A. Liquidity
Item 7. Financial Statements
4. RISK MANAGEMENT OBJECTIVES AND POLICIES
(b) Interest Rate Risk
The University’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 2014 2013 2012
Cash and cash
equivalents 7 P 215,797,069 P 195,608,838 P 421,846,871 AFS financial assets 10 1,486,580,783 1,645,490,432 1,595,554,561 Other current assets 11 110,740,446 344,738,279 135,233,609 Interest-bearing loans 16 ( 800,000,000) ( 800,000,000) -
P 1,013,118,298 P 1,385,837,549 P 2,152,635,041
The following table illustrates the sensitivity of profit before tax for the years with regard to the University’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 University’s financial instruments held at March 31, 2014, 2013 and 2012.
2014 2013 2012 _
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 +/-0.46% P 992,667 +/-0.41% P 801,996 +/-0.98% P 4,183,099 AFS financial assets +/-0.59% 8,770,827 +/-1.16% 19,087,689 +/-1.21% 19,306,210 Other current assets +/-0.59% 653,369 +/-1.16% 3,998,964 +/-1.21% 1,575,827 Interest-bearing loans +/-0.65% ( 5,200,000 ) +/-0.93% ( 7,440,000 ) -
P 5,216,863 P 16,448,649 P 25,065,136
(c) Other Price Risk
The University’s exposure to price risk arises from its investments in equity securities, which are classified as AFS Financial Assets in the statement 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 17.43%, 12.27% and 15.74% has been observed during 2014, 2013 and 2012, respectively. If quoted price for these securities increased or decreased by that amount profit before tax would have changed by P143.3 million, P45.9 million and P35.0 million in 2014, 2013 and 2012, 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 not representative of a risk inherent in financial
instruments.
The investments are considered medium to long-term strategic investments. In accordance with the University’s policies, no specific hedging activities are undertaken in relation to these investments, except as discussed in Notes 9 and 10 in connection with its investment in certain foreign currency denominated corporate debt
instruments which are also subject to a cross-currency swap agreement. The
investments are continuously monitored to ensure returns of these equity instruments are timely utilized or reinvested in the University’s favor.
4.2 Credit Risk
Credit risk represents the loss the University would incur if the counterparty fails to perform its contractual obligations. The credit risk for cash and cash equivalents and AFS financial assets 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. The University’s exposure to credit risk on its receivables related 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 University based on installment payment schemes. The University 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. The University also withholds the academic records and clearance of the students with unpaid balances, thus ensuring that collectability is reasonably assured. The University’s exposure to credit risk on its other receivables from debtors and related parties is managed through close account monitoring and setting limits.
The University 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 significant amount of loans to Fern Realty Corporation (FRC) in 2012 which is not considered high-risk considering that FRC is a subsidiary of the University, was fully settled in 2013 (see Note 23.1). With respect to credit risk arising from cash and cash equivalents, receivables, due from a related party and AFS financial assets, the University’s exposure to credit risk arises from default of the counterparty, with maximum exposure equal to the carrying amount of these instruments. The risk is minimal as these financial assets and investments are with reputable financial institutions and with related parties.
The maximum exposure to credit risk at the end of the reporting period is as follows:
Notes 2014 2013 2012
Cash and cash
equivalents 7 P 215,797,069 P 195,608,383 P 421,846,871 Receivables 8 298,539,270 320,180,882 749,516,021 Financial assets
at FVTPL 9 - 18,629,900 -
AFS financial assets (except equity
securities) 10 1,486,580,783 1,645,490,432 1,595,554,561 Short-term investments
(under Other
Current Assets) 11 110,740,446 344,738,279 135,233,609 Due from a related
party 23.1 - - 114,610,613
Refundable deposits 3,929,796 3,929,796 3,929,796 P 2,115,587,364 P 2,528,577,672 P 3,020,691,471 The table below shows the credit quality of the University’s financial assets as of March 31, 2014, 2013 and 2012 having past due components.
Neither
past due nor Past due
Notes impaired and impaired Total
2014
Cash and cash
equivalents 7 P 215,797,069 P - P 215,797,069 Receivables 8 261,644,710 36,894,560 298,539,270 AFS financial assets
(except equity
securities) 10 1,486,580,783 - 1,486,580,783 Short-term investments
(under Other
Current Assets) 11 110,740,446 - 110,740,446
Refundable deposits 3,929,796 - 3,929,796
P 2,078,692,804 P 36,894,560 P 2,115,587,364
2013
Cash and cash
equivalents 7 P 195,608,383 P - P 195,608,383 Receivables 8 196,883,072 123,297,810 320,180,882 Financial assets
at FVTPL 9 18,629,900 - 18,629,900
AFS financial assets (except equity
securities) 10 1,645,490,432 - 1,645,490,432 Short-term investments
(under Other
Current Assets) 11 344,738,279 - 344,738,279
Refundable deposits 3,929,796 - 3,929,796
Neither past due nor Past due
Notes impaired and impaired Total
2012
Cash and cash
equivalents 7 P 421,846,871 P - P 421,846,871 Receivables 8 717,272,150 32,243,871 749,516,021 AFS financial assets
(except equity
securities) 10 1,595,554,561 - 1,595,554,561 Short-term investments
(under Other
Current Assets) 11 135,233,609 - 135,233,609 Due from a related
party 23.1 114,610,613 - 114,610,613
Refundable deposits 3,929,796 - 3,929,796
P 2,988,447,600 P 32,243,871 P 3,020,691,471
The University has no past due but not impaired financial assets at end of each year.
The University classifies tuition and other school fees 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 classified as current receivable are determined to be fully collectible, based on historical experience.
The University’s management considers that all the above financial assets are not impaired, except those specifically provided with allowance for impairment at the end of the reporting period, and of good credit quality. Cash and cash equivalents and AFS financial assets are coursed through reputable financial institutions duly approved by the BOT. The balance of Due from a Related Party account is from a profitable related party with a good payment record. As of March 31, 2013, such balance was fully collected by the University.
4.3 Liquidity Risk
The University 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 University’s future and contingent obligations and ensures that future cash collections are sufficient to meet them in accordance with internal policies. The University invests in cash placements when excess cash is obtained from operations.
As at March 31, 2014, 2013 and 2012 the University’s financial liabilities have contractual maturities which are presented below.
Current Non-current
Within 6 to 12 1 to 5
6 Months Months Years
2014
Trade and other payables P 370,882,200 P - P -
Interest-bearing loans 830,400,000
Derivative liability - 14,433,500 -
P 370,882,200 P 14,433,500 P 830,400,000
2013
Trade and other payables P 353,957,133 P - P -
Interest-bearing loans - - 828,800,000
P 353,957,133 P - P 828,800,000
2012
Trade and other payables P 381,984,187 P - P -
Derivative liability - 1,114,572 -
P 381,984,187 P 1,114,572 P -
The contractual maturities presented above 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 OFFSETTING OF FINANCIAL ASSETS AND