SINGAPORE--()--This annoucement is for our U.S.$5,000,000,000 Euro Medium Term Note Programme authorised by UKLA on 10 September 2010
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
REPORT OF THE DIRECTORS
The directors present their report together with the audited financial statements of the company for the financial year ended March 31, 2010.
1 DIRECTORS
The directors of the company in office at the date of this report are:
Mr Yoshinori Tanaka
Mr Tatsuya Wakiyama
Mr Hideyuki Mikayama
2 ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THE ACQUISITION OF SHARES AND DEBENTURES
Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangement whose object is to enable the directors of the company to acquire benefits by means of the acquisition of shares or debentures in the company or any other body corporate.
3 DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES
The directors of the company holding office at the end of the financial year had no interests in the share capital and debentures of the company and related corporations as recorded in the register of directors’ shareholdings kept by the company under Section 164 of the Singapore Companies Act except as follows:
| Ultimate holding company | At beginning | At end | |||||||
|
- Mitsui & Co., Ltd |
of year |
of year |
|||||||
|
Ordinary shares (Registered in name of director) |
|||||||||
| Mr Yoichi Hayashi (Resigned on May 1, 2010) | 6,689 | 7,469 | |||||||
| Mr Yoshinori Tanaka | 1,225 | 1,341 | |||||||
| Mr Tatsuya Wakiyama | 9,124 | 9,979 | |||||||
| Mr Hideyuki Mikayama | 3,800 | 4,000 | |||||||
4 DIRECTORS’ RECEIPT AND ENTITLEMENT TO CONTRACTUAL BENEFITS
Since the beginning of the financial year, no director has received or become entitled to receive a benefit which is required to be disclosed under Section 201(8) of the Singapore Companies Act, by reason of a contract made by the company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except for salaries, bonuses and other benefits as disclosed in the financial statements. Certain directors received remuneration from related corporations in their capacity as directors and/or executives of those related corporations.
5 OPTIONS TO TAKE UP UNISSUED SHARES
During the financial year, no option to take up unissued shares of the company was granted.
6 OPTIONS EXERCISED
During the financial year, there were no shares of the company issued by virtue of the exercise of an option to take up unissued shares.
7 UNISSUED SHARES UNDER OPTION
At the end of the financial year, there were no unissued shares of the company under option.
8 AUDITORS
The auditors, Deloitte & Touche LLP, have expressed their willingness to accept re-appointment.
ON BEHALF OF THE DIRECTORS
Mr Yoshinori Tanaka
Mr Hideyuki Mikayama
July 26, 2010
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
STATEMENT OF DIRECTORS
In the opinion of the directors, the financial statements of the company as set out on a pages 6 to 35 are drawn up so as to give a true and fair view of the state of affairs of the company as at March 31, 2010 and of the results, changes in equity and cash flows of the company for the financial year then ended and at the date of this statement, there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.
ON BEHALF OF THE DIRECTORS
Mr Yoshinori Tanaka
Mr Hideyuki Mikayama
July 26, 2010
INDEPENDENT AUDITORS’ REPORT TO THE MEMBER OF
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
We have audited the accompanying financial statements of Mitsui & Co. Financial Services (Asia) Ltd. (the “company”) which comprise the statement of financial position as at March 31, 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the financial year then ended, and a summary of significant accounting policies and other explanatory notes as set out on pages 6 to 35.
Management’s Responsibility of the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes: devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss account and balance sheet and to maintain accountability of assets; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion,
a) the financial statements of the company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the company as at March 31, 2010 and of the results, changes in equity and cash flows of the company for the year ended on that date; and
b) the accounting and other records required by the Act to be kept by the company have been properly kept in accordance with the provisions of the Act.
Public Accountants and
Certified Public Accountants
Singapore
July 26, 2010
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
STATEMENT OF FINANCIAL POSITION
March 31, 2010
| April 1, | |||||||||
|
Note |
2010 |
2009 |
2008 |
||||||
| US$ | US$ | US$ | |||||||
| (Restated) | (Restated) | ||||||||
|
ASSETS |
|||||||||
|
Current assets |
|||||||||
| Cash and cash equivalents | 7 | 1,665,377 | 46,342,349 | 15,902,796 | |||||
| Loan receivables | 8 | 561,434,875 | 478,831,029 | 743,714,639 | |||||
| Derivative financial instruments | 9 | 1,299,588 | 527,383 | 6,110,000 | |||||
| Other receivables and prepayments | 10 | 1,000,798 | 1,212,188 | 3,442,230 | |||||
| Total current assets | 565,400,638 | 526,912,949 | 769,169,665 | ||||||
|
Non-current assets |
|||||||||
| Loan receivables | 8 | 254,550,960 | 172,689,334 | 189,346,339 | |||||
| Derivative financial instruments | 9 | 3,867,000 | 6,805,000 | 17,930,000 | |||||
| Club membership | 11 | 261,063 | 261,063 | 261,063 | |||||
| Equipment | 12 | 6,676 | 8,366 | 6,936 | |||||
| Total non-current assets | 258,685,699 | 179,763,763 | 207,544,338 | ||||||
|
Total assets |
824,086,337 | 706,676,712 | 976,714,003 | ||||||
|
LIABILITIES AND EQUITY |
|||||||||
|
Current liabilities |
|||||||||
| Loan payables | 13 | 570,456,791 | 374,606,240 | 591,962,004 | |||||
| Derivative financial instruments | 9 | 8,583 | 90,440 | 84,000 | |||||
| Other payables | 14 | 720,351 | 1,271,065 | 3,110,267 | |||||
| Tax payable | 447,338 | 302,583 | 333,914 | ||||||
| Total current liabilities | 571,633,063 | 376,270,328 | 595,490,185 | ||||||
|
Non-current liabilities |
|||||||||
| Loan payables | 13 | 234,105,970 | 311,627,986 | 364,893,743 | |||||
| Derivative financial instruments | 9 | 656,000 | 798,000 | 14,000 | |||||
| Total non-current liabilities | 234,761,970 | 312,425,986 | 364,907,743 | ||||||
|
Equity |
|||||||||
| Issued capital | 15 | 15,000,000 | 15,000,000 | 15,000,000 | |||||
| Retained earnings | 2,691,304 | 2,980,398 | 1,316,075 | ||||||
| Total equity | 17,691,304 | 17,980,398 | 16,316,075 | ||||||
|
Total liabilities and equity |
824,086,337 | 706,676,712 | 976,714,003 | ||||||
See accompanying notes to financial statements.
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
STATEMENT OF COMPREHENSIVE INCOME
Year ended March 31,
2010
|
Note |
2010 |
2009 |
|||||||
| US$ | US$ | ||||||||
| Interest income | 16 | 8,711,046 | 22,166,547 | ||||||
| Interest expense | 17 |
(4,858,171 |
) |
(17,606,053 |
) | ||||
|
Net interest income |
3,852,875 | 4,560,494 | |||||||
| Other operating income | 87,799 | 72,260 | |||||||
| Staff costs | (601,636 | ) | (677,587 | ) | |||||
| Depreciation | (2,642 | ) | (2,928 | ) | |||||
| Other operating expenses | 18 |
(704,998 |
) |
(2,172,340 |
) | ||||
|
Profit before income tax |
19 | 2,631,398 | 1,779,899 | ||||||
| Income tax | 20 |
(420,492 |
) |
(115,576 |
) | ||||
|
Profit for the year representing |
|||||||||
|
total comprehensive income for the year |
2,210,906 | 1,664,323 | |||||||
See accompanying notes to financial statements.
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
STATEMENT OF CHANGES IN EQUITY
Year ended March 31, 2010
| Issued | Retained | ||||||||||
|
Note |
capital |
earnings |
Total |
||||||||
| US$ | US$ | US$ | |||||||||
| Balance at April 1, 2008 | 15,000,000 | 1,316,075 | 16,316,075 | ||||||||
| Total comprehensive income for the year | - | 1,664,323 | 1,664,323 | ||||||||
| Balance at March 31, 2009 | 15,000,000 | 2,980,398 | 17,980,398 | ||||||||
| Total comprehensive income for the year | - | 2,210,906 | 2,210,906 | ||||||||
| Dividend paid | 22 | - | (2,500,000 | ) | (2,500,000 | ) | |||||
| Balance at March 31, 2010 | 15,000,000 | 2,691,304 | 17,691,304 | ||||||||
See accompanying notes to financial statements.
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
STATEMENT OF CASH FLOWS
Year ended March 31, 2010
|
2010 |
2009 |
|||||||||
|
US$ |
US$ | |||||||||
|
Operating activities |
||||||||||
|
Profit before income tax |
2,631,398 | 1,779,899 | ||||||||
| Adjustments for: | ||||||||||
| Fair value gain on derivative financial instruments | (4,502,005 | ) | (6,443,943 | ) | ||||||
| Fair value loss on financial instruments | ||||||||||
| in designated hedge accounting relationships | 4,496,000 | 6,510,000 | ||||||||
| Depreciation expense | 2,642 | 2,928 | ||||||||
| Operating profit before working capital changes | 2,628,035 | 1,848,884 | ||||||||
| Loan receivables | (164,607,472 | ) | 306,378,615 | |||||||
| Other receivables and prepayments | 235,773 | 2,230,041 | ||||||||
| Loan payables | 120,484,535 | (278,027,521 | ) | |||||||
| Other payables | (641,154 | ) | (1,839,202 | ) | ||||||
| Cash(used in) generated from operations | (41,900,283 | ) | 30,590,817 | |||||||
|
Income tax paid |
(275,737 | ) | (146,906 | ) | ||||||
|
Net cash(used in) from operating activities |
(42,176,020 | ) | 30,443,911 | |||||||
|
Investing activity |
||||||||||
| Purchases of equipment representing net cash | ||||||||||
| used in investing activity | (952 | ) | (4,358 | ) | ||||||
|
Financing activity |
||||||||||
| Dividends paid representing net cash used in | ||||||||||
| financing activity | (2,500,000 | ) | - | |||||||
|
Net (decrease) increase in cash and cash equivalents |
(44,676,972 | ) | 30,439,553 | |||||||
|
Cash and cash equivalents at beginning of year |
46,342,349 | 15,902,796 | ||||||||
|
Cash and cash equivalents at end of year |
1,665,377 | 46,342,349 | ||||||||
See accompanying notes to financial statements.
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
NOTES TO FINANCIAL STATEMENTS
March 31, 2010
1 GENERAL
The company (Registration No. 199508683N) is incorporated in the Republic of Singapore with its principal place of business and registered office at 16 Raffles Quay, #29-00, Hong Leong Building, Singapore 048581. The financial statements are expressed in United States dollars.
The principal activities of the company are those of relating to inter-group loan transactions including account receivables financing within group companies.
The financial statements of the company for the year ended March 31, 2010 were authorised for issue by the Board of Directors on July 26, 2010.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements are prepared in accordance with the historical cost convention, except as disclosed in the accounting policies below, and are drawn up in accordance with the provisions of the Singapore Companies Act and Singapore Financial Reporting Standards (“FRSs”).
ADOPTION OF NEW AND REVISED STANDARDS - In the current financial year, the company has adopted all the new and revised FRSs and Interpretations of FRS (“INT FRS”) that are relevant to its operations and effective for annual periods beginning on or after April 1, 2009. The adoption of these new/revised FRSs and INT FRSs does not result in changes to the company’s accounting policies and has no material effect on the amounts reported for the current or prior years except as disclosed below:
FRS 1 - Presentation of Financial Statements (Revised)
FRS 1 (2008) has introduced terminology changes (including revised titles for the financial statements) and changes in the format and content of the financial statements. In addition, the revised Standard requires the presentation of a third statement of financial position at the beginning of the earliest comparative period presented if the entity applies new accounting policies retrospectively or makes retrospective restatements or reclassifies items in the financial statements.
Amendments to FRS 107 Financial Instruments: Disclosures – Improving Disclosures about Financial Statements
The amendments to FRS 107 expand the disclosures required in respect of fair value measurements and liquidity risk. The company has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments.
At the date of authorisation of these financial statements, the following FRSs, INT FRSs and amendments to FRS that are relevant to the company were issued but not effective:
|
Effective Date |
||||||
|
FRS 18 |
Revenue (Amendments arising from Improvements to FRSs) |
January 1, 2010 | ||||
|
FRS 24 |
Related Party Disclosures (Revised) |
January 1, 2011 | ||||
The management anticipates that the adoption of the above FRS and INT FRS in future periods will have no material impact on the financial statements of the company in the period of their initial adoption.
FINANCIAL INSTRUMENTS - Financial assets and financial liabilities are recognised on the company’s statement of financial position when the company becomes a party to the contractual provisions of the instrument.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or where appropriate, a shorter period. Income is recognised on an effective interest basis for debt instruments.
Financial assets
Instruments are recognised and de-recognised on a trade date where the purchase or sale of an instrument is under a contract whose terms require delivery of the instrument within the time frame established by the method concerned, and are initially measured at fair value plus transaction costs. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and fixed deposits that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Loan and other receivables
Loan and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as “loans and receivables”. Loans and receivables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate method, except for short-term receivables when the recognition of interest would be immaterial.
Certain loans are stated at fair value, with any resultant gain or loss recognised in profit or loss. Fair value is determined in the manner described in Note 4. Such loans are designated in hedge accounting relationships.
Impairment of financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
Objective evidence of impairment could include:
• significant financial difficulty of the issuer or counterparty; or
• default or delinquency in interest or principal payments; or
• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial assets, such as loan receivables, that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of loan receivables where the carrying amount is reduced through the use of an allowance account. When a loan or other receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the instruments at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
Derecognition of financial assets
The company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the company retains substantially all the risks and rewards of ownership of a transferred financial asset, the company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued by the company are classified according to the substance of the contractual arrangements entered into and the definition of financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Euro medium term notes
Euro medium term notes (the “Notes”) are initially measured at fair value and subsequently stated at fair value, with any resultant gain or loss recognised in profit or loss. Fair value is determined in the manner described in Note 4. All the Notes are in designated hedge accounting relationships.
Other financial liabilities
Interest-bearing loan payables and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method, with interest expense recognised on an effective yield basis. Finance charges are accounted for on an accrual basis to profit or loss using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise.
Derecognition of financial liabilities
The company derecognises financial liabilities when, and only when, the company’s obligations are discharged, cancelled or they expire.
Derivative financial instruments and hedge accounting
Derivative financial instruments
The company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts, currency and interest rate swaps. Further details of derivative financial instruments are disclosed in Note 9 to the financial statements.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The company designates certain derivatives as hedges of the fair value of recognised assets or liabilities (fair value hedges).
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. Fair value is determined in the manner described in Note 4.
Embedded derivatives
Derivatives embedded in other financial instruments or other non-financial host contracts (if any) are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss.
An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument to which the embedded derivative relates is more than 12 months and it is not expected to be realised or settled within 12 months. Other embedded derivatives are presented as current assets or current liabilities.
Hedge accounting
The company designates certain hedging instruments, which include derivatives and embedded derivatives in respect of foreign currency and interest rate risks as fair value hedges.
At the inception of the hedge relationship the company documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the company documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values of the hedged item.
The details of the fair values of the derivative instruments used for hedging purposes are disclosed in Note 9 to the financial statements.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk. The change in fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of profit or loss relating to hedged item.
Hedge accounting is discontinued when the company revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.
CLUB MEMBERSHIP - Club membership, held on a long-term basis, is carried at cost less accumulated impairment losses (if any). Impairment loss is recognised for individual club memberships when the recoverable amount of the membership is estimated to be lower than its carrying amount.
EQUIPMENT - Equipment are carried at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, using the straight-line method, on the following bases:
Furniture and fittings - 331/3% per annum
Fully depreciated assets still in use are retained in the financial statements.
The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
The gain or loss arising on disposal or retirement of an item of plant and equipment is determined as the difference between the sales proceeds and the carrying amounts of the asset and is recognised in profit or loss.
IMPAIRMENT OF NON-FINANCIAL ASSETS - At the end of each reporting period, the company reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cashflows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
PROVISIONS - Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past event, it is probable that the company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
LEASES - Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Rentals payable under operating leases are charged to the profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
REVENUE RECOGNITION - Revenue is measured at the fair value of the consideration received or receivable. Interest income is recognised in profit or loss based on principal outstanding at the effective interest rate.
RETIREMENT BENEFIT COSTS - Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes, such as the Singapore Central Provident Fund, are dealt with as payments to defined contribution plans where the company’s obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan.
INCOME TAX - Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The company’s liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the company intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited outside profit or loss (either in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss (either in other comprehensive income or directly in equity, respectively).
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION - The financial statements are measured and presented in the United States dollars, the currency of the primary economic environment in which the company operates (its functional currency).
In preparing the financial statements of the company, transactions in currencies other than the company’s functional currency are recorded at the rate of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised other comprehensive income. For such non-monetary items, any exchange component of that gain or loss is also recognised in other comprehensive income.
Exchange differences on transactions entered into in order to hedge certain foreign currency risks are described in the hedge accounting policies above.
3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the company’s accounting policies, which are described in Note 2, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
(i) Critical judgements in applying the company’s accounting policies
Management is of the opinion that any instances of application of judgments are not expected to have a significant effect on the amounts recognised in the financial statements, except as follows:
Functional currency
The functional currency of the company has been re-evaluated based on the guidance to the FRS 21 (revised) and is determined to be United States dollars. Assessment of the primary and secondary indicators of the FRS 21 (revised) was mixed and management has exercised its judgement in concluding that the functional currency of the company is United States dollars.
(ii) Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimation of the fair values of derivative financial instruments and of the changes in fair values of financial instruments attributable to the risks being hedged.
The fair values of financial instruments that are not traded in an active market is determined by obtaining market quotes from the various issuers. The company is of the view that the market quotes are given by departments independent of the issuers’ marketing department and that the quotations given represent the best estimate of the instruments’ fair value. However, due to the instruments not being actively traded, the realisation of the carrying values is predicated by market conditions at the time of realisation. Accordingly, actual amounts realised may vary significantly from their estimated fair values.
Further details on the fair value of the financial instruments are found in Notes 8, 9 and 13 to the financial statements.
4 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT
Categories of financial instruments
The following table sets out the financial instruments as at the end of the reporting period:
|
2010 |
2009 |
|||||
| US$‘000 | US$‘000 | |||||
| Financial assets | ||||||
| Loan and receivables (including cash | ||||||
| and cash equivalents) | 798,021 | 677,522 | ||||
| Loan receivables in designated hedge | ||||||
| accounting relationships | 20,614 | 21,537 | ||||
| Derivative financial instruments | 5,167 | 7,332 | ||||
| Financial liabilities | ||||||
| Amortised cost | 770,080 | 612,397 | ||||
| Loan payables in designated hedge | ||||||
| accounting relationships | 35,203 | 75,108 | ||||
| Derivative financial instruments | 665 | 888 | ||||
Financial risk and management policies and objectives
By its nature, the company’s activities are principally related to financial activities for the Mitsui & Co. Group of Companies. These activities expose the company to a variety of financial risks, comprising mainly market risk (including interest rate risk and currency risk), credit risk, and liquidity risk.
Risk management at the company is a multi-faceted process with oversight that requires constant communication, judgement and knowledge of specialised products and markets. The company’s senior management takes an active role in the risk management process.
The company uses a variety of derivative financial instruments to manage its exposure to market risk including forward and swap contracts to hedge a particular risk associated with the loan receivables and payables.
The company does not hold or issue derivative financial instruments for speculative purposes.
There has been no change to the company’s exposure to these financial risks or the manner in which it manages and measures the risk. Market risk exposures are measured using sensitivity analysis indicated below.
The main financial risks that the company is exposed to and how it manages these risks are set out below:
(a) Interest rate risk management
The company is exposed to interest rate risk through the impact of rate changes on interest bearing liabilities and assets.
The company manages interest rate risk exposure partly by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities and partly through the use of derivative financial instruments such as interest rate swaps for the purpose of hedging, where necessary. Under the interest rate swaps, the company agrees with other parties to exchange, at specified intervals, the difference between the fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. Interest differentials are accrued and recorded as adjustments to the interest expense relating to the hedged items.
In management’s opinion, there is no material impact on profit or loss arising from the company’s interest rate sensitivity as the interest rate risk exposure is managed using natural hedge and the use of the derivatives financial instruments as mentioned above.
The table below summarises the range of interest rate for monetary financial instruments as at the end of reporting period:
|
Range of interest rates (%) |
|||||
|
2010 |
2009 |
||||
|
Assets |
|||||
| Cash and cash equivalents | 0.07 | 0.03 – 0.45 | |||
| Loan receivables | 0.55 – 4.13 | 0.33 – 4.13 | |||
|
Liabilities |
|||||
| Loan payables | 0.03 – 1.45 | 0.30 – 4.22 | |||
Foreign exchange risk management
Foreign exchange risk arises from a change in foreign currency exchange rate, which is expected to have an adverse effect on the company.
The company is engaged in financial activities for the Mitsui & Co. group of companies. The borrowing of the company is mainly denominated in US dollars and Japanese Yen. These funds are then on lent to the group companies in either Japanese Yen, Singapore dollars or US dollars.
The company partly uses natural hedges that arise from offsetting foreign currency loan receivables and loan payables, and partly through the use of derivative financial instruments such as forward contracts and currency swap contracts to hedge their exposure to foreign currency risk in local reporting currency.
As at the reporting date, the carrying amount of monetary assets and monetary liabilities denominated in currencies other than the functional currency of the company are as follows:
|
2010 |
2009 |
||||||||||||
|
JPY |
SGD |
JPY |
SGD |
||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||
|
Non-derivative financial assets |
|||||||||||||
| Cash and cash equivalents | - | - | 6,525 | 2,541 | |||||||||
| Loan receivables | 326,441 | 39,792 | 193,316 | 69,810 | |||||||||
| Other receivables | 310 | 25 | 376 | 3 | |||||||||
| Total | 326,751 | 39,817 | 200,217 | 72,354 | |||||||||
|
Non-derivative financial liabilities |
|||||||||||||
| Loan payables | 379,393 | 2,105 | 284,103 | 2,251 | |||||||||
| Other payables | 421 | 167 | 334 | 172 | |||||||||
| Total | 379,814 | 2,272 | 284,437 | 2,423 | |||||||||
| Net on balance sheet position | (53,063 | ) | 37,545 | (84,220 | ) | 69,931 | |||||||
|
Off balance sheet items1 |
|||||||||||||
| Assets | 53,469 | - | 93,916 | - | |||||||||
| Liabilities | - | (37,857 | ) | (2,389 | ) | (69,810 | ) | ||||||
| Net off balance sheet position | 53,469 | (37,857 | ) | 91,527 | (69,810 | ) | |||||||
1 Foreign exchange derivatives are represented at notional value
No sensitivity analysis is prepared as the company does not expect any material effect on its profit or loss arising from the effects of reasonably possible changes to foreign exchange rates on monetary assets and monetary liabilities denominated in currencies other than the functional currency of the company at the end of the reporting period.
Credit risk management
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the company. The company has adopted the policy of dealing only with creditworthy related counterparties and obtaining letters of guarantee from its holding company where appropriate, as a means of mitigating the risk of financial losses from defaults.
The company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics, except that the company has significant loan receivables from its group companies as disclosed in the accompanying notes to the financial statements. The credit risk on cash, fixed deposits and derivative financial instruments is limited because counterparties are banks with high credit-rating assigned by international credit-rating agencies.
The maximum exposure to credit risk in the event that the debtors fail to perform their obligations as at the end of the financial year in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the statement of financial position.
All the company’s financial assets are neither past due nor materially impaired.
(b) Liquidity risk management
Liquidity risk is the risk that the company is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis, to borrow funds in the market on an unsecured, or even secured basis at an acceptable price to fund actual or proposed commitments.
The company monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the company’s operations and to mitigate the effects of fluctuations in cash flows. The company also maintains available undrawn credit facilities to ensure sufficient liquid funds are maintained to meet its liquidity requirements.
The following table detail the remaining contractual maturity for non-derivative financial assets and liabilities. The tables have been drawn up based on the undiscounted cash flows of the individual categories based on the earliest date on which the company can be required to pay. The table include both interest and principal cash flows. The adjustment column represents the possible future cash flows attributable to the instrument included in the maturity analysis which is not included in the carrying amount of the non-derivative financial instruments on the statement of financial position.
Non -derivative financial instruments
| On | ||||||||||||||||
| demand/ | ||||||||||||||||
| less than | 1 to 3 | 3 to 12 | Over 1 | |||||||||||||
|
1 month |
months |
months |
year |
Adjustments |
Total |
|||||||||||
| US$’000 | US$’000 | US$’000 |
US$’000 |
US$’000 |
US$’000 | |||||||||||
|
2010 |
||||||||||||||||
|
Assets |
||||||||||||||||
| Cash and cash equivalents | 1,665 | - | - | - | - | 1,665 | ||||||||||
| Loan receivables | 347,090 | 57,780 | 157,802 | 275,213 | (21,899 | ) | 815,986 | |||||||||
| Other receivables | 984 | - | - | - | - | 984 | ||||||||||
| Total | 349,739 | 57,780 | 157,802 | 275,213 | (21,899 | ) | 818,635 | |||||||||
|
Liabilities |
||||||||||||||||
| Loan payables | 533,660 | 193 | 40,492 | 232,513 | (2,295 | ) | 804,563 | |||||||||
| Other payables | 720 | - | - | - | - | 720 | ||||||||||
| Total | 534,380 | 193 | 40,492 | 232,513 | (2,295 | ) | 805,283 | |||||||||
|
Net liquidity gap |
(184,641 | ) | 57,587 | 117,310 | 42,700 | (19,603 | ) | 13,353 | ||||||||
|
2009 |
||||||||||||||||
|
Assets |
||||||||||||||||
| Cash and cash equivalents | 46,342 | - | - | - | - | 46,342 | ||||||||||
| Loan receivables | 359,849 | 42,409 | 88,241 | 188,158 | (27,136 | ) | 651,521 | |||||||||
| Other receivables | 1,196 | - | - | - | - | 1,196 | ||||||||||
| Total | 407,387 | 42,409 | 88,241 | 188,158 | (27,136 | ) | 699,059 | |||||||||
|
Liabilities |
||||||||||||||||
| Loan payables | 327,220 | 481 | 49,314 | 315,745 | (6,526 | ) | 686,234 | |||||||||
| Other payables | 1,271 | - | - | - | - | 1,271 | ||||||||||
| Total | 328,491 | 481 | 49,314 | 315,745 | (6,526 | ) | 687,505 | |||||||||
|
Net liquidity gap |
78,896 | 41,928 | 38,927 | (127,587 | ) | (20,610 | ) | 11,554 | ||||||||
The negative net liquidity gap for the maturity band for up to 12 months as at the end of the reporting period is due to the fact that most of the borrowings from the ultimate holding company and related companies constituting the main liability on the company’s statement of financial position have relatively shorter maturity periods of up to 12 months as at March 31, 2010, as compared to the tenures of loans receivables which constitute the company’s main asset. Typically, management would expect most of the borrowings from the ultimate holding company and related companies to be renewed and depending on the maturity periods, would address the net liquidity gap accordingly.
The following table details the liquidity analysis for derivative financial instruments. The company’s portfolio of derivative financial instrument comprise of interest rate swaps, foreign exchange currency swaps and forward contracts. The table has been drawn up based on the undiscounted cashflows of the derivative instruments.
Derivative financial instruments
| Less than | 1 to 3 | 3 to 12 | Over 1 | |||||||||||||
|
1 month |
months |
months |
year |
Total |
||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||
|
2010 |
||||||||||||||||
|
Net settled |
||||||||||||||||
| - Inflow | - | 7 | 45 | 86 | 138 | |||||||||||
| - Outflow | (22 | ) | (115 | ) | (366 | ) | (255 | ) | (758 | ) | ||||||
| (22 | ) | (108 | ) | (321 | ) | (169 | ) | (620 | ) | |||||||
|
Gross settled |
||||||||||||||||
| - Inflow | 62,369 | 25 | 10,984 | 18,736 | 92,114 | |||||||||||
| - Outflow | (62,324 | ) | (11 | ) | (9,556 | ) | (14,662 | ) | (86,553 | ) | ||||||
| 45 | 14 | 1,428 | 4,074 | 5,561 | ||||||||||||
|
2009 |
||||||||||||||||
|
Net settled: |
||||||||||||||||
| - Inflow | 2 | 8 | 33 | 73 | 116 | |||||||||||
| - Outflow | (1 | ) | (87 | ) | (264 | ) | (528 | ) | (880 | ) | ||||||
| 1 | (79 | ) | (231 | ) | (455 | ) | (764 | ) | ||||||||
|
Gross settled: |
||||||||||||||||
| - Inflow | 96,664 | 114 | 5,641 | 66,970 | 169,389 | |||||||||||
| - Outflow | (96,783 | ) | (128 | ) | (5,196 | ) | (60,010 | ) | (162,117 | ) | ||||||
| (119 | ) | (14 | ) | 445 | 6,960 | 7,272 | ||||||||||
The following table details the liquidity analysis for the company’s commitments. The table has been drawn up based on the undiscounted cashflows of the commitments.
| Less than | 1 to 3 | 3 to 12 | Over 1 | ||||||||||
|
1 month |
months |
months |
year |
Total |
|||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |||||||||
| 2010 | |||||||||||||
| Commitments (Note 21) | (452,830 | ) | - | - | - | (452,830 | ) | ||||||
| 2009 | |||||||||||||
| Commitments (Note 21) | (411,818 | ) | - | - | - | (411,818 | ) | ||||||
The company expects that not all of the undrawn loan commitments will be drawn before expiry.
(c) Fair value of financial assets and liabilities
The carrying amounts of financial assets and liabilities carried at amortised cost approximate their respective fair values due to the relatively short term maturity of these financial instruments or that they bear interest at floating interest rates.
The fair values of financial assets and financial liabilities are determined as follows:
1. the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices;
2. the fair value of other financial assets and financial liabilities (excluding derivative financial instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments; and
3. the fair value of derivative instruments are determined using quoted prices. Where such prices are not available, discounted cash flow analysis is used, based on the applicable yield curve of the duration of the instruments for non-optional derivatives.
The company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy level has the following levels:
a. quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
b. 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) (Level 2) and;
c. inputs for the asset or liability that are not based or observable market data (unobservable inputs) (Level 3).
Financial instruments measured at fair value
|
Total |
Level 1 |
Level 2 |
Level 3 |
||||||
|
2010 |
US$’000 | US$’000 | US$’000 | US$’000 | |||||
|
Financial Assets |
|||||||||
| Loan receivables in designated | |||||||||
| hedge accounting relationships | 20,614 | - | 20,614 | - | |||||
| Derivative financial instruments | 5,167 | - | 5,167 | - | |||||
|
Financial liabilities |
|||||||||
| Loan payables in designated | |||||||||
| hedge accounting relationships | 35,203 | - | 35,203 | - | |||||
| Derivative financial instruments | 665 | - | 665 | - | |||||
There were no significant transfer between Level 1 and Level 2 of the fair value hierarchy during the financial year.
Capital risk management policies and objectives
The company reviews its capital structure at least annually to ensure that the company will be able to continue as a going concern. The capital structure of the company comprises only of issued capital and retained earnings.
There have been no material changes in the management of capital from 2009.
5 HOLDING COMPANY AND RELATED COMPANY TRANSACTIONS
The company is a subsidiary of Mitsui & Co., Ltd, incorporated in Japan, which is also the company’s ultimate holding company. Related companies in these financial statements refer to members of the ultimate holding company’s group of companies.
Many of the company’s transactions and arrangements and terms thereof are arranged by or between members of the group and the effects of these on the bases determined between the parties are reflected in these financial statements. The intercompany balances are unsecured, interest-free and repayable on demand unless stated otherwise in the financial statements.
Significant intercompany transactions other than those disclosed elsewhere in the notes to the financial statements are as follows:
|
2010 |
2009 |
||||||
| US$ | US$ | ||||||
| With ultimate holding company: | |||||||
| Interest income | (1,288,722 | ) | - | ||||
| Interest expense | 362,007 | 2,353,186 | |||||
| With related companies: | |||||||
| Interest income | (6,407,456 | ) | (19,203,059 | ) | |||
| Interest expenses | 1,976,391 | 3,698,549 | |||||
6 RELATED PARTY TRANSACTIONS
Related parties are entities with common direct or indirect shareholders and/or directors. 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. Related parties also include associates of the holding and/or related companies.
Some of the company’s transactions and arrangements and terms thereof are with related parties and the effects of these on the basis determined between the parties are reflected in these financial statements. The balances are unsecured, interest-free and repayable on demand unless stated otherwise in the financial statements.
Significant related parties transactions other than those disclosed elsewhere in the notes to the financial statements:
|
2010 |
2009 |
|||||
| US$ | US$ | |||||
| Interest income | (256,784 | ) | (172,917 | ) | ||
Compensation of directors and key management personnel
The remuneration of directors and key management during the year was as follows:
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Short-term employee benefits | 301,489 | 373,322 | |||
The company considers its directors as members of its key management.
The remuneration of directors and key management is determined by the board of directors having regard to the performance of individuals and market trends.
7 CASH AND CASH EQIVALENTS
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Cash and bank balances | 8,070 | 3,508,111 | |||
| Fixed deposits | 1,657,307 | 42,834,238 | |||
| Total | 1,665,377 | 46,342,349 | |||
The above fixed deposits bears interest at a prevailing market rates for an average tenure of one day (2009 : one day).
8 LOAN RECEIVABLES
|
2010 |
2009 |
||||
| US$ | US$ | ||||
|
Loan and receivables: |
|||||
| Ultimate holding company | 109,494,611 | 91,193,325 | |||
| Related companies | 650,959,287 | 535,713,729 | |||
| Related parties | 34,917,938 | 3,076,358 | |||
| 795,371,836 | 629,983,412 | ||||
|
Loan receivables in designated |
|||||
|
hedge accounting relationships: |
|||||
| Related companies | 20,613,999 | 21,536,951 | |||
| Total | 815,985,835 | 651,520,363 | |||
| Analysed as: | |||||
| Current | 561,434,875 | 478,831,029 | |||
| Non-current | 254,550,960 | 172,689,334 | |||
| Total | 815,985,835 | 651,520,363 | |||
The loan receivables include:
1) secured loan receivables from related companies and parties amounting to US$560,090,555 (2009 : US$404,099,339). The loans are secured by letters of guarantee from the ultimate holding company;
2) unsecured loan receivables from the ultimate holding company and related companies amounting to US$255,895,280 (2009 : US$247,421,024).
The fair values of loan receivables not in designated hedge accounting relationships approximate their carrying amounts as they are at floating rates.
Hedge accounting is applied to certain loans to related companies. Interest rate swap contracts exchanging fixed rate interest for floating rate interest are designated and effective as fair value hedges in respect of interest rates. As at the end of the reporting period, the hedges were substantially effective in hedging the fair value exposure to interest rate movements and as a result the carrying amount of the loan was adjusted by US$654,000(2009 : US$798,000) which was included in profit or loss at the same time that the fair value of the derivative financial instruments was included in profit or loss.
9 DERIVATIVE FINANCIAL INSTRUMENTS
Financial derivatives are off-balance sheet financial instruments which include forward contracts for the purchase and sale of foreign currencies, interest rate and currency swaps. The contract for underlying principal amounts of these financial derivatives and their corresponding gross positive and negative fair values at the end of reporting period are analysed below.
| Year-end | Year-end | Net | |||||||||
| Notional | positive | negative | fair value | ||||||||
|
principal |
fair value |
fair value |
gain/(loss) |
||||||||
|
2010 |
US$ | US$ | US$ | US$ | |||||||
|
Current |
|||||||||||
|
Derivatives in designated hedge |
|||||||||||
|
accounting relationships |
|||||||||||
| Currency swap | 10,741,139 | 1,283,000 | - | 1,283,000 | |||||||
| Interest rate swap | 5,000,000 | 2,000 | - | 2,000 | |||||||
| 15,741,139 | 1,285,000 | - | 1,285,000 | ||||||||
|
Derivatives not in designated |
|||||||||||
|
hedge accounting relationships |
|||||||||||
| Forward foreign exchange contracts | 62,312,319 | 14,588 | (8,583 | ) | 6,005 | ||||||
| Total current | 78,053,458 | 1,299,588 | (8,583 | ) | 1,291,005 | ||||||
|
Non-current |
|||||||||||
|
Derivatives in designated hedge |
|||||||||||
|
accounting relationships |
|||||||||||
| Currency swap | 18,259,936 | 3,867,000 | - | 3,867,000 | |||||||
| Interest rate swap | 20,959,999 | - | (656,000 | ) | (656,000 | ) | |||||
| Total non-current | 39,219,935 | 3,867,000 | (656,000 | ) | 3,211,000 | ||||||
|
Total |
117,273,393 | 5,166,588 | (664,583 | ) | 4,502,005 | ||||||
| Year-end | Year-end | Net | |||||||||
| Notional | positive | negative | fair value | ||||||||
|
principal |
fair value |
fair value |
gain/(loss) |
||||||||
|
2009 |
US$ | US$ | US$ | US$ | |||||||
|
Current |
|||||||||||
|
Derivatives in designated hedge |
|||||||||||
|
accounting relationships |
|||||||||||
| Currency swap | 5,104,124 | 503,000 | - | 503,000 | |||||||
|
Derivatives not in designated |
|||||||||||
|
hedge accounting relationships |
|||||||||||
| Forward foreign exchange contracts | 96,589,306 | 24,383 | (90,440 | ) | (66,057 | ) | |||||
| Total current | 101,693,430 | 527,383 | (90,440 | ) | 436,943 | ||||||
|
Non-current |
|||||||||||
|
Derivatives in designated hedge |
|||||||||||
|
accounting relationships |
|||||||||||
| Currency swap | 64,311,964 | 6,785,000 | - | 6,785,000 | |||||||
| Interest rate swap | 26,856,503 | 20,000 | (798,000 | ) | (778,000 | ) | |||||
| Total non-current | 91,168,467 | 6,805,000 | (798,000 | ) | 6,007,000 | ||||||
|
Total |
192,861,897 | 7,332,383 | (888,440 | ) | 6,443,943 | ||||||
|
April 1, 2008 |
|||||||||||
|
Current |
|||||||||||
|
Derivatives in designated hedge |
|||||||||||
|
accounting relationships |
|||||||||||
| Currency swap | 40,290,708 | 6,095,000 | (84,000 | ) | 6,011,000 | ||||||
| Interest rate swap | 5,000,000 | 15,000 | - | 15,000 | |||||||
| 45,290,708 | 6,110,000 | (84,000 | ) | 6,026,000 | |||||||
|
Derivatives not in designated |
|||||||||||
|
hedge accounting relationships |
|||||||||||
| Forward foreign exchange contracts | 250,262,275 | - | - | - | |||||||
| Total current | 295,552,983 | 6,110,000 | (84,000 | ) | 6,026,000 | ||||||
|
Non-current |
|||||||||||
|
Derivatives in designated hedge |
|||||||||||
|
accounting relationships |
|||||||||||
| Currency swap | 185,166,650 | 17,903,000 | - | 17,903,000 | |||||||
| Interest rate swap | 8,300,000 | 27,000 | (14,000 | ) | 13,000 | ||||||
| Total non-current | 193,466,650 | 17,930,000 | (14,000 | ) | 17,916,000 | ||||||
|
Total |
489,019,633 | 24,040,000 | (98,000 | ) | 23,942,000 | ||||||
Included in the currency swaps are financial derivatives contracts of notional amounts US$11,770,000 as at March 31, 2010 (2009 : US$47,721,000) which provide the counterparty an option to call the swaps prior to its maturity date. The counterparty may, on irrevocable notice to the company, exercise any such options to call the swaps and the interest accrued to the date fixed for redemption. Option redemption date is set at each interest payment date.
10 OTHER RECEIVABLES AND PREPAYMENTS
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Accrued interest | 960,696 | 1,175,442 | |||
| Prepaid expenses | 16,809 | 16,371 | |||
| Others | 23,293 | 20,375 | |||
| 1,000,798 | 1,212,188 | ||||
11 CLUB MEMBERSHIP
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Club membership, at cost | 261,063 | 261,063 | |||
Market value of club membership at end of the reporting period approximates its carrying amount.
12 EQUIPMENT
| Furniture | ||||
|
and fittings |
||||
| US$ | ||||
| Cost: | ||||
| At April 1, 2008 | 26,518 | |||
| Additions |
4,358 |
|||
| At March 31, 2009 | 30,876 | |||
| Additions | 952 | |||
| At March 31, 2010 | 31,828 | |||
| Accumulated depreciation: | ||||
| At April 1, 2008 | 19,582 | |||
| Depreciation for the year | 2,928 | |||
| At March 31, 2009 | 22,510 | |||
| Depreciation for the year | 2,642 | |||
| At March 31, 2010 | 25,152 | |||
| Carrying amount: | ||||
| At March 31, 2010 | 6,676 | |||
| At March 31, 2009 | 8,366 | |||
13 LOAN PAYABLES
|
2010 |
2009 |
||||
| US$ | US$ | ||||
|
Amortised cost: |
|||||
| Ultimate holding company | 171,858,217 | 116,911,630 | |||
| Related companies | 435,911,405 | 291,805,775 | |||
| Outside parties | 161,590,139 | 202,408,821 | |||
| 769,359,761 | 611,126,226 | ||||
|
Loan payables in designated |
|||||
|
hedge accounting relationships: |
|||||
| Euro medium term notes | 35,203,000 | 75,108,000 | |||
| Total | 804,562,761 | 686,234,226 | |||
| Analysed as: | |||||
| Current | 570,456,791 | 374,606,240 | |||
| Non-current | 234,105,970 | 311,627,986 | |||
| Total | 804,562,761 | 686,234,226 | |||
The loan payables are unsecured, except for loans obtained from related companies amounting to US$408,911,380 (2009 : US$263,542,351) which is secured by letters of guarantee from the company’s holding company.
In October 1998, the company entered into an agreement with two related companies, Mitsui & Co International (Europe) B.V. and Mitsui & Co UK Plc, under the Euro Medium Term Note Programme (the “Programme”) whereby each of the companies may issue Euro Medium Term Notes (the “Notes”). With effect from October 31, 2002, two other related companies, Mitsui & Co., Ltd. and Mitsui Co. (U.S.A.), Inc., joined the Programme and the aggregate principal amount of Notes that is outstanding at any time has been increased to an amount not exceeding US$5,000,000,000 (or the equivalent in other currencies). Subject to the compliance with the relevant laws, the Notes, when issued, may have a maturity period between one month and 30 years. The Notes carry a negative pledge over the assets of the issuer and are guaranteed by its holding company, Mitsui & Co., Ltd.
As at end of the reporting period, the Notes include:
1) floating rate notes amounting to US$13,655,000 (2009 : US$47,586,000);
2) fixed rate notes amounting to US$21,548,000 (2009 : US$27,489,000).
Some of the outstanding Notes issued provide for the company’s option to call the Notes prior to the maturity date. As at the end of reporting period, this amounted to US$11,770,000 (2009 : US$47,721,000). The company may, on irrevocable notice to the noteholders redeem or exercise any such options for the Notes par amount together with interest accrued to the date fixed for redemption. Option redemption date is set at each interest payment date.
During the financial year, the company repaid Notes with notional amounts amounting to JPY4,100,000,000 (2009 : JPY18,200,000,000 and US$7,300,000) which matured.
Currency swaps and interest rate swaps disclosed in Note 9 are designated and effective as fair value hedges in respect of interest rates and foreign exchange rates. As at the end of the reporting period, the hedges were substantially effective in hedging the fair value exposure to interest rate and foreign exchange rate movements and as a result the carrying amount of the Notes was adjusted by US$5,150,000 (2009 : US$7,308,000) which was included in profit or loss at the same time that the fair value of derivative instruments was included in profit or loss.
14 OTHER PAYABLES
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Accrued interest | 503,501 | 1,053,625 | |||
| Others | 216,850 | 217,440 | |||
| 720,351 | 1,271,065 | ||||
15 ISSUED CAPITAL
|
2010 |
2009 |
2010 |
2009 |
||||||
| Number of ordinary shares | US$ | US$ | |||||||
| Issued and fully paid: | |||||||||
| Balance at beginning and | |||||||||
| end of year | 15,000,000 | 15,000,000 | 15,000,000 | 15,000,000 | |||||
The company has one class of ordinary shares which carry no right to fixed income.
16 INTEREST INCOME
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Ultimate holding company, | |||||
| related companies and related parties | 7,952,962 | 19,375,976 | |||
| Other parties | 758,084 | 2,790,571 | |||
| Total | 8,711,046 | 22,166,547 | |||
17 INTEREST EXPENSE
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Ultimate holding company and related companies | 2,338,398 | 6,051,735 | |||
| Other parties | 2,519,773 | 11,554,318 | |||
| Total | 4,858,171 | 17,606,053 | |||
18 OTHER OPERATING EXPENSES
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Foreign currency exchange adjustment loss (net) | 238,901 | 1,626,505 | |||
| Professional service fees | 247,325 | 280,872 | |||
| Guarantee fee | 2,780 | 24,381 | |||
| Others | 215,992 | 240,582 | |||
| Total | 704,998 | 2,172,340 | |||
19 PROFIT BEFORE INCOME TAX
Profit before income tax has been arrived as after charging (crediting):
|
2010 |
2009 |
||||||
| US$ | US$ | ||||||
| Directors’ remuneration | 301,489 | 373,322 | |||||
| Staff costs (including directors’ remuneration) | 601,636 | 677,587 | |||||
| Cost of defined contribution plans included in staff costs | 29,833 | 34,095 | |||||
| Loss arising on adjustment for hedged items | |||||||
| in designated accounting relationships | 4,496,000 | 6,510,000 | |||||
| (Gain) Loss arising on derivatives not in designated | |||||||
| hedge accounting relationships | (6,005 | ) | 66,057 | ||||
| Gain arising on derivatives in designated | |||||||
| hedge accounting relationships | (4,496,000 | ) | (6,510,000 | ) | |||
20 INCOME TAX
|
2010 |
2009 |
||||||
| US$ | US$ | ||||||
| Current year tax | 447,338 | 302,583 | |||||
| Overprovision in prior years | (26,846 | ) | (187,007 | ) | |||
| Total | 420,492 | 115,576 | |||||
The company records income tax on the basis of income attributable to it in Singapore which is taxed at the statutory rate of 17% (2009 : 17%).
The company is awarded the Finance and Treasury Centre (“FTC”) status in 2003 effective from July 1, 2003. Under the FTC status, the company is exempted from withholding tax on interest payable for the conduct of qualifying FTC activities.
21 COMMITMENTS
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| Minimum lease payments paid under operating leases | 146,231 | 111,246 |
As at the end of the reporting period, the Branch has the following outstanding commitments:
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| a) Lease commitments: | |||||
| Within one year | 78,617 | 80,291 | |||
| In the second to fifth years inclusive | - | 42,237 | |||
| 78,617 | 122,528 | ||||
Operating lease payments represent rentals payable by the company for office and apartment space. Operating leases are negotiated for an average term of 3 years and rentals are fixed for 3 years.
|
2010 |
2009 |
||||
| US$ | US$ | ||||
| b) Undrawn irrevocable credit lines | 452,830,056 | 411,817,774 |
Undrawn irrevocable credit lines comprise mainly agreements to provide credit facilities to related companies and related parties.
22 DIVIDENDS
On September 28, 2009, a dividend of approximately US$0.17 per share (total dividend US$2,500,000) is paid to shareholders. No dividend was declared for 2008.
23 RECLASSIFICATIONS AND COMPARATIVE FIGURES
In prior year’s financial statements, derivative financial instruments with remaining maturity of more than 12 months and are not expected to be realised or settled within 12 months were incorrectly classified as current assets and liabilities. These instruments should have been classified under non-current assets and non-current liabilities. Further details on the derivative financial instruments are found in Note 9 to the financial statements.
As a result, certain line items have been amended in the statement of financial position and the related notes to the financial statements. Comparative figures have been adjusted to conform to current year’s presentation.
The items are reclassified as follows:
| Previously | After | ||||
|
reported |
reclassification |
||||
| US$ | US$ | ||||
|
Statement of financial position |
|||||
|
Current assets |
|||||
| Derivative financial instruments | 7,332,383 | 527,383 | |||
|
Non-current assets |
|||||
| Derivative financial instruments | - | 6,805,000 | |||
|
Current liabilities |
|||||
| Derivative financial instruments | 888,440 | 90,440 | |||
|
Non-current liabilities |
|||||
| Derivative financial instruments | - | 798,000 | |||
MITSUI & CO. FINANCIAL SERVICES (ASIA) LTD.
REPORT OF THE DIRECTORS AND FINANCIAL STATEMENTS
CONTENTS
Report of the directors
Statement of directors
Independent auditors’ report
Statement of financial position
Statement of comprehensive income
Statement of changes in equity
Statement of cash flows
Notes to financial statements
MITSUI & CO. FINANCIAL
SERVICES
(ASIA) LTD.
(Registration No. 199508683N)
REPORT OF THE DIRECTORS
AND FINANCIAL
STATEMENTS
YEAR ENDED MARCH 31, 2010
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