1 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
2 INTERIM MANAGEMENT REPORT (UNAUDITED) FOR THE 6 MONTHS ENDED 30 JUNE Key Risks and uncertainties Risks and uncertainties could impact on our ability to meet our targets or be detrimental to our profitability. The risks that we regard as the most relevant to our business are identified below. We have also commented on certain mitigating actions that we believe could help us manage such risks. Business risks The group is principally involved in telecommunications services. These businesses are subject to certain risks inherent in that sector, which include but are not limited to changes in the general economy, business and credit conditions in Malaysia in which the group operates and changes in the relevant government policies and regulations. The group seeks to limit these risks where they are within its control, by proactively managing the daily operations effectively and efficiently. Economic and business conditions The sectors in which Vasseti operates may be affected by the general economic environment, specific market or client conditions and inflation which may impact on Vasseti s financial performance. To mitigate this, market trends, both general and sector specific are monitored and factored into business planning and forecasting. In addition Vasseti builds strong working relationships with its clients maintaining an on-going open dialogue to provide clear visibility on future revenue. Loss of a major client Loss or a significant reduction in activity from one or more of these clients would impact on Vasseti s business, operating profits and financial position. In mitigation Vasseti manages client relationships, monitors performance, reviews feedback and understands on going client requirements. Loss of key personnel The loss of key personnel and/or Vasseti s inability to attract high quality employees with the required levels on knowledge and technical expertise may impact on our ability to achieve business objectives. To mitigate this Vasseti seeks to motivate and retain employees by offering remuneration packages that include competitive basic salaries, annual bonus awards and benefit packages. In addition Vasseti undertakes a comprehensive annual review process to identify staff training and development needs which are fulfilled through the provision of both in house and external resource helping to improve staff retention. Technology changes A proportion of Vasseti s revenue comes from the development of technology, changes in which may have an impact on growth and financial performance. To mitigate this Vasseti continually invests in the highest quality human resource allowing for an agile approach to development and technology integration. This allows Vasseti to react quickly as market trends develop and change. 2. Strategic corporate developments As at April, 2013, the Group has been issued license to provide internet service in Singapore.
3 The Company now owns Telecommunication license in Singapore, Malaysia and Thailand, perhaps the only company that has multiple license in multiple countries. It is also in negotiations with other ASEAN countries for Local telecommunications license. This allows the company to provide seamless service to other providers as it acts as a one-stop network solutions provider. This in turn allows the company to provide a more cost efficient solution to other providers wishing to expand their own network within the region. Thailand is a key component in the VSAN Project as it provides the landmass for terrestrial network to run into China via Vietnam, Laos and Cambodia and India through Myanmar and Bangladesh. Being a country that boasts a large number of expatriates, the demand for bandwidth is ever increasing. With large Multinational companies welcoming an independent network provider providing alternative terrestrial network in and out of the country, it is a huge incentive for the Group to complete the infrastructure deployment soonest possible. 3. Outlook Our outlook for the year 2013 shows promising growth, in line with the global trend of increasing telecommunications usage that is highly dependent on the internet with high speed and high capacity fiber optic connections. We believe 2013 will be another excellent year for the Group and the Board of Directors and Management look forward to achieving excellent results with great optimism.
4 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (All Amounts in Ringgit Malaysia) 6 Months ended 6 Months ended 30-Jun 30-Jun unaudited unaudited MYR MYR REVENUE 31,903,416 37,119,000 COST OF SALES (9,973,253) (12,122,000) GROSS PROFIT 21,930,163 24,997,000 OTHER OPERATING INCOME 119,159 50,000 GOODWILL WRITTEN-OFF 0 0 OTHER OPERATING EXPENSES (5,372,962) (4,748,000) EARNINGS BEFORE INTEREST, TAX & DEPRECIATION 16,676,359 20,299,000 FINANCE COSTS (1,451,000) (2,661,000) DEPRECIATION AND AMORTISATION (13,053,500) (6,493,000) EARNINGS BEFORE INCOME TAXES 2,171,859 11,145,000 TAXATION (564,683) (33,000) PROFIT AFTER TAXATION 1,607,176 11,112,000 MINORITY INTEREST (49,983) (346,000) NET INCOME 1,557,193 10,766,000 RETAINED PROFITS BROUGHT FORWARD 12,412,000 10,823,000 DIVIDENDS PAID 0 0 RETAINED PROFITS CARRIED FORWARD 13,969,193 21,589,000
5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (All Amounts in Ringgit Malaysia) As at As at 30-Jun 31-Dec unaudited audited MYR MYR CURRENT ASSETS Cash & cash equivalent 17,779,077 14,241,000 Fixed deposit 18,500,000 18,348,000 Inventories 178, ,000 Trade receivables 13,687,996 10,013,000 Other receivables 20,234,415 21,740,000 70,379,487 64,543,000 NON-CURRENT ASSETS Property, plant & equipment 552,052, ,783,000 Investment in subsidiaries 0 0 Investment in unqouted shares 50,000,000 50,000,000 Goodwill on consolidation 18,568,000 18,568,000 Network development costs 231,221, ,895,000 TOTAL ASSETS 922,221, ,789,000 CURRENT LIABILITIES Trade payables 29,699,571 27,201,000 Other payables 16,091,172 12,671,000 Bank borrowings 3,887, ,427,000 Amount owing to directors 28,937,000 28,937,000 Amount owing to subsidiary 0 0 Hire-purchase and lease payables 293, ,000 Tax Liabilities 756,797 1,467,000 79,666,403 74,998,000 NON-CURRENT LIABILITIES Hire-purchase and lease payables 1,755,000 1,613,000 Bank borrowings 207,600, ,356,000 Other payables 49,926,475 47,529,000 Deferred taxation 2,207,200 3,784,000 TOTAL LIABILITIES 341,155, ,280,000 SHAREHOLDERS' EQUITY Share capital - Ordinary shares 656,145, ,145,000 Currency translation reserve 255, ,000 Merger reserve (245,145,000) (245,145,000) Retained earnings 13,969,193 12,412, ,224, ,667,000 Minority Interests 155,842, ,842,000 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 922,221, ,789,000
6 CONSOLIDATED STATEMENT OF CASH FLOWS (All Amounts in Ringgit Malaysia) As at As at 30-Jun 31-Dec unaudited audited MYR MYR Cash from operations Profit/ (loss) before taxation 2,171,859 5,959,000 Adjustments for items not requiring an outflow of funds: Bad debts written off 88, ,000 Unrealised (gain)/ loss on foreign exchange (155,000) (232,000) Gain from disposal of property, plant & equipment 0 (49,000) Gain from disposal of subsidiary companies 0 (4,761,000) Property, plant & equipment impaired 0 3,000 Goodwill impairment charge 0 0 Interest expenses 1,451,000 2,902,000 Interest income (119,159) (58,000) Depreciation 13,053,500 30,107,000 Operating profit/ (loss) before changes in working capital 16,490,200 34,333,000 Changes in working capital: Decrease/ (increase) in trade and other receivables (2,169,411) 3,384,000 Increase in inventories 23,000 (56,000) Increase/ (decrease) in trade and other payable 8,985,743 27,557,000 Amount owing to directors 0 9,643,000 Interest paid (1,451,000) (667,000) Interest received 119,159 58,000 Exchange translation on foreign currency 0 (491,000) Income taxes refunded 0 167,000 Income taxes paid (122,000) (107,000) Net cash from operating activities 21,875,692 73,821,000 Investing activities Proceeds from sale of property, plant & equipment 0 549,000 Increase in assets under construction (9,491,449) (215,312,000) Redemption of other investment 0 47,000,000 Net cash inflow from disposal of subsidiaries 0 5,567,000 Net cash inflow from acquisition of subsidiary companies 0 0 Purchase of property, plant & equipment (5,269,015) (4,853,000) Net cash used in investing activities (14,760,463) (167,049,000) Financing activities Proceeds from issue of preference shares 0 0 Redeemed on preference shares 0 (74,185,000) Drawdown of bank borrowings (539,014) 200,000,000 Dividends paid on preference shares 0 (3,851,000) Repayment of bank borrowings (3,046,000) (2,467,000) Net repayment of hire purchase payables (301,124) 225,000 Increased in pledged fixed deposits 0 (156,000) Net cash from financing activities (3,886,138) 119,566,000 (Decrease)/ increase in cash & cash equivalents 3,229,091 26,338,000 Cash and cash equivalents at 1 January 25,919,000 (419,000) Cash & cash equivalents at 29,148,091 25,919,000
7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (All Amounts in Ringgit Malaysia) Share Capital Merger Reserve Currency Translation Reserve Retained Earnings Non- Controlling Interest Total Equity MYR MYR MYR MYR MYR MYR Year ended 31 December 2012 At 1st January ,145,000 (245,145,000) 183,000 10,823, ,714, ,720,000 Total comprehensive income for ,000 3,205,000 69,000 3,346,000 Transactions with shareholders: Effect from disposal of subsidiary companies , ,000 Redemption of preference shares (74,185,000) (74,185,000) Preference dividend paid by subsidiaries (1,616,000) 0 (1,616,000) At 31 December ,145,000 (245,145,000) 255,000 12,412, ,842, ,509,000 At 1 January ,145,000 (245,145,000) 255,000 12,412, ,842, ,509,000 Total comprehensive income for ,557,193 Transactions with shareholders: Effect from disposal of subsidiary companies Redemption of preference shares Preference dividend paid by subsidiaries At 31 December ,145,000 (245,145,000) 255,000 13,969, ,842, ,509,000
8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE 6 MONTHS ENDED 30 JUNE Accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated below. 1.1 Basis of preparation and going concern The financial statements are prepared under the historical cost convention and on a going concern basis. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the European Union ( IFRS ) and in accordance with applicable company law. The parent company s financial statements have also been prepared in accordance with IFRS. The financial statements are presented in Malaysian Ringgit (MYR) which is the groups functional currency. Going concern After making appropriate enquiries and examining those areas which could give rise to financial exposure the directors are satisfied that no material or significant exposures exist and that the group has adequate resources to continue its operations for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the company s and group s financial statements. 1.2 Basis of consolidation and comparative information presented The consolidated financial statements incorporate the financial statements of the company and its subsidiary undertakings. The financial information of the subsidiaries is prepared for the same reporting period as the parent company using consistent accounting policies. Intragroup sales, transactions and results are eliminated on consolidation. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated fully on consolidation. The gain or loss on disposal of a subsidiary company is the difference between net disposals proceeds and the group's share of its net assets together with any goodwill and exchange differences. 1.3 Goodwill Goodwill represents amounts arising on the acquisitions of subsidiaries and is stated at cost less any accumulated impairment losses. Goodwill represents the excess of the cost of an acquisition of a subsidiary over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Any impairment on goodwill is recognised immediately in the income statement and is not subsequently reversed. Gains and losses on the disposal of a subsidiary include the carrying amount of goodwill relating to the subsidiary sold.
9 Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. 1.4 Property, plant and equipment Property, plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows: Computer and software Building and condominium Furniture and fittings and office communication systems Office equipment and electrical fittings and mobile phone Renovations Ethernet systems Motor vehicles and carts Fibre infrastructure and Xaraxa 3 10 years 50 years 10 years 5 years 4 5 years 20 years 5 years 20 years Leasehold buildings are depreciated over the remaining lease period. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Profits or losses on disposals of property, plant and equipment are determined by comparing proceeds with the carrying amount and are included in the income statement. Property, plant and equipment are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset s net selling price and value in use. 1.5 Investments Investments in subsidiary companies are included in the parent company s balance sheet at cost less provision for impairment in value. 1.6 Available-for-sale investments Available-for-sale investments are investments in unquoted securities which are stated at cost less impairment losses. Impairment is provided where there is a decline in the value of such investments. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. 1.7 Inventories Inventories are valued at the lower of cost and net realisable value. 1.8 Impairment of assets The group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value of money and the risks
10 specific to the asset. Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset. 1.9 Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at cost and comprise cash in hand, cash at bank, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are included within borrowings in current liabilities on the statement of financial position. For the purposes of the cash flow statement, cash and cash equivalents also include the bank overdrafts but does not include cash at bank that has been pledged as security for bank facilities Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the assets carrying amount and the recoverable amount. Provisions for impairment of receivables are included in the income statement Leasing and hire purchase liabilities Leases and hire purchase liabilities where a significant portion of the risks and rewards of ownership are retained by the lease are classified as operating leases (e.g. property leases). Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the year end date Deferred taxation Deferred income taxes are provided in full, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income taxes are determined using tax rates that have been enacted or substantially enacted and are expected to apply when the related deferred income tax asset is realised or the related deferred income tax liability is settled. The principal temporary differences arise from depreciation on property, plant and equipment and tax losses carried forward. Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised Equity instruments Ordinary shares are classed as equity. Costs directly attributable to the issue of new shares or share options are shown in equity as a deduction from the proceeds.
11 1.15 Financial instruments Financial instruments (including redeemable preference shares) are recognised in the statement of financial position when the group has become a party to the contractual provisions of the instrument. Financial instruments (including redeemable preference shares) are classified as liabilities or equity in accordance with the substance of the contractual agreement and in accordance with the requirements of IAS 32 Financial Instruments: Presentation. Interest, dividends, gains and losses relating to a financial instrument classified as liabilities, are reported as expenses or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the group has a legally enforceable right to offset and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable net of any sales tax, returns, rebates or discounts and after eliminating sales with the group. Revenue is recognised as follows: (i) (ii) (iii) (iv) (v) Sales of goods Revenue is recognised net of sales taxes and upon transfer of significant risks and rewards of ownership to the buyer. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. Services Revenue from services rendered is recognised in the statements of comprehensive income in proportion to the stage of completion of the transaction at the statements of financial position date. The stage of completion is assessed by reference to surveys of work performed. Rental income Rental income is recognised in the statements of comprehensive income on a straightline basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Dividend income Dividend income is recognised when the shareholder s right to receive payment is established. Interest income Interest income is recognised on a time proportion basis that takes into account the effective yield on the asset Financial income and expenses Financial income comprises interest receivable on cash balances and deposits. Interest income is recognised when the right to receive payments is established. Financial expenses comprise interest payable on bank loans, finance lease charges and other financial costs and charges. Interest payable is recognised on an accrual basis.
12 1.18 Foreign currency translation i) Functional and presentational currency Items included in the financial statements of each of the group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The functional currency is Malaysian Ringgit (MYR). The consolidated financial statements are presented in Malaysian Ringgit, which is the company s presentational currency. ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange 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 recognised in the income statement New IFRS standards and interpretations During the year no new accounting standards had a material effect on the financial statements of the group. At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective: IFRS 10 Consolidated Financial Statements 1 January 2013 IFRS 11 Joint Arrangement 1 January 2013 IFRS 12 Disclosure of Interests in Other Entities 1 January 2013 IFRS 13 Fair Value Measurement 1 January 2013 IAS 19 (revised) Employee Benefits 1 January 2013 IAS 27 (revised) Separate Financial Statements 1 January 2013 IAS 28 (revised) Investments in Associated and Joint Ventures 1 January 2013 IFRS1 (amendment) Government Loans 1 January 2013 IFRS7 (amendment) Disclosures: Offsetting Financial Assets & Liabilities 1 January 2013 IAS 32 (amendment) Offsetting Financial Assets and Financial Liabilities 1 January 2014 IFRS 9 Financial Instruments 1 January 2015 The group has not early adopted these amended standards and interpretations. The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the group s financial statements in the periods of initial application. 2. Significant accounting judgements and estimates The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Judgements and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates may differ from the related actual results. The estimates and assumptions that have a risk of causing material adjustment to the carrying amounts of assets and liabilities within the future financial years are as follows:
13 Impairment of intangible assets Determining whether intangible assets are impaired requires an estimation of the recoverable amounts of estimated future cash flows expected to arise from the assets. Goodwill The group follows the requirements of IAS 36 Impairment of Assets and tests goodwill annually to determine when goodwill is impaired (see accounting policy in note 1 above and goodwill in note xx below). This determination requires significant judgment. In making this judgment, the group estimates the recoverable amount of the cash generating units to which goodwill has been allocated based on value-in-use calculations. The value-in-use calculations require the entity to estimate the future cash flows expected to arise from the cash generating units and a suitable discount rate in order to calculate present value. For the purpose of impairment testing, goodwill has been allocated to the company s subsidiaries. The recoverable amount was determined based on value in use and was determined at the cash generating unit which is based on financial budgets approved by the directors using the following key assumptions: a) Cash flows are projected based on expected revenue to be generated from the existing business model; b) Inflation rate of 3% per annum after the fifth year of forecasts; c) A pre-tax discount rate of 10% The above key assumptions represent the directors assessment of the future outlook based on their best estimates and they believe that it is unlikely that any significant variation in the above assumptions would significantly affect the recoverable amount of goodwill. Deferred tax The group estimates future profitability in arriving at the fair value of the deferred tax assets and liabilities. If the final tax outcome is different to the estimated deferred tax amount the resulting changes will be reflected in the income statement, unless the tax relates to an item charged to equity in which case the changes in tax estimates will also be reflected in equity. Depreciation, useful lives and residual values of non-current assets The directors estimate the useful lives and residual values of property, plant & equipment and intangible assets in order to calculate the depreciation charges. Changes in these estimates could result in changes being required to the annual depreciation charges in the income statements and the carrying values of the property, plant & equipment in the statements of financial position. Judgments In the process of applying the group s accounting policies, management has made the following significant judgments, apart from those involving estimations, which may have a significant effect on amounts recognised in the financial statements: impairment of assets (including receivables, intangible assets and property, plant and equipment).