Supplementary Information and Independent Auditors' Report
3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES The Group’s consolidated financial statements prepared in accordance with PFRS
4.1 Market Risk
(a) Foreign Currency Risk
Most of the Group’s transactions are carried out in Philippine pesos, its functional currency. Exposures to currency exchange rates arise from the University’s AFS debt securities which are denominated in U.S. dollars (USD) and euro (EUR), and
insignificant dollar deposit.
To mitigate the University’s exposure to foreign currency risk related to the foreign currency-denominated AFS debt securities, management entered into a cross-currency swap agreement. As to the dollar deposit, management keeps the amount of deposits at a low level.
2013 2012 2011 _
USD EUR USD EUR USD EUR
Short-term exposure –
Financial assets P 3,962,877 P - P 966,857 P - P 3,281,301 P -
Long-term exposure –
Financial assets P 147,193,807 P 58,496,721 P 154,607,790 P 63,560,026 P 89,369,158 P 68,190,146
The following table illustrates the sensitivity of the Group’s profit before tax with respect to changes in Philippine peso against USD and EUR exchange rates. The percentage changes in rates have been determined based on the average market volatility in exchange rates, using standard deviation, in the previous 12 months at a 68% confidence level.
2013 2012 2011 _
Reasonably Effect in Effect in Reasonably Effect on Effect on Reasonably Effect on Effect on possible profit before equity before possible profit before equity before possible profit before equity before change in rate tax tax change in rate tax tax change in rate tax tax PhP - USD 14.25% P 564,570 P 20,969,907 8.07% P 78,069 P 12,483,869 18.10% P 594,026 P 16,178,821
PhP - EUR 17.58% - 10,285,726 27.98% - 17,781,023 17.36% - 11,839,833
P 564,570 P 31,255,633 P 78,069 P 30,264,892 P 594,026 P 28,018,654
Exposures to foreign exchange rates vary during the year depending on the volume of foreign currency denominated transactions. Nonetheless, the analysis above is considered to be representative of the Group’s currency risk.
(b) Interest Rate Risk
The Group’s exposure to interest rate risk arises from the following interest-bearing financial instruments which are subject to variable interest rates. All other financial assets and liabilities have fixed rates.
Notes 2013 2012 2011
Cash and cash
equivalents 7 P 337,545,519 P 485,761,243 P 378,615,741 AFS financial assets 9 435,558,360 200,930,821 567,127,869 Restricted cash and
cash equivalents - 5,000,000 5,000,000
P 773,103,879 P 691,692,064 P 950,743,610
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The following table illustrates the sensitivity of profit before tax for the years with regard to the Group’s interest-bearing financial instruments. These percentages have been determined based on the average market volatility rates, using standard deviation, in the previous 12 months, estimated at 68% level of confidence. The sensitivity analysis is based on the Group’s financial instruments held at March 31, 2013, 2012 and 2011.
2013 2012 2011
Reasonably Effect on Reasonably Effect on Reasonably Effect on possible profit before possible profit before possible profit before
change in rate tax change in rate tax change in rate tax
Cash and cash equivalents +/-0.41% P 1,383,937 +/-0.98% P 4,760,460 +/-0.53% P 2,006,663 AFS financial assets +/-1.16% 5,052,477 +/-1.21% 2,431,263 +/-1.48% 8,393,492 Restricted cash and cash equivalents - - +/-0.98% 49,000 +/-0.53% 26,500
P 6,436,414 P 7,240,723 P 10,426,655
(c) Other Price Risk
The Group’s exposure to price risk arises from its investments in equity securities, which are classified as AFS Financial Assets in the consolidated statements of financial position. These consist of publicly-listed equity securities which are carried at fair value.
Management monitors its equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis.
For equity securities listed in the Philippines, an average volatility of 12.27%, 15.74%
and 18.98% has been observed during 2013, 2012 and 2011, respectively. If quoted prices for these securities increased or decreased by that amount, profit before tax would have changed by P41.0 million, P11.9 million and P28.6 million in 2013, 2012 and 2011, respectively.
No sensitivity analysis was provided for government and corporate bonds, and investments in trust classified as AFS financial assets as management deemed that the risk at the end of the year is unrepresentative of a risk inherent in financial
instruments.
The investments are considered long-term strategic investments. In accordance with the Group’s policies, no specific hedging activities are undertaken in relation to these investments, except as discussed in Note 9 in connection with its investment in cross currency swap. The investments are continuously monitored to ensure returns of these equity instruments are timely utilized or reinvested in the Group’s favor.
4.2 Credit Risk
Credit risk represents the loss the Group would incur if the counterparty fails to perform its contractual obligations. The Group’s exposure to credit risk on its receivables relates primarily to the inability of the debtors to pay and students to fully settle the unpaid balance of tuition fees and other charges which are owed to the Group based on installment payment schemes.
The Group has established controls and procedures to minimize risks of
non-collection. Students are not allowed to enroll in the following semester unless the unpaid balance in the previous semester has been paid.
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The Group also withholds the academic records and clearance of the students with unpaid balances; thus, ensuring that collectability is reasonably assured. The Group’s exposure to credit risk on its other receivables from debtors and related parties is managed through setting limits and monitoring closely said accounts.
Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown in the consolidated statements of financial position or in the detailed analysis provided in the notes to the consolidated financial statements, as summarized below.
Notes 2013 2012 2011
Cash and cash
equivalents 7 P 338,059,095 P 486,095,989 P 379,328,540 Trade and other
receivables – net 8 493,525,523 469,042,810 470,533,172 Financial assets
at FVTPL 9 18,629,900 - 8,456,381
AFS financial assets (excluding equity
securities) 9 2,032,631,347 1,796,485,381 1,451,887,535 Restricted cash and
cash equivalents* - 5,000,000 5,000,000 Refundable deposits** 5,652,000 3,929,796 3,929,796
P 2,888,497,865 P 2,760,553,976 P 2,319,135,424
*Presented as part of Other Current Assets in the consolidated statements of financial position.
**Presented as part of Other Non-current Assets in the consolidated statements of financial position.
The table below shows the credit quality of the Group’s financial assets as at March 31, 2013, 2012 and 2011 having past due but not impaired components.
Neither
past due nor Past due and
Notes impaired impaired Total
2013
Cash and cash
equivalents 7 P 338,059,095 P - P 338,059,095 Trade and other
receivables – net 8 358,641,556 134,883,967 493,525,523 Financial assets
at FVTPL 9 18,629,900 - 18,629,900
AFS financial assets (except equity
securities) 9 2,032,631,347 - 2,032,631,347
Refundable deposits 5,652,000 - 5,652,000
P 2,753,613,898 P 134,883,967 P 2,888,497,865
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Neither
past due nor Past due and
Notes impaired impaired Total
2012
Cash and cash
equivalents 7 P 486,095,989 P - P 486,095,989 Trade and other
receivables – net 8 436,331,538 32,711,272 469,042,810 AFS financial assets
(except equity
securities) 9 1,796,485,381 - 1,796,485,381 Restricted cash and
cash equivalents 5,000,000 - 5,000,000
Refundable deposits 3,929,796 - 3,929,796
P 2,727,842,704 P 32,711,272 P 2,760,553,976
2011
Cash and cash
equivalents 7 P 379,328,540 P - P 379,328,540 Trade and other
receivables – net 8 446,042,104 24,491,068 470,533,172 Financial assets
at FVTPL 9 8,456,381 - 8,456,381
AFS financial assets (except equity
securities) 9 1,451,887,535 - 1,451,887,535 Restricted cash and
cash equivalents 5,000,000 - 5,000,000
Refundable deposits 3,929,796 - 3,929,796
P 2,294,644,356 P 24,491,068 P 2,319,135,424
The Group’s management considers that all the above financial assets are not impaired and of good credit quality, except those specifically provided with allowance for impairment at the end of the reporting period. The age of past due but not impaired receivables is about six months for each of the three years.
None of the Group’s financial assets are secured by collateral or other credit enhancements, except for cash and cash equivalents as described below.
(a) Cash and Cash Equivalents
The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.
Included in the cash and cash equivalents are cash in banks and short-term
placements which are insured by the Philippine Deposit Insurance Corporation up to a maximum coverage of P0.5 million for every depositor per banking
institution.
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(b) Trade and Other Receivables
In respect of trade and other receivables, the Group has neither any significant exposure to any individual customer or counterparty nor does it have any other concentration of credit risk arising from counterparties in similar business
activities, geographic region or economic parties. The Group classifies tuition and other fee receivables from students based on the number of semesters the
receivables have been outstanding. Receivables from students that are
outstanding for more than one semester are analyzed to determine whether they are impaired. Those that are not outstanding for more than one semester or are currently receivable are determined to be collectible, based on historical
experience.
(c) Financial Assets at FVTPL and AFS Financial Assets
Financial assets at FVTPL and AFS financial assets are coursed through reputable financial institutions duly approved by the BOT.
4.3 Liquidity Risk
The Group manages liquidity risk by maintaining a balance between continuity of funding and flexibility. Treasury controls and procedures are in place to ensure that sufficient cash is maintained to cover daily operational and working capital
requirements. Management closely monitors the Group’s future and contingent obligations and ensures that future cash collections are sufficient to meet them in accordance with internal policies. The Group invests in short-term placements when excess cash is obtained from operations.
As at March 31, 2013, 2012 and 2011 the Group’s financial liabilities have contractual maturities which are presented below.
Current Non-current
Within 6 to 12 1 to 5
6 Months Months Years
2013
Trade and other payables P 400,408,948 P 9,640,003 P - Interest-bearing loans 2,306,123 1,223,654 944,078,904
Other non-current liabilities - - 4,632,374
P 402,715,071 P 10,863,657 P 948,711,278
2012
Trade and other payables P 349,952,950 P 9,640,003 P - Interest-bearing loans 3,335,931 2,885,931 10,957,972
Other non-current liabilities - - 4,903,932
P 353,288,881 P 12,525,934 P 15,861,904
2011
Trade and other payables P 296,527,481 P - P - Interest-bearing loans 1,831,398 1,831,398 3,662,796
Other non-current liabilities - - 4,791,807
P 298,358,879 P 1,831,398 P 8,454,603
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The contractual maturities presented in the preceding page reflect the gross cash flows, which may differ from the carrying values of the liabilities at the end of the reporting period.
5. CATEGORIES AND FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
5.1 Comparison of Carrying Amounts and Fair Values
The carrying amounts and fair values of the categories of financial assets and liabilities presented in the statements of financial position are shown below.
The carrying amounts and fair values of the categories of financial assets and liabilities presented in the statements of financial position are shown below.
Notes 2013 2012 2011
Carrying Fair Carrying Fair Carrying Fair
Values Values Values Values Values Values
Financial assets Loans and receivables:
Cash and cash
equivalents 7 P 338,059,095 P 338,059,095 P 486,095,989 P 486,095,989 P 379,328,540 P 379,328,540 Trade and other
receivables – net 8 493,525,523 493,525,523 469,042,810 469,042,810 470,533,172 470,533,172 Restricted cash and
and cash
equivalents - - 5,000,000 5,000,000 5,000,000 5,000,000
Refundable deposits 5,652,000 5,652,000 3,929,796 3,929,796 3,929,796 3,929,796
837,236,618 837,236,618 964,068,595 964,068,595 858,791,508 858,791,508 FVTPL –
Cross currency
swaps 9 18,629,900 18,629,900 - - 8,456,381 8,456,381
AFS financial assets:
Short-term
investments 435,558,360 435,558,360 200,930,821 200,930,821 567,127,869 567,127,869 Debt securities 1,645,490,432 1,645,490,432 1,595,554,560 1,595,554,560 884,759,666 884,759,666 Equity securities 331,594,809 331,594,809 208,121,506 208,121,506 150,757,513 150,757,513 Investment in
club shares* 2,050,000 2,050,000 1,800,000 1,800,000 1,800,000 1,800,000
2,414,693,601 2,414,693,601 2,006,406,887 2,006,406,887 1,604,445,048 1,604,445,048 P 3,270,560,119 P 3,270,560,119 P 2,970,475,482 P 2,970,475,482 P 2,471,692,937 P 2,471,692,937 Financial liabilities
At amortized cost:
Trade and
other payables 14 P 410,048,951 P 410,048,951 P 359,592,953 P 359,592,953 P 296,527,481 P 296,527,481 Interest-bearing
loans 15 810,139,521 810,139,521 16,286,383 16,286,383 6,955,743 6,955,743
Other non-current
liabilities 4,632,374 4,632,374 4,903,932 4,903,932 4,791,807 4,791,807
1,224,820,846 1,224,820,846 380,783,268 380,408,268 308,275,031 308,275,031 FVTPL –
Cross currency
swaps 9, 14 - - 1,145,972 1,145,972 - -
P 1,224,820,846 P 1,224,820,846 P 381,929,240 P 381,554,240 P 308,275,031 P 308,275,031
*Presented as part of Other Non-current Assets in the consolidated statements of financial position.
See Notes 2.5 and 2.10 for a description of the accounting policies for each category of financial instruments. A description of the Group’s risk management objectives and policies for financial instruments is provided in Note 4.
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5.2 Fair Value Hierarchy
Financial assets and liabilities measured at fair value are categorized in accordance with the fair value hierarchy. This hierarchy groups financial assets and liabilities into three levels based on the significant of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and,
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.
The breakdown of the Group’s financial assets at FVTPL and AFS financial assets measured at fair value in its consolidated statements of financial position as of March 31, 2013, 2012 and 2011 is as follows (see Note 9):
Level 1 Level 2 Level 3 Total
2013
Debt securities:
Government P 882,641,861 P - P - P 882,641,861
Corporate 762,848,571 - 435,558,360 1,198,406,931
Equity securities 331,594,809 - 2,050,000 333,644,809
Financial assets at FVTPL –
Cross currency swaps 18,629,900 - - 18,629,900
P 1,995,715,141 P - P 437,608,360 P 2,433,323,501
2012
Debt securities:
Government P 835,320,756 P - P - P 835,320,756
Corporate 816,650,888 - 144,513,737 961,164,625
Equity securities 208,121,506 - 1,800,000 209,921,506
Derivative liability –
Cross currency swaps 1,145,972 - - 1,145,972
P 1,861,239,122 P - P 146,313,737 P 2,007,552,859
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Level 1 Level 2 Level 3 Total
2011
Debt securities:
Government P 805,269,829 P - P - P 805,269,829
Corporate 79,489,837 - 567,127,869 646,617,706
Equity securities 150,757,513 - 1,800,000 152,557,513
Financial asset at FVTPL –
Cross currency swaps 8,456,381 - - 8,456,381
P 1,043,973,560 P - P 568,927,869 P 1,612,901,429
There were no transfers between levels 1 and 2 on all the years presented.
6. SEGMENT INFORMATION