Cover Sheet: Company Name
Cover Sheet: Company Name
Cover Sheet: Company Name
A 2 0 0 1 1 7 7 0 8
Company Name
X U R P A S I N C . A N D S U B S I D I A R I E S
a g e , M a k a t i C i t y
1 7 - Q S E C N / A
COMPANY INFORMATION
Company’s Email Address Company’s Telephone Number/s Mobile Number
7th Floor Cambridge Centre, 108 Tordesillas St. Salcedo Village, Makati City
Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the
Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person
designated.
SECURITIES AND EXCHANGE COMMISSION
4. Xurpas Inc.
Exact name of issuer as specified in its charter
Philippines
5. Province, country or other jurisdiction of incorporation or organization
7F Cambridge Centre, 108 Tordesillas St., Salcedo Village, Makati City 1227
7. Address of issuer's principal office Postal Code
(632) 889-6467
8. Issuer's telephone number, including area code
Not Applicable
9. Former name, former address and former fiscal year, if changed since last report
10.Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA
Yes [ ] No [ ]
If yes, state the name of such Stock Exchange and the class/es of securities listed therein:
Philippine Stock Exchange Common Shares 1,797,700,660
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or
Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the
Corporation Code of the Philippines, during the preceding twelve (12) months (or for such shorter
period the registrant was required to file such reports)
Yes [ ] No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [ ] No [ ]
PART I--FINANCIAL INFORMATION
Attachments:
Schedule I: Map Showing the Relationships Between and Among the Companies in the Group, Its Subsidiaries and Associate
Schedule II: Schedule of All Effective Standards and Interpretations under Philippine Financial Reporting Standards
Schedule III: Reconciliation of Retained Earnings Available for Dividend Declaration
Schedule IV: Financial Ratios
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The MD&A is a discussion and analysis of the Company’s financial position as of September 30, 2016 and
December 31, 2015 and performance for the nine-month periods ended September 30, 2016 and 2015. The primary
objective of this MD&A is to help the readers understand the dynamics of the Company’s business and the key
factors underlying the Company’s financial results.
The MD&A as of and for the nine-month period ended September 30, 2016 should be read in conjunction with the
unaudited interim condensed consolidated financial statements and the accompanying notes.
PART II--OTHER INFORMATION
There are no other information for this period not previously reported in SEC Form 17-C that needs to be reported
in this section.
PART I--FINANCIAL INFORMATION
ASSETS
Current Assets
Cash and cash equivalents (Notes 5 and 24) P
= 499,804,325 P305,885,002
=
Accounts receivable (Notes 6, 19 and 24) 657,417,701 756,406,724
Financial assets at fair value through profit or loss (Notes 7 and 24) 536,306,726 80,317,867
Available-for-sale financial assets (Notes 8 and 24) 70,403,123 17,657,123
Other current assets 67,920,894 44,298,472
Total Current Assets 1,831,852,769 1,204,565,188
Noncurrent Assets
Available-for-sale financial assets – net of current portion (Notes 8 and 24) 67,959,956 67,959,956
Investments in associates (Note 9) 562,449,774 102,809,116
Property and equipment (Note 10) 71,360,044 58,183,944
Intangible assets (Note 11) 1,877,403,044 1,888,282,481
Deferred tax assets – net 44,054,490 42,523,636
Other noncurrent assets 36,683,419 30,049,094
Total Noncurrent Assets 2,659,910,727 2,189,808,227
P
=4,491,763,496 =3,394,373,415
P
Noncurrent Liabilities
Deferred tax liabilities – net 354,003,230 360,587,068
Pension liabilities 26,465,791 40,873,938
Total Noncurrent Liabilities 380,469,021 401,461,006
Total Liabilities 1,673,492,587 1,830,621,862
P
=4,491,763,496 =3,394,373,415
P
For the nine-month period ended For the three-month period ended
September 30, September 30, September 30, September 30,
2016 2015 2016 2015
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Service income (Note 15) P
=1,064,753,582 P
=458,502,660 P
=356,947,273 P
=185,575,323
Sale of goods 41,882,677 35,930,578 19,555,147 5,943,759
Interest income (Note 5) 2,982,730 8,580,639 1,217,360 3,484,816
Other income (Note 7) 16,596,360 5,635,026 12,407,563 1,658,329
1,126,215,349 508,648,903 390,127,343 196,662,227
COST AND EXPENSES
Cost of services (Note 16) 548,842,837 143,794,590 196,184,569 67,437,291
Cost of goods sold 28,739,802 30,898,724 12,292,385 5,088,774
General and administrative expenses (Note 17) 259,041,198 88,808,262 90,065,335 49,193,562
Equity in net loss of associates (Note 9) 10,139,479 6,086,636 3,594,089 2,104,283
846,763,316 269,588,212 302,136,378 123,823,910
PROVISION FOR INCOME TAX (Note 20) 86,546,823 76,679,154 27,591,464 26,071,209
(Forward)
For the nine-month period ended For the three-month period ended
September 30, September 30, September 30, September 30,
2016 2015 2016 2015
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
September 30
2016 2015
(Unaudited) (Unaudited)
(Forward)
September 30
2016 2015
(Unaudited) (Unaudited)
NONCONTROLLING INTERESTS
Balance at January 1 771,522,209 11,263,488
Acquisition of subsidiary − 14,155,584
Net income (loss) 43,377,701 (5,319,666)
Effect of pooling of interests (10,582,255) −
Dividends paid to noncontrolling interests (4,900,000) (6,125,000)
Actuarial losses on pension liabilities (208,954) −
Balance at September 30 799,208,701 13,974,406
P
=2,818,270,909 =1,592,145,007
P
September 30
2016 2015
(Unaudited) (Unaudited)
(Forward)
September 30
2016 2015
(Unaudited) (Unaudited)
1. Corporate Information
Xurpas Inc. (the Parent Company) was incorporated in the Philippines and registered with the Securities and
Exchange Commission (SEC) on November 26, 2001. The principal activities of the Parent Company and its
subsidiaries (collectively referred to as the Group) are to develop, produce, sell, buy or otherwise deal in
products, goods or services in connection with the transmission, receiving, or exchange of voice, data, video
or any form or kind of communication whatsoever.
The Parent Company’s registered office address and principal place of business is at 7th Floor, Cambridge
Centre, 108 Tordesillas St. Salcedo Village, Makati City. On May 5, 2014, the BOD approved the amended
Articles of Incorporation to reflect the change in business address from its previous office address at 1903
Antel 2000 Corporate Centre 121 Valero St. Salcedo Village, Makati City and its principal place of business,
which is also registered with BIR is at 24B Trafalgar Plaza, 105 HV Dela Costa St., Salcedo Village, Makati
City to the current address. On June 25, 2014, the SEC certified the amended Articles of Incorporation
amending the principal place of business.
On November 12, 2014, Philippine Stock Exchange (PSE) has approved the listing of 344.00 million common
=3.97 per share (P
shares at an offer price of P =1,365.68 million) for initial public offering of Xurpas Inc.
On November 13, 2014, the SEC granted Xurpas Inc. permit to sell or offer its securities which consist of
1,720.00 million common shares.
On December 2, 2014, the Parent Company’s shares of stock were listed in the PSE.
The accompanying interim condensed consolidated financial statements were approved and authorized for
issue by the Board of Directors (BOD) on November 9, 2016.
Basis of Preparation
The interim condensed consolidated financial statements of the Group as of September 30, 2016 and for the
nine-month periods ended September 30, 2016 and 2015, have been prepared in accordance with Philippine
Accounting Standard (PAS) 34, Interim Financial Reporting.
Accordingly, the interim condensed consolidated financial statements do not include all of the information
and disclosures required in the annual consolidated financial statements, and should be read in conjunction
with the Group’s annual audited consolidated financial statements as of and for the year ended
December 31, 2015.
The interim condensed consolidated financial statements are presented in Philippine Peso (P
=), the Group’s
presentation currency. All amounts were rounded-off to the nearest Peso, except when otherwise indicated.
The interim condensed consolidated financial statements have been prepared under the historical cost basis,
except for AFS financial assets that have been measured at fair value.
Statement of Compliance
The accompanying interim condensed consolidated financial statements of the Group as of
September 30, 2016 and December 31, 2015 and for the nine-month periods ended September 30, 2016 and
2015 have been prepared in accordance with Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Xurpas Inc. and its subsidiaries
as of September 30, 2016 and December 31, 2015.
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company
using consistent accounting policies for like transactions and other events in similar circumstances.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect that return through its power over the investee. Specifically, the
Group controls an investee if and only if the Group has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities
of the investee),
• Exposure, or rights, to variable returns from its involvement with the investee, and
• The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption
and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers
all relevant facts and circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement with the other voter holders of the investee
• Rights arising from other contractual arrangements
• The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls and investee if facts and circumstances indicate that there
are changes to one or more of the three elements of control. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated financial statements from
the date the Group obtains control until the date the Group ceases to control the subsidiary.
Noncontrolling interests represent the portion of profit or loss and net assets in a subsidiary not wholly owned
and are presented separately in the consolidated statement of comprehensive income and consolidated
statement of changes in equity and within equity in the consolidated statement of financial position, separately
from the Parent Company’s equity.
Total comprehensive income within a subsidiary is attributed to the noncontrolling interest even if that results
in a deficit balance.
All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between
members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity
transaction. If the Group loses control over a subsidiary, it:
• Derecognizes the assets (including goodwill) and liabilities of the subsidiary, the carrying amount of any
noncontrolling interest and the cumulative translation differences recorded in equity.
• Recognizes the fair value of the consideration received, the fair value of any investment retained and any
surplus or deficit in profit or loss.
• Reclassifies the parent’s share of components previously recognized in other comprehensive income to
profit or loss or retained earnings, as appropriate.
As of September 30, 2016 and December 31, 2015, the consolidated financial statements comprise the
financial statement of the Parent Company and the following domestic subsidiaries:
Percentage Ownership
September 30, December 31,
2016 2015 Principal Activities
Fluxion, Inc. (Fluxion) 100.00% 65.00% Enterprise services
Xeleb Inc. (Xeleb) 100.00 67.00 Mobile consumer services
Seer Technologies, Inc. (Seer) 70.00 70.00 Enterprise services
Codesignate Inc. (Codesignate)* 52.50 52.50 Enterprise services
Storm Flex Systems, Inc. (Storm) 51.06 51.06 Human resource management
Mobile consumer services and
Yondu, Inc. (Yondu) 51.00 51.00 enterprise services
Xurpas Enterprise Inc. (“Xurpas
Enterprise) 100.00 − Enterprise services
*Codesignate is a 75%-owned subsidiary of Seer. The Group’s effective ownership over Codesignate is
52.50%. The Group has determined that it has control over the entity and consolidates the entity on
this basis.
On July 14, 2015, the Parent Company incorporated Xeleb Inc., a mobile games company domiciled in the
Philippines. Xeleb was organized primarily to design, develop, test, build, market, distribute, maintain,
support, customize, sell and/or sell applications, games, software, digital solutions, whether internet, mobile
or other handheld applications, portals, hardware and other related projects and services, except internet
provider services, both for proprietary and custom development purposes.
On March 23, 2016, the Parent Company incorporated Xurpas Enterprise. Xurpas Enterprise shall primarily
engage in the business of software development including designing, upgrading and marketing all kinds of
information technology systems or parts thereof and other related services.
On August 22, 2016, Deeds of Absolute Sale were executed for the acquisition by the Parent Company of the
remaining 35% interest in Fluxion. The acquisition of the 35% interest resulted in Fluxion being a wholly-
owned subsidiary of the Parent Company.
On August 22, 2016, Fluxion acquired 3,350,000 shares or 67% majority stake in Xeleb from the Parent
Company at P =1.00 per share or P
=3.35 million. On the same date, Fluxion acquired the remaining 33% stake in
Xeleb from its minority stakeholders for a total consideration of P
=1.65 million. This resulted in 100% ownership
interest of Fluxion in Xeleb.
• PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint
Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
These Amendments address an acknowledged inconsistency between the requirements in PFRS 10
and those in PAS 28 (2011) in dealing with the sale or contribution of assets between an investor
and its associate or joint venture. The Amendments require that a full gain or loss is recognized when
a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss
is recognized when a transaction involves assets that do not constitute a business, even if these assets
are housed in a subsidiary. These Amendments do not affect the Group since it has no investment in
joint ventures
• PAS 27, Separate Financial Statements – Equity Method in Separate Financial Statements
(Amendments)
The Amendments will allow entities to use the equity method to account for investments in
subsidiaries, joint ventures and associates in their separate financial statements. Entities already
applying PFRS and electing to change to the equity method in its separate financial statements will
have to apply that change retrospectively. For first-time adopters of PFRS electing to use the equity
method in its separate financial statements, they will be required to apply this method from the date
of transition to PFRS. These Amendments will not have any impact on the Group’s consolidated
financial statements.
• PFRS 11, Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations
(Amendments)
The Amendments to PFRS 11 require that a joint operator accounting for the acquisition of an
interest in a joint operation, in which the activity of the joint operation constitutes a business must
apply the relevant PFRS 3 principles for business combinations accounting. The Amendments also
clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an
additional interest in the same joint operation while joint control is retained. In addition, a scope
exclusion has been added to PFRS 11 to specify that the Amendments do not apply when the parties
sharing joint control, including the reporting entity, are under common control of the same ultimate
controlling party.
The Amendments apply to both the acquisition of the initial interest in a joint operation and the
acquisition of any additional interests in the same joint operation. These Amendments are not
relevant to the Group.
• PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of Acceptable
Methods of Depreciation and Amortization (Amendments)
The Amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of
economic benefits that are generated from operating a business (of which the asset is part) rather
than the economic benefits that are consumed through use of the asset. As a result, a revenue based
method cannot be used to depreciate property, plant and equipment and may only be used in very
limited circumstances to amortize intangible assets. These Amendments do not have any impact to
the Group given that it has not used a revenue-based method to depreciate its non-current assets.
• PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants (Amendments)
The Amendments change the accounting requirements for biological assets that meet the definition
of bearer plants. Under the Amendments, biological assets that meet the definition of bearer plants
will no longer be within the scope of PAS 41. Instead, PAS 16 will apply. After initial recognition,
bearer plants will be measured under PAS 16 at accumulated cost (before maturity) and using either
the cost model or revaluation model (after maturity). The Amendments also require that produce
that grows on bearer plants will remain in the scope of PAS 41 measured at fair value less costs to
sell. For government grants related to bearer plants, PAS 20, Accounting for Government Grants
and Disclosure of Government Assistance, will apply. These Amendments do not have any impact
to the Group as it does not have any bearer plants.
• PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in Methods of
Disposal
• PFRS 7, Financial Instruments: Disclosures - Servicing Contracts
• PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements
• PAS 19, Employee Benefits - regional market issue regarding discount rate
• PAS 34, Interim Financial Reporting - disclosure of information ‘elsewhere in the interim financial
report’
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use
when pricing the asset or liability, assuming that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use
of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements
are categorized within the fair value hierarchy (see Note 24).
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the
Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing
categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at
the end of each reporting period.
Financial Instruments
Date of recognition
The Group recognizes a financial asset or a financial liability in the consolidated statement of financial
position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of
financial assets that require delivery of assets within the time frame established by regulation or convention
in the marketplace are recognized on the settlement date.
The Group classifies its financial assets in the following categories: financial assets at FVPL, held-to-
maturity investments (HTM), available-for-sale (AFS) investments and loans and receivables. The Group
classifies its financial liabilities into financial liabilities at FVPL and other financial liabilities. The
classification depends on the purpose for which the investments were acquired and whether they are quoted
in an active market. Management determines the classification of its investments at initial recognition and,
where allowed and appropriate, re-evaluates such designation at every financial reporting date.
Financial instruments are classified as liability or equity in accordance with the substance of the contractual
arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a
financial liability, are reported as expense or income. Distributions to holders of financial instruments
classified as equity are charged directly to equity net of any related income tax benefits.
As of September 30, 2016 and December 31 2015, the Group’s financial instruments are of the nature of
loans and receivables, financial assets at FVPL, AFS financial assets and other financial liabilities.
‘Day 1’ difference
Where the transaction price in a non-active market is different from the fair value from other observable
current market transactions in the same instrument or based on a valuation technique whose variables include
only data from observable market, the Group recognizes the difference between the transaction price and fair
value (a ‘Day 1’ difference) in the profit or loss (interest income or interest expense and other financing
charges accounts) unless it qualifies for recognition as some other type of asset. In cases where use is made
of data which is not observable, the difference between the transaction price and model value is only
recognized in the profit or loss when the inputs become observable or when the instrument is derecognized.
For each transaction, the Group determines the appropriate method of recognizing the ‘day 1’ difference
amount. Accounts receivables are recognized initially at original invoice amounts. These are subsequently
carried at cost unless when it is collectible beyond one year, in which, they are carried at amortized cost using
the effective interest method.
Financial assets are classified as held-for-trading if they are acquired for the purpose of selling in the near
term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they
are designated as effective hedging instruments or a financial guarantee contract.
Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated
as a financial asset at FVPL, except where the embedded derivative does not significantly modify the cash
flows or it is clear that separation of the embedded derivative is prohibited.
Derivatives embedded in the host contracts are accounted for as separate derivatives and recorded at fair value
if their economic characteristics and risks are not closely related to those of the host contracts and the host
contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives
are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs
if there is either a change in the terms of the contract that significantly modifies the cash flows that would
otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss.
Financial assets may be designated at initial recognition as at FVPL if any of the following criteria is met:
• The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise
from measuring the assets or liabilities or recognizing gains or losses on them on a different basis; or
• The assets are part of a group of financial assets which are managed and their performance evaluated on
a fair value basis, in accordance with a documented risk management or investment strategy; or
• The financial instrument contains an embedded derivative that would need to be separately recorded.
Financial assets at FVPL are recorded in the consolidated statements of financial position at fair value, with
changes in the fair value recorded in the consolidated statement of comprehensive income, included under
“Other income” account.
As of September 30, 2016 and December 31, 2015, the Group holds its investment in Unit Investment Trust
Fund (UITF) Security Bank (SB) Peso money market fund as held for trading and classified these as financial
assets at FVPL (see Note 7).
Loans and receivables
Loans and receivables are nonderivative financial assets with fixed or determinable payments and fixed
maturities that are not quoted in an active market. These are not entered into with the intention of immediate
or short-term resale and are not classified as other financial assets held for trading, designated as AFS
investments or financial assets designated at FVPL. This accounting policy relates to “Cash and cash
equivalents” and “Accounts receivables” accounts in the consolidated statements of financial position.
After initial measurement, accounts receivables are subsequently measured at amortized cost using the
effective interest rate (EIR) method, less allowance for impairment. Amortized cost is calculated by taking
into account any discount or premium on acquisition and fees that are an integral part of the EIR. The
amortization is included in “Interest income” account in the profit or loss. The losses arising from impairment
of such loans and receivables are recognized in the profit or loss as “Provision for impairment losses” under
“General and administrative expenses” account.
Accounts receivables are included in current assets if maturity is within 12 months from the reporting date.
After initial measurement, AFS financial assets are subsequently measured at fair value with unrealized gains
or losses recognized in ‘Net unrealized gain (loss) on available-for-sale financial assets’ in the statement of
comprehensive income until the investment is derecognised, at which time the cumulative gain or loss is
recognised in other comprehensive income, or determined to be impaired, at which time the cumulative loss
is recognised in the profit or loss and removed from unrealized gain or loss on AFS financial assets. AFS
financial assets which are not quoted are subsequently carried at cost less allowance for impairment losses.
When the fair value of AFS financial assets cannot be measured reliably because of lack of reliable estimates
of future cash flows and discount rates necessary to calculate the fair value of unquoted equity instruments,
these investments are carried at cost, less any allowance for impairment losses.
The Group evaluated its AFS financial assets whether the ability and intention to sell them in the near term
is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and
management’s intention to do so significantly changes in the foreseeable future, the Group may reclassify
these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the
financial assets meet the definition of loans and receivables and the Group has the ability and intent to hold
these assets for the foreseeable future or until maturity. Reclassification to HTM financial assets category is
permitted only when the entity has the ability and intention to hold the financial asset accordingly.
When the security is disposed of, the cumulative gain or loss previously recognized in changes in equity is
recognized as ‘Other income’ in the profit or loss. Where the Group holds more than one investment in the
same security these are deemed to be disposed of on a first-in first-out basis. Interest earned on holding AFS
financial assets is reported as interest income using the effective interest rate. Dividends earned on holding
AFS financial assets are recognized in the profit or loss when the right to receive payment has been
established. The losses arising from impairment of such financial assets are recognized as ‘Provision for
impairment losses’ in the profit or loss.
The Group’s AFS financial assets pertain to convertible notes and quoted and unquoted equity securities.
AFS financial assets are included in current assets if expected to be realized within 12 months from the
reporting date.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured
as the difference between the asset’s carrying amount and the present value of the estimated future cash flows
(excluding future credit losses that have not been incurred). The carrying amount of the asset is reduced
through use of an allowance account and the amount of loss is charged to profit or loss. Interest income
continues to be recognized based on the original effective interest rate of the asset. Accounts receivable,
together with associated allowance accounts, are written off when there is no realistic prospect of the future
recovery and all collateral has been realized. If, in a subsequent year, the amount of the estimated impairment
loss decreases because of an event occurring after the impairment was recognized, the previously recognized
impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to
the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such
credit risk characteristics as customer type, credit history, past-due status and terms.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated
on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group.
Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current
conditions that did not affect the period on which the historical loss experience is based and to remove the
effects of conditions in the historical period that do not exist currently. The methodology and assumptions
used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between
loss estimates and actual loss experience.
In the case of equity investments classified as AFS financial assets, this would include a significant or
prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment,
the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less
any impairment loss on that financial asset previously recognized in the profit or loss - is removed from other
comprehensive income and recognized in the profit or loss as “Miscellaneous” under “General and
administrative expenses” account. Impairment losses on equity investments are not reversed through the
profit or loss. Increases in fair value after impairment are recognized directly in other comprehensive income.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same
criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying
amount and is accrued using the rate of interest used to discount future cash flows for the purpose of
measuring impairment loss and is recorded as part of “Interest income” account in the profit or loss. If, in
subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to
an event occurring after the impairment loss was recognized in the profit or loss, the impairment loss is
reversed through the loss.
a. the right to receive cash flows from the asset have expired;
b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay
them in full without material delay to a third party under a ‘pass-through’ arrangement; or
c. the Group has transferred its right to receive cash flows from the asset and either: (a) has transferred
substantially all the risks and rewards of the asset; or (b) has neither transferred nor retained the risk and
rewards of the asset but has transferred the control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a ‘pass-
through’ arrangement, and has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control over the asset, the asset is recognized to the extent of the Group’s continuing
involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset
is measured at the lower of original carrying amount of the asset and the maximum amount of consideration
that the Group could be required to repay.
Financial liability
A financial liability is derecognized when the obligation under the liability is discharged, cancelled, or has
expired. Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new liability, and
the difference in the respective carrying amounts is recognized in profit or loss.
Investments in Associates
The Group’s investments in its associates are accounted for using the equity method of accounting. An
associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint
venture.
The considerations made in determining significant influence are similar to those necessary to determine
control over subsidiaries.
An investment is accounted for using the equity method from the day it becomes an associate. On acquisition
of investment, the excess of the cost of investment over the investor’s share in the net fair value of the
associate’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill and included
in the carrying amount of the investment and not amortized. Any excess of the investor’s share of the net fair
value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment
is excluded from the carrying amount of the investment, and is instead included as income in the
determination of the share in the earnings of the associate.
Under the equity method, the investment in an associate is carried in the consolidated statement of financial
position at cost plus post-acquisition changes in the Group’s share in the net assets of the associate, less any
impairment in values. The consolidated statement of comprehensive income reflects the share of the results
of the operations of the associate company. The Group’s share of post-acquisition movements in the
associate’s equity reserves is recognized directly in equity. Profits and losses resulting from transactions
between the Group and the associate company are eliminated to the extent of the interest in the associate
company and for unrealized losses to the extent that there is no evidence of impairment of the asset
transferred. Dividends received are treated as a reduction of the carrying value of the investment.
The Group discontinues applying the equity method when their investment in associate company is reduced
to zero. Accordingly, additional losses are not recognized unless the Group has guaranteed certain obligations
of the associate company. When the associate company subsequently report net income, the Group will
resume applying the equity method but only after its share of that net income equals the share of net losses
not recognized during the period the equity method was suspended.
The reporting dates of the associate company and the Group are identical and the associate company’s
accounting policies conform to those used by the Group for like transactions and events in similar
circumstances.
Upon loss of significant influence over the associate, the Group measures and recognizes any retained
investment at its fair value. Any difference between the carrying amount of the associate upon loss of
significant influence and the fair value of the retained investment and proceeds from disposal is recognized
in profit or loss.
Major repairs are capitalized as part of property and equipment only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the items can be measured reliably.
All other repairs and maintenance are charged against current operations as incurred.
Depreciation and amortization is computed using the straight-line method over the estimated useful lives of
the property and equipment which are as follows:
Years
Transportation equipment 3
Office equipment 3 to 4
Information Technology (IT) equipment 4
Furniture and fixtures 3 to 5
Leasehold improvements 4 years or lease term,
whichever is shorter
The estimated residual values, useful life and depreciation and amortization method are reviewed at least
annually to ensure that the period and method of depreciation and amortization are consistent with the
expected pattern of economic benefits from items of property and equipment.
If there is an indication that there has been a significant change in depreciation and amortization rate or the
useful lives, the depreciation of that property and equipment is revised prospectively to reflect the new
expectations.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising from derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or
loss in the year the asset is derecognized.
Fully depreciated property and equipment are retained in the accounts until they are no longer in use and no
further depreciation is charged against current operations.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related
expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired. The amortization period and the
amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each
reporting period. Changes in the expected useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are considered to modify the amortization period or method, as
appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets
with finite lives is recognized in the statement of profit or loss in the expense category that is consistent with
the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either
individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to
determine whether the indefinite life continues to be supportable. If not, the change in useful life from
indefinite to finite is made on a prospective basis.
Years
Customer relationships Indefinite
Leasehold rights 7
Developed software 8
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the
net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset
is derecognized.
The technical feasibility of completing the intangible asset so that the asset will be available for use or
sale;
Its intention to complete and its ability and intention to use or sell the asset;
How the asset will generate future economic benefits;
The availability of resources to complete the asset; and
The ability to measure reliably the expenditure during development.
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any
accumulated amortization and accumulated impairment losses. Amortization of the asset begins when
development is complete and the asset is available for use. It is amortized over the period of expected future
benefit. Amortization is recorded in cost of goods sold. During the period of development, the asset is tested
for impairment annually.
If the business combination is achieved in stages, any previously held equity interest is remeasured at its
acquisition date fair value and any resulting gain or loss is recognized in profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and
within the scope of PAS 39, Financial Instruments: Recognition and Measurement, is measured at fair value
with changes in fair value recognized either in either profit or loss or as a change to OCI. If the contingent
consideration is not within the scope of PAS 39, it is measured in accordance with the appropriate PFRS.
Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted
for within equity.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and
the amount recognized for noncontrolling interests) and any previous interest held, over the net identifiable
assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate
consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired
and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized
at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over
the aggregate consideration transferred, then the gain is recognized in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in a business combination is from the acquisition date,
allocated to each of the Group’s cash-generating units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
When goodwill has been allocated to a cash-generating unit and part of the operation within that unit is
disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the
operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measure
based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
If the initial accounting for a business combination can be determined only provisionally by the end of the
period in which the combination is effected because either the fair values to be assigned to the acquiree’s
identifiable assets, liabilities or contingent liabilities or the cost of combination can be determined only
provisionally, the acquirer shall account for the combination using those provisional values. The acquirer
shall recognize any adjustments to those provisional values as a result of completing the initial accounting
within twelve months of the acquisition date as follows: (i) the carrying amount of the identifiable asset,
liability or contingent liability that is recognized or adjusted as a result of completing the initial accounting
shall be calculated as if its fair value at the acquisition date had been recognized from that date; (ii) goodwill
or any gain recognized shall be adjusted by an amount equal to the adjustment to the fair value at the
acquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted; and (iii)
comparative information presented for the periods before the initial accounting for the combination is
complete shall be presented as if the initial accounting has been completed from the acquisition date.
Noncontrolling interests
In a business combination, as of the acquisition date, the Group recognizes, separately from goodwill, the
identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. There is a
choice of two measurement methods for those components of noncontrolling interests that are both present
ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of
a liquidation. They can be measured at:
a. acquisition-date fair value (consistent with the measurement principle for other components of the
business combination); or
b. at their proportionate share of the value of net identifiable assets acquired.
Written put option over NCI
Any put options granted to noncontrolling interests give rise to a financial liability measured at fair value,
which will be the present value of the redemption amount. The Group’s accounting policy on financial
instruments applies for the subsequent measurement of the financial liability.
The Group assesses whether the terms and conditions of the option give the acquirer present access to the
ownership interest in the share subject to the put option. Factors that indicate that the NCI put provides a
present ownership interest include:
a. pricing - to the extent that the price is fixed or determinable, rather than being at fair value;
b. voting rights and decision-making – to the extent that the voting rights or decision-making connected to
the shares concerned are restricted;
c. dividend rights – to the extent that the dividend rights attached to the shares concerned are restricted; and
d. issue of call options – a combination of put and call options, with the same period of exercise and
same/similar pricing indicates that the arrangement is in the nature of a forward contract.
If it is concluded that the acquirer has a present ownership interest in the shares concerned, the put option is
accounted for as an acquisition of the underlying shares, and no noncontrolling interest is recognized.
When the terms of the transaction do not provide a present ownership interest, the noncontrolling interests
continues to be recognized within equity until the NCI put is exercised. The carrying amount of
noncontrolling interest changes due to allocations of profit or loss, changes in other comprehensive income
and dividends declared for the reporting period. The financial liability for the put option is recognized through
a debit made to another component of equity attributable to the parent.
If the put option is exercised, the entity accounts for an increase in its ownership interest. At the same time,
the entity derecognizes the financial liability and recognizes an offsetting credit in the same component of
equity reduced on initial recognition.
If the put option expires unexercised, the financial liability is reclassified to the same component of equity
that was reduced on initial recognition.
• The assets and liabilities of the combining entities are reflected in the interim consolidated financial
statements at their carrying amounts. No adjustments are made to reflect fair values, or recognize
any new assets or liabilities, at the date of the combination. The only adjustments that are made are
those adjustments to harmonize accounting policies.
• No new goodwill is recognized as a result of the combination. The only goodwill that is recognized
is any existing goodwill relating to either of the combining entities. Any difference between the
consideration paid or transferred and the equity acquired is reflected within equity under the “Equity
reserve” account.
The financial information in the interim consolidated financial statements are not restated for periods prior to
the combination of the entities under common control.
Investments in associates
The Group also determines at each reporting date whether there is any objective evidence that the investment
in associate is impaired. If this is the case, the Group calculates the amount of impairment as being the
difference between the recoverable amount and the carrying value of the associate company and recognizes
the difference in profit or loss.
In assessing impairment indicators, the Group considers, as a minimum, the following indicators: (a)
dividends exceeding the total comprehensive income of the associate in the period the dividend is declared;
or (b) the carrying amount of the investment in the separate financial statements exceeding the carrying
amount of the associate’s net assets, including goodwill.
Impairment of goodwill
For assessing impairment of goodwill, a test of impairment is performed annually and when circumstances
indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the
recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable
amount of the CGUs is less that its carrying amount, an impairment loss is recognized. Impairment losses
relating to goodwill cannot be reversed in future periods.
Equity
Capital stock and additional paid-in capital
Capital stock is measured at par value for all shares issued. When the shares are sold at premium, the
difference between the proceeds and the par value is credited to “Additional paid-in capital”. When the shares
are issued for a consideration other than cash, the proceeds are measured by the fair value of the consideration
received. In case the shares are issued to extinguish or settle the liability of the Group, the shares are measured
either at the fair value of the shares issued or fair value of the liability settled, whichever is more reliably
determinable.
The Group incurred various costs in issuing its own equity instruments. Those costs includes registration and
other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and
stamp duties. The transaction costs of an equity transaction are accounted for as a deduction from equity (net
of related income tax benefit) to the extent they are incremental costs directly attributable to the equity
transaction that otherwise would have been avoided. The costs of an equity transaction that is abandoned are
recognized as an expense.
Retained earnings
Retained earnings represent the cumulative balance of net income or loss, dividend distributions, prior period
adjustments, effects of the changes in accounting policy and other capital adjustments.
Equity reserve
Equity reserve represents a portion of equity against which the recognized liability for a written put option
was charged.
Stock dividends
A stock dividend is considered to be small if the new shares being issued are less than 20-25% of the total
number of shares outstanding prior to the stock dividend. On the declaration date of a small stock dividend,
the dividend recorded is equal to market value of the shares being issued.
A stock dividend is considered to be large if the new shares being issued are more than 20-25% of the total
value of shares outstanding prior to the stock dividend. On the declaration date of a large stock dividend, the
dividend recorded is equal to the par value of the shares being issued.
Revenue Recognition
Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group and the
revenue can be reliably measured. Revenue is measured at the fair value of the consideration received,
excluding discounts, and sales taxes, if any. The Group assesses its revenue recognition arrangements against
specific criteria in order to determine if it is acting as principal or agent. The Group is acting as principal in
all arrangements. The following specific recognition criteria must also be met before revenue is recognized:
Service income
Service income is recognized when the service has been rendered in accordance with the terms of the contract.
Sale of goods
Revenue from the sale of goods in the ordinary course of activities is measured at the fair value of the
consideration received or receivable, net of discounts and applicable taxes. Revenue is recognized when the
significant risks and rewards of ownership of the goods have passed to the buyer, which is normally upon
delivery and the amount of revenue can be measured reliably.
Interest income
Interest income is recognized as it accrues.
Other income
Other income is recognized as they accrue.
Cost of services
Cost that includes all expenses associated with the specific sale of services. Cost of services include salaries,
wages and employee benefits, utilities and communication, supplies and other expenses related to services.
Such costs are recognized when the related sales have been recognized.
Earn-out payment
Earn-out payments pertaining to payments to former owners of the acquired subsidiary are considered
remuneration for their continuing employment and are presented in the consolidated statements of
comprehensive income in “General and administrative expenses”.
Operating Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the
arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the
use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made
after inception of the lease only if one of the following applies:
(a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) A renewal option is exercised or extension granted, unless the term of renewal or extension was initially
included in the lease term;
(c) There is a change in the determination of whether fulfillment is dependent on a specified asset; or
(d) There is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in
circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or
extension period for scenario (b).
Group as lessee
Leases where the lessor retains substantially all the risks and benefits of the ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in profit or loss on a
straight-line basis over the lease term.
Income tax
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the tax authority. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted as at the end of the reporting period.
Deferred tax
Deferred tax is provided using the liability method on all temporary differences, with certain exceptions, at
the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
When the deferred tax liability from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss;
In respect of taxable temporary differences associated with investment in subsidiaries, associates and
interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused
tax credits from excess of minimum corporate income tax (MCIT) over the regular corporate income tax
(RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that future taxable
profit will be available against which the deductible temporary differences and carryforward benefits of
unused tax credits and NOLCO can be utilized, except:
When the deferred tax asset relating to the deductible temporary difference arises from the initial
recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at
the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
In respect of taxable temporary differences associated with investment in subsidiaries, associates and
interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the
temporary differences will not reverse in the foreseeable future taxable profit will be available against
which the temporary differences can be utilized.
Deferred tax liabilities are not provided on nontaxable temporary differences associated with investments in
domestic associates and interests in joint ventures.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that
it is no longer probable that sufficient future taxable profit will be available to allow the deferred tax assets
to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to
the extent that it has become probable that future taxable profit will allow the deferred tax assets to be
recovered.
Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the
year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the financial reporting date. Movements in deferred tax assets and
liabilities arising from changes in tax rates are charged or credited to income for the period.
Deferred tax relating to items outside profit or loss is recognized outside profit or loss. Deferred tax items are
recognized in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred income taxes relate to the same taxable entity and the same
taxation authority.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition
at that date, are recognized subsequently if new information about facts and circumstances change. The
adjustment is either treated as reduction in goodwill (as long as it does not exceed goodwill) if it was incurred
during the measurement period or recognized in profit or loss.
• Where the tax incurred on a purchase of assets or services is not recoverable from the tax authority, in
which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense
item as applicable; and,
• Receivables and payables that are stated with the amount of tax included.
The net amount of tax recoverable from, or payable to, the tax authority is included as part of other current
assets or payables in the consolidated statement of financial position.
Pension Liability
The net pension liability or asset is the aggregate of the present value of the defined benefit obligation at the
end of the reporting period reduced by the fair value of plan assets (if any).
The cost of providing benefits under the defined benefit plans is actuarially determined using the projected
unit credit method. Defined benefit costs comprise the following:
• Service cost
• Net interest on the net defined benefit liability or asset
• Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on nonroutine
settlements are recognized as expense in profit or loss. Past service costs are recognized when plan
amendment or curtailment occurs. These amounts are calculated periodically by independent qualified
actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the net defined
benefit liability or asset that arises from the passage of time which is determined by applying the discount
rate based on government bonds to the net defined benefit liability or asset.
Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss.
Remeasurements comprising actuarial gains and losses are recognized immediately in the statements of
financial position with a corresponding debit or credit through other comprehensive income in the period in
which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods.
The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit
obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually
certain.
a. The unissued authorized capital stock of the entity is insufficient to cover the amount of shares indicated
in the contract;
b. There is Board of Directors’ approval on the proposed increase in authorized capital stock (for which a
deposit was received by the corporation);
c. There is stockholders’ approval of said proposed increase; and
d. The application for the approval of the proposed increase has been filed with the Commission
If any or all of the foregoing elements are not present, the transaction should be recognized as a liability.
Transactions denominated in foreign currencies are initially recorded in Philippine Peso at the exchange rate
based on the Philippine Dealing and Exchange (PDEx) rate at the date of transaction. Foreign currency-
denominated monetary assets and liabilities are retranslated at the closing PDEx rate at reporting date.
Exchange gains or losses arising from foreign currency transactions are recognized in profit or loss.
Segment Reporting
The Group’s operating businesses are organized and managed separately according to the nature of the
services provided, with each segment representing a strategic business unit that offers different services and
serves different markets. Financial information on business segments is presented in Note 25 of the
consolidated financial statements.
Provisions
Provisions are recognized when the entity has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at
each reporting date and adjusted to reflect the current best estimate.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements but are disclosed in the notes
unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets
are not recognized in the consolidated financial statements but are disclosed in the notes when an inflow of
economic benefits is probable.
Events after Reporting Period
Post year-end events up to date when the consolidated financial statements are authorized for issue that
provide additional information about the Group’s position at the reporting period (adjusting events) are
reflected in the consolidated financial statements. Post year-end events that are not adjusting events are
disclosed in the notes to the consolidated financial statements when material.
The preparation of the accompanying consolidated financial statements in compliance with PFRS requires
management to make judgments and estimates that affect the amounts reported in the consolidated financial
statements and accompanying notes. The judgments and estimates used in the accompanying consolidated
financial statements are based upon management’s evaluation of relevant facts and circumstances as at the
date of the consolidated financial statement. Future events may occur which will cause the judgments and
assumptions used in arriving at the estimates to change. The effects of any change in judgments and estimates
are reflected in the consolidated financial statements as they become reasonably determinable.
Judgments and estimates are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
Judgments
In the process of applying the Group’s accounting policies, management has made the following judgments,
apart from those involving estimations, which have the most significant effect on the amounts recognized in
the Group’s financial statements.
a. Investment in subsidiaries
The Group determined that it has control over its subsidiaries by considering, among others, its power
over the investee, exposure or rights to variable returns from its involvement with the investee, and the
ability to use its power over the investee to affect its returns. The following were also considered:
• The contractual arrangement with the other vote holders of the investee
• Rights arising from other contractual agreements
• The Group’s voting rights and potential voting rights
The following are the intangible assets acquired through business combinations:
i. Customer Relationship - pertains to Yondu’s noncontractual and contractual agreements with Globe
Telecom Inc. (GTI), its major customer which are expected to generate revenues for the Group in
subsequent periods
iii. Leasehold rights - pertains to cost savings arising from lower than market rate rental in the lease
contracts acquired through business combination
The amount and timing of recorded expense for any period would differ depending on the judgments and
estimates made for the year. An increase in allowance for impairment losses would increase the recorded
operating expenses and decrease current assets.
The net book value of property and equipment as of September 30, 2016 and December 31, 2015 amounted
to P
=71.36 million and P
=58.18 million, respectively.
The cash flows are derived from the budget for the next five years and do not include restructuring activities
that the Group is not yet committed to or significant future investments that will enhance the asset’s
performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the
DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.
These estimates are most relevant to goodwill and other intangibles with indefinites useful lives recognized
by the Group.
The factors that the Group considers important which could trigger an impairment review include significant
underperformance relative to expected historical or projected future operating results and significant changes
in the manner of use of the acquired assets or the strategy for overall business.
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be
impaired. Intangible assets with indefinite useful lives are tested for impairment annually, either individually
or at the cash-generating unit level and when circumstances indicate that the carrying value may be impaired.
Carrying Values
September 30, December 31,
Intangible Asset Valuation Technique 2016 2015
Yondu Customer relationships MEEM P
=1,077,809,700 =1,077,809,700
P
Developed software MEEM 82,019,307 90,912,963
Leasehold rights Premium profits method 10,336,097 11,646,290
Storm Leasehold rights Premium profits method 3,169,608 3,608,475
Seer Leasehold rights Premium profits method 865,955 978,905
P
=1,174,200,667 =1,184,956,333
P
The fair values of the intangible assets identified are sensitive to the discount rate used for the DCF model as
well as the expected future cash inflows and the growth rate used for determining terminal values. The growth
rate is most relevant to the customer relationship intangible asset which is determined to have an indefinite
useful life.
Discount rates used are risk-adjusted asset-specific discount rates considering information such as the reliance
of the administration of the asset on the ongoing operation of the acquiree, the relative risk of the asset in
relation to the acquiree’s other assets and the relative risk of the asset in relation to the acquiree’s overall risk.
Below are the significant inputs used in the estimation of the fair value that are not observable in the market:
• Assumed discount rate for and customer relationships and developed software ranging from 14.46% to
16.46%
• Assumed discount rate for leasehold rights range from 5.60% to 14.67%
• Terminal value, calculated based on long-term sustainable growth rates for the industry at 3%
Expected future cash inflows used for the determination of fair value do not consider the effects of any
significant future investments or modification in the state of the developed software as of acquisition date
which may enhance the asset’s performance.
It is possible that future results of operations could be materially affected by changes in estimates or in the
effectiveness of the Group’s strategies in utilizing such intangible assets.
The Group is subject to the seasonality of revenue realization due to Storm’s Flexible Benefits Program.
Historically, Storm’s sales tend to increase in the second half of the year as observed from its customer
behavior to likely avail their converted benefits towards the end of the year.
5. Cash
Cash in banks earn interest at the prevailing bank deposit rates. Interest income earned from cash in banks
amounted to P =2.99 million and P
=8.58 million for the nine-month periods ended September 30, 2016 and 2015,
respectively.
6. Accounts Receivable
(Forward)
September 30, December 31,
2016 2015
(Unaudited) (Audited)
Receivable from related parties (Note 19) 121,006 697,318
Others 41,002,198 38,339,002
658,913,819 759,894,286
Less: Allowance for impairment loss 1,496,118 3,487,562
P
= 657,417,701 =756,406,724
P
Trade receivables arise mainly from the mobile content development services rendered by the Group to its
major customer, Globe Telecommunications, Inc. (GTI) and other telecommunication companies. These are
noninterest-bearing and are generally settled on a 30- to 60-day term. As of September 30, 2016 and
December 31, 2015, the Group’s receivables from GTI amounted to = P484.45 million and P=414.61 million,
respectively, which comprise 79% and 58%, respectively, of the total trade receivables (Note 24).
Advances to employees pertain to noninterest-bearing salary loans made by the employees and are collectible
in one year.
Receivable from related parties are noninterest-bearing and are due and demandable.
Others are noninterest-bearing and are generally collectible within one year.
The Group invested in the SB Peso Money Market Fund (the Fund). The Fund, which is structured as a
money market UITF, aims to generate liquidity and stable income by investing in a diversified portfolio of
primarily short-term fixed income instruments. As of September 30, 2016 and December 31, 2015, the fair
value of the Group’s total investment in the Fund is as follows:
September 30
2016 2015
(Unaudited) (Unaudited)
Balance at January 1 (P
=210,000) (P=225,000)
Unrealized gain (loss) on AFS financial asset − (25,000)
Balance at September 30 (P
=210,000) (P=250,000)
Fair value of unquoted equity investments was determined using prices from recent sales at arm’s length
transaction. No unrealized gain or loss was recognized during the period for these investments (Note 24).
On February 11, 2016, the Group acquired additional convertible promissory note issued by MatchMe for
US$500,000. The principal and interest will be due and payable twelve (12) months from Closing. Interest
will accrue on an annual basis at the rate of 5% per annum.
On September 22, 2016, the Group acquired additional convertible promissory note for US$200,000 issued
by Altitude Games. The principal and interest shall be due and payable twelve (12) months from the date of
the note. Interest shall accrue on an annual basis at the rate of 3%.
Carrying amount of the investments in unquoted debt investments as of September 30, 2016 and
December 31, 2015 are as follows:
The quoted shares are categorized under the Level 1 of the fair value hierarchy. The unquoted equity and
debt investments are categorized under Level 2 (Note 24).
9. Investments in Associates
The Group’s equity in the net assets of associates and the related percentages of ownership are shown below:
On the same date, Mr. Nico Jose S. Nolledo, a stockholder, assigned his 11.36 million ordinary shares
representing 10.02% ownership in Altitude Games pursuant to the Deed of Assignment to the Parent
Company.
As of September 30, 2016 and December 31, 2015, the Parent Company owns 21.78% ownership in Altitude
Games resulting from the said acquisitions. The Parent Company acquired a total of 24.69 million shares with
par value of US$0.01 per share for a total consideration of US$740,800 or US$0.03 per share.
The Group acquired property and equipment amounting to P =31.61 million during the nine-month period
ended September 30, 2016. Depreciation expense amounted to P
=17.48 million and P
=4.24 million for the nine-
month periods ended September 30, 2016 and 2015, respectively.
The Group’s fully depreciated property and equipment with aggregate cost of =
P21.01 million are still in use
as of September 30, 2016 and December 31, 2015, respectively.
Customer relationship
Customer relationship pertains to Yondu’s noncontractual and contractual agreements with GTI, its major
customer which are expected to generate revenues for the Group in subsequent periods.
Developed software
Developed software pertain to telecommunications equipment software licenses, corporate application
software and licenses and other VAS software applications that are not integral to the hardware or equipment.
Leasehold rights
Leasehold rights pertain to cost savings arising from lower than market rate rental in the lease contracts
acquired through business combination.
Trade payable represents the unpaid subcontracted services and other cost of services to third parties. These
are noninterest-bearing and are normally settled within one year.
Dividends payable pertain to amount payable to GTI for dividends declared before the Parent Company
acquired shares in Yondu.
Accrued expenses mainly consist of accruals for professional fees, utilities, transportation and travel and
supplies. These are noninterest-bearing and are normally settled within one year.
Deferred output VAT represents deferral of output VAT related to trade receivables for the services rendered
by the Group. These will be recognized as output VAT and applied against input VAT upon receipt of
payment.
Taxes payable include output VAT after application of available input VAT and expanded withholding tax
on payment of suppliers and employees’ compensation which are settled within one year.
Others consist of statutory payables to SSS, Philhealth and HDMF. These are noninterest-bearing and are
normally settled within one year.
13. Loans Payable
This account pertains to short-term, secured and interest-bearing loans entered into by the Group with local
banks with interest rates ranging from 3.75% to 6.75% per annum.
On August 24, 2016, the Group executed a Subscription Agreement with various individuals wherein the
latter offers to the other parties a total of 390,637,000 common shares of Fluxion Inc., a subsidiary,
conditional upon securing the certificate of approval for the increase in authorized capital to be issued by
the SEC, and other parties agree to subscribe such shares.
On the same date, the BOD and stockholders of Fluxion Inc. approved the increase of authorized capital
stock from P=5.00 million to =
P100.00 million consisting of 4,000,000,000 common shares and the change of
par value from =P1.00 to P
=0.025 per share.
As of September 30, 2016, the amendment on the articles of incorporation are still in the process of
application and is subject for approval by the SEC.
Service income, amounting to P=1,062.47 million million and = P470.91 million for the nine-month periods
ended September 30, 2016 and 2015, respectively, pertain to revenues earned from mobile consumer products
and services and enterprise services rendered by the Group to its major customer, GTI, other
telecommunication companies and corporations.
For the nine-month periods ended September 30, 2016 and 2015, the Group’s revenue from GTI amounted
to P
=919.95 million and = P423.27 million, respectively, which comprise approximately 86% and 90%,
respectively, of the total service income of the Group.
16. Cost of Services
Cost of services for the nine-month periods ended September 30, 2016 and 2015 consists of:
For the nine-month period ended For the three-month period ended
September 30, September 30, September 30, September 30,
2016 2015 2016 2015
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Salaries, wages and employee benefits P=333,405,588 =68,090,920 P
P =110,932,311 =36,989,913
P
Segment fee and network costs 75,945,791 17,527,936 22,623,003 5,994,264
Outsourced services 51,696,099 22,472,008 32,118,683 6,748,719
Royalty fees 34,211,829 2,162,895 12,394,995 2,162,895
Depreciation and amortization 14,857,071 1,462,459 4,669,328 1,151,941
Web hosting 8,893,668 8,819,011 2,811,603 3,383,594
Consultancy fees 8,542,023 5,556,089 2,655,943 5,556,089
Rent (Note 18) 8,411,603 5,298,491 2,633,967 1,633,349
Utilities 5,344,374 3,859,046 1,519,253 2,082,238
Transportation and travel 2,275,101 833,010 1,359,467 340,622
Prizes and winnings 1,183,066 1,121,772 515,855 542,505
Seminars and trainings 37,940 489,108 6,500 83,438
Others 4,038,684 6,101,845 1,943,661 767,724
P
=548,842,837 =143,794,590 P
P =196,184,569 =67,437,291
P
General and administrative expenses for the nine-month periods ended September 30, 2016 and 2015 consists
of:
For the nine-month period ended For the three-month period ended
September 30, September 30, September 30, September 30,
2016 2015 2016 2015
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Salaries, wages and employee benefits P
=98,363,894 =39,038,771
P P=32,091,273 =25,238,852
P
Repairs and maintenance 26,305,245 1,668,974 8,778,431 1,275,228
Rent (Note 18) 18,575,557 1,815,656 7,464,105 1,408,418
Depreciation and amortization 16,763,170 2,981,850 5,814,888 1,156,328
Professional fees 16,547,153 13,994,782 4,853,977 3,751,220
Outsourced services 14,868,326 3,206,881 5,506,827 1,450,957
Marketing and promotions 10,589,148 5,398,024 4,005,846 3,887,023
Utilities 8,498,442 395,777 2,926,239 224,772
Taxes and licenses 8,454,058 1,983,101 2,409,016 583,642
Transportation and travel 8,142,619 4,343,747 3,304,302 2,866,117
Entertainment, amusement and
recreation 7,668,689 3,721,546 4,122,428 1,255,743
Dues and subscription 6,210,168 1,217,946 1,841,573 656,251
Supplies 5,108,424 2,051,083 3,367,525 1,665,728
Advertising 3,448,039 4,201,848 568,507 2,995,311
Seminars and trainings 3,256,928 431,537 2,625,244 288,120
Interest expense 1,123,634 334,213 262,938 296,380
Miscellaneous 5,117,704 2,022,526 122,216 193,472
P
=259,041,198 =88,808,262
P P=90,065,335 =49,193,562
P
The Group entered into various lease agreements with third parties for the office spaces it occupies. Leases
have terms ranging from one to three years and renewable subject to new terms and conditions to be mutually
agreed upon by both parties.
Total rent expense charged under “Cost of services” and “General and administrative expenses” in the
consolidated statements of comprehensive income amounted to = P26.99 million and = P7.11 million for the
nine-month periods ended September 30, 2016 and 2015, respectively (see Notes 16 and 17).
As of September 30, 2016 and December 31, 2015, the future minimum lease payments within one year under
noncancellable operating leases amounted to P
=25.76 million and P
=32.51 million, respectively.
The Group, in the normal course of business, has transactions with related parties. Parties are considered to
be related if, among others, one party has the ability, directly or indirectly, to control the other party in making
financial and operating decisions, the parties are subject to common control or the party is an associate or a
joint venture.
Details of transactions with related parties and their outstanding payables to a related party as of
September 30, 2016 and December 31, 2015 follow:
Outstanding Balance
September 30, 2016 December 31, 2015
Terms Conditions Receivable Payable Receivable Payable
Associate
Cost of services Noninterest- Unsecured,
bearing no impairment P
=− P
= 2,651,258 P
=− P
=1,809,459
Stockholders
Advances One year; Unsecured,
noninterest- no impairment
bearing 121,006 3,400,948 697,318 −
P
=121,006 P
=0 P
=697,318 P
=1,809,459
Amount / Volume
September 30, September 30, September 30, September 30,
2016 2015 2016 2015
(Nine Months) (Nine Months) (Three Months) (Three Months)
Associate
Cost of services P
= 6,452,459 P
=8,198,110 P
= 2,107,909 P
=2,281,079
Stockholders
Advances 821,746 − 2,266,561 −
P
= 7,066,833 P
=8,198,110 P
= 4,374,470 P
=2,281,079
Affiliates:
a. In February 2016, the Parent Company entered into a service agreement with Altitude Philippines,
wherein the latter will render mobile content and application services in favor of the Parent Company.
In return, the Parent Company shall pay Altitude Philippines a certain percentage of the revenues
generated from such applications.
Total outsourced services charged under “Cost of services” account in the consolidated statements of
comprehensive income amounted to = P2.86 million during the nine-month period ended
September 30, 2016, and outstanding payables amounted to P=1.23 million as of September 30, 2016.
b. In 2014, the Parent Company gained an exclusive right to distribute one of Altitude Games Singapore’s
game, Run Run Super V. In return, the Parent Company shall pay Altitude Games Singapore a certain
percentage of the revenues generated from such applications.
For the nine-month period ended September 30, 2016, the Group recognized “Outsourced Services”
under “Cost of Services” amounting to =
P3.59 million in relation to the aforementioned transaction. As of
September 30, 2016, payable to Altitude Singapore amounted to P =1.43 million.
Stockholders:
Transactions with stockholders pertain to advances for reimbursement of common expenses incurred by the
stockholders in behalf of the Group.
Provision for income tax for the nine-month periods ended September 30, 2016 and 2015 consists of:
September 30
2016 2015
(Unaudited) (Unaudited)
Current P
=94,827,661 =79,614,003
P
Deferred (8,816,951) (4,648,893)
Final 536,113 1,714,044
P
=86,546,823 =76,679,154
P
Xeleb Inc.
On August 22, 2016, Fluxion acquired 67% majority stake in Xeleb from the Parent Company. On the same
date, Fluxion acquired the remaining 33% stake in Xeleb from the remaining minority stakeholders. Both
Fluxion and Xeleb are under the common control of the Parent Company before and after the acquisition. As
such, the Group has accounted for the business combination using the pooling of interests method.
Under the pooling of interests method, the assets and liabilities of the combining entities were reflected in the
interim consolidated financial statements at their carrying amounts. No new goodwill was recognized as a
result of the combination. The difference between the acquisition cost and the net assets acquired was
reflected within equity under the “Equity reserve” account.
As allowed under Philippine Interpretations Committee (PIC) Q&A No. 2012-01, Application of the Pooling
of Interests Method for Business Combinations of Entities under Common Control in Consolidated Financial
Statements, no restatement was made for period prior to the business combination.
The following were the carrying values of the identifiable assets and liabilities of Xeleb as at August 22,
2016, the date of combination:
Assets
Cash P2,721,562
=
Receivables 12,633,970
Intangible assets 7,927,618
Other assets 14,144,457
37,427,607
Liabilities
Accounts and other payables 13,911,670
Income tax payable 2,186,401
16,098,071
Total net assets acquired 21,329,536
Acquisition cost 5,000,000
Equity reserves =16,329,536
P
Below is the revenue and cost and expenses of Xeleb for the nine-month period ended September 30, 2016:
Storm is a human resource consultancy firm which has developed a proprietary platform called the “flex
benefits system” that allows employees to convert their employee benefits to other benefits such as gadgets,
dining and other merchandise or service.
The acquisition of Storm will enable the Group to expand its distribution network to beyond
telecommunication networks. The Group will be able to reach more customers and provide them with physical
products and services through Storm's "flex benefits system."
The following are fair values of the identifiable assets and liabilities assumed:
Assets
Cash =110,123,616
P
Receivables 14,389,114
Inventories 978,648
Other current assets 5,788,668
Property and equipment 1,435,871
Intangible assets 4,096,106
Deferred tax asset 2,731,642
Other noncurrent asset 382,769
139,926,434
Liabilities
Accounts and other payables 20,965,139
Deferred tax liability 1,228,832
Loans payable 6,628,000
28,821,971
Net assets 111,104,463
Non-controlling interests in Storm 54,376,599
Total net assets acquired 56,727,864
Goodwill 134,161,689
Acquisition cost =190,889,553
P
The fair value of the trade and other receivables approximate their carrying amounts. None of the trade
receivables have been impaired and it is expected that the full contractual amounts can be collected.
The non-controlling interests have been measured at the proportionate share of the value of the net identifiable
assets acquired and liabilities assumed.
On June 25, 2015, the Parent Company acquired 70,000 shares representing 70% stake holdings in Seer at a
price of =
P18.00 million. Codesignate is a 75% owned subsidiary of Seer.
The Parent Company is also due to pay an earn-out amount corresponding to a fixed percentage of Seer’s net
income after tax for the years 2015 to 2017 based on its Audited Financial Statements, as an incentive for
Seer's management to continue to improve Seer's financial performance in the immediately succeeding years
after the acquisition.
Seer is a company in the mobile platform development space, with a human resource base composed primarily
of software engineers. Its acquisition will enhance the ability of the Group to provide mobile solutions such
as applications and mobile marketing solutions to its enterprise clients.
The following are fair values of the identifiable assets and liabilities assumed:
Assets
Cash P3,706,340
=
Receivables 29,735,813
Other current assets 7,297,243
Property and equipment 3,381,984
Intangible assets 1,054,205
Deferred tax asset 5,562,638
Other noncurrent asset 2,886,447
53,624,670
Liabilities
Accounts and other payables 22,014,409
Loans payable 13,998,370
Pension liability 6,959,000
Finance lease liability 3,906,890
Deferred tax liability 316,262
47,194,931
Net assets 6,429,739
Non-controlling interests in Seer 1,928,922
Total net assets acquired 4,500,817
Goodwill 13,499,183
Acquisition cost =18,000,000
P
The fair value of the trade and other receivables approximate their carrying amounts. None of the trade
receivables have been impaired and it is expected that the full contractual amounts can be collected.
The non-controlling interests have been measured at the proportionate share of the value of the net identifiable
assets acquired and liabilities assumed.
On September 16, 2015, the Parent Company acquired 22,950 shares of common stock in Yondu, a content
developer and provider of mobile value-added services and information technology services for a total
consideration of P
=900.00 million. 5,000 shares out of the 22,950 shares were from unissued shares of Yondu
while 17,950 shares were purchased from GTI. Purchase price of unissued shares and shares previously held
by GTI amounted to P =230.00 million and = P670.00 million, respectively. The purchase resulted to a 51%
ownership by the Parent Company in Yondu.
Included in the Shareholders’ Agreement are a call and put option granting the Parent Company the right to
require GTI to sell and granting GTI the right to require the Parent Company to purchase all, but not part
only, of the 49% shareholding of GTI in Yondu at P =39,215.69 per company share, respectively. The options
will be effective starting September 16, 2016 and will expire after two years, therefrom. The put option and
call option shall be exercised by a share swap of Xurpas shares for shares held by GTI or a combination of
share swap and cash, at the mutual agreement of both parties.
Assets
Cash =175,110,666
P
Receivables 598,921,607
Other current assets 38,071,606
Property and equipment 39,638,479
Intangible assets 1,187,626,747
Deferred tax asset 6,652,819
Other noncurrent asset 10,431,165
2,056,453,089
Liabilities
Accounts and other payables 582,669,211
Income tax payable 41,541,943
Pension liability 6,514,740
Deferred tax liability 355,471,170
Other long-term liabilities 3,900,000
990,097,064
Net assets 1,066,356,025
Non-controlling interests in Yondu 706,503,943
Total net assets acquired 359,852,082
Goodwill 540,147,918
Acquisition cost =900,000,000
P
The fair value of the trade and other receivables approximate their carrying amounts. None of the trade
receivables have been impaired and it is expected that the full contractual amounts can be collected.
The Group elected to measure the noncontrolling interests in the acquiree at fair value.
The fair value of the noncontrolling interest has been estimated by determining the present value of discounted
cash flow. The fair value measurements are based on significant inputs that are not observable in the market.
The fair value estimate is based on:
• A terminal value, calculated based on long-term sustainable growth rates for the industry ranging from
2% to 4% which has been used to determine income from future years.
22. Equity
The details of the number of shares as of September 30, 2016 and December 31, 2015 follow:
On November 13, 2014, the SEC granted the Parent Company permit to sell or offer its securities which
consists of 1,720.00 million common shares.
As at December 31, 2014, P =172.00 million of the = P500.00 million authorized capital stock has been
subscribed and issued, =
P122.55 million of which was issued through stock dividend declaration and the rest
was paid in cash. The excess of subscription price over paid-up capital was recognized as APIC. The Parent
Company incurred transaction costs incidental to the IPO amounting to P =111.56 million and P
=7.35 million
which were charged to “Additional paid-in capital” in the consolidated statements of financial position and
“General and administrative expense” in the consolidated statements of comprehensive income, respectively.
Retained Earnings
Appropriations
On December 29, 2015, the Parent Company’s BOD approved the appropriation of unrestricted retained
earnings for cash dividend declaration amounting to =
P65.82 million.
Dividends declaration
On April 29, 2015, the Parent Company’s BOD approved the declaration of cash dividends of approximately
=0.04 per share, or the aggregate amount of P
P =68.80 million out of the Parent Company’s unrestricted retained
earnings for distribution to its stockholders of record as of May 14, 2015 and payable to stockholders on or
before June 2, 2015.
On May 10, 2016, the Parent Company’s BOD approved the declaration of cash dividends of approximately
=0.048 per share, or the aggregate amount of P
P =86.27 million out of the Parent Company’s unrestricted
retained earnings for distribution to its stockholders of record as of May 31, 2016 and payable to stockholders
on June 23, 2016.
Equity Reserve
A reserve amounting to =P848.50 million was set up in relation to a recognized financial liability for the written
put option over the ownership interest of GTI in Yondu. This will be subsequently reversed once the option
is exercised or has expired.
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating
and healthy capital ratios in order to support its business and maximize shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to
shareholders or issue new shares.
The Group is not subject to externally-imposed capital requirements. The Group regards its equity as its
primary source of capital. No changes were made in the capital management policies in 2016 and 2015.
23. Earnings Per Share
Basic earnings per share for the nine-month periods ended September 30, 2016 and 2015 were computed as
follows:
For the nine-month period ended For the three-month period ended
September 30, September 30, September 30, September 30,
2016 2015 2016 2015
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
a. Net income attributable to the
equity holders of the Parent
Company P
= 149,527,509 P
=167,701,203 P
=47,619,840 P
=54,162,265
b. Weighted average number of
outstanding shares 1,763,671,463 1,720,000,660 1,763,671,463 1,720,000,660
c. Earnings per share (a/b) P
= 0.08 P
=0.10 P
= 0.03 P
=0.03
Earnings per share is calculated using the consolidated net income attributable to the equity holders of Xurpas
Inc. divided by the weighted average number of shares.
Fair Value
The methods and assumptions used by the Group in estimating fair value of the financial instruments are as
follows:
Cash and cash equivalents, accounts receivable and accounts and other payables (excluding “Taxes payable”,
“Deferred output VAT”, and statutory payables included as “Others”) – Carrying amounts approximate fair
values due to the relatively short-term maturities of these instruments.
Financial assets at FVPL - These pertain to investment in UITF. Fair value of investment in UITF is based
on NAV as at reporting dates.
AFS quoted equity security - Fair value is based on quoted prices published in the market and debt securities.
AFS unquoted equity security and AFS unquoted debt investments - For unquoted equity and debt
investments with recent sales at arm’s length transaction, fair values were determined using prices in such
transaction.
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable
AFS - quoted equity security amounting to P =0.24 million as of September 30, 2016 and
December 31, 2015 was classified under Level 1 category.
Financial assets at FVPL, AFS unquoted equity and debt instruments and financial liability at FVPL - The
fair value measurements are categorized under Level 2 of fair value hierarchy. Carrying amounts of these
assets are set out below:
There have been no reclassifications from Level 1 to Level 2 or 3 categories for the nine-month period ended
September 30, 2016.
Exposure to credit risk, liquidity risk and foreign currency risk arise in the normal course of the Group’s
business activities. The main objectives of the Group’s financial risk management are as follows:
Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Group
by failing to discharge an obligation.
The Group’s credit risk is primarily attributable to cash and cash equivalents (excluding “cash on hand”) and
receivables. To manage credit risk, the Group monitors its exposure to credit risk on a continuous basis.
The Group entered into an agreement with GTI, wherein the former will provide mobile consumer products
and services and enterprise services to the latter in accordance with the service order and description specified
in the service level agreement among the parties involved. The mobile consumer products and services
include creation and development of mobile electronic content for delivery to GTI and distribution to GTI’s
mobile phone subscribers. Enterprise services, on the other hand, includes development and maintenance of
its own platforms which host and enable mobile subscribers to access or use GTI’s mobile content products.
The Group has concentration of credit risk with receivable from GTI, its largest customer, representing 79%
and 58% of its total trade receivables as of September 30, 2016 and December 31, 2015, respectively (see
Note 6). Recent economic condition and market segment of GTI shows its continuing growth and success.
The Group adheres to fixed limits and guidelines in its dealings with counterparty banks. Given the high
credit standing of its accredited counterparty banks, management does not expect any of these financial
institutions to fail in meeting their obligations. Nevertheless, the Group closely monitors developments over
counterparty banks and adjusts its exposure accordingly while adhering to pre-set limits.
Except for cash in bank, the Group’s maximum exposure to credit risk as of September 30, 2016 and
December 31, 2015 is equal to the carrying values of its financial assets.
The credit quality of the financial assets was determined as follows:
Cash in banks, financial assets at FVPL and AFS financial assets - based on the nature of the counterparty
and the Group’s rating procedure. These are held by counterparty banks with minimal risk of bankruptcy and
are therefore classified as high grade.
Accounts receivable - high grade pertains to receivables with no default in payment; medium grade pertains
to receivables with up to three defaults in payment; and low grade pertains to receivables with more than
three defaults in payment.
Liquidity Risk
Liquidity risk is the risk that the Group will be unable to meet its obligations as they fall due. The Group
seeks to manage its liquidity risk to be able to meet its operating cash flow requirement, finance capital
expenditures and service maturing debts. To cover its short-term and long-term funding requirements, the
Group intends to use internally generated funds and available short-term and long term credit facilities. Credit
lines are obtained from BOD-designated banks at amounts based on financial forecast approved by the BOD.
The maturity profile of the Group’s financial assets and financial liabilities at September 30, 2016 and
December 31, 2015 are based on contractual undiscounted payments.
As of September 30, 2016 and December 31, 2015, the Group’s financial assets and financial liabilities have
a maturity of less than one year.
• Mobile consumer services - includes airtime management, content development and management and
marketing and advertising solutions
• Enterprise services - includes platform development and customization, system integration, mobile
platform consultancy services, management of off-the-shelf application and social media related
services. This also includes information technology (IT) staff augmentation and various enterprise
solutions-based services to Telcos and other companies for network and applications development
• Other services – includes consultancy services in the field of human resource management, trading in
general, sourcing for and supplying of goods to import and export goods
The following tables regarding business segment revenue and profit information for the nine-month periods
ended September 30, 2016 and 2015:
2016 (Unaudited)
Mobile
consumer Enterprise Other Intersegment
services services services Adjustments Consolidated
Revenue from services to external
customers P
=630,211,397 P =493,403,218 P
=2,527,100 (P
=61,388,133) P=1,064,753,582
Revenue from sale of goods − − 41,882,677 − 41,882,677
Equity in net loss of associates (10,139,479) − − − (10,139,479)
Operating expenses (400,346,920) (422,927,761) (67,512,725) 54,163,569 (836,623,837)
Operating profit 219,724,998 70,475,457 (23,102,948) (7,224,564) 259,872,943
(Forward)
Mobile
consumer Enterprise Other Intersegment
services services services Adjustments Consolidated
Dividend income 9,100,000 − − (9,100,000) −
Interest income 3,099,521 98,995 8,530 (224,316) 2,982,730
Other income 11,226,984 6,959,697 507,189 (2,097,510) 16,596,360
Provision for (benefit from) income
tax (76,343,803) (20,942,283) 7,512,561 3,226,702 (86,546,823)
Net income (loss) P
=166,807,700 P
=56,591,866 (P
=15,074,668) (P
=15,419,688) P
=192,905,210
Net income attributable to:
Equity holders of Xurpas Inc. P
=149,527,509
Noncontrolling interests 43,377,701
P
=192,905,210
2015 (Unaudited)
Mobile
Consumer Enterprise Intersegment
services services Other services Adjustments Consolidated
Revenue from services to external
customers P
=380,856,808 P
=75,677,030 P
=3,789,702 (P
=1,820,880) P
=458,502,660
Revenue from sale of goods − − 35,930,578 − 35,930,578
Equity in net loss of associates (6,086,636) − − − (6,086,636)
Operating expenses (149,802,232) (62,602,036) (54,508,509) 3,411,201 (263,501,576)
Operating profit 224,967,940 13,074,994 (14,788,229) 1,590,321 224,845,026
Dividend income 11,375,000 − − (11,375,000) −
Interest income 8,503,693 76,946 − − 8,580,639
Other income 5,558,241 65,536 11,249 − 5,635,026
Provision for income tax (71,746,904) (4,932,250) − − (76,679,154)
Net income (loss) =178,657,970
P =8,285,226
P (P
=14,776,980) (P
=9,784,679) =162,381,537
P
Net income (loss) attributable to:
Equity holders of Xurpas Inc. P
=167,701,203
Noncontrolling interests (5,319,666)
P
=162,381,537
On October 6, 2016, the Parent Company signed a Share Purchase Agreement for the acquisition of 100%
stake in Art of Click Pte. Ltd. (AOC), a company registered under the laws of Singapore and engaged in the
business of mobile media agency that offers a marketing platform for advertisers. The aggregate
consideration is approximately US$45.00 million. The consideration consists of both cash and Xurpas shares.
The Xurpas shares shall be computed on a 30-day weighted average and shall be based on the average market
value of Xurpas shares 15 days before and 15 days after closing date, October 6, 2016.
On October 7, 2016, the Board of Directors approved the application for initial public offering of Fluxion,
Inc. (currently in the process of securing approval from Securities and Exchange Commission for the change
of its corporate name from Fluxion, Inc. to Xeleb Technologies Inc.) to the Small, Medium and Emerging
(SME) Board of the Exchange.
On the same date, the Board of Directors approved the filing of the Parent Company’s application to transfer
from the Small, Medium and Emerging Board of the Philippine Stock Exchange, Inc. (“PSE”) to PSE’s Main
Board. This application was filed with the PSE on October 22, 2016.
The unaudited interim condensed consolidated financial statements of the Group as of September 30, 2016
and December 31, 2015 and for the nine-month periods ended September 30, 2016 and 2015 were approved
and authorized for issue by the BOD on November 9, 2016.
AGING OF RECEIVABLES
XURPAS INC.
PT Sembilan
Yondu Storm flex Seer Xurpas
Fluxion, Inc. Digital
Incorporated Systems, Inc. Technologies, Enterprise,
(100%) Investama
(51%) (51%) Inc. (70%) Inc. (100%)
(49%)
PT. Storm
Codesignate, PT Ninelives
Xeleb Inc. Benefits
Inc. Interactive
(100%) Indonesia
(75%) (100%)
(100%)
September 30,
2016
Unappropriated Retained Earnings, beginning =
P144,069,724
Add: Net income during the period closed to retained earnings
(Parent Company) 106,228,549
Equity in net loss of associate 10,139,479
Provision for deferred income tax 2,221,071
Less:
Unrealized gain from financial assets at FVPL (1,253,931)
Cash dividends declared (86,265,841)
Unappropriated Retained Earnings, end available for dividend
distribution =
P175,139,051
XURPAS INC. AND SUBSIDIARIES
FINANCIAL RATIOS
A. Current ratios
Current ratios
142% 84%
Quick ratios
136% 81%
B. Solvency ratios/ debt-to-equity ratios 59% 231%
C. Asset-to-equity ratios 222% 428%
D. Profitability ratios
Net income margin
14% 25%
Gross margin
48% 57%
Operating margin
28% 39%
Return on total assets
4% 9%
Return on equity
11% 19%
Item 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Summary
The net income of the Group for the nine-month period ended September 30, 2016, increased by 19% (from
₱162.38 million in the first nine months of 2015 to ₱192.91million in 2016. Core net income over the same
period increased by 21%. Although group revenues were expected to sustain its increasing trend in the first nine
months of 2016 vis-à-vis the same period in 2015, net income was not expected to grow at the same pace
because of the overall expansion programs of the Group. Furthermore, the parent company is still absorbing its
share of the net losses of the technology companies it invested in, many of which are ramping up or still
commercializing their operations.
Total revenues increased by ₱617.57 million or 121% for the comparable period, from ₱508.65 million in the
first nine months of 2015 to ₱1,126.22 million in the first nine months of 2016. The revenue was enhanced by
the introduction of new revenue segments as a result of the acquisitions over 2015 and 2016. These were the
enterprise solutions and services of Yondu and Seer and the flexible benefits product of Storm Flex Systems Inc.
The blended cost of services (aggregating the subsidiaries’ costs) increased by 282% from ₱143.80 million for
the first nine months of 2015 to ₱548.84 million for the comparable period in 2016. Cost of goods sold
attributable to other services was ₱28.74 million for the nine-month period ended September 30, 2016 compared
to ₱30.90 million over the same period the previous year, a decrease of 7% or ₱2.16 million. This resulted to the
improved margins on the items sold. Gross profit margins over total revenues, for the nine-month period ended
September 30, 2016 was at 49%, a decrease from the same period last year at 66%. However, in absolute
amount, gross profit increased by 64% from ₱333.96 million for the first nine months of 2015 to ₱548.63
million for the same period in the first nine months of 2016.
General and administrative expenses increased by 192%, from ₱88.81 million for the first nine months of 2015
to ₱259.04 million for the same period in 2016. Overall, the increase was mainly due to the costs related to
expansion: (i) absorption of the operating expenses of acquired subsidiaries, a number of which are ramping up
their operations, (ii) increase in salaries and wages due to organizational build-up of the parent company and
acquired subsidiaries, and (iii) investment and acquisition-related costs and legal fees, the latter being non-
recurring. The Company also shares in the recorded net loss of the associate companies it has invested in, which
amounted to ₱10.14 million for the first nine months of 2016. Provision for taxes during the first nine months
of 2016 was ₱86.55 million or 13% higher than the same period in 2015 at ₱76.68 million; due to the higher
income before tax.
Overall, the net income for the Group increased from ₱162.38 million for the first nine months of 2015 to
₱192.91 million over the same period in 2016; an increase of 19%. Core net income which excludes the non-
recurring expenses amounting to ₱4.96 million, was at ₱196.98 million or an increase of 21% over the previous
period.
Consolidated total assets as of September 30, 2016 amounted to ₱4,491.76 million, an increase of 32% from
₱3,394.37 million as of December 31, 2015; as a result of the top-up placement of the Parent Company's shares
in April 2016. The net increase of ₱1,097.39 million in total assets was mainly brought by the ₱459.64 million
increase in investment in associates, ₱193.92 million increase in cash, and ₱449.78 million increase in financial
assets at FVPL. Consolidated total liabilities decreased by 9% from ₱1,830.62 million as of December 31, 2015
to ₱1,673.49 million in September 30, 2016, due mainly to the decrease in Accounts and other payables and
Income tax payable. Consolidated total equity increased by 80% over the same period, from ₱1,563.75 million
to ₱2,818.27 million. This was a result of the additional paid-in capital from the top-up placement.
Mobile
consumer Enterprise Other Intersegment
services services services Adjustments Consolidated
As of September 30, 2016, mobile consumer services’ revenues, operating profit and net income prior
to eliminations were ₱630.21 million, ₱219.72 million and ₱166.81 million, respectively. These
translated to 35% operating profit margin and 26% net income margin. Enterprise services had
operating profit of ₱70.48 million (operating profit margin of 14%) and net income of ₱56.59 million
(net income margin of 11%) from revenues of ₱493.40 million. The other services segment has yet to
yield a positive contribution to the Group.
Profitability
For the nine-month period ended September 30, 2016 compared with the nine-month period ended September
30, 2015
Revenues
The consolidated revenues of the Group for the period ended September 30, 2016 amounted to
₱1,126.22 million, an increase of 121% from ₱508.65 million the same period of the previous year.
The service income component of total revenues is comprised of the following segments:
Mobile consumer Revenues ultimately derived from providing Xurpas Parent Company
Xeleb
services Mobile consumer services via the Telcos Yondu
Other services Revenues derived from services related to the Storm Flex
proprietary platform called “Flex Benefits
System,” which allows employees to convert
their employee benefits to other benefits
which includes sale of goods
Revenues from the mobile consumer services segment for the 9-month period ended September 30, 2016
amounted to ₱575.37 million, an increase of 52% from the previous year’s same period level of ₱379.04
million. This segment accounts for 51% of the total revenues. On the other hand, revenues from enterprise
services (which accounts for 43% of total revenues) increased by 543% in September 30, 2016, to ₱486.86
million from ₱75.68 million in September 30, 2015. Other services booked revenues of ₱44.41 million in
September 30, 2016, higher by 12% from the previous level at ₱39.72 million over the same period last year.
Interest income as of September 30, 2016 amounted to ₱2.98 million or 65% lower vis-à-vis the ₱8.58 million
from the same period in 2015. Interest income was derived from the interest generated by the Group from its
cash deposits in banks and cash equivalents. Other income which includes financial assets at FVPL as of
September 30, 2016 amounted to ₱16.60 million or 195% higher vis-à-vis the ₱5.64 million from the same
period in 2015.
Expenses
As of the first nine months of 2015, Xurpas had as subsidiaries: Fluxion, Storm Flex, Xeleb, and Seer. In
contrast, the first nine months of 2016 now also includes Yondu. Xurpas Parent Company consolidated the
operating expenses of all its subsidiaries. The Group’s consolidated expenses during the period ended
September 30, 2015 amounted to ₱836.62 million, a 218% increase from the same period of the previous year at
₱263.50 million. For the first nine months of 2016, cost of services accounted for the bulk of expenses, totaling
₱548.84 million or 66% of the Group’s consolidated expenses. For the same period in 2015, cost of services
amounted to ₱143.80 million or 55% of overall expenses of ₱263.50 million.
Cost of Services
Cost of services totaling ₱548.84 million for the first nine months of 2016, was mainly driven by expenses
relating to (1) Salaries, wages, and employee benefits, (2) Segment fee and network costs, and (3) Outsourced
services, which accounted for 61%, 14%, and 9%, respectively. These costs were directly borne from rendering
mobile consumer services, enterprise services, and other services to the Group’s clients for the first nine months
of 2016. Of the total cost of services for the period, 78% is attributable to new subsidiaries. In comparison, as of
the first nine months of 2015 cost of services (₱143.80 million) was broken down into 47% salaries, wages, and
employee benefits, 12% segment fee and network costs, and 16% outsourced services.
For the period ended September 30, 2016, cost of goods sold took up 3% of the Group’s consolidated expenses,
amounting to ₱28.74 million. This figure was a decrease of 7% from its level at ₱30.90 million in September 30,
2015. Cost of goods sold is attributable to Storm Flex Systems Inc. which was acquired by the Parent Company
in the end of February 2015. Costs related to the sale of goods from its flexible benefits and performance
programs were appropriated as cost of goods sold.
General and administrative expenses relating to the Group’s operations, for the nine-month period ended
September 30, 2016 amounted to ₱259.04 million, higher by 192% compared to previous year’s same period
level of ₱88.81 million. Salaries, wages, and employee benefits was ₱98.36 million or 38% of the total general
and administrative expenses (GAEX). The same expenses amounted to ₱39.04 million for the same period in
2015. The next biggest cost component in September 30, 2016 was repairs and maintenance amounting to
₱26.31 million or 10% of total GAEX. The increase in the GAEX was primarily brought about by the
consolidation of operational expenses from acquired subsidiaries, which contributed 74% of the total.
The equity of the Group in the net loss of its associate companies for the nine-month period ended September
30, 2016, amounted to ₱10.14 million. These companies are still in their testing phase or are in the process of
ramping up or commercializing their operations.
Income before Income Tax
The Group’s net income before taxes for nine-month period ended September 30, 2016 was 25% of total
revenues or a figure of ₱279.45 million. The net income before taxes for the Group grew 17% from the same
period ended September 30, 2015, which posted a figure of ₱239.06 million.
Provision for income tax during the period ended September 30, 2016 amounted to ₱86.55 million, compared to
the same period in 2015, where provision for income tax was ₱76.68 million; a 13% increase.
Net Income
The Group posted a consolidated net income of ₱192.91 million for the first nine months of 2016, an increase of
19% from the previous year’s same period at ₱162.38 million. Despite the Group’s continuing organizational
build-up, acquisition, investment-related expenses during this period versus that on September 30, 2015 the
robust revenues generated a healthy net income margin of 17% for the first nine months of 2016.
As of September 30, 2016, core net income which excludes the non-recurring expenses amounting to ₱4.96
million, was at ₱196.98 million or an increase of 21% over the previous period.
Financial Position
Assets
The Group’s consolidated cash and cash equivalents amounted to ₱499.80 million for the period ended
September 30, 2016, a net increase of 63% or ₱193.92 million from consolidated cash and cash equivalents of
₱305.89 million as at December 31, 2015. On April 2016, the Parent Company’s overnight top-up placement
raised ₱1,243.20 million in equity funds.
Accounts Receivable
The Group’s consolidated accounts receivable amounted to ₱657.42 million and ₱756.41 million as at
September 30, 2016 and December 31, 2015, respectively, representing a decrease of 13% or ₱98.99 million.
In September 30, 2016, trade receivables were valued at ₱613.88 million, whereby Yondu accounts for ₱451.40
million or 74% of the total.
The total Net Asset Value (NAV) and fair value of the Fund as at September 30, 2016 and December 31, 2015
was ₱536.31 million and ₱80.32 million, respectively. Part of the funds raised by the Parent Company after the
April 29, 2016 overnight top-up placement was used to invest in the SB Money Market Fund in order to
generate liquidity and stable income. The SB Money Market Fund was invested in a diversified portfolio of
primarily short-term fixed income instruments. Unrealized gains from this investment amounted to ₱1.25
million as of September 30, 2016.
The Group’s consolidated other current assets totaled ₱67.92 million, an increase of ₱23.62 million or 53% from
its previous level on December 31, 2015 at ₱44.30 million. Prepaid expenses and Input VAT comprised
majority of other current assets.
As of September 30, 2016, the Group’s available for sale financial assets amounted to ₱67.96 million, which
was the same figure as at December 31, 2015. These are the investments in Einsights Pte. Ltd. of ₱23.48
million; Quick.ly, Inc.- ₱44.24 million; and Club Punta Fuego at ₱0.24 million.
Investment in Associates
As of September 30, 2016, the Group’s consolidated Investment in Associates amounted to ₱562.45 million, a
447% increase from its figure of ₱102.81 million during December 31, 2015. The breakdown of the carrying
amounts of these investments are: Altitude Games (₱27.78 million), MatchMe (₱55.49 million), SDI (₱9.40
million), and Micro Benefits Limited (₱469.70 million).
The Group’s consolidated Property and Equipment was ₱71.36 million in September 30, 2016 vis-à-vis ₱58.18
million in December 31, 2015, or an increase of 23%. This was a result of adding ₱31.61 million worth of said
assets in the period ended September 30, 2016. Depreciation expense amounted to ₱17.48 million in the nine-
month period as at September 30, 2016. Property and Equipment mainly consisted of transportation, office,
information technology equipment, furniture, and fixtures.
Intangible Assets
Intangible assets of ₱1,877.40 million as at September 30, 2016 were recognized in relation to the Group’s
acquisitions and investments. The amortized amount was ₱14.10 million or 0.7% of the December 31, 2015
figure at ₱1,888.86 million. The major components are goodwill, customer relationship, developed software,
and leasehold rights.
Goodwill pertains to excess of the acquisition cost over the fair value of the identifiable assets and liabilities
of companies acquired by the Group. As of September 30, 2016, goodwill is at ₱687.81 million.
Customer relationship pertains to Yondu’s noncontractual and contractual agreements with Globe
Telecoms, its major customer which are expected to generate revenues for the Group in subsequent periods.
As of September 30, 2016, customer relationship is valued at ₱1,077.81 million.
Developed software pertains to telecommunications equipment software licenses, corporate application
software and licenses and other VAS software applications that are not integral to the hardware or
equipment. As of September 30, 2016, developed software net book value is at ₱97.41 million.
Amortization of Developed software for the six-month period as of September 30, 2016 amounted to
₱12.23 million.
Leasehold rights pertain to cost savings arising from lower than market rate rental in the lease contracts
acquired through business combination. As of September 30, 2016, leasehold rights net book value is at
₱14.37 million. Amortization of Leasehold rights for the six-month period as of September 30, 2016
amounted to ₱1.86 million.
The Group’s consolidated net deferred tax assets level amounted to ₱44.05 million as at September 30, 2016,
higher by 4% vis-à-vis its December 31, 2015 level at ₱42.52 million.
Other Noncurrent Assets
Other Noncurrent Assets amounted to ₱36.68 million as of September 30, 2016. This figure is 22% higher than
the value posted as of December 31, 2015 at ₱30.05 million. This is primarily rental deposits amounting to
₱20.44 million or 56% of total.
Liabilities
The Group’s consolidated accounts and other payables valued at ₱368.22 million as of September 30, 2016 was
a 30% decrease from its December 31, 2015 figure of ₱522.74 million. The decrease was largely the reduction
of dividends payable valued at ₱253.49 million as at December 31, 2015 to ₱82.41 million as of the first nine
months of 2016 for dividends paid to GTI. Dividends payable pertain to amount payable to GTI for dividends
declared before the Parent Company acquired shares in Yondu.
The Group’s accounts and other payables consisted mainly of trade payables at ₱114.41 million (₱92.43 million
from Yondu), dividends payable at ₱82.41 million (₱69.00 million accounted for by Yondu), accrued expenses
at ₱71.98 million (₱67.61 million accounted for by Yondu), and deferred output VAT at ₱55.58 million (₱46.44
million accounted for by Yondu).
Loans Payable
The Group’s loans payable is attributable to Seer’s local bank loans amounting to ₱17.00 million as of
September 30, 2016 and December 31, 2015. These are interest-bearing, short-term, and collateralized by Seer’s
trade receivables. Such loans are payable in 60 days.
The Group’s consolidated income tax payable as of September 30, 2016 amounted to ₱30.01 million, a decrease
of 23% from the December 31, 2015 figure of ₱39.24 million.
Based on PAS 32, Financial Instruments: Presentation, “…a contract that contains an obligation for an entity
to purchase its own equity instruments for cash or another financial asset gives rise to a financial liability for the
present value of the redemption amount.” As such, a liability for the written put option is recognized which is
equal to the present value of the amount payable upon exercise of the option is to be recognized. This amounts
to ₱853.18 million, both as of September 30, 2016 and December 31, 2015.
As of September 30, 2016, the deferred tax liability (net) was at ₱354.00 million, a decrease of 2% or ₱6.58
million from ₱360.59 million as of December 31, 2015. This is primarily the deferred tax liability on fair value
adjustment on intangible assets.
Pension Liability
The accrued pension of the Group is at ₱26.46 million, which was a 35% or ₱14.41 million decrease from
December 31, 2015 levels at ₱40.87 million. The decrease in pension liability was a result of Yondu’s pension
contribution to its retirement plan fund during the month of April 2016 and from the resignation of some
Fluxion officers.
Equity
Total Equity
The Group’s total equity as of September 30, 2016 was at ₱2,818.27 million, an 80% increase from its
December 31, 2015 level at ₱1,563.75 million. On April 29, 2016, the Parent Company issued and subscribed
77.70 million shares with par value of ₱0.10 for a total consideration of P =1,243.20 million or P=16.00 per share.
The excess of subscription price over paid-up capital was recognized as additional paid-in capital. The net
increase in total equity was a result of additional paid-in capital of ₱1,190.61 million, increase of ₱63.26 million
in retained earnings, and increase of ₱7.77 million in capital stock as of September 30, 2016. Likewise, as of
September 30, 2016, equity reserve of ₱882.91 million was recorded pertaining to the liability for written
option. Non-controlling interests were at ₱799.21 million in September 30, 2016, a 3% increase from its figure
in December 31, 2015 at ₱771.52 million.
The Group’s liquidity is primarily driven by Cash Flows from Operating Activities and cash reserves. The
Group knows of no demands, commitments, events, or uncertainties that are reasonably likely to result in a
material increase or decrease in liquidity. The Group is current on all of its accounts The Group has minimal
bank debt through Seer Technologies Inc. which is short term in nature. The Group does not anticipate having
any cash flow or liquidity problems over the next 12 months. The Group is not in breach or default on any loan
or other form of indebtedness.
Cash Flows
For the first nine months of 2016, a strong operating income of ₱310.80 million was coupled with the
corresponding increase in account receivables and the decrease in account payables for a resulting ₱211.48
million net cash generated from operations. Together with interest received and income taxes paid, this resulted
in a net cash used for operating activities of ₱109.71 million.
The Group’s consolidated cash flows used in investing activities for acquisitions and associates for the first nine
months of 2016 was ₱1,058.19 million compared to ₱649.00 million in the same period of 2015. The cash used
for investing activities was largely a placement to financial assets at FVPL (₱2,270.00 million) with the
corresponding redemption at ₱1,817.86 and net payment for investment in associate (Micro Benefits at ₱468.38
million).
The Group’s consolidated net cash flow provided by financing activities for the nine-month period ended
September 30, 2016 was ₱1,139.73 million; compared to ₱79.43 million net cash flow used as of December 31,
2015. For the first nine months of 2016, consolidated net cash flow provided by financing activities was
attributable mainly to the issuance of shares worth ₱1,243.20 million, with cash used for its transaction cost
amounting to ₱44.82 million and dividends paid for equity attributable to the Parent Company amounting to
₱86.27 million.
Capital Expenditure
The Group’s capital expenditures for the nine-month period ended September 30, 2016 and the year ended
December 31, 2015 amounted to ₱31.61 million and ₱44.46 million, respectively. Note that in 2015, additions
through business combination were ₱44.46 million.
The Group has no contingent liabilities for the six-month period at September 30, 2016 and for the year ended
December 31, 2015.
The key performance indicators disclosed below present the financial performance of the Group as a
whole. These are different with those in supplemental schedule of the consolidated financial statements
which were prepared only for the analysis of financial performance attributable to the Parent Company.
The following are the key performance indicators of the Group and its majority-owned subsidiaries:
Current Ratios
Current Ratio and Quick Ratios in the nine-month period at September 30, 2016 were 142% and 136%,
respectively, an increase from their respective 84% and 81% figures during the full year of 2015. The increase
in both ratios was primarily from the significant increase in current assets of the Group for that period due to the
cash provided by financing activities.
Asset-to-Equity Ratio
The decrease in the asset-to-equity ratio from 217% in December 31, 2015 to 222% in September 30, 2016
resulted from the large increase in equity, particularly additional paid-in capital. The increase in additional paid-
in capital was a result of the April 2016 issuance and subscription of shares.
Profitability Ratios
Profitability margins decreased from September 30, 2015, as a result of business combination and expenses
related to the Group’s investments and acquisitions. The decrease in Gross Profit Margin (48%), Net Income
Margin (14%), Operating Margin (28%), Return on Total Assets (4%) and Return on Equity (11%) was a result
of the increase in overall expenses as a direct result of the Parent Company’s expansion and acquisitions: the
absorption of operational expenses of the acquired subsidiaries, expansion of operations offshore, salaries and
wages paid to the Group’s new employees for its organizational build-up program; and payment of professional
and legal fees incurred from investments and acquisitions.
The manner by which the Company calculates the foregoing indicators is as follows:
Current Ratios
1. Current ratio Current assets
Current liabilities
Other Disclosures:
i. Liquidity. There are no known trends, events, or uncertainties that will result in the Group’s
liquidity increasing or decreased in a material way.
ii. Events that will trigger Direct or Contingent Financial Obligation. There are no events that will
trigger direct or contingent financial obligations that are material to the Group, including and
default or acceleration of an obligation.
iii. Material Off-balance sheet Transactions, Arrangements, Obligations. Likewise, there were no
materials off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the group with unconsolidated entities or other persons
created during the reporting period.
iv. Material Commitments for Capital Expenditure. There are no material commitments for capital
expenditures.
v. Material Events/ Uncertainties. There are no known trends, events, or uncertainties that have had
or that are reasonably expected to have a material favorable or unfavorable impact on the Group’s
revenues from continuing operations.
vi. Results of Operations. There were no significant elements of income or loss that did not arise from
continuing operations.
vii. Seasonality. The effects of seasonality or cyclicality on the operations of the Group’s business are
non-material.