business, the Company has transactions with other companies in which some of such persons may have an interest. Such transactions are negotiated on an arm’s length basis comparable or better than that which can be provided by independent third parties.
The transactions with related parties/affiliates are carried out under commercial terms and conditions. Pricing for the sales of products are market driven. For purchases and other services, the Company’s practice is to solicit competitive quotes from third parties. Transactions from any related party are evaluated on arm’s length commercial terms.
No person, natural or juridical, owns more than 50% of the Company’s voting securities.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Part IV – EXHIBITS AND SCHEDULES
Item 14. Exhibit and Reports on SEC Form 17-C
a. Exhibit None
b. Reports on SEC Form 17-C
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
Date of Approval/Action Brief Discussion
April 4, 2019 Special meeting of the Executive Committee of the Board of Directors appointing Atty. Leandro Abarquez as the Company’s Assistant Corporate Secretary and Corporate Information Officer.
April 8, 2019 Special meeting of the Board of Directors accepted the resignations of Alberto M. Montilla, Roberto V. San Jose, Rafael B. Ortigas, and Jesus S. Jalandoni, Jr. These directors were replaced by Ignacia S. Braga IV, Ma. Concepcion F. De Claro, and Raouf Kizilbash. The Board also replaced all officers of the Company and replaced them with Dennis A. Uy as Chairman, President and Chief Executive Officer, Cherylyn C. Uy as Treasurer, Ignacia S. Braga IV as Chief Finance Officer, Leandro E. Abarquez as Corporate Secretary and Corporate Information Officer
May 16, 2019 Assignment of the Corporation’s Issuer Name for purpose of its Financial Issuer Short Name and designation of authorized representatives for the same;
Authority to engage the services of The First Resources Management and Securities Corporation and the designation of the Corporation’s authorized representatives for the Corporation’s account.
Authority to engage the services of The PHILIPPINE EQUITY PARTNERS, INC. and Designation of the Corporation’s Authorized Representative for the Corporation’s Account.
June 3, 2019 Approval to executing agreements for the purchase of the Company’s 841,945,107 treasury shares
June 27, 2019 Termination of the Corporation’s existing Investment Management Account (“IMA”) with Security Bank Corporation – Trust Division and the transfer of all its funds in its existing IMA to its settlement account
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007
September 12, 2019 Extension of advances to or from its major shareholders or affiliate companies from time-to-time as the need arises. These advances are non-interest bearing and payable under certain terms and conditions primarily dependent on the Company’s cash position .
Authority to Enter Into An Intercompany Advance Agreement with Chelsea Logistics and Infrastructure Holdings Corp. and Designation of Authorized Signatories.
Assignment of Receivables from Chelsea Logistics and Infrastructure Holdings Corp.
21 November 2019 Designation of Authorized Signatories for purposes of the Corporation’s Transactions with Philippine Bank of Communications.
10 December 2019 Ratification of the Actions of the Board of Directors for the period covering 29 September 2018 to 30 November 2019.
21 st Floor Udenna Tower, Rizal Drive corner 4 th Avenue, Bonifacio Global City, Taguig City Philippines 1634 | Tel No.: (632) 84034007 24th June
C O V E R S H E E T for Audited Financial Statements
SEC Registration Number 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 ) A N D
S U B S I D I A R I E S
PRINCIPAL OFFICE (No./Street/Barangay/City/Town/Province) 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
Form Type Department requiring the report Secondary License Type, If Applicable 1 7 - A C R M D N / A
C O M P A N Y I N F O R M A T I O N
Company’s Email Address Company’s Telephone Number/s Mobile Number [email protected] (02) 8403-4007 n/a
Annual Meeting Fiscal Year No. of Stockholders Month/Day Month/Day First Friday of May December 31
CONTACT PERSON INFORMATION
The designated contact person MUST be an Officer of the Corporation Name of Contact Person Email Address Telephone Number/s Mobile Number Atty. Leandro Abarquez [email protected] (632) 8403-4007 n/a
CONTACT PERSON’s ADDRESS
21st Flr. Udenna Tower Rizal Drive cor. 4 th 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.
DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2019 AND 2018 (Amounts in Philippine Pesos)
Notes 2019 2018
A S S E T S
CURRENT ASSETS Cash and cash equivalents 4 P 4,589,910 P 2,871,653,216 Receivables - net 5 3,982,146,834 770,724,274 Other current assets - net 6 7,232,340 6,505,667
Total Current Assets 3,993,969,084 3,648,883,157
NON-CURRENT ASSETS Receivables - net 5 37,482,274 74,511,305 Financial assets at fair value through other comprehensive income 8 101,173,928 563,713,996 Other non-current assets - net 6 25,267 104,259
Total Non-current Assets 138,681,469 638,329,560
TOTAL ASSETS P 4,132,650,553 P 4,287,212,717
LIABILITIES AND EQUITY
CURRENT LIABILITIES Accrued expenses and other payables 9 P 821,811 P 1,412,311 Income tax payable 1,233,709 26,282
Total Liabilities 2,055,520 1,438,593
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 12 ( 353,840,608 ) ( 233,554,195 ) Retained earnings 2 899,230,291 934,122,969
Total Equity 4,130,595,033 4,285,774,124
TOTAL LIABILITIES AND EQUITY P 4,132,650,553 P 4,287,212,717
See Notes to Consolidated Financial Statements. DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (With Comparative Figures for the Year Ended December 31, 2017) (Amounts in Philippine Pesos)
Notes 2019 2018 2017
EXPENSES Impairment loss on receivables 5 P 32,136,891 P - P - Taxes and licenses 7,428,563 104,462 153,192 Salaries and administrative 11 5,804,871 15,527,907 14,793,387 Professional fees 5,631,468 6,901,663 4,079,906 Outside services 2,235,649 1,521,421 - Listing fee 1,155,510 274,278 251,031 Representation and entertainment 993,469 2,340,137 1,739,102 Rent 14 809,064 787,900 809,877 Utilities 565,118 546,694 451,629 Travel and transportation 258,413 861,844 1,145,384 Depreciation and amortization 6 78,992 1,367,843 1,816,691 Miscellaneous 1,104,999 720,185 1,211,556
58,203,007 30,954,334 26,451,755
OTHER INCOME (CHARGES) Interest income 4, 5, 8, 11 101,570,580 45,832,090 42,884,461 Equity share in net loss of an associate 7 ( 51,696,637 ) ( 17,647,842 ) ( 324,848,473 ) Foreign currency exchange gains (losses) - net 4, 5, 8 ( 17,974,199 ) 4,687,787 43,762,816 Loss on disposal of financial assets at fair value through other comprehensive income (FVOCI) 8, 14 ( 7,470,919 ) ( 1,564,259 ) ( 4,516,778 ) Loss on disposal of financial assets at fair value through profit or loss (FVTPL) 8 - ( 3,785,015 ) - Miscellaneous 6 240,200 ( 3,288,065 ) 240,000
24,669,025 24,234,696 ( 242,477,974 )
LOSS BEFORE TAX ( 33,533,982 ) ( 6,719,638 ) ( 268,929,729 )
TAX EXPENSE 10 1,358,696 112,963 79,589
NET LOSS ( 34,892,678 ) ( 6,832,601 ) ( 269,009,318 )
OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss Fair value gains (losses) on equity securities at FVOCI 8 ( 146,548,177 ) 2,642,373 ( 3,364,892 )
Items that will be reclassified subsequently to profit or loss Equity share in other comprehensive loss of an associate 7 ( 2,050,957 ) ( 2,098,370 ) - Foreign currency translation differences 2 214,087 3,361,089 157,336 Fair valuation of debt securities at FVOCI: 8 Fair value losses during the year - ( 22,648,999 ) ( 9,749,751 ) Fair value losses on disposals reclassified to profit or loss 8 28,098,634 1,433,144 10,977,853 26,261,764 ( 19,953,136 ) ( 1,979,454 )
Other Comprehensive Loss ( 120,286,413 ) ( 17,310,763 ) ( 1,979,454 )
TOTAL COMPREHENSIVE LOSS ( P 155,179,091 ) ( P 24,143,364 ) ( P 270,988,772 )
Loss per share attributable to the Parent Company's stockholders 13 ( P 0.0125 ) ( P 0.0049 ) ( P 0.2504 )
See Notes to Consolidated Financial Statements. DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (With Comparative Figures for the Year Ended December 31, 2017) (Amounts in Philippine Pesos)
Additional Paid-In Revaluation Retained Note Capital Stock Capital Stock Treasury Stock Reserves Earnings Total
Balance at January 1, 2019P 2,800,000,000 P 785,205,350 P - ( P 233,554,195 ) P 934,122,969 P 4,285,774,124 Total comprehensive income (loss) for the year 12 - - - ( 120,286,413 ) ( 34,892,678 ) ( 155,179,091 )
Balance at December 31, 2019 P 2,800,000,000 P 785,205,350 P - ( P 353,840,608 ) P 899,230,291 P 4,130,595,033
Balance at January 1, 2018 As previously reportedP 1,916,269,341 P 455,329,483 ( P 1,279,786,026 ) ( P 8,081,200 ) P 825,438,239 P 1,909,169,837 Effect of adoption of PFRS 9 - - - ( 208,162,232 ) 115,517,331 ( 92,644,901 ) As restated 1,916,269,341 455,329,483 ( 1,279,786,026 ) ( 216,243,432 ) 940,955,570 1,816,524,936 Issuance of common shares 12 883,730,659 388,841,488 - - 1,272,572,147 Reissuance of treasury shares 12 - ( 58,965,621 ) 1,279,786,026 - - 1,220,820,405 Total comprehensive loss for the year 12 - - - ( 17,310,763 ) ( 6,832,601 ) ( 24,143,364 )
Balance at December 31, 2018 P 2,800,000,000 P 785,205,350 P - ( P 233,554,195 ) P 934,122,969 P 4,285,774,124
Balance at January 1, 2017P 1,916,269,341 P 455,329,483 ( P 1,279,786,026 ) ( P 77,681,055 ) P 1,166,026,866 P 2,180,158,609 Share in the cumulative other comprehensive loss of an associate reclassified to retained earnings - - - 71,579,309 ( 71,579,309 ) - Total comprehensive loss for the year 12 - - - ( 1,979,454 ) ( 269,009,318 ) ( 270,988,772 )
Balance at December 31, 2017 P 1,916,269,341 P 455,329,483 ( P 1,279,786,026 ) ( P 8,081,200 ) P 825,438,239 P 1,909,169,837
See Notes to Consolidated Financial Statements. DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (With Comparative Figures for the Year Ended December 31, 2017) (Amounts in Philippine Pesos)
Notes 2019 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax ( P 33,533,982 ) ( P 6,719,638 ) ( P 268,929,729 ) Adjustments for: Equity share in net loss of an associate 7 51,696,637 17,647,842 324,848,473 Interest income 4, 5, 8, 11 ( 101,570,580 ) ( 45,832,090 ) ( 42,884,461 ) Impairment loss on receivables 5 32,136,891 - - Unrealized foreign currency exchange losses (gains) - net 8,473,655 1,255,908 ( 47,116,904 ) Loss on disposal of financial assets at fair value through other comprehensive income (FVOCI) 8 7,470,919 1,564,259 4,516,778 Depreciation and amortization 6 78,992 1,367,843 1,816,691 Gain on disposal of property and equipment 6 ( 200 ) - - Loss on disposal of financial assets at fair value through profit or loss (FVTPL) 8 - 3,785,015 - Operating loss before working capital changes ( 35,247,668 ) ( 26,930,861 ) ( 27,749,152 ) Decrease (increase) in receivables ( 7,797,243,129 ) ( 24,669,414 ) 14,384,925 Increase in other assets ( 652,795 ) ( 2,000,286 ) ( 409,724 ) Decrease in accrued expenses and other payables ( 590,500 ) ( 21,011 ) ( 578,536 ) Cash used in operations ( 7,833,734,092 ) ( 53,621,572 ) ( 14,352,487 ) Cash paid for income taxes ( 225,147 ) ( 89,101 ) ( 984,087 )
Net Cash Used In Operating Activities ( 7,833,959,239 ) ( 53,710,673 ) ( 15,336,574 )
CASH FLOWS FROM INVESTING ACTIVITIES Advances made to affiliates 11 3,911,552,876 964,863 - Proceeds from disposal of financial assets at FVOCI 8 254,249,573 109,966,828 757,624,933 Interest received 39,278,870 42,870,886 48,102,686 Proceeds from disposal of property and equipment 6 200 Acquisitions of financial assets at FVOCI 8 - ( 100,585,605 ) ( 824,424,801 ) Proceeds from sale of financial assets at FVTPL 8 - 32,476,232 - Acquisitions of property, plant and equipment 6 - ( 66,695 ) ( 88,856 )
Net Cash From (Used in) Investing Activities 4,205,081,519 85,626,509 ( 18,786,038 )
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common shares 12 - 1,281,409,455 - Proceeds from reissuance of treasury shares 12 - 1,220,820,405 - Payment of stock issuance cost 12 - ( 8,837,308 ) -
Net Cash From Financing Activities - 2,493,392,552 -
EFFECT OF EXCHANGE RATE CHANGES IN CASH AND CASH EQUIVALENTS ( 70,352 ) 2,353,328 1,369,561
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 3,628,948,071 ) 2,527,661,716 ( 32,753,051 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and cash equivalents 2,871,653,216 37,009,350 110,520,687 Short-term receivables 761,884,766 1,068,866,916 1,028,108,630
3,633,537,982 1,105,876,266 1,138,629,317
CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and cash equivalents 4,589,910 2,871,653,216 37,009,350 Short-term receivables - 761,884,766 1,068,866,916
P 4,589,910 P 3,633,537,982 P 1,105,876,266
Other Information – In 2018 and 2017, the interest-bearing repurchase agreement are included as part of Cash and Cash Equivalents for cash flow purpose but are presented as Short-term receivables under Receivables account in the consolidated statements of financial position (see Note 5).
See Notes to Consolidated Financial Statements.
DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation and Subsidiaries) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 AND 2018 (With Comparative Figures for December 31, 2017) (Amounts in Philippine Pesos)
1. CORPORATE INFORMATION
1.1 Corporate Information
DITO CME Holdings Corp. (formerly ISM Communications Corporation) (DITO CME or the Parent 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 ISMCC approved a Memorandum of Agreement (MOA) between ISMCC and PhilWeb Corporation (PhilWeb). Under the terms of the MOA, PhilWeb shall manage the transformation of ISMCC 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 ISMCC. As consideration for the services to be rendered by PhilWeb, and in order to generate investor confidence in the new corporate direction of ISMCC, PhilWeb was granted the right to subscribe to 12,000,068,290 shares of the unissued capital stock of ISMCC at par value, by making an initial payment of 25% on such subscription.
To facilitate the transformation envisioned in the aforementioned MOA, DITO CME:
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:
a. The amendments to the Articles of Incorporation of ISMCC concerning:
(i) the declassification of the capital stock (common "A” and common “B") into just one class of common stock;
(ii) denial of pre-emptive rights; and,
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(iii) inclusion, among its secondary purposes, of the business of information technology, telecommunications, multimedia, as well as other similar businesses. 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: a. change in corporate name from “Itogon-Suyoc Mines, Inc." to “ISM Communications Corporation”; and, 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 Memorandum of Agreement 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 Parent Company: a. Change in the primary purpose from a company engaged in the business of telecommunications, multimedia and information technology to a company engaged in the business of a holding company. b. Change in the principal address of the Parent company to 2F PBCom Tower, 6795 Ayala Ave. cor. V.A. Rufino St., Makati City. c. Reduction in the number of members of the BOD of the Parent 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.
The SEC subsequently approved such amendment on November 11, 2016.
On December 10 ,2019, upon the recommendation of the management, the BOD and stockholders approved the subsequent amendments to the AOI of DITO CME to (a) change its corporate name to DITO CME Holdings Corp.; (b) change its principal address from 3 rd Floor Alegria Alta Building, 2294 Don Chino Roces Extension, Makati City to 21 st Floor, Udenna Tower, Rizal Drive corner 4 th 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 (see Note 12.1).
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On March 6, 2020, the application for the change in name and principal address was approved by the SEC. As of the date of issuance of the consolidated financial statements, these changes were not yet submitted to the Bureau of Internal Revenue (BIR). Currently, the details for the subscription of the increase in authorized capital stock have yet to be finalized. The application is not yet submitted to SEC.
The Parent Company is a publicly-listed company and its shares are listed in the Philippine Stock Exchange (PSE).
The Parent Company holds direct ownership interest in the following subsidiaries and indirect ownership interest in an associate (collectively these entities together with DITO CME are referred herein as the “Group”):
Percentage of Ownership Country of Subsidiaries/Associate Notes 2019 2018 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% 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, 2018, 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.
(c) Host Union, an indirect subsidiary of the Parent Company through Wagas, is a special-purpose entity organized and existing under the laws of Hongkong.
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(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. Prior to December 31, 2017, Host Union holds a 32.5% interest in Acentic GmbH, however, on such date, Host Union applied for the allotment and issuance of 325 ordinary shares at GBP 1 each of Acentic in consideration for the transfer of Host Union’s 325,000 shares in Acentic GmbH to Acentic. As of December 31, 2019, management of Acentic has determined that a material uncertainty exists, which may cause significant doubt on the associate's ability to continue as a going concern due to continuous operating losses. Also, as of the date the consolidated financial statements are authorized for issue, it was determined that Acentic's financial condition and performance was negatively affected by corona virus (COVID-19). The associate's management manage this event by relying on the continuous financial support of the controlling shareholder, availing of various government relief and daily focus on cash requirement.
1.2 Approval of Consolidated Financial Statements
The consolidated financial statements of the Group as of and for the year ended December 31, 2019 (including the comparative consolidated financial statements as of December 31, 2018 and for the years ended December 31, 2018 and 2017) were authorized for issue by the Parent Company’s BOD on April 15, 2020.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of Preparation of Consolidated Financial Statements
The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarized below and in the succeeding pages. These policies have been consistently applied to all the years presented, unless otherwise stated.
(a) Statement of Compliance with Philippine Financial Reporting Standards
The consolidated financial statements of the Group 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.
The consolidated 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.
(b) Presentation of Consolidated Financial Statements
The consolidated financial statements are presented in accordance with Philippine Accounting Standard (PAS) 1, Presentation of Financial Statements . The Group presents all items of income and expenses and other comprehensive income or loss in a single consolidated statement of comprehensive income.
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The Group presents a third consolidated statement of financial position as at the beginning of the preceding period when it applies an accounting policy retrospectively, or makes a retrospective restatement or reclassification of items that has a material effect on the information in the consolidated statement of financial position at the beginning of the preceding period. The related notes to the third consolidated statement of financial position are not required to be disclosed.
(c) Functional and Presentation Currency
These consolidated financial statements are presented in Philippine pesos, the Group’s functional and presentation currency, and all values represent absolute amounts except when otherwise indicated.
Items included in the consolidated financial statements of the Group are measured using its functional currency. Functional currency is the currency of the primary economic environment in which the Group operates.
2.2 Adoption of New and Amended PFRS
(a) Effective in 2019 that are Relevant to the Group
The Group adopted for the first time the following PFRS, amendments, interpretation and annual improvements to PFRS, which are mandatorily effective for annual periods beginning on or after January 1, 2019:
PAS 19 (Amendments) : Employee Benefits – Plan Amendment, Curtailment or Settlement PAS 28 (Amendments) : Investment in Associates and Joint Ventures – Long-term Interests in Associates and Joint Ventures PFRS 9 (Amendments) : Financial Instruments – Prepayment Features with Negative Compensation PFRS 16 : Leases International Financial Reporting Interpretations Committee (IFRIC) 23 : Uncertainty over Income Tax Treatments Annual Improvements to PFRS (2015-2017 Cycle) PAS 12 (Amendments) : Income Taxes – Tax Consequences of Dividends PFRS 3 and PFRS 11 (Amendments) : Business Combination and Joint Arrangements – Remeasurement of Previously Held Interests in a Joint Operations
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Discussed below are the relevant information about these pronouncements.
(i) PAS 19 (Amendments), Employee Benefits – Plan Amendment, Curtailment or Settlement . The amendments clarify that past service cost and gain or loss on settlement is calculated by measuring the net defined benefit liability or asset using updated actuarial assumptions and comparing the benefits offered and plan assets before and after the plan amendment, curtailment or settlement but ignoring the effect of the asset ceiling that may arise when the defined benefit plan is in a surplus position. Further, the amendments now require that if an entity remeasures its net defined benefit liability or asset after a plan amendment, curtailment or settlement, it should also use updated actuarial assumptions to determine current service cost and net interest for the remainder of the annual reporting period after the change to the plan. The application of these amendments had no significant impact on the Group’s consolidated financial statements.
(ii) PAS 28 (Amendments), Investment in Associates and Joint Ventures – Long-term Interest in Associates and Joint Ventures . The amendments clarify that the scope exclusion in PFRS 9 applies only to ownership interests accounted for using the equity method. Thus, the amendments further clarify that long-term interests in an associate or joint venture – to which the equity method is not applied – must be accounted for under PFRS 9, which shall also include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. The application of these amendments had no significant impact on the Group’s consolidated financial statements.
(iii) PFRS 9 (Amendments), Financial Instruments – Prepayment Features with Negative Compensation . The amendments clarify that prepayment features with negative compensation attached to financial assets may still qualify under the “solely payments of principal and interests” (SPPI) test. As such, the financial assets containing prepayment features with negative compensation may still be classified at amortized cost or at FVOCI. The application of these amendments had no significant impact on the Group’s consolidated financial statements.
(iv) PFRS 16, Leases . The new standard replaced PAS 17, Leases , and its related interpretation IFRIC 4, Determining Whether an Arrangement Contains a Lease , Standard Interpretations Committee (SIC) 15, Operating Leases – Incentives, and SIC 27 , Evaluating the Substance of Transactions Involving the Legal Form of a Lease . For lessees, it requires an entity to account for leases “on-balance sheet” by recognizing a “right-of-use” asset and lease liability arising from contract that is, or contains, a lease.
The new standard has no material impact on the Group’s consolidated financial statements as it has applied the optional exemptions not to recognize right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term for its existing lease previously accounted for as an operating lease with a remaining lease term of less than 12 months.
The new accounting policies of the Group as a lessee are disclosed in Note 2.12.
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(v) IFRIC 23, Uncertainty over Income Tax Treatments . This interpretation provides clarification on the determination of taxable profit, tax bases, unused tax losses, unused tax credits, and tax rates when there is uncertainty over income tax treatments. The core principle of the interpretation requires the Group to consider the probability of the tax treatment being accepted by the taxation authority. When it is probable that the tax treatment will be accepted, the determination of the taxable profit, tax bases, unused tax losses, unused tax credits, and tax rates shall be on the basis of the accepted tax treatment. Otherwise, the Grouph as to use the most likely amount or the expected value, depending on the surrounding circumstances, in determining the tax accounts identified immediately above. The application of this interpretation has no impact on the Group’s consolidated financial statements.
(vi) Annual Improvements to PFRS 2015-2017 Cycle. Among the improvements, the following amendments, which are effective from January 1, 2019, are relevant to the Group:
PAS 12 (Amendments), Income Taxes – Tax Consequences of Dividends , is relevant to the Group. This amendment clarifies that all income tax consequence of dividend payments should be recognized in profit or loss. Management assessed that the amendment had no significant impact on the Group’s consolidated financial statements. The application of these amendments has no impact on the Group’s consolidated financial statements.
PFRS 3 (Amendments), Business Combinations , and PFRS 11 (Amendments), Joint Arrangements – Remeasurement of Previously Held Interests in a Joint Operation . The amendments clarify that previously held interest in a joint operation shall be remeasured when the Group obtains control of the business. On the other hand, previously held interests in a joint operation shall not be remeasured when the Group obtains joint control of the business. The application of these amendments had no significant impact on the Group’s consolidated financial statements.
(b) Effective in 2019 that are not Relevant to the Group
Among the annual improvements to PFRS 2015 - 2017 Cycle, PAS 23 (Amendments), Borrowing Costs – Eligibility for Capitalization , which is effective beginning annual period January 1, 2019, is the only one not relevant to the Group.
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(c) Effective Subsequent to 2019 but not Adopted Early
There are amendments to existing standards effective for annual periods subsequent to 2019, which are adopted by the FRSC. Management will adopt the relevant pronouncements in the succeeding pages, in accordance with their transitional provisions, and unless otherwise stated, none of these are expected to have significant impact on the Group’s consolidated financial statements:
(i) PAS 1 (Amendments), Presentation of Financial Statements, and PAS 8 (Amendments), Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Material (effective from January 1, 2020). The amendments provide a clearer definition of ‘material’ in PAS 1 by including the concept of ‘obscuring’ material information with immaterial information as part of the new definition, and clarifying the assessment threshold (i.e., misstatement of information is material if it could reasonably be expected to influence decisions made by primary users, which consider the characteristic of those users as well as the entity’s own circumstances). The definition of material in PAS 8 has been accordingly replaced by reference to the new definition in PAS 1. In addition, amendment has also been made in other Standards that contain definition of material or refer to the term ‘material’ to ensure consistency.
(ii) Revised Conceptual Framework for Financial Reporting (effective from January 1, 2020). The revised conceptual framework will be used in standard-setting decisions with immediate effect. Key changes include (a) increasing the prominence of stewardship in the objective of financial reporting, (b) reinstating prudence as a component of neutrality, (c) defining a reporting entity, which may be a legal entity, or a portion of an entity, (d) revising the definitions of an asset and a liability, (e) removing the probability threshold for recognition and adding guidance on derecognition, (f) adding guidance on different measurement basis, and, (g) stating that profit or loss is the primary performance indicator and that, in principle, income and expenses in other comprehensive income should be recycled where this enhances the relevance or faithful representation of the financial statements.
No changes will be made to any of the current accounting standards. However, entities that rely on the framework in determining their accounting policies for transactions, events or conditions that are not otherwise dealt with under the accounting standards will need to apply the revised framework from January 1, 2020. These entities will need to consider whether their accounting policies are still appropriate under the revised framework.
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(iii) PFRS 10 (Amendments), Consolidated Financial Statements , and PAS 28 (Amendments), Investments in Associates and Joint Ventures – Sale or Contribution of Assets Between an Investor and its Associates or Joint Venture (effective date deferred indefinitely). The amendments to PFRS 10 require full recognition in the investor’s financial statements of gains or losses arising on the sale or contribution of assets that constitute a business as defined in PFRS 3, Business Combinations , between an investor and its associate or joint venture. Accordingly, the partial recognition of gains or losses (i.e., to the extent of the unrelated investor’s interests in an associate or joint venture) only applies to those sale of contribution of assets that do not constitute a business. Corresponding amendments have been made to PAS 28 to reflect these changes. In addition, PAS 28 has been amended to clarify that when determining whether assets that are sold or contributed constitute a business, an entity shall consider whether the sale or contribution of those assets is part of multiple arrangements that should be accounted for as a single transaction.
2.3 Basis of Consolidation
The Group’s consolidated financial statements comprise the accounts of the Parent Company, and its subsidiaries after the elimination of intercompany transactions. All intercompany assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities under the Group, are eliminated in full on consolidation. Unrealized profits and losses from intercompany transactions that are recognized in assets are also eliminated in full. Intercompany losses, if any, that indicate impairment are recognized in the consolidated financial statements.
The financial statements of subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting principles.
The Parent Company accounts for its investments in subsidiaries and associate as follows:
(a) Investments in Subsidiaries
Subsidiaries are entities (including structured entities) over which the Parent Company has control. The Parent Company controls an entity when it has power over the investee, it is exposed, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date the Parent Company obtains control.
The Parent Company reassesses whether or not it controls an entity if facts and circumstances indicates that there are changes to one or more of the three elements of controls indicated above. Accordingly, entities are deconsolidated from the date that control ceases.
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The acquisition method is applied to account for acquired subsidiaries. This requires recognizing and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group, if any. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred and subsequent change in the fair value of contingent consideration is recognized directly in profit or loss.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any existing equity interest in the acquiree over the acquisition-date fair value of identifiable net assets acquired is recognized as goodwill. If the consideration transferred is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in profit or loss (see Note 2.7).
On the other hand, business combinations arising from transfers or acquisition of interests in entities that are under the common control of the shareholder that controls the Group are normally accounted for under the pooling-of-interests method and reflected in the consolidated financial statements as if the business combination had occurred at the beginning of the earliest comparative period presented, or if later, at the date that common control was established; for this purpose, comparatives are restated. The assets and liabilities acquired are recognized in the Group’s consolidated financial statements at the carrying amounts previously recognized. The difference between the consideration transferred and the net assets of the subsidiary acquired is recognized in the Revaluation Reserves as part of the equity.
(b) Investment in an Associate
Associate is an entity over which the Group is able to exert significant influence but not control and which are neither subsidiaries nor interests in a joint venture. Investment in an associate is initially recognized at cost and subsequently accounted for using the equity method.
Acquired investment in an associate is subject to the purchase method. The purchase method involves the recognition of the acquiree's identifiable assets and liabilities, including contingent liabilities, regardless of whether they were recorded in the financial statements prior to acquisition. Goodwill represents the excess of acquisition cost over the fair value of the Parent Company's share of the identifiable net assets of the acquiree at the date of acquisition. Any goodwill or fair value adjustment attributable to the Parent Company's share in the associate is included in the amount recognized as investment in an associate.
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All subsequent changes to the Group’s share of interest in the equity of the associate are recognized in the carrying amount of the investment. Changes resulting from the profit or loss generated by the associate are reported within the Equity share in net income (loss) of associates under Other Income (Charges) account in the consolidated statement of comprehensive income. These changes include subsequent depreciation, amortization or impairment of the fair value adjustments of assets and liabilities.
Impairment loss is provided when there is objective evidence that the investment in an associate will not be recovered (see Note 2.14).
Changes resulting from other comprehensive income of the associate or items recognized directly in the associate’s equity are recognized in other comprehensive income or equity of the Group, as applicable.
However, when the Parent Company’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Parent Company does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the investor resumes recognizing its share of those profits only after its share of the profits exceeds the accumulated share of losses that has previously not been recognized.
Distributions received from the associates are accounted for as a reduction of the carrying value of the investment. The Parent Company holds indirect interests in subsidiaries and an associate as presented in Note 1.1.
2.4 Financial Assets
Financial assets are recognized when the Group becomes a party to the contractual terms of the financial instrument. For purposes of classifying financial assets, an instrument is considered as an equity instrument if it is non-derivative and meets the definition of equity for the issuer in accordance with the criteria of PAS 32, Financial Instruments: Presentation . All other non-derivative financial instruments are treated as debt instruments.
(a) Classification, Measurement and Reclassification of Financial Assets
The classification and measurement of financial assets is driven by the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The classification and measurement of financial assets are described below and in the succeeding pages.
(i) Financial Assets at Amortized Cost
Financial assets are measured at amortized cost if both of the following conditions are met:
the asset is held within the Group’s business model whose objective is to hold financial assets in order to collect contractual cash flows (“hold to collect”); and
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the contractual terms of the instrument give rise, on specified dates, to cash flows that are SPPI on the principal amount outstanding.
All financial assets meeting these criteria are measured initially at fair value plus transaction costs. These are subsequently measured at amortized cost using the effective interest method, less any impairment in value.
The Group’s financial assets at amortized cost are presented in the consolidated statement of financial position as Cash and Cash Equivalents and Receivables.
Financial assets measured at amortized cost are included in current assets, except for those with maturities greater than 12 months after the end of reporting period, which are classified as non-current assets.
For purposes of cash flows reporting and presentation, cash and cash equivalents comprise accounts with original maturities of three months or less, including cash. These generally include cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.
(ii) Financial Assets at Fair Value Through Other Comprehensive Income
The Group accounts for financial assets at 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.
At initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate equity investments as at FVOCI; however, such designation is not permitted if the equity investment is held by the Group for trading or as mandatorily required to be classified as FVTPL. The Group has designated certain equity instruments as at FVOCI on initial recognition.
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.
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Any dividends earned on holding equity instruments are recognized in profit or loss as dividend income, when the Group’s right to receive dividends is established, it is probable that the economic benefits associated with the dividend will flow to the Group, and, the amount of the dividend can be measured reliably, unless the dividends clearly represent recovery of a part of the cost of the investment.
(iii) Financial Assets at Fair Value Through Profit or Loss
Financial assets that are held within a different business model other than “hold to collect” or “hold to collect and sell” are categorized at FVTPL. Further, irrespective of business model, financial assets whose contractual cash flows are not SPPI are accounted for at FVTPL. Also, equity securities are classified as financial assets at FVTPL, unless the Group designates an equity investment that is not held for trading as at FVOCI at initial recognition. The Group’s financial assets at FVTPL include equity-based mutual funds which contractual cash flows do not represent SPPI.
Financial assets at FVTPL are measured at fair value with gains or losses, if any, are recognized in profit or loss as part of Fair Value Gains or Losses in the consolidated statement of comprehensive income. The fair values of these financial assets are determined by reference to active market transactions or using a valuation technique where no active market exists.
The Group can only reclassify financial assets if the objective of its business model for managing those financial assets changes. Accordingly, the Group 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.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of the financial assets except for those that are subsequently identified as credit-impaired. For credit-impaired financial assets at amortized cost, the effective interest rate is applied to the net carrying amount of the financial assets (after deduction of the loss allowance). The interest earned is recognized in the consolidated statement of comprehensive income as part of Interest Income.
A change in the objective of the Group’s business model will take effect only at the beginning of the next reporting period following the change in the business model.
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(b) Impairment of Financial Assets
At the end of the reporting period, the Group assesses its ECL on a forward-looking basis associated with its financial assets carried at amortized cost and debt instruments measured at FVOCI. Recognition of credit losses is no longer dependent on the Group’s identification of a credit loss event. Instead, the Group considers a broader range of information in assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect collectability of the future cash flows of the financial assets.
The Group applies the general approach in measuring ECL of advances to related parties. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial assets. In applying this approach, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. In calculating the ECL, the Group incorporates forward-looking information based on reasonable and supportable macroeconomic variables. To calculate the ECL of advances to related parties, the Group uses the liquidity and forward-looking approach based on external indicators.
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).
For debt instruments measured at FVOCI, the Group recognizes lifetime ECL when there has been a significant increase in credit risk on a financial asset since initial recognition. Lifetime ECL represents the expected credit loss that will result from all possible default events over the expected life of a financial asset, irrespective of the timing of the default. However, if the credit risk on a financial asset has not increased significantly since initial recognition, the Group measures and provides for credit losses that are expected to result from default events that are possible within 12-months after the end of the reporting period.
The Group determines whether there has been a significant increase in credit risk for financial asset since initial recognition by comparing the risk of default occurring over the expected life of the financial asset between the reporting date and the date of the initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that may indicate an actual or expected deterioration of the credit quality of the financial assets.
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The key elements used in the calculation of ECL are as follows:
Probability of default – It is an estimate of likelihood of default over a given time horizon, either over the next 12 months or the remaining lifetime of the obligation.
Loss given default – It is an estimate of loss arising in case where a default occurs at a given time. It is based on the difference between the contractual cash flows of a financial instrument due from a counterparty and those that the Group would expect to receive, including the realization of any collateral or effect of any credit enhancement.
Exposure at default – It represents the gross carrying amount of the financial instruments in the event of default which pertains to its amortized cost.
Measurement of the ECL is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.
(c) Derecognition of Financial Assets
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 Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.
2.5 Other Assets
Other assets pertain to other resources controlled by the Group as a result of past events. They are recognized at cost in the consolidated financial statements when it is probable that the future economic benefits will flow to the Group 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 Group 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 include property and equipment which 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 five years or the term of the lease, whichever is shorter.
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An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.14).
An item of property and equipment, including the related accumulated depreciation and amortization and any impairment losses, is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the year the item is derecognized.
2.6 Financial Liabilities
Financial liabilities, which pertain to accrued expenses and other payables (except tax-related liabilities), are recognized when the Group becomes a party to the contractual terms of the instrument.
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 Group 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 consolidated 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.
2.7 Business Combination
Business acquisitions are accounted for using the acquisition method of accounting.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Subsequent to initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.
Negative goodwill, which is the excess of the Group’s interest in the net fair value of net identifiable assets acquired over acquisition cost, is charged directly to income and is presented as Gain on bargain purchase under Other Income (Charges) in the consolidated statement of comprehensive income.
For the purpose of impairment testing, goodwill is allocated to cash-generating units or groups of cash-generating unit that are expected to benefit from the business combination in which the goodwill arose. The cash-generating units or groups of cash-generating units are identified according to operating segment.
Gains and losses on the disposal of an interest in a subsidiary include the carrying amount of goodwill relating to it.
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If the business combination is achieved in stages, the acquirer is required to remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in the profit or loss or other comprehensive income, as appropriate.
Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets , either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured and its subsequent settlement is accounted for within equity.
2.8 Segment Reporting
An operating segment is a component of an entity: (a) that engages in business activities from which may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), (b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available. An operating segment may engage in business activities for which it has earned revenues, for example, start-up operations may be operating segments before earning revenues.
The Group determines and presents an operating segment based on the information that is internally provided to the Chairman and Chief Executive Officer who is the Group’s chief operating decision maker (CODM).
The Group’s CODM is reviewing the results of the Group as a whole; hence, the Group has only one segment. The information being reviewed by the CODM is based on the amounts reflected in the consolidated financial statements; hence, no additional information is presented.
2.9 Offsetting Financial Instruments
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 consolidated statement of financial position when the Group 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.
2.10 Provisions and Contingencies
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.
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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 consolidated financial statements. Similarly, possible inflows of economic benefits to the Group that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the consolidated financial statements. On the other hand, any reimbursement that the Group 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.
2.11 Revenue and Expense Recognition
Revenue is recognized only when (or as) the Group 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 Group’s consolidated financial statements may be partially within the scope of PFRS 9 and partially within the scope of PFRS 15, Revenue from Contracts with Customers . In such case, the Group first applies PFRS 9 to separate and measure the part of the contract that is within the 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.
2.12 Leases – Group as Lessee
The Company accounts for its leases as follows:
(a) Accounting for Leases in Accordance with PFRS 16 (2019)
For any new contracts entered into on or after January 1, 2019, the Group 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 Group 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 Group;
the Group 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,
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the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use.
The Group’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.
(b) Accounting for Leases in Accordance with PAS 17 (2018)
Leases which transfer to the Group substantially all risks and benefits incidental to ownership of the leased item are classified as finance leases and are recognized as assets and liabilities in the consolidated statement of financial position at amounts equal to the fair value of the leased property at the inception of the lease or, if lower, at the present value of minimum lease payments. Lease payments are apportioned between the finance costs and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
2.13 Foreign Currency Transactions and Translation
(a) Transactions and Balances
The accounting records of the Group 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.
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.
(b) Translation of Financial Statements of Foreign Subsidiaries
The operating results and financial position of Wagas which are measured using the United States (U.S.) dollar, its functional currency, are translated to Philippine pesos, the Group’s functional currency as follows:
(i) Assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the reporting period;
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(ii) Income and expenses for each profit or loss account are translated at the monthly average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and,
(iii) All resulting exchange differences are recognized in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in Wagas and Host Union, is taken to other comprehensive income. When a foreign operation is partially disposed of or sold, such exchange differences are recognized as income or loss in the consolidated statement of comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
The translation of the financial statements into Philippine peso should not be construed as a representation that the U.S. dollar amounts could be converted into Philippine peso amounts at the translation rates or at any other rates of exchange.
2.14 Impairment of Non-financial Assets
The Group’s investments in an associate 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 Group’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.
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2.15 Income Taxes
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.
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 deferred tax 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 deferred tax 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 Group 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.
2.16 Related Party Transactions and Relationships
Related party transactions are transfers of resources, services or obligations between the Group 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 Group; (b) associates; and, (c) individuals owning, directly or indirectly, an interest in the voting power of the Group that gives them significant influence over the Group and close members of the family of any such individual.
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In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely on the legal form.
Based on the requirement of SEC Memorandum Circular 2019-10, Rules of Material Related Party Transaction for Publicly-listed Companies , transactions amounting to 10% or more of the total consolidated assets based on its latest consolidated financial statements that were entered into with related parties are considered material.
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 Group’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.
2.17 Earnings per Share
Basic earnings per share (EPS) is computed by dividing consolidated net profit attributable to equity holders of the Parent Company by the weighted average number of shares issued and outstanding, adjusted retroactively for any share dividend, share split and reverse share split during the current year, if any.
Diluted EPS is computed by adjusting the weighted average number of ordinary shares outstanding to assume conversion of potential dilutive common shares. Currently, the Group does not have dilutive potential shares outstanding; hence, the diluted earnings per share is equal to the basic earnings per share.
2.18 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 Group’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, share in cumulative other comprehensive loss of an associate and cumulative translation adjustment of investment in a foreign operation.
Retained earnings represent all current and prior period results of operations as reported in the consolidated statement of comprehensive income, reduced by the amounts of dividends declared.
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2.19 Events After the End of the Reporting Period
Any post-year-end event that provides additional information about the Group’s financial position at the end of the reporting period (adjusting event) is reflected in the consolidated financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the consolidated financial statements.
3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES
The preparation of the Group’s consolidated financial statements in accordance with PFRS requires management to make judgments and estimates that affect the amounts reported in the consolidated 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.
3.1 Critical Management Judgments in Applying Accounting Policies
In the process of applying the Group’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 consolidated financial statements:
(a) Application of ECL on Receivables and Financial Assets at FVOCI
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 on advances to related parties is based on the sufficiency of the counterparties’ 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 Group uses modified loss rates to calculate ECL for receivables and debt instruments carried at FVOCI. 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, or unless there has been a significant increase in credit risk since origination of the financial instrument, in such case, a lifetime ECL for the financial assets at FVOCI, is recognized.
The Group 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.
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(b) Evaluation of Business Model Applied in Managing Financial Instruments and Testing the Cash Flow Characteristics of Financial Instruments
In determining the classification of a financial instrument under PFRS 9, the Group: (i) evaluates in which business model a financial instrument or a portfolio of financial instruments belong to taking into consideration the objectives of each business model established by the Group (e.g., held-for-trading, generating accrual income, direct matching to a specific liability) as those relate to the Group’s investment and trading strategies; and, (ii) assesses whether the contractual terms of the financial assets give rise on specified dates to cash flows that are SPPI on the principal outstanding, with interest representing time value of money and credit risk associated with the principal amount outstanding.
The Group developed business models which reflect how it manages its portfolio of financial instruments. The Group’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 Group) and not on an instrument-by-instrument basis (i.e., not based on intention or specific characteristics of individual financial instrument).
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 Group 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 Group 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 Group 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 necessarily inconsistent with a held-to-collect business model if the Group can explain the reasons for those sales and why those sales do not reflect a change in the Group’s objective for the business model.
In respect of the investment in preferred shares of an associate, the Group elected the option to irrevocably designate and present in other comprehensive income the changes in fair value of these equity securities as the Group consider these to be strategic in nature.
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(c) Classification of Investment in Preferred Shares of an Associate as Equity Instruments
The Group classifies its investment in preferred shares of an associate as part of equity securities at FVOCI since there is no fixed redemption date and the option to redeem these securities partially or in full is under its terms and conditions. In addition, the issuer may, at its discretion, declare and pay dividends in the event the issuer has distributable reserves even when it is likely that the payments will be made. On the other hand, these securities shall be treated as financial liability when the issuer has an obligation to pay the accumulated distributions should the issuer declares dividends to its equity holders as defined under PAS 32. Should the issuer also opt to not defer payment of distributions, all distributions in arrears as of that date will be recognized as a financial liability until payment is made.
At initial recognition, the Group made an irrevocable election to designate these securities as at FVOCI which was aligned with the Group’s business model to hold to collect the associated cash flows and sell.
(d) Recognition of Provisions and Contingencies
Judgment is exercised by management to distinguish between provisions and contingencies. Policies on recognition of provisions and contingencies are discussed in Note 2.10 and disclosures on relevant provisions and contingencies are presented in Note 14.
3.2 Key Sources of Estimation Uncertainty
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:
(a) Estimation of Allowance for ECL
The measurement of the allowance for ECL on financial assets at amortized cost and at FVOCI 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 15.2.
(b) Fair Value Measurement for Financial Instruments
Management applies valuation techniques to determine the fair value of financial instruments where active market quotes are not available. This requires management to develop estimates and assumptions based on market inputs, using observable data that market participants would use in pricing the instrument. Where such data is not observable, management calculates the fair value based on the expected cash flows of the underlying net base of the instrument or other more appropriated valuation techniques.
The carrying values of the Group’s financial assets at FVOCI and the amounts of fair value changes recognized on those assets are disclosed in Note 8.
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(c) Determination of Realizable Amount of Deferred Tax Assets
The Group 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. Management assessed that certain deferred tax assets as at December 31, 2019 and 2018 may not be fully utilized in the subsequent reporting periods; hence, a portion of it was no longer recognized. The details of recognized and unrecognized deferred tax assets as of December 31, 2019 and 2018 are presented in Note 10.
(d) Impairment of Non-financial Assets
In assessing impairment, management estimates the recoverable amount of each asset or a cash-generating unit based on expected future cash flows and uses an interest rate to calculate the present value of those cash flows. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate (see Note 2.14). Though management believes that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in those assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations.
No impairment losses relating to non-financial assets were incurred by the Group in 2019, 2018 and 2017.
4. CASH AND CASH EQUIVALENTS
This account consists of:
2019 2018
Cash in banks P 4,589,910 P 2,204,695,858 Short-term investments - 666,957,358
P 4,589,910 P 2,871,653,216
As of December 31, 2018, cash in banks mainly pertains to the 75% proceeds from the reissuance of treasury shares and payment for the subscription of unissued shares amounting to P883.73 million and P1,279.79 million, respectively (see Note 12).
Short-term investments refer to the time deposits. On March 4, 2019 and March 26, 2019, both time deposits amounting to P303.83 million and P304.60 million matured, respectively. The remaining balance pertains to the cash under Investment Management Agreement (IMA) which has been collected upon termination. As of December 31, 2019, the Group does not maintain any time deposit.
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Cash in banks generally earn interest at rates based on daily bank deposit rates. Short-term investments are made for varying periods of up to three months depending on the immediate cash requirements of the Group and earn effective interest ranging from 2.15% to 6.00% in 2019, 2.25% to 6.00% in 2018, and 1.25% to 3.25% in 2017. Interest earned in 2019, 2018, and 2017 amounted to P14.28 million, P9.14 million and P0.52 million, respectively. Such are presented as part of Interest Income account in consolidated statements of comprehensive income.
In 2019 and 2018, cash and cash equivalents denominated in foreign currency amounted to P1.47 million and P348.04 million, respectively. The related foreign currency exchange difference amounted to P0.10 million losses in 2019, P2.35 million gains in 2018, and P1.47 million gains in 2017, respectively and is presented as part of Foreign currency exchange gains (losses) – net under the Other Income (Charges) section in the consolidated statements of comprehensive income.
5. RECEIVABLES
This account consists of:
Notes 2019 2018 Current: Advances to affiliates 11.2 P 3,975,560,638 P 964,863 Receivables from sale of Eastern Telecommunications Philippines, Inc (ETPI) 5.2 307,777,692 P 307,777,692 Interest receivable 5.3 6,300,999 7,837,296 Short-term receivables 5.1 - 761,884,766 Others 285,197 37,349 4,289,924,526 1,078,501,966 Allowance for impairment 5.2 ( 307,777,692 ) ( 307,777,692 ) 3,982,146,834 770,724,274 Noncurrent: Long term notes receivable 5.3 69,619,165 74,511,305 Allowance for impairment on notes receivable 5.3 ( 32,136,891 ) - 37,482,274 74,511,305
P 4,019,629,108 P 845,235,579
5.1 Short-term Receivables
Short-term receivables pertain to the interest-bearing repurchase agreements entered by the Group 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 agreements are collateralized by government securities owned by PBCom amounting to P591.62 million as at December 31, 2018. These were fully settled in 2019.
Interest earned from these receivables amounted to P13.78 million, P21.02 million and P18.64 million in 2019, 2018 and 2017, respectively, and are presented as Interest Income account in the consolidated statements of comprehensive income.
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5.2 Receivable from ETPI
Receivable from sale of ETPI pertains to the outstanding proceeds from the sale of the Group’s investment in Eastern Telecommunications Philippines, Inc. (ETPI). The amount is noninterest-bearing. On March 25, 2015, the Group and the buyer entered into an agreement on the payment schedule to be made in relation to the aforementioned receivable. Schedule of payments 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
The receivable from sale of ETPI was collected as per the agreed payment schedule. However, in 2015, the Group 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, 2019, the Group and ETPI are still discussing for the plan on the remaining receivable. The receivable is still uncollected; hence, the corresponding allowance for impairment loss has not been reversed.
5.3 Notes Receivable
Notes receivable consist of unsecured foreign currency denominated interest-bearing loans to Acentic as follows:
Amount in original Peso Equivalent currency 2019 2018 Maturity Date
EUR Loan 1 EUR 860,451 P 48,487,465 P 51,894,680 December 31, 2022 EUR Loan 2 EUR 250,000 14,087,800 15,077,750 December 31, 2021 EUR Loan 3 EUR 125,000 7,043,900 7,538,875 December 31, 2021
P 69,619,165 P 74,511,305
During 2017, the Group 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 Group. Such loan bears a fixed interest of 5.00% and will mature on December 31, 2022 (EUR Loan 1).
On March 22, 2018 and May 2, 2018, the Group 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 mature on March 31, 2020. However, on March 2020, upon the agreement of Acentic and the Group, the maturity date for EUR Loan 2 and EUR Loan 3 is extended to December 31, 2021.
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Interest income earned from these receivables amounted to P4.65 million, P5.08 million and P15.61 million in 2019, 2018 and 2017, respectively, and are presented as part of Interest Income account under Other Income (Charges) account in the consolidated statements of comprehensive income.
The related foreign currency exchange loss amounted to P4.89 million and P0.60 million in 2019 and 2018 (nil in 2017) respectively and is presented as part of Foreign currency exchange gains (losses) under the Other Income (Charges) section in the statements of comprehensive income.
The Group’s notes receivables have been assessed by management for expected credit losses. All 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 15.2).
A reconciliation of the allowance for impairment losses on receivables at the beginning and end of 2019 and 2018 is shown below.
Current Non-current Total
December 31, 2019: Balance at beginning of year P 307,777,692 P - P 307,777,692 Impairment loss - 32,136,891 32,136,891
P 307,777,692 P 32,136,891 P 339,914,583
December 31, 2018: Balance at beginning of year P 307,777,692 P - P 307,777,692 Impairment loss - - -
P 307,777,692 P - P 307,777,692
6. OTHER ASSETS
This account consists of:
2019 2018
Current: Input value-added tax (VAT) P 8,916,825 P 8,057,590 Prepaid assets 2,710,026 2,842,588 11,626,851 10,900,178 Allowance for impairment losses on Input VAT ( 4,394,511 ) ( 4,394,511) 7,232,340 6,505,667
Non-current: Property and equipment Cost 5,794,013 5,843,111 Accumulated depreciation ( 5,768,746 ) ( 5,738,852 ) 25,267 104,259
P 7,257,607 P 6,609,926
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In 2019, the Group disposed of a fully-depreciated computer equipment with acquisition cost of P49,098 realizing a gain on disposal amounting to P200 and is presented as part of Miscellaneous account in the 2019 consolidated statement of comprehensive income.
The Group’s depreciation and amortization expense incurred from the property and equipment, which is presented under Expenses account in the consolidated statements of comprehensive income, amounted to P0.08 million, P1.37 million and P1.82 million in 2019, 2018 and 2017, respectively.
7. INVESTMENT IN AN ASSOCIATE
The cost of investment in Acentic amounted to P660,419,903 as of the end of both reporting periods. The movement of this account accounted under the equity method is as follows [see Note 2.3(b)]:
2019 2018
Balance at beginning of year P - P 3,093,689 Equity share in net losses of an associate ( 51,696,637 ) ( 17,647,842 ) Cumulative translation adjustment ( 12,154,982 ) 1,949,011 Share in other comprehensive loss ( 2,050,957 ) ( 2,098,370 ) Cumulative share in net losses including cost of investment ( 65,902,576 ) ( 14,703,512 ) Absorbed share in net losses of an associate ( 65,902,576 ) ( 14,703,512 )
Balance at end of year P - P -
In 2019 and 2018, the Group’s share in the net losses of its associate exceeded the carrying amount of its investment. Cumulative excess share in net losses amounting to P65,902,576 and P14,703,512 was absorbed fully by the investment in preferred shares of the Group in the same entity (see Note 8).
The management assessed that the associate’s continuous losses is an indication of impairment of the Group’s investment in Acentic, however, no impairment was recognized in the books as the carrying value is nil due to the absorbed share in net losses.
The summarized unaudited financial information of the associate as at and for the years ended December 31 follows (amounts in thousands):
2019 2018
Current assets P 584,391 P 565,961 Non-current assets 707,094 282,116 Current liabilities 839,619 700,901 Non-current liabilities 86,142 185,428 Total revenue 1,543,860 1,336,751 Net loss ( 154,667 ) ( 54,301 ) Other comprehensive incme (loss) 9,812 ( 6,457 ) Total comprehensive loss ( 144,856 ) ( 60,758 )
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8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
The amounts in the consolidated statement of financial position comprise the financial assets at FVOCI:
2019 2018
Equity securities P 101,173,928 P 301,993,504 Government bonds - 202,076,726 Corporate bonds – quoted - 59,643,766
P 101,173,928 P 563,713,996
The breakdown of the equity securities are as follows:
2019 2018
Listed equity securities P 98,543,234 P 97,101,137 Unquoted equity securities: Preferred - 199,687,585 Common 2,630,694 5,204,782
P 101,173,928 P 301,993,504
The reconciliation of the carrying amounts of these financial assets are as follows:
Notes 2019 2018
Balance at beginning of year P 563,713,996 P 609,529,089 Additions - 100,585,605 Disposals ( 261,720,492 ) ( 110,097,943 ) Fair value losses – net ( 146,548,177 ) ( 20,006,626) Absorption of share in net losses 7 ( 51,199,064 ) ( 14,703,512 ) Foreign currency losses ( 3,072,335 ) ( 1,592,617)
Balance at end of year P 101,173,928 P 563,713,996
The government bonds, corporate bonds and unit investment trust funds (UITF) are investments of the Group, which are held under IMA from a trustee bank (investment manager) (see Note 14.3). Unrealized fair value changes from these government and corporate bonds are presented as part of Fair Value Gains on Debt Securities at FVOCI account in the 2018 and 2017 consolidated statements of comprehensive income.
The UITF account pertains to a dollar fund held by the investment manager of the Group. In 2018, the UITF was redeemed at realized loss of P3.79 million and is presented as Loss on disposals of financial assets at FVTPL under Other Income (Charges) account in the 2018 consolidated statement of comprehensive income.
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The investment in equity shares consists of quoted and unquoted shares. Quoted shares consist of 4,806,987 shares of stock in PBCom. Unrealized fair value changes of these shares amounted to P1.44 million gain, P18.27 million loss, and P3.36 million loss in 2019, 2018 and 2017, respectively. Such amounts are presented as part of Fair Value Gains (Losses) on Equity Securities at FVOCI account in the consolidated statement of comprehensive income.
Unquoted equity securities pertain to the Group’s investment in the preferred shares of Acentic and common shares of Alpha Force Security Agency. In 2018, shares in Alpha Force Security Agency are measured at their fair value based on their discounted amount of estimated future cash flows expected to be received. While in 2019, the fair value of these securities are determined using adjusted book value method (see Note 17.2). Unrealized fair value changes from these shares amounted to P148.0 million losses and P20.91 million gains in 2019 and 2018 (nil in 2017), respectively, and is presented as part of part of Fair Value Gains (losses) on Equity Securities at FVOCI account in the 2019 and 2018 consolidated statements of comprehensive income.
In 2017, some of the Group’s notes receivables and interest receivables were converted into investment in preferred shares and the remaining balance into a new loan agreement as a result of the proposed restructuring of Acentic.
Prior to restructuring, the Group has an outstanding notes receivable from Acentic GmbH amounting to EUR 5.74 million (P342.28 million), inclusive of EUR 0.7 million (P44.50 million) accrued interest. The restructuring agreement provides that the Group agreed to accept settlement of the loan balance of EUR 4.88 million (P290.98 million) originally due from Acentic GmbH via the issuance of 4,150,682 preferred shares from Acentic worth EUR 4.15 million (P247.44 million) in its favor as full and final settlement. As such, the Group waives any rights to receive this remaining loan balance other than the said preference share consideration.
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 Prinicipal Interest Preferred Shares New Loans
ISM EUR 3,946,500 EUR 491,536 EUR 3,946,500 EUR 491,536 Wagas - 197,325 - 197,325 ISM 222,029 26,352 222,029 26,352 ISM 450,000 31,216 450,000 31,216 ISM 376,695 - 262,673 114,022
EUR 4,995,224 EUR 746,429 EUR 4,881,202 EUR 860,451
In 2019, all government bonds and corporate bonds were disposed of in exchange for proceeds amounting to P254.25 million, following the termination of IMA resulting in a loss of P7.47 million (see Note 14.3). In 2018 and 2017, certain government bonds were disposed of which resulted in a loss of P1.56 million and P4.52 million, respectively. Such amounts are presented as Loss on Disposal of Financial Assets at FVOCI in the consolidated statements of comprehensive income. The related fair value losses amounting to P28.1 million, P1.43 million and P10.98 million were reclassified in the profit or loss in 2019, 2018, and 2017, respectively.
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Interest income earned from government and corporate bonds amounted to P5.82 million, P10.59 million, and P8.11 million in 2019, 2018 and 2017, respectively. These amounts are presented as part of Interest Income under Other Income (Charges) section in the consolidated statements of comprehensive income.
9. ACCRUED EXPENSES AND OTHER PAYABLES
This account consists of:
2019 2018
Accrued expenses P 513,384 P 898,758 Payables to government agencies 308,427 474,269 Other payables - 39,284
P 821,811 P 1,412,311
Accrued expenses pertain to the amount payable to the investment manager and to various professionals for their services. Payables to government agencies pertain to payables to BIR, SSS, HDMF, and PhilHealth. Other payables consist of amounts due to internet service provider.
10. INCOME TAXES
The Group’s current income tax expense, which pertains to minimum corporate income tax (MCIT), amounted to P1.36 million, P0.11 million, and P0.08 million in 2019, 2018, and 2017, respectively.
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:
2019 2018 2017
Tax on pretax loss at 30% (P 10,060,195) ( P 2,015,891) ( P 80,678,919 ) Adjustments for income subjected to lower tax rates ( 10,162,793) ( 12,226,185) ( 8,180,570 ) Tax effect of: Application of unrecognized NOLCO ( 9,467,806 ) - - Equity share in net losses of associate 15,508,991 5,294,353 97,454,542 Unrecognized deferred tax asset 12,908,654 9,405,055 - Nondeductible expenses 2,631,845 2,306,823 1,968,478 Deductible share issuance cost - ( 2,651,192 ) - Reversal of previously unrecognized deferred tax assets - - ( 6,921,016 ) Other income not subjected to corporate tax - - ( 3,562,926 )
P 1,358,696 P 112,963 P 79,589
The Group recognized a deferred tax asset from NOLCO which amounted to P1.39 million and P14.60 million as at December 31, 2018 and 2017, respectively, to the extent of the deferred tax liability recognized in respect to unrealized foreign exchange gains. Neither deferred tax asset nor deferred tax liability were recognized in 2019.
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The Group has not recognized the related deferred tax assets of the following temporary differences as management believes that it is not probable that the Group can utilize the related net tax benefits:
2019 2018 2017
Allowance for impairment loss on receivables P 101,974,375 P 92,333,308 P 92,333,308 NOLCO 6,895,346 8,347,340 5,487,272 Unrealized foreign exchange loss 1,908,891 - - MCIT 1,551,248 1,099,470 1,221,365 Allowance for impairment losses on input VAT 1,318,353 1,318,353 1,318,353
Net unrecognized deferred tax assets P 113,648,213 P 103,098,471 P 100,360,298
The details of NOLCO as of December 31, 2019, which can be claimed as deduction against future taxable income, and their respective prescriptive period are as follows:
Year Original Remaining Valid Incurred Amount Applied Balance Until
2018 P 32,392,843 ( P 9,408,357 ) P 22,984,486 2021 2017 22,150,997 ( 22,150,997 ) - 2020
P 54,543,840 ( P 31,559,354) P 22,984,486
The details of the Group’s MCIT, which can be claimed as deduction against future corporate tax liabilities as follows:
Year Original Remaining Valid Incurred Amount Expired Balance Until
2019 P 1,358,696 P - P 1,358,696 2022 2018 112,963 - 112,963 2021 2017 79,589 - 79,589 2020 2016 906,918 ( 906,918 ) - 2019
P 2,458,166 ( P 906,918) P 1,551,248
11. RELATED PARTY TRANSACTIONS
The Group’s related parties include its associates, the Group’s key management personnel and others as described in Note 2.16. The summary of the Group’s transactions and outstanding balances with its related parties follows:
Amount of Transaction Outstanding Balance Notes 2019 2018 2017 2019 2018
Associate: Interest-bearing loan 5.3, 11.1 (P 37,029,041) P 12,074,602 P 51,294,172 P 37,482,274 P 74,511,305 Interest Income 5.3, 11.1 4,651,704 5,078,138 15,615,895 6,300,999 2,802,802 Investment in preferred shares 8 ( 199,687,585) ( 14,703,512) 290,924,523 - 199,687,585
Others: Advances 11.2 3,911,552,876 964,863 - 3,912,517,739 964,863 Interest on advances 11.2 63,042,899 - - 63,042,899 - Short-term receivables 5.1 ( 761,884,765) ( 306,982,151) 40,758,286 - 761,884,766 Key management personnel 11.3 2,400,000 9,100,000 8,400,000 - -
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11.1 Loans to Associate
The Group has been granting various unsecured foreign currency denominated interest-bearing loans to its associate for its working capital requirements. As at December 31, 2019 and 2018, the outstanding receivable from Acentic amounted to P37.48 million and P74.50 million, respectively, and is shown under the Receivables account in the consolidated statements of financial position of the Group (see Note 5.3).
In 2019, a portion of the foreign currency denominated interest-bearing loans is assessed by the management for expected credit losses based on the days past due (see Notes 5.3 and 15.2).
Interest income on these loans amounted to P5.08 million and P4.65 million in 2019 and 2018, respectively are presented as part of Interest Income account under the Other Income (Charges) section in the consolidated statements of comprehensive income. The outstanding interest receivable amounted to P6.30 million and P2.80 million as of December 31, 2019 and 2018, respectively, and is presented as part of the Receivables account in the consolidated statements of financial position.
11.2 Cash Advances to Affiliates
The Group grants cash advances to its related parties under common ownership for working capital requirements and other purposes. The advances in 2019 are subject to 3% interest rate per annum (noninterest-bearing for 2018), unsecured and payable in cash on demand. In 2019, the Group granted Udenna Corporation, Chelsea Logistics and Infrastructure Holdings Corporation, and Chelsea Shipping Corporation advances amounting to P3,546.15 million, P332.40 million, and P33.0 million, respectively. Interest earned on these advances in 2019, which is presented as part of Interest Income in the 2019 consolidated statement of comprehensive income, amounted to P63.04 million. The outstanding balance, including the accrued interest, amounted to P3,974.60 million and P1.0 million as of December 31, 2019 and 2018 and is presented as part of Receivables account in the consolidated statements of financial position. Out of the P3,911.55 million principal amount, P215.0 million of which is assigned to a related party under common ownership to accommodate a loan facilities agreement (see Note 14.2).
Management has determined that there is no impairment loss to be provided from the aforementioned advances as of December 31, 2019.
11.3 Key Management Compensation
Key management compensation amounting to P2.4 million, P9.1 million and P8.4 million in 2019, 2018 and 2017, respectively, are presented as part of Salaries and Administrative account under Expenses section in the consolidated statements of comprehensive income.
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12. EQUITY
12.1 Capital Stock
Capital stock consists of:
Shares Amount 2019 2018 2017 2019 2018 2017
Common shares – P1 par value Authorized – 2,800,000,000 shares Issued: Balance at beginning of year 2,800,000,000 1,916,269,341 1,916,269,341 P 2,800,000,000 P 1,916,269,341 P 1,916,269,341 Issued during the year - 883,730,659 - - 883,730,659 -
Balance at end 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
Treasury shares: Balance at beginning of year - 841,945,107 841,945,107 P - P 1,279,786,026 P 1,279,786,026 Reissued during the year - ( 841,945,107 ) - - ( 1,279,786,026 ) -
Balance at end of year - - 841,945,107 P - P - P 1,279,786,026
On August 15, 2018, the BOD approved the subscription by Dennison Holdings Corporation to all of the Parent 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, 25.00% of which is payable upon subscription and the 75.00% balance no later than the end of 2018. Such subscription is equivalent to 45.00% of the resulting outstanding capital stock of the Group. The total amount of subscription price was received as of December 31, 2018 and the proceeds is presented as part of Cash on hand under the Cash and Cash Equivalent account in the 2018 consolidated statement of financial position (see Note 4). The related stock issuance cost amounting to P8.84 million were deducted from additional paid-in capital.
On December 10, 2019, the BOD and stockholders approved the plan to increase the authorized capital stock of the Parent 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 consolidated financial statements, the proposed amendments were not yet submitted to the SEC.
12.2 Treasury Shares
On November 28, 2014, the BOD of the Parent 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 Group are 716,216,156 common shares as of December 31, 2015.
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On January 26, 2016, the BOD of the Parent Company 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 BOD, Eligible Shareholders were entitled to buy one treasury share for every two common shares held as of February 5, 2016 at a price of P1.00 per share. The offer period of the sale began last February 9, 2015 and ended last March 15, 2016. The Group successfully concluded the sale of the safe shares and were successfully transferred to the participating shareholders via the facilities of the PSE on March 21, 2016. As a result, the remaining treasury shares as of December 31, 2017 and 2016 is 841,945,107.
On August 15, 2018, the BOD approved the proposed sale of the Group’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, 25.00% of which is payable upon execution of the deed of assignment and the 75.00% shall be payable no later than the end of the year. The agreement further provides that both parties shall agree when to transact the transfer of treasury shares through the facilities of PSE. As at December 31, 2018, the date of transfer has not been agreed yet by both parties. However, the total purchase price was collected as of December 31, 2018 (see Note 4). 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.
12.3 Revaluation Reserves
The components and reconciliation of items of other comprehensive income presented in the consolidated statement of changes in equity at their aggregate amount under Revaluation Reserves account are shown below.
Share in Unrealized Other Fair Value Accumulated Comprehensive Gains Translation Loss of an or Losses Adjustment Associate Total
Balance as of January 1, 2019 ( P 229,142,562) ( P 2,313,263 ) ( P 2,098,370 ) ( P 233,554,195 ) Total comprehensive income (losses) for the year ( 118,449,542) 214,087 ( 2,050,957 ) ( 120,286,413 )
Balance as of December 31, 2019 (P 347,592,105 ) ( P 2,099,176 ) ( P 4,149,327 ) ( P 353,840,608 )
Balance as of January 1, 2018 As previously reported ( P 2,406,848) ( P 5,674,352 ) P - ( P 8,081,200 ) Effects of adoption of PFRS 9 ( 208,162,232) - - ( 208,162,232 ) As restated ( 210,569,080) ( 5,674,352 ) - ( 216,243,432 ) Total comprehensive income (losses) for the year ( 18,573,482 ) 3,361,089 ( 2,098,370 ) ( 17,310,763 )
Balance as of December 31, 2018 (P 229,142,562 ) ( P 2,313,263 ) ( P 2,098,370 ) ( P 233,554,195 )
Balance as of January 1, 2017 (P 71,849,367) ( P 5,831,688 ) P - ( P 77,681,055 ) Share in the cumulative other comprehensive loss of an associate reclassified to retained earnings 71,579,309 - - 71,579,309 Total comprehensive income (losses) for the year ( 2,136,790 ) 157,336 - ( 1,979,454 )
Balance as of December 31, 2017 (P 2,406,848 ) ( P 5,674,352 ) P - ( P 8,081,200 )
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13. LOSS PER SHARE
Loss per share is computed as follows:
2019 2018 2017
Loss for the year ( P 34,892,678 ) ( P 6,832,601 ) ( P 269,009,318) Divided by weighted number of outstanding common shares 2,800,000,000 970,606,139 1,074,324,594
Loss per share ( P 0.0125 ) ( P 0.0070 ) (P 0.2504 )
14. COMMITMENTS AND CONTINGENCIES
The following are the significant commitments and contingencies involving the Group:
14.1 Operating Lease Commitments – Group as Lessee
The Group is a lessee under non-cancellable operating lease agreements covering certain offices and parking slots. The leases have terms ranging from one to four years, with renewal options, and include annual escalation rate of 5.00%. Upon adoption of PFRS 16 as at January 1, 2019, the remaining lease term of these leases are less than 12 months due to pre-termination and the Group elected to account these using practical expedient available for short-term leases and the use of hindsight. The future minimum lease payments under these non-cancellable operating leases as of December 31, 2018 are as follows:
Less than one year P 641,064 Between one and five years 400,080
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 offcies 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 amounted to P0.81 million, P0.79 million and P0.81 million for the years ended December 31, 2019, 2018 and 2017, respectively.
14.2 Assignment of Receivables
On September 12, 2019, the BOD approved the assignment of the Group’s receivables from Chelsea Logistics and Infrastructure Holdings Corp., 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.
EDHL desires to secure a $130,000,000 credit accommodation in the form of a facilities agreement (Agreement) between itself, as borrower, certain stockholders, as personal guarantors, and Madison Pacific Trust Limited, as agent. The Agreement contemplates the execution and implementation of certain security arrangements as security for the payment of the secured liabilities which include the Group’s receivables.
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14.3 Investment Management Agreement
In 2015, the Parent Company entered into an IMA whereby the Parent Company availed the services of a trustee bank (investment manager) relative to the management and investment of funds amounting to P351.0 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 Parent Company. The agreement further clarified that it is an agreement of agency whereby, the legal title to the Fund should retain to the Parent Company. Accordingly, each financial instruments in the portfolio of investments shall be recorded directly in the books of the Parent 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 Parent Company’s existing IMAs with Security 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) section in the 2019 consolidated statement of comprehensive income. Proceeds from such transaction were directed to the Parent Company’s other bank account (see Note 4).
14.4 Others
There are other commitments and contingent liabilities that may arise in the normal course of the Group’s operations which are not reflected in the consolidated financial statements. As of December 31, 2019 and 2018, management is of the opinion that losses, if any, from these commitments and contingencies will not have material effects on the Group’s consolidated financial statements at the end of the reporting period.
15. RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group is exposed to a variety of financial risks in relation to financial instruments. The Group’s financial assets and financial liabilities by category are summarized in Note 16. The main types of risks are market risk, credit risk and liquidity risk.
The BOD has overall responsibility for the establishment and oversight of the Group’s risk management framework. The BOD has established the Executive Committee, which is responsible for developing and monitoring the Group’s risk management policies. The committee identifies all issues affecting the operations of the Group and reports regularly to the BOD on its activities.
The Group 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 Group is exposed to are described in the succeeding pages.
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15.1 Market Risk
The Group is exposed to market risk through its use of financial instruments and specifically to foreign currency risk, interest rate risk and certain other price risk which result from both its investing and financing activities.
(a) Foreign Currency Risk
Most of the Group’s transactions are carried out in Philippine pesos, its functional currency. To mitigate the Group’s exposure to foreign currency risk, non-Philippine peso cash flows are monitored.
In 2019 and 2018, 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). Further, the Group has also U.S. dollar-denominated cash and cash equivalents.
Foreign currency-denominated financial assets, translated into Philippine pesos at the closing rate are as follow:
2019 2018 U.S. U.S. Dollar Euro Dollar Euro
Financial assets P 1,054,598 P 76,279,624 P 343,216,630 P 82,153,683 Financial liabilities - - ( 25,388 ) -
Net exposure P 1,054,598 P 76,279,624 P 343,191,242 P 82,153,683
The table below illustrates the sensitivity of the Group’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.
2019 2018 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
PhP - USD 13.65% P 143,953 P 100,767 11.14% P 38,231,504 P 26,762,053 PhP - EUR 17.91% 13,661,681 9,563,177 23.93% 19,659,376 13,761,563
P 13,805,634 P 9,663,944 P 57,890,880 P 40,523,616
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 Group’s currency risk.
(b) Interest Rate Risk
The Group’s policy is to minimize interest rate cash flow risk exposures on long-term financing. As at December 31, 2019 and 2018, the Group has no outstanding long-term borrowings. The Group is exposed to changes in market interest rates through its cash and cash equivalents and short-term receivables, which are subject to variable interest rates (see Notes 4 and 5). All other financial assets and liabilities have fixed rates.
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The table below illustrates the sensitivity of the Group’s income before tax and equity to a reasonably possible change in interest rates of +/- 1.40% for Philippine peso, +/- 1.76% and +/- 1.62% for U.S. dollar, and +/- 1.39% and +/- 1.30% for Euro in 2019 and 2018, respectively. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at the end of each reporting period that are sensitive to changes in interest rates. All other variables are held constant.
2019 2018 + 140/ 176/ 139 - 140/ 176/ 139 + 140/ 162/ 130 - 140/ 162/ 130
Profit before tax P 68,811 (P 68,811) P 27,784,481 (P 27,784,481 ) Equity 48,168 ( 46,168 ) 19,449,137 ( 19,449,137 )
(c) Other Price Risk
The Group’s market price risk arises from its financial assets at FVOCI. The Group 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 Group’s investment securities and their impact on the Group’s income before tax and equity as at December 31, 2019 and 2018 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.
Observed Volatility Rates Impact of Increase on Impact of Decrease on Other Other Comprehensive Comprehensive Income Before Income Before Increase Decrease Tax Equity Tax Equity December 31, 2019 Equity securities 70.04% -70.04% P 69,016,044 P 48,311,231 ( P 69,016,044 ) ( P 48,311,231 )
December 31, 2018 Debt securities: Government bonds 17.10% -17.10% P 34,555,120 P 24,188,584 ( P 34,555,120 ) ( P 24,188,584 ) Corporate bonds 36.87% -36.87% 21,988,582 15,392,007 ( 21,988,582 ) ( 15,392,007 ) Equity securities 113.95% -113.95% 110,648,851 77,454,196 ( 110,648,851 ) ( 77,454,196 )
P 167,192,553 P 117,034,787 ( P 167,192,533 ) ( P117,034,787)
In accordance with the Group’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 Group’s favor.
15.2 Credit Risk
Credit risk is the risk that a counterparty may fail to discharge an obligation to the Group. The Group is exposed to this risk for various financial instruments arising from placing deposits with banks and investing in debt securities that are carried at FVOCI.
The Group continuously monitors defaults of counterparties, identified either individually or by group, and incorporate this information into its credit risk controls. The Group’s policy is to deal only with creditworthy counterparties. In addition, for a significant proportion of advance payments are received to mitigate credit risk.
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The maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown in the consolidated statement of financial position or in the detailed analysis provided in the notes to the consolidated financial statements, as summarized below.
Notes 2019 2018
Cash and cash equivalents 4 P 4,589,910 P 2,871,653,216 Receivables - net 5 4,019,629,108 845,235,579 Financial assets at FVOCI – Debt Securities 8 - 261,720,492
P 4,024,219,018 P 3,978,609,287
(a) Cash and cash equivalents
The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. Included in the cash and cash equivalents are cash in banks and short-term placements which are insured by the Philippine Deposit Insurance Corporation up to a maximum coverage of P0.50 million for every depositor per banking institution.
(b) Receivables
In 2019 and 2018, the Group applies the simplified approach using a provision matrix in measuring ECL which uses a lifetime expected credit loss allowance for its receivables. To measure the ECL, receivables have been grouped based on shared credit risk characteristics and the days past due. The modified loss rates are calculated based on the payment profiles of interest over a period of 36 months before December 31, 2019 and 2018, and the corresponding modified credit losses experienced within such period. The modified loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The Company has identified the inflation rate where the debtor is located to be the most relevant factor, and accordingly adjusts the modifed loss rates based on expected significant changes in these factors.
On that basis, the loss allowance for the notes receivable as at December 31, 2019, in addition to the existing loss allowance amounting to P307.8 million was determined based on days past due. In 2018 and prior years, no impairment was recognized since there have been no defaults (see Note 5.3).
Modified loss rate 46.16% Gross carrying amount P 69,619,165 Loss allowance 32,136,890
In measuring the ECL for its advances to related parties, which are repayable on demand, the Group based the expected credit loss allowance based on the related parties’ ability to repay the advances upon demand at the reporting date taking into consideration historical defaults from the related parties. Management assessed that the outstanding receivables from affiliates as of December 31, 2019 and 2018 are recoverable since these related parties have the capacity to pay the advances upon demand. Accordingly, no impairment losses were recognized as of the end of the reporting periods.
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(c) Debt Securities
In 2018, debt securities measured at FVOCI are considered to have low credit risk, and therefore, the loss allowance during the period is determined to be equivalent to 12 months ECL. Management considers “low credit risk” for listed bonds to be an investment grade credit rating with at least one major rating agency. Other instruments are considered to be low credit risk when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term. In 2019, all debt securities measured at FVOCI have been disposed.
15.3 Liquidity Risk
The Group 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 Group 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, 2019 and 2018, the Group’s financial liabilities, which pertain to accrued expenses and other payables, amounting to P0.51 million and P0.94 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.
16. CATEGORIES AND OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
16.1 Carrying Amounts and Fair Values by Category
The carrying amounts and fair values of the categories of financial assets and financial liabilities presented in the consolidated statement of financial position are shown below.
2019 2018 Notes Carrying Values Fair Values Carrying Values Fair Values Financial Assets At amortized cost: Cash and cash equivalents 4 P 4,589,910 P 4,589,910 P 2,871,653,216 P2,871,653,216 Receivables - net 5 4,019,629,108 4,019,629,108 845,235,579 845,235,579 P 4,024,219,018 P4,024,219,018 P 3,716,888,795 P3,716,888,795
Financial assets at FVOCI: Debt securities 8 - - 261,720,492 261,720,492 Equity securities 8 101,173,928 101,173,928 301,993,504 301,993,504 101,173,928 101,173,928 563,713,996 563,713,996
P 4,062,350,047 P4,062,350,047 P 4,280,602,791 P4,280,602,791
Financial Liabilities At amortized cost – Accrued expenses and other payables 9 P 513,384 P 513,384 P 938,042 P 938,042
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See Notes 2.4 and 2.6 for the description of the accounting policies for each category of financial instruments including the determination of fair values. A description of the Group’s risk management objectives and policies for financial instruments is provided in Note 15.
16.2 Offsetting of Financial Assets and Financial Liabilities
The Group has not set-off financial instruments in 2019 and 2018 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, 2019 and 2018.
17. FAIR VALUE MEASUREMENT AND DISCLOSURES
17.1 Fair Value Hierarchy
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.
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.
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When the Group 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 Group 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.
17.2 Financial Instruments Measurement at Fair Value
The table as follows shows the fair value hierarchy of the Group’s financial assets measured at fair value through other comprehensive income in the consolidated statements of financial position on a recurring basis as of December 31, 2019 and 2018.
Level 1 Level 2 Level 3 Total
December 31, 2019 Equity securities P 98,543,233 P - P 2,630,695 P 193,962,080
December 31, 2018 Debt securities P 261,720,492 P - P - P 261,720,492 Equity securities 97,101,137 - 204,892,367 301,993,504
P 358,821,629 P - P 204,892,367 P 563,713,996
The fair values of equity securities classified as financial assets at FVOCI as of December 31, 2019 and 2018 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 net asset value method or dividend growth model.
In 2019, the valuation technique for the determination of the Level 3 fair value of a certain unquoted equity securities classified as financial assets at FVOCI is changed to adjusted net asset method from the prior year method of discounted cash flow as the expected cash flows which was previously available is no longer available during the year. Increase or decrease in the net asset value would result in higher or lower fair values, all else equal. In 2018, the Group has used the discounted cash flow method applying a discount rate of 6.94% to determine the present value of future cash flows from dividends or redemption expected to be received from the instrument.
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A reconciliation of the carrying amounts of Level 3 equity securities classified as financial assets at FVOCI at the beginning and end of 2019 and 2018 is shown below.
Preferred Common 2019 Balance at beginning of year P 199,687,585 P 5,204,782 Fair value losses – net ( 145,416,186 ) - Absorption of share in net losses ( 51,199,064 ) - Foreign currency losses ( 3,072,335 ) ( 2,574,088)
Balance at end of year P - P 2,630,694
2018 Balance at beginning of year P 195,511,578 P 1,999,950 Fair value losses – net ( 20,472,136 ) - Absorption of share in net losses ( 14,703,512 ) - Foreign currency gains (losses) ( 1,592,617 ) ( 3,204,832)
Balance at end of year P 199,687,585 P 5,204,782
The Group has no financial liabilities measured at fair value as of December 31, 2019 and 2018.
There were neither transfers between Levels 1 and 2 nor changes in Level 3 instruments during the year.
17.3 Financial Instruments Measured at Amortized Cost for which Fair Value is Disclosed
The table below and in the succeeding page summarizes the fair value hierarchy of the Group’s financial assets and financial liabilities which are not measured at fair value in the consolidated statement of financial position but for which fair value is disclosed.
Level 1 Level 2 Level 3 Total
December 31, 2019
Financial assets: Cash and cash equivalents P 4,589,910 P - P - P 4,589,910 Receivables - net - - 4,019,629,108 4,019,629,108
P 4,589,910 P - P 4,019,629,108 P 4,024,219,018
Financial liabilities - Accrued expenses and other payables P - P - P 513,384 P 513,384
December 31, 2018
Financial assets: Cash and cash equivalents P 2,871,653,216 P - P - P 2,871,653,216 Receivables - net - - 845,235,579 845,235,579
P 2,871,653,216 P - P 845,235,579 P 3,716,888,795
Financial liabilities - Accrued expenses and other payables P - P - P 938,042 P 938,042
For financial assets and financial liabilities, other than investment securities at amortized cost, with fair values included in Levels 1 and 3, management considers that the carrying amounts of those short-term financial instruments approximate their fair values.
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18. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES
The Group’s capital management objectives are to ensure the Group’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 Group monitors capital on the basis of the carrying amount of equity as presented in the consolidated statement of financial position. Capital for the reporting periods under review is summarized as follows:
2019 2018
Total liabilities P 2,055,520 P 1,438,593 Total equity 4,130,595,033 4,285,774,124
Debt-to-equity ratio 0.0005 : 1.00 0.0003 : 1.00
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 Group’s external environment and the risks underlying the Group’s business operations and industry.
BOD uses debt-to equity ratio to monitor and review, on a regular basis, the Group’s capital, defined as total equity includes capital stock, additional paid-in capital, revaluation reserves and retained earnings, net of treasury stock as shown in the consolidated statement of financial position.
19. EVENT AFTER THE END OF THE REPORTING PERIOD
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in China. The World Health Organization has declared the outbreak as a ‘public health emergency of international concern’. COVID-19 started to become widespread in the Philippines in early March 2020 causing the government to declare the country in a state of public health emergency followed by implementation of enhanced quarantine and social distancing measures and restrictions within the Luzon area with other cities and provinces in the country enacting similar measures thereafter. This resulted in a wide-ranging business suspension – disrupting the supply chains, affecting production and sales across a range of industries, and weakening the stock market.
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While the disruption is currently expected to be temporary, management expects that it will negatively impact the financial performance of the Group and its related parties for 2020 and potentially even future periods that are evidently affected by the pandemic, specifically its associate located in a heavily affected location. Management further expects material negative impact on the recoverability of its notes receivable from its associate and fair value of its equity securities in the said associate. However, the severity of these consequences will depend on certain developments, including the duration and spread of the outbreak, development and deployment of a vaccine, impact on the Group and its related parties’ customers, suppliers, employees, and the accessibility and effectiveness of government support programs, all of which are uncertain and cannot be predicted as of the date of the issuance of the Group’s consolidated financial statements. Accordingly, management is not able to reliably quantify the impact of the outbreak on the Group’s financial position and results of operation for future periods aside from the decrease in the share price for one of the Group’s financial assets at FVOCI, through the facilities of PSE, was known. As of the date the consolidated financial statements were authorized for issue and December 31, 2019, the share price is at P16 per share and P20.5 per share, respectively, presenting a 22% decrease in the share price or a potential decrease of P21.63 million to the Company’s comprehensive income.
In support and compliance with the government measures to protect the welfare and interest of the Parent Company’s employees and stakeholders, including its counterparties, the Parent Company has implemented safety measures and activated its business continuity procedures. These measures include work from home arrangements for employees and continuous communication with stakeholders, and counterparties through online meetings and email communications. The Parent Company has also implemented cost-saving initiatives and adjusted spend plans. Management believes that these measures can mitigate the further negative impact, if any, of COVID-19 to the Company’s business and to its financial condition and performance
The Parent Company has determined that this event is a non-adjusting subsequent events. Accordingly, their impact was not reflected in the Group’s consolidated financial statements as of and for the year ended December 31, 2019.
DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation and Subsidiaries) List of Supplementary Information December 31, 2019
Schedule Content Page No.
Schedules Required under Annex 68-J of the Revised Securities Regulation Code Rule 68
A Financial Assets 1
B Amounts Receivable from Directors, Officers, Employees, Related Parties, and Principal Stockholders N/A (Other than Related Parties)
C Amounts Receivable from Related Parties which are Eliminated during the Consolidation of Financial 2 Statements
D Long-term Debt N/A
E Indebtedness to Related Parties N/A
F Guarantees of Securities of Other Issuers N/A
G Capital Stock 3
Others Required Information
Reconciliation of Retained Earnings Available for Dividend Declaration 4
Map Showing the Relationship Between the Company and its Related Entities 5 - 1 - DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation and Subsidiaries) Schedule A - Financial Assets December 31, 2019 (Amounts in Philippine Pesos)
Number of shares of Amount shown in statement financial Value based on market quotation at end Name of Issuing entity and assocation of each issue principal amount of bonds Income received and accrued position of reporting period and notes
Financial Assets at Amortized Cost
Cash and cash equivalents P 4,589,910 P 4,589,910 P 14,276,964 Receivables - net 4,019,629,108 4,019,629,108 81,475,026
4,024,219,018 4,024,219,018 95,751,990
Financial Assets at FVOCI - Equity
Philippine Bank of Communications 4,806,987.00 98,543,233 98,543,233 - Acentic Holdings Limited - Preferred Shares 4,150,682.00 - - - Alpha Force Security Agency 19,999.00 2,630,694 2,630,694 -
101,173,927 101,173,927 -
Financial Assets at FVOCI - Debt - - 5,818,590
Grand total P 4,125,392,945 P 4,125,392,945 P 101,570,580 - 2 - DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation and Subsidiaries) Schedule C - Amounts Receivable from Related Parties which are Eliminated During the Consolidation of Financial Statements December 31, 2019 (Amounts in Philippine Pesos)
Deductions Ending Balance
Balance at beginning Amounts provided Balance at end of Name and designation of debtor Additions Amounts collected Current Non-Current of period with allowance period
Receivables Wagas Consultants Limited P 1,028,803,751 ( P 46,551,246 ) - P 982,252,505 P 982,252,505 - P 982,252,505 Host Union International Limited 159,068 38,744 - - 197,812 - 197,812 ISM Equities Corporation 170,250 35,257 - - 205,507 - 205,507
P 1,029,133,070 ( P 46,477,246 ) - P 982,252,505 P 982,655,824 - P 982,655,824 - 3 - DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation and Subsidiaries) Schedule G - Capital Stock December 31, 2019 (Amounts in Philippine Pesos)
Number of shares held by Number of shares issued and Number of shares reserved for Number of shares outstanding as shown under Directors, officers and Title of Issue options, warrants, conversion Related parties Others authorized the related balance sheet employees (A) and other rights caption Common shares - P1 par value Issued and outstanding 2,800,000,000 1,167,332,471 1,632,667,529 Outstanding 1,958,054,893
A: This represents shares held by the following directors: Dennis A. Uy - Chairman, President & CEO 618,621,461 Cherylyn C. Uy 265,129,198 Eric O. Recto 234,378,710 Ignacia S. Braga IV 1,000 Adel A. Tamano 1 Raouf A. Kizilbash 1 Luis Y. Benitez 100 Gregorio T. Yu 49,201,000 Francis Chua 1,000
1,167,332,471 - 4 - DITO CME HOLDINGS CORP. (Formerly ISM Communications Corporation) 21st Floor, Udenna Tower, Rizal Drive corner 4th Avenue, Bonifacio Global City, Taguig City, 1634 Reconciliation of Retained Earnings Available for Dividend Declaration For the Year Ended December 31, 2019 (Amounts in Philippine Pesos)
Unappropriated Retained Earnings Available at Beginning of Year, as Reported in the Audited Financial Statements P 655,449,203
Net Income Realized during the Year Net income per audited financial statements 17,765,608 Impairment loss 32,136,891 Unrealized foreign currency exchange loss 5,401,321 55,303,820
Unappropriated Retained Earnings Available for Dividend Declaration at End of Year P 710,753,023 - 5 - DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation and Subsidiaries) Map showing the relationship between and among DITO CME Holdings Corp. and its related parties December 31, 2019
DITO CME Holdings Corp. (Formerly ISM Communications Corporation)
ISM Equities Corporation* Wagas Consultants Limited* (100%) (100%)
Host Union International Limited* (100%)
Acentic Holdings Limited** (32.5%) Legend: * Subsidiary ** Associate DITO CME HOLDINGS CORP. AND SUBSIDIARIES (Formerly ISM Communications Corporation and Subsidiaries) Annex 68-E - Schedule of Financial Soundness Indicators December 31, 2019 (Amounts in Philippine Pesos)
Ratio Formula 2019 2018 Total Current Assets divided by Total Current Liabilities
Total Current Assets 3,993,969,084 3,648,883,157 Current ratio Divide by: Total Current Liabilities 2,055,520 1,438,593 Current ratio 1,943 2,536
Quick assets (Total Current Assets less Inventories and Other Current Assets) divided by Total Current Liabilities
Total Current Assets 3,993,969,084 3,648,883,157 Acid test ratio Other Current Assets (7,232,340) (6,505,667) Quick Assets 3,986,736,744 3,642,377,490 Divide by: Total Current Liabilities 2,055,520 1,438,593 Acid test ratio 1,940 2,532
Total Liabilities divided by Total Assets
Total Liabilities 2,055,520 1,438,593 Solvency ratio Divide by: Total Assets 4,132,650,553 4,287,212,717 Solvency ratio 0.0005 0.0003
Total Liabilities divided by Total Equity
Debt-to-equity Total Liabilities 2,055,520 1,438,593 ratio Divide by: Total Equity 4,130,595,033 4,285,774,124 Debt-to-equity ratio 0.0005 0.0003
Total Assets divided by Total Equity
Assets-to-equity Total Assets 4,132,650,553 4,287,212,717 ratio Divide by: Total Equity 4,130,595,033 4,285,774,124 Assets-to-equity ratio 1 1
Earnings (losses) before interest and taxes (LBIT) divided by Interest expense Interest rate EBIT (LBIT) (33,533,982) (6,719,638) coverage ratio* Divide by: Interest expense - - Interest rate coverage ratio N/A N/A
Net Loss divided by Total Equity
Net Loss (34,892,678) (6,832,601) Return on equity Divide by: Total Equity 4,130,595,033 4,285,774,124 Return on equity (0.0084) (0.00159)
Net Loss divided by Total Assets
Net Loss (34,892,678) (6,832,601) Return on assets Divide by: Total Assets 4,132,650,553 4,287,212,717 Return on assets (0.0084) (0.0016)
Net Loss divided by Total Revenue
Net profit Net Loss (34,892,678) (6,832,601) margin** Divide by: Total Revenue - - Net profit margin N/A N/A
*The Company did not incur any interest expense in 2019 and 2018. **The Companyy did not earn any revenue in 2019 and 2018
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ANNEX: SUSTAINABILITY REPORT
Contextual Information
Company Details
Name of Organization Dito CME Holdings Corp. (Formerly: ISM Communications Corporation)
st th Location of Headquarters 21 Floor, Udenna Tower, Rizal Drive corner 4 Avenue, Bonifacio Global City, Taguig City
st th Location of Operations 21 Floor, Udenna Tower, Rizal Drive corner 4 Avenue, Bonifacio Global City, Taguig City
Report Boundary: Legal entities Dito CME and its subsidiaries, namely: Acentic (e.g. subsidiaries) included in Philippines, Inc. and ISM Equities Corporation this report*
Business Model, including Holding Company Primary Activities, Brands, Products, and Services
Reporting Period 1 January to 31 December 2019
Highest Ranking Person Dennis A. Uy responsible for this report
Materiality Process
Explain how you applied the materiality principle (or the materiality process) in identifying your material topics.
DITO CME Holdings Corp. (Formerly: ISM Communications Corporation) (“Dito CME”), being a holding company, generally does not have operations other than those of its two Philippines subsidiaries, Acentic Philippines, Inc. (“API”) and ISM Equities Corporation (“ISMEC”). As such, this report will cover initiatives and activities of its two subsidiaries and the support given by Dito CME to them. This report will only cover data from January- December 2019.
As this is Dito CME’s first Sustainability Report, we are yet to set processes and systems to monitor some of the covered topics and statistics. For this reason, only limited statistics are presented in this Report on some topics. Rest assured that the Dito CME Group is working toward good sustainability and process improvements.
2 ECONOMIC
Economic Performance Direct Economic Value Generated and Distributed COMBINED FOR PARENT AND SUBS
Disclosure Amount Units Direct economic value generated (revenue) 0 PhP Direct economic value distributed: a. Operating costs 7,854,455.00 PhP b. Employee wages and benefits 5,804,871.00 PhP c. Payments to suppliers, other operating costs 36,989,682.00 Php d. Dividends given to stockholders and interest 0 PhP payments to loan providers e. Taxes given to government 7,428,563.00 PhP f. Investments to community (e.g. donations, CSR) 0 PhP
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? The Group has distributed Suppliers Currently, the Company is a direct economic value from its holding company, however, the business operations and Group has a broad base of business expansion through suppliers and is not dependent on payments to suppliers and any one or a limited number of service providers. suppliers.
The Group has distributed Stockholders Currently, the Company remains to direct economic value through be a holding company. However, dividends given to the Group has strategic plans and stockholders. processes to ensure its operations meet its financial objectives and stockholder's expectations. In addition, the Group ensures that external financial audits are conducted.
The Group has distributed Employees The Group is committed to ensure direct economic value from its all employees are fairly business operations and compensated and given adequate pre-operating activities benefits. In addition, the Group is
3 through providing fair ensuring that it complies with all compensation and benefits to labor-related obligations required all its employees. by law and government regulations.
The Group has distributed Government The Group is committed to ensure direct economic value from its compliance of all tax obligations business operations through required by law and government tax payments to the regulations. government.
The Group has distributed Community The Group has plans and activities, direct economic value to the together with its related parties and community through its affiliates, as initiatives for the corporate social responsibility betterment of the communities. programs. What are the Risk/s Which stakeholders Management Approach Identified? are affected? The Group's operations can be Employees, Suppliers, The Company remains to be a affected by any changes in the Stockholders and holding company. Its operations laws, rules and regulations, Government are limited to holding investments. and other jurisdictions of the However, the Group ensures that government. compliance of all laws and regulations are regularly monitored and observed.
The Group's operations can be Employees, Suppliers, The Group has established affected by any force majeure Stockholders and contingency and crisis events such as natural Government management plans to mitigate the disasters, terrorist acts, crime, impact of any possible events to its warfare, outbreaks of infectious business operations. diseases and other uncontrollable events. What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected? Capitalize on growing Employees, Suppliers, The Group is well-positioned to opportunities in the planned Stockholders, capitalize on the rapid growth of expansion to communications, Government and the communications, media and media and entertainment Community entertainment, the favorable industries. macroeconomic fundamentals and the competitive cost in the Philippines.
4 Climate-related risks and opportunities Governance Strategy Risk Management Metrics and Targets
This Section is not applicable for the Group as there is no identified climate-related risk against it or its subsidiaries given the size of its operations.
Recommended Disclosures
Not Applicable Not Applicable Not Applicable Not Applicable
Procurement Practices Proportion of spending on local suppliers COMBINED
Disclosure Quantity Units Percentage of procurement budget used for significant 0 % locations of operations that is spent on local suppliers
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact?
The Group has distributed Suppliers Currently, the Company is a direct economic value from its holding company, however, the business operations and Group has a broad base of business expansion through suppliers and is not dependent on payments to suppliers and any one or a limited number of service providers. suppliers.
What are the Risk/s Which stakeholders Management Approach Identified? are affected?
The Group's operations can be Employees, Suppliers, The Group has established affected by any force majeure Stockholders and contingency and crisis events such as natural Government management plans to mitigate the disasters, terrorist acts, crime,
5 warfare, outbreaks of infectious impact of any possible events to its diseases and other business operations. uncontrollable events.
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected?
Capitalize on growing Customers, The Group is well-positioned to opportunities in the planned Employees, Suppliers, capitalize on the rapid growth of expansion to communications, Stockholders, the communications, media and media and entertainment Government and entertainment, the favorable industries. Community macroeconomic fundamentals and the competitive cost in the Philippines.
Anti-corruption Training on Anti-corruption Policies and Procedures COMBINED
Disclosure Quantity Units Percentage of employees to whom the organization’s 0 % anti corruption policies and procedures have been communicated to Percentage of business partners to whom the 0 % organization’s anti-corruption policies and procedures have been communicated to Percentage of directors and management that have 0 % received anti-corruption training Percentage of employees that have received 0 % anti-corruption training
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact?
The Group is governed by rules Employees and Board The Group is committed to observe in ensuring transparency in all of Directors and practice high standards of its business dealings. business and personal ethics in the conduct of their duties and responsibilities.
6 What are the Risk/s Which stakeholders Management Approach Identified? are affected?
Suppliers and third party Employees and Board The Group undergoes regular contractors may influence the of Directors audits to examine its overall conduct of the business business performance.
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected?
The Group recognized the Employees and Board The Group reviews these policies importance of clearly defined of Directors and procedures regularly and policies governing updates as necessary. anti-corruption, whistleblowing and related-party transactions.
Incidents of Corruption COMBINED
Disclosure Quantity Units Number of incidents in which directors were removed or 0 # disciplined for corruption Number of incidents in which employees were 0 # dismissed or disciplined for corruption Number of incidents when contracts with business 0 # partners were terminated due to incidents of corruption
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact?
The Group is continuously Employees, Board of The Group established access to committed to high standards of Directors, Stockholders information through regular reports disclosure, transparency, and and Annual Stockholders’ Meeting. accountability.
What are the Risk/s Which stakeholders Management Approach Identified? are affected?
None Not applicable Not applicable
7 What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected?
Improvement of current policies Employees and The Group is constantly developing officers and improving its current practices to ensure that it adapts to current events and conditions.
8 ENVIRONMENT Resource Management Energy consumption within the organization
COMBINED
Disclosure Quantity Units Energy consumption (renewable sources) 0 GJ Energy consumption (gasoline) 0 GJ Energy consumption (LPG) 0 GJ Energy consumption (diesel) 0 GJ Energy consumption (electricity) 45,982 kWh
Reduction of energy consumption COMBINED
Disclosure Quantity Units Energy reduction (gasoline) 0 GJ Energy reduction (LPG) 0 GJ Energy reduction (diesel) 0 GJ Energy reduction (electricity) 0 kWh Energy reduction (gasoline) 0 GJ
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? Not applicable None None
What are the Risk/s Which stakeholders Management Approach Identified? are affected?
Power interruptions/ failures Employees Ensure that the standby generator is in good running condition and that there is adequate fuel supply.
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected?
Not applicable None None
9 Water consumption within the organization COMBINED
Disclosure Quantity Units Water withdrawal 0 Cubic meters Water consumption 139 Cubic meters Water recycled and reused 0 Cubic meters
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? None Not applicable Not applicable
What are the Risk/s Which stakeholders Management Approach Identified? are affected? None Not applicable Not applicable
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected? None Not applicable Not applicable
Materials used by the organization COMBINED
Disclosure Quantity Units Materials used by weight or volume ● renewable 0 kg/liters ● non-renewable 0 kg/liters Percentage of recycled input materials used to 0 % manufacture the organization’s primary products and services
10 What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact?
The Company has no substantial operations, thus, minimal to no materials has been used by the organization. The Group will provide the relevant regulatory agencies with this information, as soon as business operations commence.
What are the Risk/s Which stakeholders Management Approach Identified? are affected?
None None None
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected?
None None None
Ecosystems and biodiversity (whether in upland/watershed or coastal/marine) COMBINED
Disclosure Quantity Units Operational sites owned, leased, managed in, or Not applicable adjacent to, protected areas and areas of high biodiversity value outside protected areas Habitats protected or restored Not applicable ha IUCN Red List species and national conservation list Not applicable species with habitats in areas affected by operations
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? None None None
What are the Risk/s Which stakeholders Management Approach Identified? are affected? None None None
11 What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected? None None None
Environmental Impact Management
Air Emissions GHG Disclosure Quantity Units Direct (Scope 1) GHG Emissions 0 Tonnes
CO2e Energy indirect (Scope 2) GHG Emissions 0 Tonnes
CO2e Emissions of ozone-depleting substances (ODS) 0 Tonnes
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? The Company has no substantial operations, thus, it has no impact on this sustainability topic. The Group will provide the relevant regulatory agencies with this information, as soon as soon as it ramps up its operations.
What are the Risk/s Which stakeholders Management Approach Identified? are affected?
None None None
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected?
None None None
12 Air Pollutants
Disclosure Quantity Units NOx 0 kg SOx 0 kg Persistent organic pollutants (POPs) 0 kg Volatile organic compounds (VOCs) 0 kg Hazardous air pollutants (HAPs) 0 kg Particulate matter (PM) 0 kg
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? The Company has no substantial operations, thus, minimal to no air pollutants has been used by the organization. The Group will provide the relevant regulatory agencies with this information, as soon as business as it ramps up its business operations.
What are the Risk/s Which stakeholders Management Approach Identified? are affected?
None None None
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected?
None None None
Solid Waste Disclosure Quantity Units Total solid waste generated 0 kg Reusable 0 kg Recyclable 0 kg Composted 0 kg Incinerated 0 kg Residuals/Landfilled 0 kg
13 What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? The Company just recently transferred its main office to a new building, the Udenna Tower, in 2019. Hence, there is no available data yet for solid waste generated.
What are the Risk/s Which stakeholders Management Approach Identified? are affected? None None None
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected? None None None
Hazardous Waste
Disclosure Quantity Units Total weight of hazardous waste generated 0 kg Total weight of hazardous waste transported 0 kg
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? The Company just recently transferred its main office to a new building, the Udenna Tower, in 2019. Hence, it has not yet generated hazardous waste.
What are the Risk/s Which stakeholders Management Approach Identified? are affected? None None None
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected? None None None
14 Effluents
Disclosure Quantity Units Total volume of water discharges 0 Cubic meters Percent of waste water recycled 0 %
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? The Company just recently transferred its main office to a new building, the Udenna Tower, in 2019. Hence, there is no available data yet for waste discharges and waste water recycled.
What are the Risk/s Which stakeholders Management Approach Identified? are affected? None None None
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected? None None None
Environmental compliance Non-compliance with Environmental Laws and Regulations Disclosure Quantity Units Total amount of monetary fines for non-compliance with 0 PhP environmental laws and/or regulations No. of non-monetary sanctions for non-compliance with 0 # environmental laws and/or regulations No. of cases resolved through dispute resolution 0 # mechanism
15 What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact?
Since the business of the Employees Management ensures that waste is Company is a holding company, properly segregated and disposed its environmental impact only of. Water and electricity lies with its water and electricity consumption are also closely consumption and waste monitored by the building disposal in its office premises. administration and maintenance staff.
What are the Risk/s Which stakeholders Management Approach Identified? are affected?
There are no environmental Not applicable Not applicable risks identified as the Company is compliant with all existing environmental laws and regulations.
What are the Opportunity/ies Which stakeholders Management Approach Identified? are affected?
There is an opportunity by the Not applicable Constant review of current policies Company to improve its current and processes to ensure practices through a more improvement, as necessary. inclusive environmental approach which focuses on employee involvement and participation.
16 SOCIAL Employee Management Employee Hiring and Benefits Employee data
Disclosure Quantity Units Total number of employees 11 a. Number of female employees 1 # b. Number of male employees 10 # Attrition rate 0 rate Ratio of lowest paid employee against minimum wage 0 ratio The Company’s total manpower complement includes the Board of Directors and an employee.
Employee benefits
List of Benefits Y/N % of female employees % of male employees who availed for the who availed for the year year
SSS Y 0% 10%
Philhealth N 0% 0%
Pag-ibig N 0% 0%
Parental leaves N 0% 0%
Vacation leaves Y 0% 10%
Sick leaves Y 0% 10%
Medical benefits (aside from N 0% 0% PhilHealth)
Housing assistance (aside from N 0% 0% Pag-ibig)
Retirement fund (aside from N 0% 0% SSS)
Further education support N 0% 0%
17 Company stock options N 0% 0%
Telecommuting N 0% 0%
Flexible-working Hours N 0% 0%
(Others) N 0% 0%
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact?
The Group ensures equitable and fair benefit The Management observes the mandate of packages to its employees and stakeholders. Labor laws and provides additional benefit on top of what was stated in the law ( i.e Vacation and Sick Leaves that are more than the legal requirement of Service Incentive Leaves)
What are the Risk/s Identified? Management Approach
No identified risk for this area. Not applicable
What are the Opportunity/ies Identified? Management Approach
The need to explore other benefits not Telecommuting and Flexible work hours are currently provided in the list above. areas that the Group recognizes to ensure continuity of work regardless of outbreaks of infectious diseases and other uncontrollable events. These are currently being studied for implementation.
Employee Training and Development Disclosure Quantity Units Total training hours provided to employees a. Female employees hours b. Male employees 28 hours Average training hours provided to employees a. Female employees hours/employee b. Male employees 28 hours/employee The training provided to the employee is geared towards Sales and Product Knowledge.
18
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact? The Group promotes continuous learning and The Group provides technical skills building growth among its employees. programs to improve competency on Sales and Product Knowledge of its employees.
What are the Risk/s Identified? Management Approach
Keeping abreast with the current The Group ensures that it is always up-to-date developments and latest information in the with the latest trends and information in the industry industry.
What are the Opportunity/ies Identified? Management Approach
The Group recognizes the need to develop a On-the Job training to practice the learning on more robust program to enhance skills and Sales and Product Knowledge is being utilized. competencies of the employees.
Labor-Management Relations
Disclosure Quantity Units % of employees covered with Collective Bargaining 0 % Agreements Number of consultations conducted with employees 0 # concerning employee-related policies
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact? The Group recognizes the need to listen and Through the Group’s Human Resources understand the welfare of its employees. Team, constant communication is being done to understand employees work requirements.
What are the Risk/s Identified? Management Approach
None None
19 What are the Opportunity/ies Identified? Management Approach
To attain a mutually beneficial relationship Open communication through the Group’s among and between its stakeholders. technology platform is highly encouraged.
Diversity and Equal Opportunity Disclosure Quantity Units % of female workers in the workforce 10 % % of male workers in the workforce 90 % Number of employees from indigenous communities 0 # and/or vulnerable sector* The above statistics is based on the number of Board of Directors and one male employee. *Vulnerable sector includes, elderly, persons with disabilities, vulnerable women, refugees, migrants, internally displaced persons, people living with HIV and other diseases, solo parents, and the poor or the base of the pyramid (BOP; Class D and E).
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact? The Group advocates diverse, inclusive and Hiring and board composition do not have any equal opportunity among its stakeholders. restrictions.
What are the Risk/s Identified? Management Approach
None None
What are the Opportunity/ies Identified? Management Approach
Further promotion of a culture of diversity and The Group does not discriminate upon by inclusion. reason of gender, age, disability, ethnicity, nationality or political, religious, or cultural backgrounds
20 Workplace Conditions, Labor Standards, and Human Rights Occupational Health and Safety
Disclosure Quantity Units Safe Man-Hours 2,504 Man-hours No. of work-related injuries 0 # No. of work-related fatalities 0 # No. of work related ill-health 0 # No. of safety drills 0 # The safe man-hours is computed based on one (1) employee working on site.
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact?
Compliance with existing laws and regulations The Group complies with occupational safety and health standards applicable to our business.
What are the Risk/s Identified? Management Approach
Failure to observe OHS guidelines may pose a The Group ensures that guidelines are being hazard to employee’s safety. followed by employees, most specially those working onsite.
What are the Opportunity/ies Identified? Management Approach
An opportunity to implement a management Conduct a regular review of our management system to ensure Occupational Health and system to ensure that the commitments of this Safety Compliance and Continuous policy are being delivered, and strive for Improvement. continual improvement.
Labor Laws and Human Rights
Disclosure Quantity Units No. of legal actions or employee grievances involving 0 # forced or child labor
Do you have policies that explicitly disallows violations of labor laws and human rights (e.g. harassment, bullying) in the workplace?
21 Topic Y/N If Yes, cite reference in the company policy Forced labor N Child labor N Human Rights N While the Group has no explicit policies on the sustainability topics above, it strongly disallows violation of labor law and human rights.
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact?
The Group is labor law compliant. The Management ensures zero forced-labor and strict policies to protect human rights.
What are the Risk/s Identified? Management Approach
Labor and human rights risks The Code of Conduct is being observed to mitigate our ethics and labor and human rights risks.
What are the Opportunity/ies Identified? Management Approach
To further educate the stakeholders on Labor The Group is looking at opportunities to Laws and Human Rights provide programs related to training on labor and human rights.
Supply Chain Management Do you have a supplier accreditation policy? If yes, please attach the policy or link to the policy: None – but we require suppliers to submit documentary requirements Do you consider the following sustainability topics when accrediting suppliers?
Topic Y/N If Yes, cite reference in the company policy Environmental Not applicable performance Forced labor Not applicable Child labor Not applicable Human rights Not applicable Bribery and corruption Not applicable
22
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact?
None Not applicable
What are the Risk/s Identified? Management Approach
None Not applicable
What are the Opportunity/ies Identified? Management Approach
None Not applicable
Relationship with Community Significant Impacts on Local Communities
Operations Location Vulnerable Does the Collective or Mitigating with significant groups (if particular individual measures (if (positive or applicable)* operation rights that negative) or negative) have have been enhanceme impacts on impacts on identified nt measures local indigenous that or (if positive) people particular communities (Y/N)? concern for (exclude CSR the projects; this community has to be business operations)
Not Applicable N
*Vulnerable sector includes children and youth, elderly, persons with disabilities, vulnerable women, refugees, migrants, internally displaced persons, people living with HIV and other diseases, solo parents, and the poor or the base of the pyramid (BOP; Class D and E)
23 For operations that are affecting IPs, indicate the total number of Free and Prior Informed Consent (FPIC) undergoing consultations and Certification Preconditions (CPs) secured and still operational and provide a copy or link to the certificates if available: ______
Certificates Quantity Units FPIC process is still undergoing 0 # CP secured 0 #
What are the Risk/s Identified? Management Approach
None None
What are the Opportunity/ies Identified? Management Approach
None None
Customer Management Customer Satisfaction
Disclosure Score Did a third party conduct the customer satisfaction study (Y/N)?
Customer satisfaction Not applicable N
What is the impact and where Which stakeholders Management Approach does it occur? What is the are affected? organization’s involvement in the impact? The Company has no substantial operations, thus, it has yet to gather information on this sustainability topic. The Group will provide the relevant regulatory agencies with this information, as soon as it ramps up its business operations.
What are the Risk/s Management What are the Risk/s Identified? Identified? Approach
Not applicable Not applicable Not applicable
24 What are the Opportunity/ies Management What are the Opportunity/ies Identified? Approach Identified?
Not applicable Not applicable Not applicable
Health and Safety Disclosure Quantity Units No. of substantiated complaints on product or service Not applicable # health and safety* No. of complaints addressed Not applicable # *Substantiated complaints include complaints from customers that went through the organization’s formal communication channels and grievance mechanisms as well as complaints that were lodged to and acted upon by government agencies.
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact?
Not applicable Not applicable
What are the Risk/s Identified? Management Approach
Not applicable Not applicable
What are the Opportunity/ies Identified? Management Approach
Not applicable Not applicable
Marketing and labelling
Disclosure Quantity Units No. of substantiated complaints on marketing and Not applicable # labelling*
No. of complaints addressed Not applicable #
25 *Substantiated complaints include complaints from customers that went through the organization’s formal communication channels and grievance mechanisms as well as complaints that were lodged to and acted upon by government agencies.
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact?
The Company has no substantial operations, thus, it has yet to gather information on this sustainability topic. The Group will provide the relevant regulatory agencies with this information, as soon as it ramps up its business operations.
What are the Risk/s Identified? Management Approach
Not applicable Not applicable
What are the Opportunity/ies Identified? Management Approach
Not applicable Not applicable
Customer Privacy
Disclosure Quantity Units No. of substantiated complaints on customer privacy* 0 #
No. of complaints addressed 0 #
No. of customers, users and account holders whose 0 # information is used for secondary purposes *Substantiated complaints include complaints from customers that went through the organization’s formal communication channels and grievance mechanisms as well as complaints that were lodged to and acted upon by government agencies.
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact?
The Company has no substantial operations, thus, it has yet to gather information on this sustainability topic. The Group will provide the relevant regulatory agencies with this information, as soon as business as it ramps up its business operations..
26 What are the Risk/s Identified? Management Approach
Not applicable Not applicable
What are the Opportunity/ies Identified? Management Approach
Not applicable Not applicable
Data Security Disclosure Quantity Units No. of data breaches, including leaks, thefts and losses Not applicable # of data
What is the impact and where does it Management Approach occur? What is the organization’s involvement in the impact?
The Company has no substantial operations, thus, it has yet to gather information on this sustainability topic. The Group will provide the relevant regulatory agencies with this information, as soon as it ramps up its business operations.
What are the Risk/s Identified? Management Approach
Not applicable Not applicable
What are the Opportunity/ies Identified? Management Approach
Not applicable Not applicable
27 UN SUSTAINABLE DEVELOPMENT GOALS
Product or Service Contribution to UN SDGs Key products and services and its contribution to sustainable development.
Key Products and Societal Value / Potential Negative Management Services Contribution to UN Impact of Approach to SDGs Contribution Negative Impact
Pay per view TV Fosters innovation for As a service provider, Ensure that programs programs for guests the hotel industry (UN AP at times does not shown exemplify of the Sofitel Hotel, SDG 9: Industry, have a discretion on values that are in line Manila by one of its Innovation, the movies or TV with nation building. subsidiaries, Acentic Infrastructure) shows that will be Philippines Inc. shown and the content of these
programs.
* None/Not Applicable is not an acceptable answer. For holding companies, the services and products of its subsidiaries may be disclosed.
28