2012 Annual Report
Table of Contents
Letter from CEO ................................................................................................ 3 pg
Management Discussion & Analysis .................................................................. 5 pg
Independent Auditor’s Report ......................................................................... 25 pg
Consolidated Financial Statements ................................................................. 26 pg
Corporate Information ................................................................................... 83 pg
Mongolia Growth Group Ltd.
is a holding company owning subsidiaries
engaged in the businesses of real estate leasing,
and property and casualty insurance. The company’s
real estate holdings are held in various limited
liability companies in Mongolia. The company’s
insurance subsidiary is licensed in Mongolia to
underwrite retail and commercial lines of business,
under the name Mandal General Daatgal LLC.
Operational decisions for MGG subsidiary businesses
are made by managers at each business unit.
Investment and capital allocation decisions are
made by Mongolia Growth Group’s CEO, Harris
Kupperman, in consultation with the holding
company’s management and board of directors.
2
Mongolia Growth Group
To The Shareholders of Mongolia Growth Group;
2012 was another successful year for your company. In the two years since present management took control
of the company, we have;
• Redirected the company’s strategy towards the rapidly growing economy of Mongolia
• Crystallized our strategy to focus on property and insurance
• Grown from two employees to 98 today
• Raised CDN $51.5 million to pursue our investment objectives
• Laid the groundwork for substantial growth in future years.
As we look forward to our third year in business, we see our strategy continually evolving.
Prices in Ulaanbaatar property have increased significantly over the past two years. These increases in prices have
substantially lowered the long-term investment return potential of many existing structures. Much more importantly
to us, we find that much of the existing construction is of a poor quality, especially the assets offered for sale. We feel
strongly that we can build better, safer, and more aesthetically pleasing buildings if we were to dedicate resources to it.
Jordan and I are conservative investors, we intend to start slowly, rather than rushing off into construction—however,
we see it as almost inevitable that if we are going to grow this company intelligently, we will have to own top quality
buildings. Fortunately, we have spent considerable capital purchasing older structures that are strategically situated
in areas that make them ideal for redevelopment. We currently have four such redevelopment sites in the heart of
downtown. While these sites yield negligible revenues today, we didn’t purchase them based on the current yields.
When we could still buy office buildings for only a few hundred dollars per meter over the cost of building them, they
represented great value. Now, building new structures offers the best value. We intend to spend the remainder of 2013
building our internal team, acquiring the necessary permits, and seeking joint venture partners so that we can begin
constructing our first structure in 2014. At the same time, we continue to search out development sites that we can
transform in the future. Given the very small footprint of downtown Ulaanbaatar (three square kilometers and very
few through streets), these sites are extremely rare and that means that our existing four sites are quite unique.
From a corporate governance standpoint, we have made a promise to provide you with absolute transparency and
confidence that our numbers are accurate. PWC completed our audit again, and Cushman & Wakefield completed
our year-end independent property valuation report. Using these two world-class firms has substantially increased
our operating costs. We find this to be an unfortunate but necessary expense. I hope that you will agree. As always,
management is committed to doing everything in a manner that is as shareholder friendly as possible.
Outside of these two sizable expenses, we have done everything possible to keep our costs down. I should point out that
neither Jordan, I, nor any of our board members receive cash compensation for their time. We are here because of our
investment in MGG, not because of our desire for a job.
The only negative that I can point out is that we have struggled to achieve positive cash flow.
3
There are various factors for this and they include; sizable expenses related to our infrastructure build-out, substantial
expenses to upgrade our stock exchange listing to the TSX Venture exchange, sizable costs at the corporate level that
are needed to support a public company, substantial non-recurring legal and accounting fees, marketing expense at
Mandal to support its rapid growth, and a general focus on property assets with exposure to the growing Mongolian
GDP at the expense of current cash flow. In summary, we have the fixed expenses of a company that has many times our
current property assets. As we continue to add to our portfolio, our expenses are not expected to increase substantially
from current run-rates. This should eventually translate into positive cash flow. I would like to remind all shareholders
that we run this business with the view of maximizing value creation over long periods of time. Often, this means that
we are focused on investments that have minimal cash flow today, but will be highly valuable in the future. That said,
we always want to be at least moderately cash flow positive and we have set that as a goal for 2013. We also feel that in
time our shareholders will see the fruits of our labor, through materialized value creation.
In summary, we have high expectations for 2013 and hope that you are impressed with our accomplishments in 2012.
I want to finish by thanking everyone who has helped to make this company so successful.
Sincerely,
Harris Kupperman
4
MONGOLIA GROWTH GROUP LTD.
Management Discussion & Analysis
December 31, 2012
The management of Mongolia Growth Group Ltd. ( “MGG” or “the Company”) presents the Company’s management
discussion and analysis for the year ended December 31, 2012 (the “MD&A”), compared with the year ended December
31, 2011. As of January 1, 2011, the Company adopted International Financial Reporting Standards (“IFRS”). This
MD&A provides an overall discussion, followed by analyses of the performance of the Company’s major reportable
segments. The reporting and presentation currency in the consolidated financial statements and in this discussion and
analysis is the Canadian dollar, unless otherwise noted.
This MD&A is dated April 30, 2013 and incorporates all relevant information and considerations to that date.
The following discussion and analysis should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended December 31, 2012 and December 31, 2011 together with all of the
notes, risk factors and information contained therein, available on SEDAR at www.sedar.com.
Non-IFRS Financial Measures
This MD&A makes reference to earnings before interest, taxes, depreciation and amortization (“EBITDA”) and book
value per share. MGG uses EBITDA as a measure of the performance of its operating subsidiaries as it excludes
depreciation and interest charges, which are a function of the company’s specific capital structure, and also excludes
entity specific tax expense. MGG uses book value per share as a measure of the performance of the Company as a whole.
Book value per share is measured by dividing shareholders’ equity at the date of the statement of financial position
by the number of common shares of the Company (“Common Shares”) outstanding at that date. MGG’s method of
determining these amounts may differ from other companies’ methods and, accordingly, these amounts may not be
comparable to measures used by other companies. These amounts are not performance measures as defined under
IFRS and should not be considered either in isolation of, or as a substitute for, net earnings prepared in accordance
with IFRS. The Company refers to “funds used in operations”, “operating losses” and “re-valuation of investment
properties” within this analysis. “Funds used in operations” is computed by calculating the cash flow from operations
before changes to non-cash working capital from operations.
Forward Looking Statements
This MD&A contains forward-looking statements relating to future events. In some cases, forward-looking statements
can be identified by words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”,
“should”, “believe”, or similar expressions. These statements represent management’s best projections but undue
reliance should not be placed upon them as they are derived from numerous assumptions. These assumptions are
subject to known and unknown risks and uncertainties, including the “Risks and Uncertainties” as discussed herein.
Actual performance and financial results will differ from any projections of future performance or results expressed or
implied by such forward looking statements and the difference may be material.
Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those
predicted. From time to time, the Company’s management may make estimates and have opinions that form the basis
for the forward-looking statements. The Company assumes no obligation to update such statements if circumstances,
management’s estimates or opinions change.
5
Overall Performance
Mongolia Growth Group Ltd. is a Canadian holding company that invests in both the real estate and financial services
industries in Mongolia. MGG is presently engaged in the business of: (i) the ownership of retail, office and residential
investment properties; (ii) the management of investment properties; (iii) the repair, construction and development
of investment properties; (iv) the underwriting of property and casualty insurance risks; and (v) the sales of property
and casualty insurance.
Property
In all its investment property operations, MGG strives to provide the highest quality locations to tenants, which
augments their accommodations, business sales or office environment. MGG’s strategy is to acquire the best-located
properties in Ulaanbaatar, to repair and redevelop as needed, then to lease the properties to the tenant which benefits
most from their location and quality.
The Company’s property portfolio has grown through acquisition and to a lesser extent, through additions of space
via construction. As new footage is integrated into the MGG model, the Company’s ability to offer a unique product,
multi-unit retail platforms, or large format office space has led to relationships with some of the largest businesses
operating in Mongolia. The Company believes that by working with such successful firms, it will add value to the local
firms which will benefit from such unique offerings and will lead to excess profitability to the company, vis-à-vis above
market rental net yields.
As the Mongolian consumer has benefited from an increase in gross and disposable income, the tenancies of the
Company’s investment properties have been able to support increased rents. This market improvement in the rental
business has supported company results as most re-let properties have seen double-digit increases in rents and
overtime, a commensurate increase in property value.
The general property market continues to be influenced by improvement in the overall Mongolian economy. During
2012, moves by the Mongolian Central Bank to raise interest rates and reserve requirements amongst banks led to a
slowdown in terms of overall price appreciation. This has led to increases in capitalization rates as rental rates have
continued to increase. Management feels that during the first half of 2012, property prices increased substantially in
price. The third quarter of 2012 showed no noticeable increase in property prices, while the fourth quarter showed
a significant decline in prices due to liquidity issues in the marketplace. Subsequent to the year-end, the Mongolian
Central Bank lowered interest rates which resulted in increases in property prices in early 2013, and as of today, prices
in land, land-like assets and downtown soviet apartments are at or above prices seen at the peak in the early summer of
2012. Prices in other markets are still below 2012 peak prices. Management cautions shareholders that property prices
have historically been, and continue to be, very volatile. With the June Presidential election looming, as well as other
unknown events that may arise, additional volatility is highly probable.
The Company believes that increases in nominal gross domestic product will lead to further increases in both the
rental rates and valuations of properties in Mongolia. MGG’s property division should benefit from such increases in
nominal gross domestic product due to the operational leverage inherent in a property business with relatively fixed
operating costs. It is expected that the majority of the organic growth in the revenue of the property division going
forward should accrue to the Company’s bottom line due to such embedded operating leverage.
Insurance
The Company’s insurance subsidiary (Mandal General Insurance or “Mandal”) began underwriting in the third
quarter of 2011. The underwriting capacity and knowledge of the insurance subsidiary was acquired vis-à-vis the initial
overfunding of the company in relation to its risks, and by the hiring of individuals that had previously obtained
6
insurance experience in both Mongolia and abroad. The sales process for the insurance company is longer term in
nature. Retail sales continue to substantially lag corporate sales, which are much larger in nature and are infrequent
in occurrence.
As the Mongolian consumer and business market becomes larger and more understanding of the inherent benefits of
insurance, the market is expected to grow substantially. According to the Financial Regulatory Commission (“FRC”),
over the past five years, nationwide underwriting has grown at over 20% per annum. Due to the small nature of the
insurance market, and the newness of our insurance subsidiary as an entrant in the market, the insurance subsidiary’s
primary focus has been on business systems development, product development, brand awareness and marketing.
Similar to the foundation of the Company’s property business, Mandal has hired staff and incurred expenses that lead
to a high level of operational leverage. Many divisions of the insurance operation would not be required to expend
further resources even given a substantial increase in premiums written.
Mandal entered new lines of underwriting in 2012, many of which performed to management’s expectations.
Underperforming was a financial product line of coverage, primarily comprised of one loss mitigation policy with a
large National Mongolian firm. The one line of business incurred a loss ratio of 720% for the 2012 calendar year, mainly
due to incurred losses in Q4 2012 being materially more than management expected. The original policy provided for
certain recoveries which were not closed by year end, and as such were not accounted for. Since December 31st 2012,
Mandal has achieved recoveries on the policy, as well as signed a new revised contract with the insured that is behaving
more to management’s original expectations, due to claims caps and certain other loss mitigation parameters.
According to statistics produced by FRC, at the end of December 2012, Mandal represents 15.5%, 6.8%, 3.8% and 2.5%
of the total equity capital, assets, gross premiums and net premiums of the Mongolian Insurance Market. This is an
increase from 14.5%, 8.3%, 0.9% and 0.9% respectively at calendar year end 2011.
Mandal continues to have marketing successes, particularly in mandatory driver’s liability where the total policy count
has now grown to 5,276 policies as of the end of December 2012.
Mandal Insurance Cumulative Auto Policies Sold in 2012
4,999
5,138
5,276
4,615
6,000
5,000
4,000
3,000
2,000
1,000
0
3,165
2,526
2,061
1,545
105
April
May
June
July
Aug
Sept
Oct
Nov
Dec
7
Economic Outlook
Both markets that the Company operates in, the real estate and insurance industries, have benefited from the significant
economic growth achieved in Mongolia over the last few years. The majority of this recent growth is attributable to
the mining and construction boom taking place in Mongolia, mainly resulting from the opening of the Oyu Tolgoi and
Tavan Tolgoi deposits located in the Gobi desert. The associated infrastructure requirements for these projects have
also served to strengthen the local economy. The positive impact of improving consumer and business confidence
has further led to a substantive increase in the gross production of the local economy. Uncertainties due to the recent
parliament election, the presidential election taking place this summer, as well as a dynamic legal environment for
mining concerns and foreign investment has led to recent stress in both the local mining industry, and the local banking
sector. These stresses have created a decrease in the rate at which the Mongolian economy has grown, but in spite
of the decrease, the local economy still appears and quite strong. Recent metrics relating to increases in disposable
income and unemployment are particularly indicative of a robust and dynamic local economy.
Given the current lack of sufficient real estate space for domestic and international tenants, and the insurance
underwriting capacity within the insurance industry in Mongolia, there is room for much further expansion in the
amount of business to be done in both industries, and likely increases in the profitability of these industries.
In 2012, the Mongolian government raised $1.5 billion at interest rates of 4.125% for $0.5 billion and 5.125% for $1.0
billion. This money is now filtering into the economy as the government chooses various programs to finance. The
Mongolian economy has been starved of capital. $1.5 billion of low cost capital being injected into what was in 2012 a
$9.96 billion GDP economy, has gone a long way into decreasing the nation’s cost of capital, as well as alleviating some
of the stress of a decline in mining and FDI.
According to the National Statistics Office, residential property prices in downtown Ulaanbaatar have increased fairly
significantly over the past couple of years, depending on the district and year of construction. Management believes
that since the inception of the property Companies, its portfolio of assets has likely increased at a more rapid rate
due to the attractive positioning of most assets on the primary streets of downtown. Meanwhile, the shortage of high
quality development sites has led to an even more rapid increase in the value of well-located sites.
Risks and Uncertainties
The Company, as part of its operations, carries financial instruments consisting of cash and cash equivalents, investments
and marketable securities, accounts receivable, and trade payables and accrued liabilities. It is Management’s opinion
that the Company is not exposed to significant credit, interest or currency risks arising from these financial instruments
except as otherwise disclosed in the notes to the consolidated financial statements.
Certain members of parliament have recently asked to re-negotiate the agreement that exists between the government
and Turquoise Hill regarding the current tax and stability agreement. There can be no certainty if any changes to the
agreement will be reached and how it will impact the investment climate or future GDP growth of Mongolia.
During the last year the Company has purchased apartment units in a knowingly condemned building with the intent
that through control of the homeowner’s association the Company can procure a lease on the land underlying the
building. The process of exerting control over a homeowner’s association in order to develop the underlying land-plot
is an extensive legal process, is complicated, lacks precedent and is a generally risky proposition. The total investment
at cost in this apartment building at December 31, 2012 was $4,161,845. The company currently owns 50 of the 51
apartments in the building, has an agreement with the last owner to exchange his unit for space in any future building
and has applied to the city for the land use permissions.
8
Further information related to Mongolia Growth Group Ltd. and the risks and uncertainties of MGG is filed on
the System for Electronic Document Analysis and Retrieval (“SEDAR”) and can be reviewed at www.sedar.com. A
comprehensive set of risk disclosures are included in the Company’s most recently filed annual MD&A.
Selected Annual Financial Information
Year ended
Year ended
Year ended
December 31
2012
December 31
2011
December 31
2010
$
$
$
Revenue
Revenue and other income
2,237,694
589,311
1,385
Income
Income (loss) from continuing operations attributable to
equity holders of the Company
Net Income (loss) attributable to equity holders of the
Company
Comprehensive income (loss) attributable to equity holders
of the Company
(6,073,750)
1,349,153
(247,846)
(6,073,750)
1,349,153
(247,846)
(7,360,920)
107,716
(247,846)
Basic earnings per share (“EPS”)
Earnings (loss) from continuing operations
Net income (loss)
Diluted EPS
Earnings (loss) from continuing operations
Net Income (loss)
Balance Sheet
Total Assets
Financial liabilities
Total Equity
(0.18)
(0.18)
(0.18)
(0.18)
0.06
0.06
0.05
0.05
(0.10)
(0.10)
(0.10)
(0.10)
51,306,531
55,336,889
156,847
4,002,971
2,040,129
9,677
47,303,560
53,296,760
147,170
Shares Outstanding at year end
34,143,352
34,143,352
2,964,300
Book Value per share
1.39
1.56
.05
Results of Operations
As of December 31, 2012, MGG’s operations continued to focus on the rapid growth of the Mongolian economy. As part
of its corporate strategy of aggressive growth, the Company has continued to purchase rentable property, repair and
expand existing properties, lease available properties and sell property and casualty insurance.
Refer to Note 21 of the interim financial statements of the Company for a table of segmented information.
9
Revenues
MGG’s consolidated revenues for the year ended in December 31, 2012 increased to $2,237,694 from $589,311 during
the year ended December 31, 2011. The majority of the increase in revenue is attributable to having a full year of
operations in 2012 whereas 2011 the Company was in a start-up phase of business and did not have the same pool of
rentable investment property in the property company for the entire year, and the insurance company only started to
write policies in the fourth quarter of 2011 whereas it had a full year in 2012.
The Company’s investment property business contributed the majority of the revenue for the year ended December
31, 2012 with rental income of $1,572,603 compared to $495,242 during the year ended December 31, 2011. As well,
related to investment properties, for the full year, the Company realized a gain of $12,768 on the disposal of investment
properties which were classified as held for sale. There were no properties disposed of for the year ending 2011.
The Company’s insurance business contributed $628,424 of net premiums earned in 2012, compared to $77,786 of
net premiums earned in 2011. The insurance business did not begin selling policies until the fourth quarter of 2011.
The Company also earned $863,313 (2011 – loss of $344,246) of net investment income on a consolidated basis in
2012. The Company’s property business earned $282,114 (2011 – $32,796), while the Company’s insurance business
earned $574,454 (2011 – $247,470) and the Company’s corporate division earned $6,745 (2011- loss of $624,512).
Expenses
Total expenses for the year 2012 increased to $6,455,865 from $3,809,334 during 2011. The increases in expenses for
the year is mainly attributed to operating expenses which have increased due to increases in operations and general
expenses related to the growth of the business.
In 2012, the insurance business incurred the largest share of these expenses totaling $2,330,648 (2011 - $1,668,561).
The investment property business incurred expenses of $2,034,674 (2011 - $1,066,682) while the corporate division
incurred expenses of $2,090,543 (2011 - $1,074,091).
Salaries and wages were up significantly across all divisions in 2012 as the Company’s total number of employees
roughly doubled from the previous years ending employee count. In 2011, the Company was in its infancy and thus
had very few employees throughout most of the year. As well, with the growth in the Mongolian economy we expect
to see a continual increase in this figure as wages across the country continue to climb and the standard of living
improves.
Share based payments decreased from $1,798,603 in 2011 to $1,367,720 in 2012. This decrease is mainly attributable
to 500,000 consultant options which were issued and expensed fully in 2011.
Professional fees totalled $1,293,477 in 2012, up from $492,953 in 2011. This increase is attributable to increases in
legal expenses, audit expenses and various other professional fees including property valuation fees. A substantial
portion of this increase incurred as a result of the Company’s application to list its common shares on the TSX Venture
Exchange (TSXV). These listing expenses are not expected to reoccur.
Operating Profit (Loss)
The property business of MGG generated an Operating or EBITDA loss before the fair value adjustment on investment
properties of $341,746 during the year of 2012 (2011 – loss of $523,511). Included in these loss calculations are share
based payment expenses of $643,857 in 2012 and $290,800 in 2011 which significantly impact the EBITDA number.
Without these share based payment expenses the property business would show a gain of $302,111 in 2012 and a loss
of only $232,711 in 2011. The decrease in the EBITDA loss in 2012 is the result of increased rental revenue offset by an
10
increase in expenses associated with building a property management team, along with increased property taxes and
insurance expenses associated with a larger portfolio. The Company incurred a small gain of $12,768 (2011 - nil) on the
disposal of investment properties. In addition, this division had added expenses related to due diligence on property
assets that were not acquired, certain pre-development expenses that were not capitalized related to future property
developments and employee education and training activities that have no offsetting revenue impact. In addition, the
property business reported net investment income of $282,114 in the year of 2012 (2011 – $32,796).
MGG’s insurance business generated an Operating or EBITDA loss of $1,624,616 during the year of 2012 (2011 –
loss of $1,579,031). Included in these loss calculations are share based payment expenses of $253,168 in 2012 and
$1,087,493 in 2011 which significantly impact the EBITDA number. Without these share based payment expenses the
insurance business would have a loss of $1,371,448 in 2012 and $491,538 in 2011. In addition the insurance company
reported investment income of $574,454 for the year of 2012 (2011 – $247,470). The majority of this is due to an
increase in net premiums earned and continuing investment income offset by sizable marketing expenses associated
with building the Mandal brand.
The Company’s corporate overhead contributed to an Operating or EBITDA loss of $2,080,919 during 2012 (2011 –
loss of $1,071,184). Included in these loss calculations are share based payment expenses of $470,695 in 2012 and
$420,310 in 2011 which significantly impact the EBITDA number. Without these share based payment expenses the
loss at corporate would be $1,610,224 in 2012 and $650,874 in 2011. The majority of this loss was incurred for legal
and audit expenses and other corporate expenses associated with the general corporate activity of the Company. In
addition, the Company had very substantial expenses related to changing the Company’s listing from the Canadian
National Stock Exchange to the TSX Venture Exchange Listing. These listing expenses are not expected to reoccur.
In total, the Company’s divisions reported an Operating or EBITDA loss, before the fair value adjustment on investment
properties, of $4,047,281 during the 2012 ( 2011 – loss of $3,173,726). Included in these loss calculations are share
based payment expenses of $1,367,720 in 2012 and $1,798,603 in 2011 which significantly impact the EBITDA number.
Without these share based payment expenses the loss in the consolidated Company would be $2,679,561 in 2012 and
$1,375,123 in 2011. In addition the Company reported net investment income of $863,313 (2011 – loss of $344,246)
during the year.
Fair Value Changes in Investment Property and Financial Assets
As the Company incurred no impairments to its December 31, 2012 investment and marketable securities portfolio
fair value changes were only recognized with respect to MGG’s investment property portfolio. The Company had 61%
of its investment property portfolio valued by an external independent valuation professional who is deemed to be
a qualified appraiser holding a recognized, relevant, professional qualification and who has recent experience in the
locations and categories of the investment properties valued. The remainder of the investment property portfolio was
valued by management.
The properties owned by the Company are classified into three categories in the Company’s 2012 consolidated financial
statements; property and equipment, other assets and investment properties.
Properties that are used by the Company in the course of business are currently accounted for as property and
equipment. These properties did not experience a fair value adjustment and are also subject to depreciation expense.
At the end of 2012, the Company had six properties classified as property and equipment with a net book value of
$4,130,719 (2011 - $4,223,568). Furthermore, four properties were presented as “other assets - prepaid deposits
on investment properties” in the 2012 Consolidated Financial Statements - Note 7. Prepaid deposits on investment
properties totalled $1,626,240 in 2012 (2011 - nil). These four properties were fully paid, however the Company has not
yet received the new titles for these properties. While these properties were each valued by a qualified appraiser, these
properties were presented at the lower of cost or market resulting in an impairment provision of $1,206,876 reflected
in the unrealized gain (loss) on fair value adjustment on investment properties. The remainder of the properties were
11
classified as investment properties. As of December 31, 2012, investment properties had an aggregate fair value of $
30,786,742 (2011 - $26,166,286). Over the course of 2012, the Company added properties at a cost base of $8,190,935
and disposed of 20 properties for gross proceeds of $1,656,768 which resulted in a gain of $12,768.
Additionally one property package included in investment properties was valued at the lower of cost or market. This
property consisted of the 50 apartment units described in the “Risks and Uncertainties” section. The properties were
purchased with the intent that through control of the homeowner’s association, the Company can procure a lease on
the land underlying the building. Management believes that valuing these properties at cost is the most conservative
method of valuation as a piece of land of that size and location is extremely rare but as it is considered a redevelopment
property, it is measured at cost until the earlier of the date of construction or the date at which the fair value becomes
reliably measured as to be in accordance with IFRS.
Management believes that certain properties that are currently classified as property and equipment and other assets –
prepaid investment property could be sold for substantially more than their carrying value if they were sold at year end
market values. Management anticipates that these assets along with the investment property portfolio will continue
to increase in value in the future.
The majority of the Company’s investment and marketable securities portfolio is held in non-market quoted assets
which are held in callable short-term and mid-term paper of investment grade financial institutions in Mongolia.
These investments are held within the Company’s insurance subsidiary and are held due to the statutory requirements
of the subsidiary’s primary regulator, FRC.
Net Income
For the year ended December 31, 2012, the Company incurred a net loss of $6,073,750, compared to net income
of $1,349,153 for the year ended December 31, 2011. This year’s unfavourable result is primarily attributed to the
unrealized loss on fair value adjustment on investment properties of $2,697,212 compared to a $5,740,919 unrealized
gain in 2011. In addition, the Company recorded a significant expense for share based payments of $1,367,720 (2011 -
$1,798,603). Finally, the Company, incurred claims and insurance benefits expenses of $1,042,387 at Mandal. A large
portion of this reserve number relates to a contract related to customer delinquencies which has experienced unusually
bad results during the first months of its existence. Management is hopeful that as this product matures, losses will
moderate.
Management cautions investors that property portfolio losses and stock option expenses are non-cash accounting
entries caused by a decrease in the fair value of the Company’s investment portfolio and accruals for share based
payments.
MGG’s property division has continued to produce positive operating cash flow; however this is insufficient to cover
corporate expenses and insurance expenses. Management anticipates that this cash flow will continue to increase in
future quarters as vacant properties become occupied, rents are renewed at higher rates, and expenses remain fairly
constant in the property division.
Management cautions investors that the Company is primarily focused on increasing shareholder value on a per share
basis. This means that operationally management is more concerned with asset appreciation at the expense of short-
term cash flow. Management expects this to be the case for the foreseeable future.
Summary of Quarterly Results
The following table provides selected financial information for the eight most recently completed quarters.
12
Quarterly Consolidated Financial Information
In Dollars
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Revenue
618,435
577,905
571,472
469,882
360,914
186,134
42,263
0
Net income (loss)
(4,488,408)
(446,069)
(494,782)
(644,491)
2,794,533
(820,149)
(485,585)
(139,646)
Income (loss) per common share
(0.13)
(0.01)
(0.02)
(0.02)
0.11
(0.03)
(0.02)
0.00
Total Assets
51,306,531
52,048,976 56,058,108 55,783,296 55,336,889 36,439,544 36,250,423 10,353,848
Weighted Average Shares
34,143,352 34,143,352
34,143,352
34,143,352 23,902,851
21,814,422
16,617,951
10,184,185
Ending Shares
34,143,352 34,143,352
34,143,352
34,143,352
34,143,352 30,297,168 30,297,198
14,167,571
MGG’s revenue continued to grow during 2012 with consolidated revenue and net investment income increasing to
$618,435 in the fourth quarter of 2012 compared to the fourth quarter of 2011 consolidated revenue and net investment
income of $360,914, an increase of 71%. The increase in revenues has been offset by an increase in expenses and a fair
value loss adjustment on investment properties in the fourth quarter of 2012.
Property
During the fourth quarter of 2012, MGG’s property subsidiary earned rental income of $397,810 compared to rental
income of $266,845 in the fourth quarter of 2011, an increase of 49%. This increase is the result of the addition of
properties to the investment portfolio and increases in rental prices offset by an increase in commercial properties
being renovated, certain property revenues related to Mandal being eliminated on consolidation and the sale of certain
residential units.
During the quarter, the property subsidiary was subject to a $2,697,212 unrealized loss on fair value adjustment on
investment properties compared to a $5,740,919 unrealized gain during the Q4 2011.
MGG Property Acquisition Chart
40,000,000
30,000,000
20,000,000
10,000,000
)
$
(
s
t
s
o
C
n
o
i
t
i
s
i
u
q
c
A
0
Feb '11 Apr '11
Jun '11 Aug '11 Oct '11 Dec '11 Feb '12 Apr '12 Jun '12 Aug '12 Oct '12 Dec '12
Residential
Retail Space
Office Space
Redevelopment
Acquisition Costs were translated from Mongolian Tögrög into Canadian dollars at the December 31, 2012 rate of 1383.57
13
Insurance
The fourth quarter of 2012 represents the Company’s fifth complete quarter of operations since policies were approved
by FRC. During the fourth quarter, MGG’s insurance subsidiary earned net premiums of $330,734, compared to net
earned premiums of $77,786 in the fourth quarter of 2011, an increase of 325%. This increase is attributable to having
a full year of operations in 2012 versus only one quarter in 2011.
The insurance subsidiary has spent aggressively to develop the Mandal brand name through marketing and advertising.
The Company expects this marketing spending to increase nominally in the future, but decline relative to premiums
written. The management team at Mandal continues to explore ways to leverage marketing spend through creative
partnerships.
Similar to the foundation of the Company’s property business, Mandal has hired staff and incurred expenses that lead
to a high level of operational leverage. Many divisions of the insurance operation would not be required to expend
further resources even given a substantial increase in premiums written. As expected, the largest expense within the
insurance business is reserving. During 2012, claims and reserves amounted to $1,042,387 compared to $51,591 in
2011.
Liquidity
As at December 31, 2012, MGG had working capital of $12,554,733 (2011 - $21,059,481) comprised of cash and cash
equivalents, investments and marketable securities, other assets, reinsurance assets, deferred acquisition expenses,
net of trade payable and accrued liabilities, income taxes payable and insurance contract liabilities. Management
considers the funds on hand to be sufficient to meet its ongoing obligations.
Related Party Transactions
Related party transactions for fiscal 2012 were as follows:
For the year ending December 31, 2012, Mandal General Insurance paid $122,528 (2011 – nil) to property subsidiaries
of MGG, as payment for their office rental and a retail outlet. Also for the year ended December 31, 2012, the Company’s
various property subsidiaries paid a total of $25,856 to Mandal General Insurance for insurance coverage on MGG’s
portfolio of investment properties along with various auto insurances. 90% of the property related risks associated
to these coverages were ceded to an A.M. Best A+ rated German re-insurer and 9% were ceded to a well-rated direct
lines insurer in China. These related party transactions are not expressed in segmented reporting of either the
insurance business or the property business as both the revenue and expenses associated to them are eliminated upon
consolidation.
Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS required management to make assumptions about the
future that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated
based on historical experiences and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.
The critical estimates made in the preparation of the consolidated financial statements include the following:
• Fair value of investment properties - The estimate of fair value of investment properties is the most critical accounting
estimate to the Company. An external appraiser estimates the fair value of investment properties annually. The fair
value of investment properties is based on the nature, location and condition of the specific asset. The fair value of
14
Acquisition Costs ($)
investment properties represents an estimate of the price that would be made in an arm’s length transaction between
knowledgeable, willing parties. The Company operates in the emerging real estate market of Mongolia, which given
its current economic and industry conditions, has an increased inherent risk given the lack of reliable and comparable
market information. At December 31, 2012, the unrealized fair value adjustment was a loss of $2,697,212 (2011 –
gain of $5,740,919).
• Valuation of insurance contract liabilities - The estimate of the ultimate liability arising from claims made under
insurance contracts is another critical accounting estimate. There are several sources of uncertainty that need to be
considered in the estimate of the liability that the Company will ultimately pay for such claims. The ultimate cost of
claims liabilities is estimated by using a range of standard actuarial claims projection techniques in accordance with
Canadian accepted actuarial practice. At December 31, 2012, the insurance contract liabilities totaled $2,300,604
(2011 – $361,820).
• Accuracy of share based compensation expense - The estimate of the ultimate expense arising from share based
compensation plans is another critical accounting estimate. There are several sources of uncertainty that need to be
considered in the estimate of the share based compensation expense recorded by the Company. The ultimate expense
is estimated by using a number of key assumptions such as the expected volatility of the share price, the dividends
expected on the shares, the riskfree interest rate for the expected life of the option and future forfeiture rates. For the
year ending December 31, 2012, the cost of the share based payments totaled $1,367,720 (2011 - $1,798,603).
• Operating environment of the Company - Mongolia displays many characteristics of an emerging market including
relatively high inflation and interest rates. The tax and customs legislation in Mongolia is subject to varying
interpretations and frequent changes. The future economic performance of Mongolia is tied to the continuing demand
from China and continuing high global prices for commodities as well as being dependent upon the effectiveness of
economic, financial and monetary measures undertaken by the Government of Mongolia together with tax, legal,
regulatory and political developments. Management is unable to predict all developments that could have an impact
on the Mongolian economy and consequently what effect, if any, they could have on the future financial position of
the Company.
Capital Risk Management
The Company’s objective when managing capital is to ensure the Company is capitalized in a manner which provides
a strong financial position for its shareholders.
The Company’s capital structure includes equity and working capital. In managing its capital structure, the Company
considers future investment and acquisition opportunities, potential credit available and potential issuances of new
equity. The Company’s objective is to maintain a flexible capital structure that will allow it to execute its stated
business. Upon acquiring investment properties and operating businesses, the Company will strive to balance its
proportion of debt and equity within its capital structure in accordance with the needs of the continuing business. The
Company may, from time to time, issue shares and adjust its spending to manage current and projected proportions
as deemed appropriate.
The method used by the Company to monitor its capital is based on an assessment of the Company’s working capital
position relative to its projected obligations. At December 31, 2012, the Company’s working capital was $12,554,733
(2011 - $21,059,481) and the Company had no debt.
Off-Balance Sheet Items
As at December 31, 2012, the Company has no off-balance sheet items.
15
Financial Risk Management
Credit risk
The Company’s exposure to credit risk is managed through risk management policies and procedures with emphasis
on the quality of the investment portfolio. For the year, most of the Company’s investments consisted of institutional
deposits. The majority of the funds invested are held in reputable Barbadian, Canadian or Mongolian banks. The
Company is in the early stages of development and is continually improving its policies regarding monitoring its credit
risk.
The Company is exposed to credit risk as an owner of real estate in that tenants may become unable to pay the contracted
rents. The Company mitigates this risk by carrying out due diligence on significant tenants and limiting the Company’s
exposure to each tenant. The Company’s properties are diversified across residential and commercial classes.
Amounts due from policy holders are short-term in nature and are not subject to material credit risk.
Liquidity risk
As at December 31, 2012, the Company does not believe the current maturity profile of the Company lends itself to
any material liquidity risk, taking into account the level of cash and cash equivalents, investments and marketable
securities as at December 31, 2012. The Company does not have material liabilities that can be called unexpectedly at
the demand of a client.
Currency risk
The Company owns properties located in Mongolia and marketable securities in Mongolia and Barbados, and is therefore
subject to foreign currency fluctuations that may impact its financial position and results. Changes in the Mongolian
Tögrög and U.S. to Canadian dollar foreign currency exchange rate impact the fair value of securities denominated
in Mongolian Tögrög and in U.S. dollars. The Mongolian operations hold their investments in Mongolian Tögrög
denominated securities and the Canadian operations hold securities denominated in Canadian and U.S. dollars.
The approximate impact of an increase of 10% in the Mongolian Tögrög against the Canadian dollar would increase the
Other Comprehensive Income (“OCI”) of the Company by $4,828,959 (2011 - $3,581,255). The approximate impact
of a decrease of 10% in the Mongolian Tögrög against the Canadian dollar would decrease OCI of the Company by
$4,828,959 (2011 - $3,581,255).
The approximate impact of an increase of 10% in the U.S. dollar against the Canadian dollar would increase net income
of the Company by $87,994 (2011- $367,962).
Internal Controls over Financial Reporting
Changes in securities laws no longer require the Chief Executive Offier and Chief Financial Officer of junior reporting
issuers to certify that they have designed internal control over financial reporting, or cause it to be designed under
their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with International Financial Reporting Standards.
Instead, an optional form of certification has been made available to junior reporting issuers and has been used by
the Company’s certifying officers for the December 31, 2011, annual filings. The new certification reflects what the
16
Company considers to be a more appropriate level of CEO and CFO certification given the size and nature of the
Company’s operations. This certification requires the certifying officers to state that:
[i] they have reviewed the annual MD&A and consolidated financial statements;
[ii] they have determined that there is no untrue statement of a material fact, or any omission of material fact required
to be stated which would make a statement or its omission misleading in light of the circumstances under which it
was made within the annual MD&A and consolidated financial statements;
[iii] based on their knowledge the annual filings, together with the other financial information included in the annual
filings, fairly present in all material respects the financial condition, results of operations and cash flows of the
Company as of the date and for the periods presented in the filings.
Strategy
MGG separates its operations into three reporting segments for ease of management oversight. These segments are
property, insurance and corporate.
At all three reporting segments, the Company’s focus has been on hiring key employees, implementing reporting
systems and setting the Company up for continued growth in the future. A significant challenge that the Company
has encountered is finding skilled employees, given the growth experienced during the past two years. The growth in
senior employees has moderated now that the majority of key positions are filled. The Company plans to spend more
time and energy on training employees, rather than hiring many new employees, as the Company grows in the near
future.
Property
MGG’s property division slowed the pace at which it acquired assets in 2012. Management and employees have
worked hard to aggressively build up the infrastructure needed to manage this division. The Company was successful
in filling several key positions within its property division reducing the need for Management to be involved in the
daily operations of the business, allowing them to spend more time on the corporate operations of the Company.
Management plans on continuing to spend time training and guiding employees in Mongolia, but expects this to
decrease throughout the year.
Due to the rapid growth of the Mongolian economy and a shortage of high quality rental locations, property rents
continue to increase, particularly in office and prime retail locations. When leases have been reviewed, many of them
are at rates that are substantially below market rents. These leases should reset over the short-term and should
substantially increase revenues if rental rates stay current. The Company has maintained most leases on short durations.
The Company also includes rent escalation clauses in most of its leases with tenants that are over one year in duration.
MGG’s property investment subsidiary plans on further expanding via the investment of additional capital into income
producing and redevelopment properties in Ulaanbaatar. The Company’s plan is contingent on procuring further funds
for investment and on finding suitable investment targets which meet or exceed MGG’s stringent investment criteria.
Since inception, MGG has acquired a number of redevelopment properties. To date, the Company has only remodeled,
rebuilt and completed additions on properties. It is Management’s intent to begin small-scale denovo property
development on both company owned brownfield and greenfield sites. MGG’s intent is to remain a substantial owner
of the properties, post-completion.
During the third quarter, MGG began the substantial renovation of its corporate headquarters and two other office
buildings. This renovation resulted in certain tenants leaving the buildings or reconfiguring their office space usage.
17
These renovations were effectively completed during the fourth quarter of 2012. The spaces are substantially improved
and should lead to higher rental revenues for the property division upon lease out.
To date, only minimal work has been done in evaluating the potential economics of our development properties, but
based on rough estimates, the following numbers would appear to be representations of the potential economics of
these projects based on estimates of December 2012 market prices for construction costs, average market rents and
sale prices observed in Ulaanbaatar. Management cautions investors that these numbers will change dramatically
based on future changes in building costs in Ulaanbaatar and changes in market rents and sale prices. In addition,
Management is looking for ways to expand these land packages which will potentially impact the economics of the
projects.
Approx.
Meters of
Develop-
ment
Type
Approx. Fished
Size
Approx. Build
Cost
Current Monthly
Rent
Expected Payback
on Development
Asset 1
2,200
Class A Office
Asset 2
2,600
Class A Office
30,000
Meters
40,000
Meters
Asset 3
1,300
Residential
300 Units
Asset 4
8,000
Mixed Use
Asset 5
900
Mixed Use
Asset 6
1,700
3 Floor Retail
30,000
Meters
10,000
Meters
5,000
Meters
$1,500-$1,700
Per Meter
$1,500-$1,700
Per Meter
$900-$1,200
Per Meter
$1,200-$1,500
Per Meter
$1,200-$1,500
Per Meter
$700-$900
Per Meter
$45-$65
Per Meter
$45-$65
Per Meter
2.5 To 4 Years
2.5 To 4 Years
$2,500-$3,500
Per Meter Sale Price
Pre-Sales Should Fund
It
$20-$40
Per Meter
$45-$65
Per Meter
$15-$25
Per Meter
3 To 6 Years
2.5 To 4 Years
2.5 To 4.5 Years
MGG has labeled some properties as “held for sale.” These properties are primarily small retail or residential properties.
MGG has chosen to sell these properties as the revenues derived from them are insufficient to offset the costs of
managing them. During the year, twenty of these properties were sold and four of these properties remained as held
for sale as of December 31, 2012. Over time, the Company intends to continue the practice of disposing of smaller
properties that are no longer core to the Company’s strategy.
Insurance
The Company’s insurance subsidiary received its insurance license on June 2, 2011, and began to aggressively target
customers in October 2011. To date, it has focused its operations on both the retail and corporate market. The focus
at Mandal is to underwrite conservatively so that all stakeholders are confident that insureds will be compensated on
all legitimate claims. Through the use of reinsurance, Mandal attempts to ensure that it can cover losses due to high
severity and rare catastrophic events.
The Company’s expectation is that the insurance company will incur operating losses for at least the next year.
Anticipated losses will likely be caused by the sizable costs of marketing and growing the business, against insufficient
earned premium revenue. Some of these losses will be offset by the insurance company’s investment portfolio. It
is expected that the investment portfolio will grow as the Company increases sales and associated reserves, which
generate investible float. Due to Mongolia’s high interest rate environment, float is incredibly valuable.
The following section outlines the significant events that have taken place within the insurance company during the
2012 year;
18
On April 5, 2012, Mandal sold a sizable bankers blanket bond to Khan Bank, the largest bank in Mongolia based on
branch count. This transaction was 100% reinsured by syndicates of the Society of Lloyd’s. Mandal’s strategy is to
greatly expand its commercial fronting business over the coming year.
On April 18, 2012, Mandal received a special permit to write auto liability coverages and is actively marketing these
products to the consumer segment of the market. At the end of December, Mandal had sold a total of 5276 mandatory
liability insurance policies. Management expects that after an initial drive to acquire customers, the growth of this
business will subside in 2013, followed by annual increases in premiums due to substantial future increases in the total
sum insured.
On May 16, 2012, MGG announced that it signed a binding term sheet agreeing to sell shares of Mandal General
Insurance LLC to UMC Capital LLC, at a purchase price equivalent to MGG’s original funding cost in June 2011.
Following the closing of this transaction, MGG and UMC Capital will respectively own approximately 84% and 16% of
Mandal’s outstanding shares. In addition, UMC Capital will retain the right to purchase an additional 25% of Mandal
at the higher of stated book value or funding cost. At the end of Q4 2012, this transaction has not been closed.
On August 20, 2012, Mandal signed an agreement with Khan Bank to distribute insurance products through its network
of over 500 branches throughout Mongolia. Management expects that the roll- out of these products will begin in 2012
and grow substantially through 2013.
On November 6, 2012, Mandal was recognized by the Business Council of Mongolia as the “Best Local Company in
Mongolia”.
Outlook
The Mongolian economy continues to be one of the best performing economies globally based on data from The National
Statistics Office of Mongolia (“NSO”) – December 2012 edition, with preliminary estimates of annualized 2012 GDP
growth of 12.3% at constant prices compared to the previous year. The Mongolian Consumer Price Index increased
14.0% during the year, based on data from the NSO. This growth is being funded by Foreign Direct Investment inflows
to a number of sizable mining projects, the re-investment of earnings from existing projects, and general increases in
economic activity within the consumer and governmental sectors of the economy.
MGG has been a beneficiary of these trends in both its property and insurance operations. Continuing increases in
market rental rates for commercial properties are expected to eventually lead to increases in property value of the
Company’s holdings.
As Mongolians see a higher standard of living, they will likely seek protection for their valuables. Additionally,
corporations are beginning to understand the necessity of using insurance to avoid business volatility. These two
trends have been important in seeing the Company’s insurance subsidiary grow since inception in June 2011.
It is anticipated that the Mongolian economy will remain strong through 2013, which should bode well for the Company.
It is anticipated that the Company will continue to seek ways to raise additional equity capital to further the development
of its businesses. MGG is also exploring utilizing conservative levels of debt funding for its property investments
however, there can be no certainty that capital can be borrowed at rates that are attractive to the company.
Reorganization Transaction
On December 1, 2010, Mongolia Growth Group Ltd. announced the signing of an agreement that Harris Kupperman
and Jordan Calonego planned to purchase 320,500 common shares of the Corporation on a post-consolidated
basis from the founding board members. The transaction was completed on February 2, 2011. The Corporation also
19
completed the following transactions on February 2, 2011, which were approved by the shareholders at the annual and
special meeting of shareholders on January 17, 2011:
• A private placement of the Corporation which raised gross proceeds of $4,611,253 from the sale of 12,685,452
common shares on a post-consolidated basis;
• The filing of articles of amendment renaming the Corporation “Mongolia Growth Group Ltd.” and consolidating the
common shares of the Corporation at a ratio of 1:2;
• The filing of an application for the de-listing of the common shares from the NEX board of the TSXV and an application
for the listing of the common shares on the CNSX; and
• The appointment of Paulo Bilezikjian, Jordan Calonego, Bill Fleckenstein, Harris Kupperman and Paul Sweeney as
the new directors of the Corporation.
Liquidity
As at December 31, 2012, MGG had working capital of $12,554,733 (2011 - $21,059,481) comprised of cash and cash
equivalents, investments and marketable securities, other assets, reinsurance assets, deferred acquisition expenses,
net of trade and accrued liabilities, income taxes payable and insurance contract liabilities. Management considers the
funds on hand to be sufficient to meet its ongoing obligations.
Economic Volatility and Uncertainty
The past economic volatility and uncertainty in Canada and around the world has contributed to dramatically restricted
access to capital and reduced capital markets activity. The Company’s management believes that the Company has
sufficient resources to carry on its business and remain a going concern.
MGG holds the majority of its assets, investments and operations in the nation of Mongolia. Mongolia is presently
experiencing drastic changes in its fast growing economy. Economic volatility and uncertainty in Mongolia could result
in inflation, hyperinflation, economic stagnation, adverse taxation, political extremism, negative policy amendments
and other similarly detrimental scenarios which would materially harm the Company.
Substantial risk and uncertainty exists due to the level of economic growth in Mongolia. According to the Bank of
Mongolia, money supply (M2) increased 8.3% in the last 12 months ending December 31, 2012. Loans outstanding in
the banking industry also increased substantially during the last 12 months, rising 23.9%, though this has slowed in
recent months. Such changes in money supply and lending may be warranted due to the growth of the local economy.
However, historical economic disequilibrium of such magnitude in other nations has frequently led to hyperinflation,
unstable economic conditions, hardship and strife.
Depending on the requirements of MGG’s businesses, additional funds may be required to be raised in the capital
markets and there is no guarantee that sufficient funds raised will be available to complete a financing.
Events Subsequent to Year End
Subsequent to year end, MGG purchased $1,594,000 worth of properties.
The Company’s shares began trading on the TSX Venture on January 9, 2013, and were simultaneously delisted from
the CNSX.
MGG announced the appointment of John Shaw to the board of directors of the Company on January 17, 2013.
20
350,000 5-year Options and 125,000 3-year Options at a price of $4.13 were issued to MGG’s employees, Directors
and Consultants on March 1, 2013.
MGG announced that Paulo Bilezikjian has resigned from the board of directors of the Company on March 4, 2013.
Management granted a three month extension on March 15, 2013, to UMC Capital to both complete and close the
Share Purchase Agreement transaction. The deadline for both was extended to June 15, 2013, due to regulatory delays,
and delays in UMC Capital funding the acquisition costs.
Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, investments and marketable securities,
accounts receivable and trade and accrued payables. The Company is subject to interest risk as it earns interest
income from its cash deposits. It is management’s opinion that the Company is not exposed to significant credit risks
arising from these financial instruments and that the fair value of these financial instruments approximates their
carrying values. Management believes that there are material currency risks associated to the majority of the Financial
Instruments of the Company as they are held in Mongolian Tögrög. For further discussion of financial instrument
risks, see the Insurance and Financial Risk Management note.
Changes in Accounting Policies
The consolidated financial statements of the Company were prepared in accordance with IFRS, as issued by the
International Accounting Standards Board (IASB). For all periods up to and including the period ended December 31,
2010, the Company prepared its financial statements in accordance with Part V PreChangeover Accounting Standards,
of the Canadian Institute of Chartered Accountants Handbook, Canadian generally accepted accounting principles
(Canadian GAAP). Explanations of the impact of the transition to IFRS as of December 31, 2010 and January 1, 2010
on the financial position, financial performance and cash flows can be found in note 23 of the financial statements.
In 2010, the Company had no operations. With the simplistic nature of the Company in the previous year, IFRS did
not result in any change to the Company’s reported financial position at January 1, 2010, or December 31, 2010, results
of operations and cash flows for the year ended December 31, 2010, thus no reconciliation information was presented.
Outstanding Share Data
As at December 31, 2012, the Company had 34,143,352 common shares issued and outstanding. As at December 31,
2012, 11,372,500 of the Company’s common shares, or approximately 33.4% of the issued and outstanding shares, were
directly or indirectly controlled by the Company’s directors and officers. As of December 31, 2012, the Company had
600,000 stock options outstanding with an exercise price of $1.64 per share (500,000 have an expiry date of March 9,
2021, and 100,000 have an expiry date of March 9, 2014). The Company also had 722,000 stock options outstanding
with an exercise price of $4.20 per share, (at issuance, 825,000 had an expiry date of April 25, 2016, and 75,000 had
an expiration date of April 25, 2014, of these a total of 128,000 were forfeited during 2011 and 50,000 were forfeited
during the quarter). In addition, the Company had 170,000 options outstanding with an expiry date of September 7,
2016, and an exercise price of $4.77 (175,000 options were issued initially, 5,000 were forfeited during the quarter).
Furthermore, the Company had 150,000 options with an expiry date of December 2, 2016, and an exercise price of
$4.25. Lastly, the Company had 190,000 5-year stock options to purchase shares of MGG at a price of $4.00 per share
with an expiry of March 23, 2017.
At period-end, the Company has 358,000 options that are exercisable (2011 - nil).
21
Outstanding as at December 31,2012
Common Shares
Options to buy common shares
34,143,325
1,782,000
Additional Information
Additional information relating to Mongolia Growth Group Ltd., including its audited financial statements, is available
on SEDAR at www.sedar.com.
22
23
Mongolia Growth Group
Ltd.
Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
24
April 30, 2013
Independent Auditor’s Report
To the Shareholders of
Mongolia Growth Group Ltd.
We have audited the accompanying consolidated financial statements of Mongolia Growth Group Ltd. and its
subsidiaries, which comprise the consolidated statement of financial position as at December 31, 2012 and 2011, and
the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the
years then ended, and the related notes, which comprise a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Mongolia Growth Group Ltd. and its subsidiaries as at December 31, 2012 and 2011 and their financial performance
and their cash flows for the years then ended in accordance with International Financial Reporting Standards.
statements.
our audit opinion.
Opinion
Chartered Accountants
PricewaterhouseCoopers LLP
One Lombard Place, Suite 2300, Winnipeg, Manitoba, Canada R3B 0X6
T: +1 (204) 926 2400, F: +1 (204) 944 1020
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Mongolia Growth Group
Ltd.
Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
April 30, 2013
Independent Auditor’s Report
To the Shareholders of
Mongolia Growth Group Ltd.
We have audited the accompanying consolidated financial statements of Mongolia Growth Group Ltd. and its
subsidiaries, which comprise the consolidated statement of financial position as at December 31, 2012 and 2011, and
the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the
years then ended, and the related notes, which comprise a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Mongolia Growth Group Ltd. and its subsidiaries as at December 31, 2012 and 2011 and their financial performance
and their cash flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Accountants
PricewaterhouseCoopers LLP
One Lombard Place, Suite 2300, Winnipeg, Manitoba, Canada R3B 0X6
T: +1 (204) 926 2400, F: +1 (204) 944 1020
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
25
Mongolia Growth Group Ltd.
Consolidated Statements of Financial Position
As at December 31
Mongolia Growth Group Ltd.
Consolidated Statements of Operations
For the years ended December 31
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Assets
Current assets
Cash and cash equivalents (note 5)
Investments and marketable securities (note 6)
Other assets (note 7)
Reinsurance assets (note 8)
Deferred acquisition expenses (note 9)
Non-current assets
Investments and marketable securities (note 6)
Investment properties (note 10)
Property and equipment (note 11)
Total assets
Liabilities
Current liabilities
Trade payables and accrued liabilities (note 12)
Income taxes payable (note 13)
Insurance contract liabilities (note 14)
Non-current liabilities
Deferred income tax liability (note 13)
Total liabilities
Equity
Share capital (note 15)
Contributed surplus
Accumulated other comprehensive loss
Retained earnings (deficit)
Total equity
Total equity and liabilities
Approved by the Board of Directors
2012
$
2011
$
8,702,253
3,992,547
2,471,498
684,285
93,175
20,078,948
2,569,778
427,949
7,760
15,175
15,943,758
23,099,610
-
30,786,742
4,576,031
1,446,983
26,166,286
4,624,010
51,306,531
55,336,889
996,314
92,107
2,300,604
859,213
819,096
361,820
3,389,025
2,040,129
Net premiums earned (note 14)
Revenue
Rental income
Other revenue
Expenses
Salaries and wages
Other expenses (note 22)
Share based payment
Depreciation (note 11)
Financing charges
Operating loss
Net investment income (loss) (note 6)
Provision for income taxes (note 13)
613,946
-
Net income (loss) for the year
4,002,971
2,040,129
Net income (loss) per share (note 15)
Basic
Diluted
51,681,818
3,214,195
(2,528,607)
(5,063,846)
51,681,818
1,846,475
(1,241,437)
1,009,904
47,303,560
53,296,760
51,306,531
55,336,889
2012
$
628,424
1,572,603
36,667
2011
$
77,786
495,242
16,283
2,237,694
589,311
1,034,975
3,882,280
1,367,720
170,890
-
376,460
1,584,692
1,798,603
45,757
3,822
6,455,865
3,809,334
(4,218,171)
(3,220,023)
863,313
(344,246)
(21,680)
(827,497)
(6,073,750)
1,349,153
$(0.18)
$(0.18)
$0.06
$0.05
Unrealized gain (loss) on fair value adjustment on investment
properties (note 10)
(2,697,212)
5,740,919
Net income (loss) before income taxes
(6,052,070)
2,176,650
_
“Paul Sweeney”_ _____ Director __ “William Fleckenstein” _ _____ Director
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
26
Mongolia Growth Group Ltd.
Consolidated Statements of Financial Position
As at December 31
(expressed in Canadian dollars)
Assets
Current assets
Cash and cash equivalents (note 5)
Investments and marketable securities (note 6)
Other assets (note 7)
Reinsurance assets (note 8)
Deferred acquisition expenses (note 9)
Non-current assets
Investments and marketable securities (note 6)
Investment properties (note 10)
Property and equipment (note 11)
Total assets
Liabilities
Current liabilities
Trade payables and accrued liabilities (note 12)
Income taxes payable (note 13)
Insurance contract liabilities (note 14)
Non-current liabilities
Deferred income tax liability (note 13)
Total liabilities
Equity
Share capital (note 15)
Contributed surplus
Accumulated other comprehensive loss
Retained earnings (deficit)
Total equity
Total equity and liabilities
Approved by the Board of Directors
Mongolia Growth Group Ltd.
Consolidated Statements of Operations
For the years ended December 31
(expressed in Canadian dollars)
Revenue
Net premiums earned (note 14)
Rental income
Other revenue
Expenses
Salaries and wages
Other expenses (note 22)
Share based payment
Depreciation (note 11)
Financing charges
Operating loss
Net investment income (loss) (note 6)
2012
$
628,424
1,572,603
36,667
2011
$
77,786
495,242
16,283
2,237,694
589,311
1,034,975
3,882,280
1,367,720
170,890
-
376,460
1,584,692
1,798,603
45,757
3,822
6,455,865
3,809,334
(4,218,171)
(3,220,023)
863,313
(344,246)
Unrealized gain (loss) on fair value adjustment on investment
properties (note 10)
(2,697,212)
5,740,919
Net income (loss) before income taxes
(6,052,070)
2,176,650
613,946
-
Net income (loss) for the year
Provision for income taxes (note 13)
Net income (loss) per share (note 15)
Basic
Diluted
(21,680)
(827,497)
(6,073,750)
1,349,153
$(0.18)
$(0.18)
$0.06
$0.05
2012
$
2011
$
8,702,253
3,992,547
2,471,498
684,285
93,175
20,078,948
2,569,778
427,949
7,760
15,175
15,943,758
23,099,610
-
30,786,742
4,576,031
1,446,983
26,166,286
4,624,010
51,306,531
55,336,889
996,314
92,107
2,300,604
859,213
819,096
361,820
3,389,025
2,040,129
4,002,971
2,040,129
51,681,818
3,214,195
(2,528,607)
(5,063,846)
51,681,818
1,846,475
(1,241,437)
1,009,904
47,303,560
53,296,760
51,306,531
55,336,889
_
“Paul Sweeney”_ _____ Director __ “William Fleckenstein” _ _____ Director
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
27
Mongolia Growth Group Ltd.
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31
Mongolia Growth Group Ltd.
Consolidated Statements of Changes in Equity
For the years ended December 31
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Net income (loss) for the year
Other comprehensive loss - net of taxes
Unrealized losses on translation of financial statement operations with
Mongolian MNT functional currency to Canadian dollar reporting
currency
Total comprehensive income (loss)
2012
$
2011
$
(6,073,750)
1,349,153
(1,287,170)
(1,241,437)
(7,360,920)
107,716
Contributed
comprehensive
Accumulated
other
loss
Share capital
$
surplus
$
Retained
earnings
(deficit)
$
Total
$
Balance at January 1, 2011
438,547
47,872
(339,249)
147,170
Net income for the year
Other comprehensive loss
(1,241,437)
1,349,153
-
1,349,153
(1,241,437)
Share based payment
Share capital issued (note 15)
Share issue costs (note 15)
51,571,284
(328,013)
-
1,798,603
438,547
47,872
(1,241,437)
1,009,904
Balance at December 31, 2011
51,681,818
1,846,475
(1,241,437)
1,009,904
53,296,760
Balance at January 1, 2012
Net loss for the year
Other comprehensive loss
51,681,818
1,846,475
(1,241,437)
1,009,904
(6,073,750)
(1,287,170)
Share based payment
51,681,818
(2,528,607)
(5,063,846)
1,846,475
1,367,720
Balance at December 31, 2012
51,681,818
3,214,195
(2,528,607)
(5,063,846)
47,303,560
254,886
1,798,603
51,571,284
(328,013)
53,296,760
(6,073,750)
(1,287,170)
45,935,840
1,367,720
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
28
Mongolia Growth Group Ltd.
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31
Mongolia Growth Group Ltd.
Consolidated Statements of Changes in Equity
For the years ended December 31
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Net income (loss) for the year
Other comprehensive loss - net of taxes
Unrealized losses on translation of financial statement operations with
Mongolian MNT functional currency to Canadian dollar reporting
currency
Total comprehensive income (loss)
2012
$
2011
$
(6,073,750)
1,349,153
(1,287,170)
(1,241,437)
(7,360,920)
107,716
Share capital
$
Contributed
surplus
$
Balance at January 1, 2011
438,547
47,872
Net income for the year
Other comprehensive loss
-
-
-
-
Accumulated
other
comprehensive
loss
$
-
-
(1,241,437)
Retained
earnings
(deficit)
$
Total
$
(339,249)
147,170
1,349,153
-
1,349,153
(1,241,437)
Share based payment
Share capital issued (note 15)
Share issue costs (note 15)
438,547
-
51,571,284
(328,013)
47,872
1,798,603
-
(1,241,437)
1,009,904
-
-
-
-
254,886
1,798,603
51,571,284
(328,013)
Balance at December 31, 2011
51,681,818
1,846,475
(1,241,437)
1,009,904
53,296,760
Balance at January 1, 2012
Net loss for the year
Other comprehensive loss
51,681,818
-
-
1,846,475
-
-
(1,241,437)
-
(1,287,170)
1,009,904
(6,073,750)
-
53,296,760
(6,073,750)
(1,287,170)
Share based payment
51,681,818
-
1,846,475
1,367,720
(2,528,607)
-
(5,063,846)
-
45,935,840
1,367,720
Balance at December 31, 2012
51,681,818
3,214,195
(2,528,607)
(5,063,846)
47,303,560
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
29
Mongolia Growth Group Ltd.
Consolidated Statements of Cash Flows
For the years ended Decenber 31
(expressed in Canadian dollars)
Cash provided by (used in)
Operating activities
Net income (loss) for the year
Items not affecting cash
Net realized loss on sale of financial assets (note 6)
Depreciation of property and equipment (note 11)
Share based payment
Deferred taxes (note 13)
Realized gain on disposal of investment properties (note 10)
Realized loss on disposal of property and equipment
Unrealized loss (gain) on fair value adjustment on investment
properties (note 10)
Net change in non-cash working capital balances (note 20)
Financing activities
Proceeds from share issuance (note 15)
Cost of issue of shares (note 15)
Investing activities
Purchase of investments
Disposition of investments
Net acquisition of property and equipment
Net acquisition of investment properties
2012
$
2011
$
(6,073,750)
1,349,153
-
170,890
1,367,720
(187,727)
(12,768)
24,913
592,277
45,757
1,798,603
-
-
-
2,697,212
(5,740,919)
shares from the CNSX and filed an application for the listing of common shares on the TSXV. The Company is
(2,013,510)
(1,802,137)
(1,955,129)
1,598,214
(3,815,647)
(356,915)
-
-
-
51,571,284
(328,013)
51,243,271
(3,068,667)
3,092,881
(433,710)
(6,896,289)
(48,706,825)
44,097,787
(4,666,159)
(20,425,367)
Effect of exchange rates on cash
(255,263)
(1,245,045)
The Company is organized into three business units based on the business operations:
(7,305,785)
(29,700,564)
companies at the corner of Chinggis Ave. and Seoul St. in Ulaanbaatar, Mongolia.
Increase (decrease) in cash and cash equivalents
(11,376,695)
19,940,747
Cash and cash equivalents - Beginning of year
20,078,948
138,201
Cash and cash equivalents - End of year
8,702,253
20,078,948
Income taxes paid
122,902
-
third party liability, property, accident medical and travel and liability insurance;
The accompanying notes are an integral part of these consolidated financial statements.
30
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
1 Corporate information
Mongolia Growth Group Ltd. (formerly Summus Capital Corp.) (MGG or the Company) was incorporated in
Alberta on December 17, 2007, and is an early stage real estate and financial conglomerate, focusing its
operations in the emerging economy of Mongolia.
On February 2, 2011, present management of the Company purchased 320,500 common shares of the
corporation formerly known as Summus Capital Corp. (Summus), from the founding management. The
Company also filed articles of amendment renaming the Corporation “Mongolia Growth Group Ltd.”, cancelled
all stock options and consolidated the common shares of the corporation at a ratio of 1:2; as well as filed an
application for the de-listing of the common shares from the NEX board of the Toronto Stock Exchange
Venture (TSXV) and filed an application for the listing of common shares on the Canadian National Stock
Exchange (CNSX). On January 9, 2013, the Company filed an application for the de-listing of the common
now listed on the TSXV, having the symbol YAK.
MGG has two wholly-owned subsidiaries, Mongolia Barbados Corp. and Mandal General Insurance LLC.
Mongolia Barbados Corp. owns the wholly-owned subsidiaries Mongolia Fidelity Holding Corp., its
wholly-owned subsidiary Mandal Universal LLC and Big Sky Capital LLC. Big Sky Capital LLC owns the
wholly-owned subsidiaries Chaos LLC, Carrollton LLC, Biggie Industries LLC, Orpheus LLC, Endymion LLC,
Zulu LLC, Crescent City LLC and Oceanus LLC (together “the investment property operations”). The insurance
operations are conducted in Mandal General Insurance LLC and the investment property operations are
conducted in Big Sky Capital LLC and its subsidiaries. No active business operations occur in Mongolia
Barbados Corp., Mongolia Fidelity Holding Corp. Mandal Universal LLC, Crescent City LLC, Chaos LLC and
Oceanus LLC at this time.
The Company is registered in Alberta, Canada, with its Head Office at its registered address at 1400,
700-2nd Street W, Calgary, Alberta, Canada. The Company is domiciled out of the Company’s corporate office
and principal place of business which is located at 706 - 34 Cumberland St. N., Thunder Bay, Ontario, P7A 4L3,
Canada. The Company also has a business office for the Mongolian investment property and insurance
Big Sky Capital LLC and its subsidiaries own investment properties which are located in Ulaanbaatar,
Mongolia and are held for the purpose of generating rental revenue, capital appreciation or both;
Mandal General Insurance offers insurance products in Mongolia covering all common general
insurance types. The Company’s main lines of business are motor insurance, including voluntary motor
The MGG Corporate office is located in Thunder Bay, Canada and administers the financial resources,
investment portfolio and corporate reporting and legal functions of the Company.
(1)
Mongolia Growth Group Ltd.
Consolidated Statements of Cash Flows
For the years ended Decenber 31
(expressed in Canadian dollars)
Cash provided by (used in)
Operating activities
Net income (loss) for the year
Items not affecting cash
Net realized loss on sale of financial assets (note 6)
Depreciation of property and equipment (note 11)
Share based payment
Deferred taxes (note 13)
Realized gain on disposal of investment properties (note 10)
Realized loss on disposal of property and equipment
Unrealized loss (gain) on fair value adjustment on investment
properties (note 10)
Net change in non-cash working capital balances (note 20)
Financing activities
Proceeds from share issuance (note 15)
Cost of issue of shares (note 15)
Investing activities
Purchase of investments
Disposition of investments
Net acquisition of property and equipment
Net acquisition of investment properties
(6,073,750)
1,349,153
-
170,890
1,367,720
(187,727)
(12,768)
24,913
592,277
45,757
1,798,603
-
-
-
2,697,212
(5,740,919)
(2,013,510)
(1,802,137)
(1,955,129)
1,598,214
(3,815,647)
(356,915)
-
-
-
51,571,284
(328,013)
51,243,271
(3,068,667)
3,092,881
(433,710)
(6,896,289)
(48,706,825)
44,097,787
(4,666,159)
(20,425,367)
(7,305,785)
(29,700,564)
(255,263)
(1,245,045)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
2012
$
2011
$
(expressed in Canadian dollars)
1 Corporate information
Mongolia Growth Group Ltd. (formerly Summus Capital Corp.) (MGG or the Company) was incorporated in
Alberta on December 17, 2007, and is an early stage real estate and financial conglomerate, focusing its
operations in the emerging economy of Mongolia.
On February 2, 2011, present management of the Company purchased 320,500 common shares of the
corporation formerly known as Summus Capital Corp. (Summus), from the founding management. The
Company also filed articles of amendment renaming the Corporation “Mongolia Growth Group Ltd.”, cancelled
all stock options and consolidated the common shares of the corporation at a ratio of 1:2; as well as filed an
application for the de-listing of the common shares from the NEX board of the Toronto Stock Exchange
Venture (TSXV) and filed an application for the listing of common shares on the Canadian National Stock
Exchange (CNSX). On January 9, 2013, the Company filed an application for the de-listing of the common
shares from the CNSX and filed an application for the listing of common shares on the TSXV. The Company is
now listed on the TSXV, having the symbol YAK.
MGG has two wholly-owned subsidiaries, Mongolia Barbados Corp. and Mandal General Insurance LLC.
Mongolia Barbados Corp. owns the wholly-owned subsidiaries Mongolia Fidelity Holding Corp., its
wholly-owned subsidiary Mandal Universal LLC and Big Sky Capital LLC. Big Sky Capital LLC owns the
wholly-owned subsidiaries Chaos LLC, Carrollton LLC, Biggie Industries LLC, Orpheus LLC, Endymion LLC,
Zulu LLC, Crescent City LLC and Oceanus LLC (together “the investment property operations”). The insurance
operations are conducted in Mandal General Insurance LLC and the investment property operations are
conducted in Big Sky Capital LLC and its subsidiaries. No active business operations occur in Mongolia
Barbados Corp., Mongolia Fidelity Holding Corp. Mandal Universal LLC, Crescent City LLC, Chaos LLC and
Oceanus LLC at this time.
The Company is registered in Alberta, Canada, with its Head Office at its registered address at 1400,
700-2nd Street W, Calgary, Alberta, Canada. The Company is domiciled out of the Company’s corporate office
and principal place of business which is located at 706 - 34 Cumberland St. N., Thunder Bay, Ontario, P7A 4L3,
Canada. The Company also has a business office for the Mongolian investment property and insurance
companies at the corner of Chinggis Ave. and Seoul St. in Ulaanbaatar, Mongolia.
Effect of exchange rates on cash
The Company is organized into three business units based on the business operations:
Increase (decrease) in cash and cash equivalents
(11,376,695)
19,940,747
Cash and cash equivalents - Beginning of year
20,078,948
138,201
Cash and cash equivalents - End of year
8,702,253
20,078,948
Income taxes paid
122,902
-
The accompanying notes are an integral part of these consolidated financial statements.
Big Sky Capital LLC and its subsidiaries own investment properties which are located in Ulaanbaatar,
Mongolia and are held for the purpose of generating rental revenue, capital appreciation or both;
Mandal General Insurance offers insurance products in Mongolia covering all common general
insurance types. The Company’s main lines of business are motor insurance, including voluntary motor
third party liability, property, accident medical and travel and liability insurance;
The MGG Corporate office is located in Thunder Bay, Canada and administers the financial resources,
investment portfolio and corporate reporting and legal functions of the Company.
(1)
31
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
2 Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). The
significant accounting policies used in the preparation of these consolidated financial statements are
summarized in note 3.
The consolidated financial statements’ values, including the notes to the consolidated financial statements, are
presented in Canadian dollars ($) which is the Company’s presentation currency and the functional currency of
the parent company. The functional currency of the Company’s operating subsidiaries is the Mongolian
National Tögrög (MNT).
These consolidated financial statements were approved by the Board of Directors of the Company for issue on
April 30, 2013.
3 Significant accounting policies
a) Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, as
modified by the revaluation of investment properties and available-for-sale (AFS) financial assets with the
exception of insurance contract liabilities which are measured on a discounted basis in accordance with
accepted actuarial practice (which in the absence of an active market provides a reasonable proxy of fair
value) as explained throughout this note.
b) Basis of consolidation
These financial statements include the assets, liabilities, equity, revenues, expenses and cash flows of MGG
and its wholly-owned subsidiaries. Subsidiaries are entities controlled by MGG. Control exists when MGG
has the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that currently are exercisable are taken into account.
The financial statements of the subsidiaries are prepared for the same reporting year as MGG, using
consistent accounting policies. Intercompany balances and transactions, and any unrealized income and
expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial
statements.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
c) Financial instruments
Financial assets
Financial assets are classified into one of the following categories: AFS, fair-value through profit or loss
(FVTPL), or loans and receivables. The classification depends on the purpose for which the asset was
acquired. All transactions related to financial instruments are recorded on a trade date basis. The
Company’s accounting policy for each category is as follows:
i) Available-for-sale financial assets
AFS financial assets are non-derivatives that are either designated in this category or do not fit into
any other category. AFS financial assets are initially measured at fair value on the consolidated
statement of financial position from the trade date. Subsequent to initial recognition, AFS financial
assets are carried at fair value with changes in fair values recorded, net of income taxes, in other
comprehensive income (OCI) until the AFS financial asset is disposed of or has become impaired.
When the AFS financial asset is disposed of or has become impaired, the accumulated fair value
adjustments recognized in accumulated other comprehensive income (AOCI) are transferred to the
consolidated statement of operations.
ii) Fair value through profit or loss
Financial assets at FVTPL are financial assets held for trading. A financial asset is classified in this
category if it is acquired principally for selling in the short term. Derivatives are also categorized as
held for trading unless they are designated as hedges. FVTPL instruments are carried at fair value in
the consolidated statement of financial position with changes in fair value recorded in the
consolidated statement of operations.
iii) Loans and receivables
These assets are non-derivative financial assets resulting from the delivery of cash or other assets by a
lender to a borrower in return for a promise to repay on a specific date or dates, or on demand. They
are initially recognized at cost, being the fair value of the consideration paid for the acquisition of the
investment. After initial measurement, loans and receivables are measured at amortized cost, using
the effective interest rate method, less any impairment losses. Amortized cost is calculated taking into
account any discount or premium on acquisition and includes fees that are an integral part of the
effective interest rate and transaction costs.
32
(2)
(3)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
2 Basis of presentation
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
c) Financial instruments
The consolidated financial statements of the Company have been prepared in accordance with International
Financial assets
Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). The
significant accounting policies used in the preparation of these consolidated financial statements are
summarized in note 3.
The consolidated financial statements’ values, including the notes to the consolidated financial statements, are
presented in Canadian dollars ($) which is the Company’s presentation currency and the functional currency of
Financial assets are classified into one of the following categories: AFS, fair-value through profit or loss
(FVTPL), or loans and receivables. The classification depends on the purpose for which the asset was
acquired. All transactions related to financial instruments are recorded on a trade date basis. The
Company’s accounting policy for each category is as follows:
the parent company. The functional currency of the Company’s operating subsidiaries is the Mongolian
i) Available-for-sale financial assets
These consolidated financial statements were approved by the Board of Directors of the Company for issue on
National Tögrög (MNT).
April 30, 2013.
3 Significant accounting policies
a) Basis of measurement
AFS financial assets are non-derivatives that are either designated in this category or do not fit into
any other category. AFS financial assets are initially measured at fair value on the consolidated
statement of financial position from the trade date. Subsequent to initial recognition, AFS financial
assets are carried at fair value with changes in fair values recorded, net of income taxes, in other
comprehensive income (OCI) until the AFS financial asset is disposed of or has become impaired.
When the AFS financial asset is disposed of or has become impaired, the accumulated fair value
adjustments recognized in accumulated other comprehensive income (AOCI) are transferred to the
consolidated statement of operations.
The consolidated financial statements have been prepared under the historical cost convention, as
modified by the revaluation of investment properties and available-for-sale (AFS) financial assets with the
ii) Fair value through profit or loss
exception of insurance contract liabilities which are measured on a discounted basis in accordance with
accepted actuarial practice (which in the absence of an active market provides a reasonable proxy of fair
value) as explained throughout this note.
b) Basis of consolidation
Financial assets at FVTPL are financial assets held for trading. A financial asset is classified in this
category if it is acquired principally for selling in the short term. Derivatives are also categorized as
held for trading unless they are designated as hedges. FVTPL instruments are carried at fair value in
the consolidated statement of financial position with changes in fair value recorded in the
consolidated statement of operations.
These financial statements include the assets, liabilities, equity, revenues, expenses and cash flows of MGG
and its wholly-owned subsidiaries. Subsidiaries are entities controlled by MGG. Control exists when MGG
iii) Loans and receivables
has the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that currently are exercisable are taken into account.
The financial statements of the subsidiaries are prepared for the same reporting year as MGG, using
consistent accounting policies. Intercompany balances and transactions, and any unrealized income and
expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial
statements.
These assets are non-derivative financial assets resulting from the delivery of cash or other assets by a
lender to a borrower in return for a promise to repay on a specific date or dates, or on demand. They
are initially recognized at cost, being the fair value of the consideration paid for the acquisition of the
investment. After initial measurement, loans and receivables are measured at amortized cost, using
the effective interest rate method, less any impairment losses. Amortized cost is calculated taking into
account any discount or premium on acquisition and includes fees that are an integral part of the
effective interest rate and transaction costs.
(2)
(3)
33
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Impairment on financial assets
All financial assets other than FVTPL instruments are assessed for impairment at each reporting date. The
Company assesses whether there is any objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if,
there is objective evidence of impairment as a result of one or more events that has occurred after the
initial recognition of the asset and that event has an impact on the estimated future cash flows of the
financial asset or group of financial assets.
AFS debt instruments
An AFS debt security would be identified as impaired when there is objective evidence suggesting that
timely collection of the contractual principal or interest is no longer reasonably assured. This may result
from a breach of contract by the issuer, such as a default or delinquency in interest or principal payments,
or evidence that the issuer is in significant financial difficulty. Impairment is recognized through net
income or loss in the consolidated statement of operations. Subsequent declines in value continue to be
recorded through net income or loss in the consolidated statement of operations. Impairment losses
previously recorded through net income or loss in the consolidated statement of operations are to be
reversed if the fair value subsequently increases and the increase can be objectively related to an event
occurring after the impairment loss was recognized.
AFS equity instruments
Objective evidence of impairment exists if there has been a significant or prolonged decline in the fair
value of the investment below its cost or if there is a significant adverse change in the technological,
market, economic, political or legal environment in which the issuer operates or the issuer is experiencing
financial difficulties.
The accounting for an impairment that is recognized in net income or loss in the consolidated statement of
operations is the same as described for AFS debt securities above with the exception that impairment
losses previously recognized in net income or loss in the consolidated statement of operations cannot be
subsequently reversed until the instrument is disposed of. Any subsequent increase in value is recorded in
OCI.
Financial liabilities
Financial liabilities are classified as other financial liabilities, based on the purpose for which the liability
was incurred, and are comprised of trade payables and accrued liabilities. These liabilities are initially
recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument
and subsequently carried at amortized cost using the effective interest rate method. This ensures that any
interest expense over the period to repayment is at a constant rate on the balance of the liability carried in
the statement of financial position. Interest expense in this context includes initial transaction costs and
premiums payable on redemption, as well as any interest or coupon payable while the liability is
outstanding.
Trade payables and accrued liabilities represent liabilities for goods and services provided to the Company
prior to the end of the period which are unpaid. Trade payable amounts are unsecured and are usually paid
within 30 days of recognition.
Fair value of financial instruments
Fair value represents the price at which a financial instrument could be exchanged in an orderly market, in
an arm’s length transaction between knowledgeable and willing parties who are under no compulsion to
act. Financial assets and liabilities recorded at fair value in the consolidated statement of financial
position are measured and classified in a hierarchy consisting of three levels for disclosure purposes. The
three levels are based on the priority of the inputs to the respective valuation technique. The fair value
hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability’s classification
within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input
levels are defined as follows:
Level 1 fair value measurements are those derived from unadjusted quoted prices in an active
market for identical assets or liabilities.
Level 2 fair value measurements are those derived from quoted prices in markets that are not
active or inputs that are observable for the asset or liability, either directly (i.e., as price) or
indirectly (derived from prices).
Level 3 fair value measurements are those derived from unobservable inputs that are supported by
little or no market activity and are significant to the estimated fair value of the assets or liabilities.
The Company has implemented the following classifications:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities
The Company defines active markets based on the frequency of valuation and any restrictions or
illiquidity on disposition of investments. The size of the bid/ask spread is used as an indicator of
market activity for fixed maturity securities. Assets measured at fair value and classified as Level 1
include cash and cash equivalents, and investments and marketable securities. Fair value is based on
market price data for identical assets obtained from the investment custodian, investment managers or
dealer markets. The Company does not adjust the quoted price for such instruments.
Level 2: Quoted prices in markets that are not active or inputs that are observable either
directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 2 inputs include observable market information, including quoted prices for assets in markets
that are considered less active. Assets measured at fair value and classified as Level 2 include
investments and marketable securities. Fair value is based on or derived from market price data for
same or similar instruments obtained from the investment custodian, investment managers or dealer
markets.
34
(4)
(5)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Impairment on financial assets
All financial assets other than FVTPL instruments are assessed for impairment at each reporting date. The
Company assesses whether there is any objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if,
there is objective evidence of impairment as a result of one or more events that has occurred after the
initial recognition of the asset and that event has an impact on the estimated future cash flows of the
financial asset or group of financial assets.
AFS debt instruments
An AFS debt security would be identified as impaired when there is objective evidence suggesting that
timely collection of the contractual principal or interest is no longer reasonably assured. This may result
from a breach of contract by the issuer, such as a default or delinquency in interest or principal payments,
or evidence that the issuer is in significant financial difficulty. Impairment is recognized through net
income or loss in the consolidated statement of operations. Subsequent declines in value continue to be
recorded through net income or loss in the consolidated statement of operations. Impairment losses
previously recorded through net income or loss in the consolidated statement of operations are to be
reversed if the fair value subsequently increases and the increase can be objectively related to an event
occurring after the impairment loss was recognized.
AFS equity instruments
Objective evidence of impairment exists if there has been a significant or prolonged decline in the fair
value of the investment below its cost or if there is a significant adverse change in the technological,
market, economic, political or legal environment in which the issuer operates or the issuer is experiencing
financial difficulties.
The accounting for an impairment that is recognized in net income or loss in the consolidated statement of
operations is the same as described for AFS debt securities above with the exception that impairment
losses previously recognized in net income or loss in the consolidated statement of operations cannot be
subsequently reversed until the instrument is disposed of. Any subsequent increase in value is recorded in
OCI.
Financial liabilities
Financial liabilities are classified as other financial liabilities, based on the purpose for which the liability
was incurred, and are comprised of trade payables and accrued liabilities. These liabilities are initially
recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument
and subsequently carried at amortized cost using the effective interest rate method. This ensures that any
interest expense over the period to repayment is at a constant rate on the balance of the liability carried in
the statement of financial position. Interest expense in this context includes initial transaction costs and
premiums payable on redemption, as well as any interest or coupon payable while the liability is
outstanding.
Trade payables and accrued liabilities represent liabilities for goods and services provided to the Company
prior to the end of the period which are unpaid. Trade payable amounts are unsecured and are usually paid
within 30 days of recognition.
Fair value of financial instruments
Fair value represents the price at which a financial instrument could be exchanged in an orderly market, in
an arm’s length transaction between knowledgeable and willing parties who are under no compulsion to
act. Financial assets and liabilities recorded at fair value in the consolidated statement of financial
position are measured and classified in a hierarchy consisting of three levels for disclosure purposes. The
three levels are based on the priority of the inputs to the respective valuation technique. The fair value
hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability’s classification
within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input
levels are defined as follows:
Level 1 fair value measurements are those derived from unadjusted quoted prices in an active
market for identical assets or liabilities.
Level 2 fair value measurements are those derived from quoted prices in markets that are not
active or inputs that are observable for the asset or liability, either directly (i.e., as price) or
indirectly (derived from prices).
Level 3 fair value measurements are those derived from unobservable inputs that are supported by
little or no market activity and are significant to the estimated fair value of the assets or liabilities.
The Company has implemented the following classifications:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities
The Company defines active markets based on the frequency of valuation and any restrictions or
illiquidity on disposition of investments. The size of the bid/ask spread is used as an indicator of
market activity for fixed maturity securities. Assets measured at fair value and classified as Level 1
include cash and cash equivalents, and investments and marketable securities. Fair value is based on
market price data for identical assets obtained from the investment custodian, investment managers or
dealer markets. The Company does not adjust the quoted price for such instruments.
Level 2: Quoted prices in markets that are not active or inputs that are observable either
directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 2 inputs include observable market information, including quoted prices for assets in markets
that are considered less active. Assets measured at fair value and classified as Level 2 include
investments and marketable securities. Fair value is based on or derived from market price data for
same or similar instruments obtained from the investment custodian, investment managers or dealer
markets.
(4)
(5)
35
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Level 3: Unobservable inputs that are supported by little or no market activity and are
significant to the estimated fair value of the assets or liabilities
Level 3 assets and liabilities would include financial instruments whose values are determined using
internal pricing models, discounted cash flow methodologies, or similar techniques that are not based
on observable market data, as well as instruments for which the determination of estimated fair value
requires significant management judgement or estimation.
d) Investment properties
Investment properties include properties held to earn rental revenue, for capital appreciation or both.
Investment properties are initially measured at fair value which is the purchase price plus any directly
attributable expenditures. Investment properties are subsequently measured at fair value, which reflects
market conditions at the date of the statement of financial position. Gains or losses arising from changes in
the fair value of investment properties are recognized in the consolidated statement of operations in the
year they arise. A key characteristic of an investment property is that it generates cash flows largely
independently of the other assets held by an entity. Subsequent expenditure is included in the asset’s
carrying amount only when it is probable that future economic benefits associated with the item will flow
to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs
are charged to the consolidated statement of operations during the financial period in which they occur.
Substantially all of the Company’s income properties and properties under development are investment
properties.
The fair value of investment properties was based on the nature, location and condition of the specific
asset. The fair value is calculated at December 31, 2012 on the majority of investment properties by an
independent, professional, qualified appraisal firm, whose appraisers hold recognized relevant,
professional qualifications and who have recent experience in the locations and categories of the
investment properties valued. The remaining investment properties’ fair value was calculated by
management and was performed by qualified individuals with recent experience in the locations and
categories of the investment properties valued.
Overall, the external appraisal firm performed valuations on 61% of the total carrying value of investment
properties and management valued the remaining 39%. For investment properties valued by the appraiser
and management, the carrying value of the investment properties that were valued at December 31, 2012
agree to the valuation reports by the external appraisal firm and management.
Investment property purchases where the Company has paid either the full or partial purchase proceeds to
the sellor, but the Company has not yet received the official land or building title from the Mongolian
Property office are recorded at cost as Prepaid deposits on investment properties and classified within
other assets.
Property held under an operating lease is not classified as investment properties. Instead, these leases are
accounted for in accordance with Leases (IAS 17). However, certain land leases held under an operating
lease are classified as investment properties when the definition of an investment property is met. At
inception these leases are recognized at the lower of the fair value of the property and the present value of
the minimum lease payments and an equivalent obligation is recognized as a lease liability.
Some properties may be partially occupied by the Company, with the remainder being held for rental
income or capital appreciation. If that part of the property occupied by the Company can be sold
separately, the Company accounts for the portions separately. The portion that is owner-occupied is
accounted for under IAS 16, and the portion that is held for rental income, capital appreciation or both is
treated as investment property under IAS 40. When the portions cannot be sold separately, the whole
property is treated as investment property only if an insignificant portion is owner-occupied. The
Company considers the owner-occupied portion as insignificant when the property is more than 90% held
to earn rental income or capital appreciation. In order to determine the percentage of the portions, the
Company uses the size of the property measured in square metres.
e) Assets held for sale
Assets, or disposal groups comprising assets and liabilities, are categorized as held for sale at the point in
time when the asset or disposal group is available for immediate sale, management has committed to a
plan to sell and is actively locating a buyer at a sales price that is reasonable in relation to the current fair
value of the asset, and the sale is probable and expected to be completed within a one year period.
Investment property that is to be disposed of without redevelopment has been determined to not have a
change in use and continues to be recorded in investment property. Investment property that has evidence
of commencement of redevelopment with a view to sell is transferred to assets held for sale. Investment
properties are measured by the guidelines of IAS 40 - Investment Property. All other assets held for sale
are stated at the lower of carrying amounts and fair value less selling costs. An asset that is subsequently
reclassified as held and in use, with the exception of investment property measured under the fair value
model, is measured at the lower of its recoverable amount and the carrying value that would have been
recognized had the asset never been classified as held for sale.
The results of operations associated with disposal groups sold, or classified as held for sale, are reported
separately as income or loss from discontinued operations
36
(6)
(7)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Level 3: Unobservable inputs that are supported by little or no market activity and are
significant to the estimated fair value of the assets or liabilities
Level 3 assets and liabilities would include financial instruments whose values are determined using
internal pricing models, discounted cash flow methodologies, or similar techniques that are not based
on observable market data, as well as instruments for which the determination of estimated fair value
requires significant management judgement or estimation.
d) Investment properties
Investment properties include properties held to earn rental revenue, for capital appreciation or both.
Investment properties are initially measured at fair value which is the purchase price plus any directly
attributable expenditures. Investment properties are subsequently measured at fair value, which reflects
market conditions at the date of the statement of financial position. Gains or losses arising from changes in
the fair value of investment properties are recognized in the consolidated statement of operations in the
year they arise. A key characteristic of an investment property is that it generates cash flows largely
independently of the other assets held by an entity. Subsequent expenditure is included in the asset’s
carrying amount only when it is probable that future economic benefits associated with the item will flow
to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs
are charged to the consolidated statement of operations during the financial period in which they occur.
Substantially all of the Company’s income properties and properties under development are investment
properties.
The fair value of investment properties was based on the nature, location and condition of the specific
asset. The fair value is calculated at December 31, 2012 on the majority of investment properties by an
independent, professional, qualified appraisal firm, whose appraisers hold recognized relevant,
professional qualifications and who have recent experience in the locations and categories of the
investment properties valued. The remaining investment properties’ fair value was calculated by
management and was performed by qualified individuals with recent experience in the locations and
categories of the investment properties valued.
Overall, the external appraisal firm performed valuations on 61% of the total carrying value of investment
properties and management valued the remaining 39%. For investment properties valued by the appraiser
and management, the carrying value of the investment properties that were valued at December 31, 2012
agree to the valuation reports by the external appraisal firm and management.
Investment property purchases where the Company has paid either the full or partial purchase proceeds to
the sellor, but the Company has not yet received the official land or building title from the Mongolian
Property office are recorded at cost as Prepaid deposits on investment properties and classified within
other assets.
Property held under an operating lease is not classified as investment properties. Instead, these leases are
accounted for in accordance with Leases (IAS 17). However, certain land leases held under an operating
lease are classified as investment properties when the definition of an investment property is met. At
inception these leases are recognized at the lower of the fair value of the property and the present value of
the minimum lease payments and an equivalent obligation is recognized as a lease liability.
Some properties may be partially occupied by the Company, with the remainder being held for rental
income or capital appreciation. If that part of the property occupied by the Company can be sold
separately, the Company accounts for the portions separately. The portion that is owner-occupied is
accounted for under IAS 16, and the portion that is held for rental income, capital appreciation or both is
treated as investment property under IAS 40. When the portions cannot be sold separately, the whole
property is treated as investment property only if an insignificant portion is owner-occupied. The
Company considers the owner-occupied portion as insignificant when the property is more than 90% held
to earn rental income or capital appreciation. In order to determine the percentage of the portions, the
Company uses the size of the property measured in square metres.
e) Assets held for sale
Assets, or disposal groups comprising assets and liabilities, are categorized as held for sale at the point in
time when the asset or disposal group is available for immediate sale, management has committed to a
plan to sell and is actively locating a buyer at a sales price that is reasonable in relation to the current fair
value of the asset, and the sale is probable and expected to be completed within a one year period.
Investment property that is to be disposed of without redevelopment has been determined to not have a
change in use and continues to be recorded in investment property. Investment property that has evidence
of commencement of redevelopment with a view to sell is transferred to assets held for sale. Investment
properties are measured by the guidelines of IAS 40 - Investment Property. All other assets held for sale
are stated at the lower of carrying amounts and fair value less selling costs. An asset that is subsequently
reclassified as held and in use, with the exception of investment property measured under the fair value
model, is measured at the lower of its recoverable amount and the carrying value that would have been
recognized had the asset never been classified as held for sale.
The results of operations associated with disposal groups sold, or classified as held for sale, are reported
separately as income or loss from discontinued operations
(6)
(7)
37
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
f) Revenue recognition
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
g) Product classification
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company
and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration
received or receivable. The Company’s specific revenue recognition criteria are as follows:
i) Rental revenue
The Company has not transferred substantially all of the benefits and risk of ownership of its
investment properties and, therefore, the Company accounts for leases with its tenants as operating
leases. Rental revenue includes all amounts earned from tenants related to lease agreements
including property tax and operating cost recoveries.
The Company reports minimum rental revenue on a straight-line basis, whereby the total amount of
cash to be received under a lease is recognized into earnings in equal periodic amounts over the term
of the lease.
Contingent rents are recognized as revenue in the period in which they are earned.
Amounts payable by tenants to terminate their lease prior to their contractual expiry date (lease
cancellation fees) are included in rental revenue at the time of cancellation.
Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the
leased asset. Tenant incentives are recognized as a reduction of rental revenue on a straight-line basis
over the term of the lease.
ii)
Insurance revenues
Revenue from insurance operations is comprised of net premiums earned.
Premiums written are deferred as unearned premiums and recognized in the consolidated statement
of operations over the terms of the underlying policies on a pro rata basis. Premiums written are gross
of any commissions and amounts ceded to reinsurers.
Premiums ceded on insurance contracts are recognized as a reduction of gross premiums when
payable or on the date the policy is effective.
iii) Investment income
Investment income is recorded as it accrues using the effective interest method. Dividend income on
shares is recorded on the ex-dividend date. Gains and losses are determined and recorded as at the
trade date, and are calculated on the basis of average cost. The effective interest rate method is used
to amortize premiums or discounts on the purchase of AFS bonds.
Insurance contracts are those contracts where the Company has accepted significant insurance risk from
another party (the policyholders) by agreeing to indemnify the policyholders if a specified uncertain future
event (the insured event) adversely affects the policyholders. As a general guideline, the Company
determines if it has significant insurance risk by comparing benefits paid with benefits payable if the
insured event did not occur. All of the Company's insurance contracts are classified as insurance contracts
as defined by IFRS.
Liability insurance contracts protect the Company’s customers against the risk of causing harm to third
parties as a result of their legitimate activities. Damages covered include both contractual and
non-contractual events. The typical protection offered is designed for employers who become legally liable
to pay compensation to injured employees (employers’ liability) and for customers (individuals and legal
entities) who become liable to pay compensation to a third party for bodily harm or property damage
(public liability).
The Company’s motor portfolio comprises both voluntary third party liability insurance (driver liability
insurance) and motor insurance. Motor third party liability insurance covers bodily injury claims and
property claims. Property damage under motor insurance, as well as bodily injury claims, are generally
reported and settled within a short period of the accident occurring.
Property insurance ensures that Company’s customers are paid compensation for the damage caused to
their property or ensures their financial interests.
h) Claims and insurance benefits incurred
Gross claims and insurance benefits incurred include all claims and insurance benefits occurring during
the year, whether reported or not, related internal and external claims handling costs that are directly
related to the processing and settlement of claims, reduced for the value of salvage and subrogation.
Reinsurance claims and insurance benefits are recognized when the related gross insurance claim is
recognized according to the terms of the relevant reinsurance contracts.
i)
Insurance contract liabilities
Insurance contract liabilities include unearned premiums and unpaid claims. Unpaid claims are initially
established by the case method as claims are reported. The estimates are regularly reviewed and updated
as additional information on the estimated unpaid claims becomes known and any resulting adjustments
are included in the consolidated statement of operations as incurred. Insurance contract liabilities are
determined using accepted actuarial practices. The bases used for estimating the Company’s insurance
contract liabilities are described below:
38
(8)
(9)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
f) Revenue recognition
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
g) Product classification
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company
and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration
received or receivable. The Company’s specific revenue recognition criteria are as follows:
i) Rental revenue
The Company has not transferred substantially all of the benefits and risk of ownership of its
investment properties and, therefore, the Company accounts for leases with its tenants as operating
leases. Rental revenue includes all amounts earned from tenants related to lease agreements
including property tax and operating cost recoveries.
The Company reports minimum rental revenue on a straight-line basis, whereby the total amount of
cash to be received under a lease is recognized into earnings in equal periodic amounts over the term
of the lease.
Contingent rents are recognized as revenue in the period in which they are earned.
Amounts payable by tenants to terminate their lease prior to their contractual expiry date (lease
cancellation fees) are included in rental revenue at the time of cancellation.
Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the
leased asset. Tenant incentives are recognized as a reduction of rental revenue on a straight-line basis
over the term of the lease.
ii)
Insurance revenues
Revenue from insurance operations is comprised of net premiums earned.
of any commissions and amounts ceded to reinsurers.
Premiums ceded on insurance contracts are recognized as a reduction of gross premiums when
payable or on the date the policy is effective.
iii) Investment income
Investment income is recorded as it accrues using the effective interest method. Dividend income on
shares is recorded on the ex-dividend date. Gains and losses are determined and recorded as at the
trade date, and are calculated on the basis of average cost. The effective interest rate method is used
to amortize premiums or discounts on the purchase of AFS bonds.
Insurance contracts are those contracts where the Company has accepted significant insurance risk from
another party (the policyholders) by agreeing to indemnify the policyholders if a specified uncertain future
event (the insured event) adversely affects the policyholders. As a general guideline, the Company
determines if it has significant insurance risk by comparing benefits paid with benefits payable if the
insured event did not occur. All of the Company's insurance contracts are classified as insurance contracts
as defined by IFRS.
Liability insurance contracts protect the Company’s customers against the risk of causing harm to third
parties as a result of their legitimate activities. Damages covered include both contractual and
non-contractual events. The typical protection offered is designed for employers who become legally liable
to pay compensation to injured employees (employers’ liability) and for customers (individuals and legal
entities) who become liable to pay compensation to a third party for bodily harm or property damage
(public liability).
The Company’s motor portfolio comprises both voluntary third party liability insurance (driver liability
insurance) and motor insurance. Motor third party liability insurance covers bodily injury claims and
property claims. Property damage under motor insurance, as well as bodily injury claims, are generally
reported and settled within a short period of the accident occurring.
Property insurance ensures that Company’s customers are paid compensation for the damage caused to
their property or ensures their financial interests.
h) Claims and insurance benefits incurred
Gross claims and insurance benefits incurred include all claims and insurance benefits occurring during
the year, whether reported or not, related internal and external claims handling costs that are directly
related to the processing and settlement of claims, reduced for the value of salvage and subrogation.
Premiums written are deferred as unearned premiums and recognized in the consolidated statement
of operations over the terms of the underlying policies on a pro rata basis. Premiums written are gross
Reinsurance claims and insurance benefits are recognized when the related gross insurance claim is
recognized according to the terms of the relevant reinsurance contracts.
i)
Insurance contract liabilities
Insurance contract liabilities include unearned premiums and unpaid claims. Unpaid claims are initially
established by the case method as claims are reported. The estimates are regularly reviewed and updated
as additional information on the estimated unpaid claims becomes known and any resulting adjustments
are included in the consolidated statement of operations as incurred. Insurance contract liabilities are
determined using accepted actuarial practices. The bases used for estimating the Company’s insurance
contract liabilities are described below:
(8)
(9)
39
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Unearned premiums
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Unearned premiums are calculated on a pro rata basis, from the unexpired portion of the premiums
written and are recognized over the term of the insurance contract in Net premiums earned on the
consolidated statement of operations.
At the end of each reporting period, a liability adequacy test is performed, in accordance with IFRS, to
validate the adequacy of unearned premiums and deferred acquisition expenses. A premium deficiency
would exist if unearned premiums are deemed insufficient to cover the estimated future costs associated
with the unexpired portion of written insurance policies. A premium deficiency would be recognized
immediately as a reduction of deferred acquisition expenses to the extent that unearned premiums plus
anticipated investment income is not considered adequate to cover all deferred acquisition expenses and
related insurance claims and expenses. If the premium deficiency is greater than the unamortized deferred
acquisition expenses, a liability is accrued for the excess deficiency.
Unpaid claims
A provision is also made for management’s calculation of factors affecting future development of unpaid
claims including claims incurred but not reported (IBNR). IBNR is determined for each line of business
under the expected loss method. Under the expected loss method, ultimate losses are based upon some
prior measure of the anticipated losses as a percentage of earned premium. The expected loss ratios were
based on Mongolian industry experience and the estimates used in setting the insurance subsidiary’s
premium rates. Estimates of salvage and subrogation recoveries are included in the estimated unpaid
claims. The unpaid claims are discounted for the time value of money utilizing a discount rate based on the
expected return of the investment portfolio and prevailing inflation rates that approximates the cash flow
requirements of the unpaid claims. To recognize the uncertainty inherent in determining the unpaid
claims amounts, the Company includes a Provision for Adverse Deviations (PFADs) relating to claim
development and future investment income.
Reinsurance contracts held
removing items.
The Company cedes reinsurance in the normal course of business. Ceded reinsurance contracts do not
relieve the Company from its obligations to policyholders. Contracts entered into by the Company with
reinsurers under which the Company is compensated for losses on one or more contracts issued by the
Company and that meet the classification requirements for insurance contracts are classified as
reinsurance contracts held.
The benefits to which the Company is entitled under its reinsurance contracts held are recognised as
reinsurance assets. These assets consist of short-term balances due from reinsurers as well as longer term
receivables that are dependent on the expected claims and benefits arising under the related reinsured
insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the
amounts associated with the reinsured insurance contracts and in accordance with the terms of each
reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts.
Reinsurance premiums ceded and reinsurance recoveries on losses incurred are recorded as reductions of
the respective income and expense accounts.
The Company assesses its reinsurance assets for impairment on an annual basis. If there is objective
evidence that the reinsurance asset is impaired the Company reduces the carrying amount of the
reinsurance asset to its recoverable amount and recognises that impairment loss in the consolidated
statement of operations. The Company gathers the objective evidence that a reinsurance asset is impaired
using the same process adopted for financial assets held at amortised cost. The impairment loss is
calculated following the same method used for these financial assets.
Deferred acquisition expenses
Certain costs of acquiring and renewing insurance contracts, such as commissions and other acquisition
costs, are deferred to the extent they are considered recoverable and are expensed in the accounting
period, in which the related premiums are recognized as revenue.
Cash and cash equivalents include cash at bank, deposits held at call with banks, other short-term bank
deposits and highly liquid investments with an original term to maturity of three months or less at the date
of purchase that are readily convertible to known amounts of cash and subject to an insignificant risk of
j) Cash and cash equivalents
change in value.
k) Property and equipment
On initial recognition, property and equipment are valued at cost, being the purchase price and directly
attributable cost of acquisition or construction required to bring the asset to the location and condition
necessary to be capable of operating in a manner intended by the Company, including appropriate
borrowing costs and the estimated present value of any future unavoidable costs of dismantling and
Property and equipment is subsequently measured at cost less accumulated depreciation, less any
accumulated impairment losses. All repairs and maintenance costs are charged to the consolidated
statement of operations during the period in which they occur.
Depreciation is recognized in the consolidated statement of operations and is provided on a straight-line
basis over the estimated useful life of the assets as follows:
Buildings
Furniture and fixtures
Equipment
Vehicles
Straight-line over 40 years
Straight-line over 5 to 10 years
Straight-line over 1 to 5 years
Straight-line over 10 years
40
(10)
(11)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Unearned premiums
Unearned premiums are calculated on a pro rata basis, from the unexpired portion of the premiums
written and are recognized over the term of the insurance contract in Net premiums earned on the
consolidated statement of operations.
At the end of each reporting period, a liability adequacy test is performed, in accordance with IFRS, to
validate the adequacy of unearned premiums and deferred acquisition expenses. A premium deficiency
would exist if unearned premiums are deemed insufficient to cover the estimated future costs associated
with the unexpired portion of written insurance policies. A premium deficiency would be recognized
anticipated investment income is not considered adequate to cover all deferred acquisition expenses and
related insurance claims and expenses. If the premium deficiency is greater than the unamortized deferred
acquisition expenses, a liability is accrued for the excess deficiency.
Unpaid claims
A provision is also made for management’s calculation of factors affecting future development of unpaid
claims including claims incurred but not reported (IBNR). IBNR is determined for each line of business
under the expected loss method. Under the expected loss method, ultimate losses are based upon some
prior measure of the anticipated losses as a percentage of earned premium. The expected loss ratios were
based on Mongolian industry experience and the estimates used in setting the insurance subsidiary’s
premium rates. Estimates of salvage and subrogation recoveries are included in the estimated unpaid
expected return of the investment portfolio and prevailing inflation rates that approximates the cash flow
requirements of the unpaid claims. To recognize the uncertainty inherent in determining the unpaid
claims amounts, the Company includes a Provision for Adverse Deviations (PFADs) relating to claim
development and future investment income.
Reinsurance contracts held
The Company cedes reinsurance in the normal course of business. Ceded reinsurance contracts do not
relieve the Company from its obligations to policyholders. Contracts entered into by the Company with
reinsurers under which the Company is compensated for losses on one or more contracts issued by the
Company and that meet the classification requirements for insurance contracts are classified as
reinsurance contracts held.
The benefits to which the Company is entitled under its reinsurance contracts held are recognised as
reinsurance assets. These assets consist of short-term balances due from reinsurers as well as longer term
receivables that are dependent on the expected claims and benefits arising under the related reinsured
insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the
amounts associated with the reinsured insurance contracts and in accordance with the terms of each
reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Reinsurance premiums ceded and reinsurance recoveries on losses incurred are recorded as reductions of
the respective income and expense accounts.
The Company assesses its reinsurance assets for impairment on an annual basis. If there is objective
evidence that the reinsurance asset is impaired the Company reduces the carrying amount of the
reinsurance asset to its recoverable amount and recognises that impairment loss in the consolidated
statement of operations. The Company gathers the objective evidence that a reinsurance asset is impaired
using the same process adopted for financial assets held at amortised cost. The impairment loss is
calculated following the same method used for these financial assets.
immediately as a reduction of deferred acquisition expenses to the extent that unearned premiums plus
Deferred acquisition expenses
Certain costs of acquiring and renewing insurance contracts, such as commissions and other acquisition
costs, are deferred to the extent they are considered recoverable and are expensed in the accounting
period, in which the related premiums are recognized as revenue.
j) Cash and cash equivalents
Cash and cash equivalents include cash at bank, deposits held at call with banks, other short-term bank
deposits and highly liquid investments with an original term to maturity of three months or less at the date
of purchase that are readily convertible to known amounts of cash and subject to an insignificant risk of
change in value.
claims. The unpaid claims are discounted for the time value of money utilizing a discount rate based on the
k) Property and equipment
On initial recognition, property and equipment are valued at cost, being the purchase price and directly
attributable cost of acquisition or construction required to bring the asset to the location and condition
necessary to be capable of operating in a manner intended by the Company, including appropriate
borrowing costs and the estimated present value of any future unavoidable costs of dismantling and
removing items.
Property and equipment is subsequently measured at cost less accumulated depreciation, less any
accumulated impairment losses. All repairs and maintenance costs are charged to the consolidated
statement of operations during the period in which they occur.
Depreciation is recognized in the consolidated statement of operations and is provided on a straight-line
basis over the estimated useful life of the assets as follows:
Buildings
Furniture and fixtures
Equipment
Vehicles
Straight-line over 40 years
Straight-line over 5 to 10 years
Straight-line over 1 to 5 years
Straight-line over 10 years
(10)
(11)
41
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
m) Foreign exchange transactions
Foreign currency transactions are translated at the rate of exchange in effect on the dates they occur.
Gains and losses arising as a result of foreign currency transactions are recognized in the current year
consolidated statement of operations.
Translation of foreign operations
For the purpose of the consolidated financial statements, the results and financial position of the
Mongolian operations are expressed in Canadian dollars, which is the functional currency of the parent,
and the presentation currency of the consolidated financial statements.
The Company translates the assets, liabilities, income and expenses of its Mongolian operations which have
a functional currency of MNT, to Canadian dollars on the following basis:
Assets and liabilities are translated at the closing rate of exchange in effect at the consolidated
statement of financial position date.
Income and expense items are translated using the average rate for the month in which they occur,
which is considered to be a reasonable approximation of actual rates.
Equity items are translated at their historical rates.
The translation adjustment from the use of different rates is included as a separate component of
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Impairment reviews are performed when there are indicators that the net recoverable amount of an asset
may be less than the carrying value. The net recoverable amount is determined as the higher of an asset’s
fair value less cost to sell and value in use. Impairment is recognized in the consolidated statement of
operations, when there is objective evidence that a loss event has occurred which has impaired future cash
flows of an asset. In the event that the value of previously impaired assets recovers, the previously
recognized impairment loss is recovered in the consolidated statement of operations at that time.
An item of property and equipment is derecognized upon disposal or when no further economic benefits
are expected from its use. Any gain or loss arising on de-recognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the asset) is included in the
consolidated statement of operations in the period the asset is derecognized.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and
adjusted if appropriate.
l)
Income taxes
Income taxes are comprised of both current and deferred taxes. Current tax and deferred tax are
recognized in the statement of operations except to the extent that it relates to items recognized in OCI or
directly in equity. In this case, the tax is recognized in OCI or directly in equity respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
the consolidated statement of financial position date in the countries where the Company and its
subsidiaries operate and generate taxable income and are measured at the amount expected to be
recovered from or paid to the taxation authorities for the current and prior periods.
equity.
n) Comprehensive income
Deferred income tax assets and liabilities are recorded for the expected future income tax consequences of
events that have been included in the consolidated financial statements or income tax returns. Deferred
income taxes are provided for using the liability method. Under the liability method, deferred income taxes
are recognized for all significant temporary differences between the tax and financial statement bases for
assets and liabilities and for certain carry-forward items, such as losses and tax credits not utilized from
prior years. However, if the deferred income tax arises from initial recognition of an asset or a liability in a
transaction other than a business combination that at the time of the transaction affects neither accounting
nor taxable income, it is not accounted for.
Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is
restricted to those instances where, in the opinion of management, it is probable that future taxable profit
will be available against which the deferred tax asset can be realized. Deferred income tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates, on the date the changes in tax laws
and rates have been enacted or substantively enacted.
Comprehensive income consists of net income (loss) and OCI. OCI includes unrealized gains or losses on
AFS financial assets, net of amounts reclassified to the statement of operations, and unrealized gains
(losses) on the translation of financial statement operations with Mongolian MNT functional currency.
o) Share capital and deferred share issuance costs
Ordinary shares issued by the Company are classified as equity.
Costs directly identifiable with the raising of capital will be charged against the related share issue, net of
any tax effect. Costs related to shares not yet issued are recorded as deferred financing costs. These costs
will be deferred until the issuance of the shares to which the costs relate, at which time the costs will be
charged against the related share issuance or charged to operations if the shares are not issued.
42
(12)
(13)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Impairment reviews are performed when there are indicators that the net recoverable amount of an asset
m) Foreign exchange transactions
may be less than the carrying value. The net recoverable amount is determined as the higher of an asset’s
fair value less cost to sell and value in use. Impairment is recognized in the consolidated statement of
Foreign currency transactions are translated at the rate of exchange in effect on the dates they occur.
operations, when there is objective evidence that a loss event has occurred which has impaired future cash
flows of an asset. In the event that the value of previously impaired assets recovers, the previously
recognized impairment loss is recovered in the consolidated statement of operations at that time.
Gains and losses arising as a result of foreign currency transactions are recognized in the current year
consolidated statement of operations.
An item of property and equipment is derecognized upon disposal or when no further economic benefits
Translation of foreign operations
are expected from its use. Any gain or loss arising on de-recognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the asset) is included in the
consolidated statement of operations in the period the asset is derecognized.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and
adjusted if appropriate.
l)
Income taxes
Income taxes are comprised of both current and deferred taxes. Current tax and deferred tax are
recognized in the statement of operations except to the extent that it relates to items recognized in OCI or
directly in equity. In this case, the tax is recognized in OCI or directly in equity respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
the consolidated statement of financial position date in the countries where the Company and its
subsidiaries operate and generate taxable income and are measured at the amount expected to be
recovered from or paid to the taxation authorities for the current and prior periods.
Deferred income tax assets and liabilities are recorded for the expected future income tax consequences of
events that have been included in the consolidated financial statements or income tax returns. Deferred
income taxes are provided for using the liability method. Under the liability method, deferred income taxes
are recognized for all significant temporary differences between the tax and financial statement bases for
For the purpose of the consolidated financial statements, the results and financial position of the
Mongolian operations are expressed in Canadian dollars, which is the functional currency of the parent,
and the presentation currency of the consolidated financial statements.
The Company translates the assets, liabilities, income and expenses of its Mongolian operations which have
a functional currency of MNT, to Canadian dollars on the following basis:
Assets and liabilities are translated at the closing rate of exchange in effect at the consolidated
statement of financial position date.
Income and expense items are translated using the average rate for the month in which they occur,
which is considered to be a reasonable approximation of actual rates.
Equity items are translated at their historical rates.
The translation adjustment from the use of different rates is included as a separate component of
equity.
n) Comprehensive income
Comprehensive income consists of net income (loss) and OCI. OCI includes unrealized gains or losses on
AFS financial assets, net of amounts reclassified to the statement of operations, and unrealized gains
(losses) on the translation of financial statement operations with Mongolian MNT functional currency.
assets and liabilities and for certain carry-forward items, such as losses and tax credits not utilized from
o) Share capital and deferred share issuance costs
prior years. However, if the deferred income tax arises from initial recognition of an asset or a liability in a
transaction other than a business combination that at the time of the transaction affects neither accounting
Ordinary shares issued by the Company are classified as equity.
nor taxable income, it is not accounted for.
Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is
restricted to those instances where, in the opinion of management, it is probable that future taxable profit
will be available against which the deferred tax asset can be realized. Deferred income tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates, on the date the changes in tax laws
and rates have been enacted or substantively enacted.
Costs directly identifiable with the raising of capital will be charged against the related share issue, net of
any tax effect. Costs related to shares not yet issued are recorded as deferred financing costs. These costs
will be deferred until the issuance of the shares to which the costs relate, at which time the costs will be
charged against the related share issuance or charged to operations if the shares are not issued.
(12)
(13)
43
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
p) Share based payment
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
r) Segment reporting
The Company offers share based payment plans for directors, executive management, key employees and
other key service providers. The purpose of the share based payment plan is to enhance the ability of the
Company to attract and retain Directors, executive management, key employees and other key service
providers whose training, experience and ability will contribute to the effectiveness of the Company and to
directly align their interests with the interests of shareholders.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision maker. The chief operating decision maker, who is responsible for allocating resources
and assessing performance of operations, has been identified as the Chief Executive Officer. The Company
is managed as three operating segments based on how information is produced internally for the purpose
of making operating decisions. The segments are defined as investment property operations, insurance
The Company’s share based payment plans provide for the granting of stock options to independent
Directors, executive management, key employees and other key service providers. Each stock option
entitles the participant to receive one common share and can only be settled with the issuance of common
shares, and as a result, is deemed to be an equity-settled share based payment transaction. Share based
payment expense is measured based on the fair market value of the Company’s shares at the grant date.
The associated compensation expense is recognized over the vesting period or service period, whichever is
shorter based on the number of rewards that are expected to vest. Fair value of the goods and services
received has been determined based on management’s estimate of current market rates for those services
that could be exchanged by independent willing third parties.
Share based payment arrangements to other key service providers in which the Company receives
properties, goods or services as consideration for its own equity instruments are measured at the fair value
of the properties, goods or services received. Fair value of the goods and services received has been
determined based on management’s estimate of current market rates for those services that could be
exchanged by independent willing third parties. If the identifiable consideration received by the Company
appears to be less than the fair value of the stock options granted, the Company will perform an
assessment to determine if unidentifiable goods or services has been, or will be, received by the Company.
The unidentifiable goods or services are then measured at the grant date.
The fair value of stock options granted is measured using the Black-Scholes option pricing model.
Agent options granted as compensation for the issuance of shares are charged to share issue costs.
recognized in the consolidated statement of operations net of any reimbursement. If the effect of the time
Any consideration received upon the exercise of stock options is credited to common shares. In the event
that vested stock options expire without being exercised, previously recorded compensation costs
associated with such options are not reversed.
q) Earnings (loss) per share
The Company presents basic and diluted earnings (loss) per share (EPS) data for its common shares. Basic
EPS is calculated by dividing the results of operations attributable to ordinary shareholders of the
Company by the weighted average number of common shares outstanding during the period. Diluted EPS
is determined by adjusting the results of operations attributable to common shareholders and the weighted
average number of common shares outstanding for the effects of all dilutive potential common shares,
which comprise share options.
44
(14)
(15)
operations and corporate.
s) Leases
The Company has entered into Mongolian government land leases on some of its investment properties.
The Company, as a lessee, has determined, based on an evaluation of the terms and conditions of the
arrangements, that these land leases meet the definition of an investment property and has classified them
as such. At inception, these leases are recognized at the lower of the fair value of the property and the
present value of the minimum lease payments and an equivalent lease obligation is recognized.
The Company has entered into commercial and residential property leases on its investment properties.
The Company as a lessor, has determined, based on an evaluation of the terms and conditions of the
arrangements, that it retains the significant risks and rewards of ownership of these properties and
therefore accounts for these agreements as operating leases.
t) Provisions and contingent liabilities
Provisions are recognized when the Company has a present legal or constructive obligation 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. When the
Company expects some or all of the provision to be reimbursed, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. The expense of any provision is
value of money is material, provisions are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due
to the passage of time is recognized as a borrowing cost.
Contingent liabilities are disclosed if there is a possible future obligation as a result of a past event, or if
there is a present obligation as a result of a past event but either a payment is not probable or the amount
cannot be reasonably estimated.
u) Accounting standards and amendments issued but not yet adopted
The following is an overview of accounting standard changes that the Company will be required to adopt in
future years. Except as noted for IFRS 7, IFRS 9 and IAS 1, the standards are applicable for periods
beginning on or after January 1, 2013 with earlier adoption permitted.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
p) Share based payment
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
r) Segment reporting
The Company offers share based payment plans for directors, executive management, key employees and
other key service providers. The purpose of the share based payment plan is to enhance the ability of the
Company to attract and retain Directors, executive management, key employees and other key service
providers whose training, experience and ability will contribute to the effectiveness of the Company and to
directly align their interests with the interests of shareholders.
The Company’s share based payment plans provide for the granting of stock options to independent
Directors, executive management, key employees and other key service providers. Each stock option
entitles the participant to receive one common share and can only be settled with the issuance of common
shares, and as a result, is deemed to be an equity-settled share based payment transaction. Share based
payment expense is measured based on the fair market value of the Company’s shares at the grant date.
The associated compensation expense is recognized over the vesting period or service period, whichever is
shorter based on the number of rewards that are expected to vest. Fair value of the goods and services
received has been determined based on management’s estimate of current market rates for those services
that could be exchanged by independent willing third parties.
Share based payment arrangements to other key service providers in which the Company receives
properties, goods or services as consideration for its own equity instruments are measured at the fair value
of the properties, goods or services received. Fair value of the goods and services received has been
determined based on management’s estimate of current market rates for those services that could be
appears to be less than the fair value of the stock options granted, the Company will perform an
assessment to determine if unidentifiable goods or services has been, or will be, received by the Company.
The unidentifiable goods or services are then measured at the grant date.
The fair value of stock options granted is measured using the Black-Scholes option pricing model.
Agent options granted as compensation for the issuance of shares are charged to share issue costs.
Any consideration received upon the exercise of stock options is credited to common shares. In the event
that vested stock options expire without being exercised, previously recorded compensation costs
associated with such options are not reversed.
q) Earnings (loss) per share
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision maker. The chief operating decision maker, who is responsible for allocating resources
and assessing performance of operations, has been identified as the Chief Executive Officer. The Company
is managed as three operating segments based on how information is produced internally for the purpose
of making operating decisions. The segments are defined as investment property operations, insurance
operations and corporate.
s) Leases
The Company has entered into Mongolian government land leases on some of its investment properties.
The Company, as a lessee, has determined, based on an evaluation of the terms and conditions of the
arrangements, that these land leases meet the definition of an investment property and has classified them
as such. At inception, these leases are recognized at the lower of the fair value of the property and the
present value of the minimum lease payments and an equivalent lease obligation is recognized.
The Company has entered into commercial and residential property leases on its investment properties.
The Company as a lessor, has determined, based on an evaluation of the terms and conditions of the
arrangements, that it retains the significant risks and rewards of ownership of these properties and
therefore accounts for these agreements as operating leases.
exchanged by independent willing third parties. If the identifiable consideration received by the Company
t) Provisions and contingent liabilities
Provisions are recognized when the Company has a present legal or constructive obligation 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. When the
Company expects some or all of the provision to be reimbursed, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. The expense of any provision is
recognized in the consolidated statement of operations net of any reimbursement. If the effect of the time
value of money is material, provisions are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due
to the passage of time is recognized as a borrowing cost.
Contingent liabilities are disclosed if there is a possible future obligation as a result of a past event, or if
there is a present obligation as a result of a past event but either a payment is not probable or the amount
cannot be reasonably estimated.
The Company presents basic and diluted earnings (loss) per share (EPS) data for its common shares. Basic
EPS is calculated by dividing the results of operations attributable to ordinary shareholders of the
u) Accounting standards and amendments issued but not yet adopted
Company by the weighted average number of common shares outstanding during the period. Diluted EPS
is determined by adjusting the results of operations attributable to common shareholders and the weighted
average number of common shares outstanding for the effects of all dilutive potential common shares,
which comprise share options.
The following is an overview of accounting standard changes that the Company will be required to adopt in
future years. Except as noted for IFRS 7, IFRS 9 and IAS 1, the standards are applicable for periods
beginning on or after January 1, 2013 with earlier adoption permitted.
(14)
(15)
45
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
IFRS 7 - “Financial Instruments: Disclosures”
IFRS 11 - “Joint Arrangements”
IFRS 7 was amended by the IASB in October 2010, and requires entities to provide the disclosures for all
transferred financial assets that are not recognized and for a continuing involvement in a transferred
financial asset, existing at the reporting date, irrespective of when the related transfers transaction
occurred. The amendment is effective for annual periods beginning on or after January 1, 2012. IFRS 7 was
further amended by the IASB in December 2011. The amendment requires entities to provide disclosures
related to offsetting financial assets and liabilities. The amendment is effective for annual periods
beginning on or after January 1, 2014.
IFRS 9 - “Financial Instruments”
IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard
addresses classification and measurement of financial assets and replaces the multiple category and
measurement models in IAS 39 “Financial Instruments: Recognition and Measurement” for debt
instruments with a new model only having two categories: amortized cost and fair value. IFRS 9 also
replaces the models for measuring equity instruments and such instruments are either recognized at
FVTPL or at fair value through OCI. Where such equity instruments are measured at fair value through
OCI that do not clearly represent a return of investment, the dividends are recognized in net income (loss)
under net investment income; however, other gains and losses associated with such instruments remain in
AOCI indefinitely.
Requirements for financial liabilities were added in October 2010 which largely carried forward existing
requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at FVTPL
would generally be recorded in OCI.
The IASB recently issued an amendment to this standard that delays the effective date from accounting
periods beginning on or after January 1, 2013 to January 1, 2015. The amendment also modifies the relief
from restating prior periods. As part of this relief, the IASB published an amendment to IFRS 7 to require
additional disclosure on transition from IAS 39 to IFRS 9. The Company continues to monitor
developments in this area.
IFRS 10 - “Consolidated Financial Statements”
IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements
when an entity controls one or more other entities. The IFRS defines the principle of control and
establishes control as the basis for determining which entities are consolidated in the consolidated
financial statements. The Company is in the process of evaluating the impact of the new standard on the
Company’s consolidated financial statements.
IFRS 11 provides a new definition of joint arrangement focusing on the rights and obligations of the
arrangement, rather than its legal form. The IFRS classifies joint arrangements into two types, joint
operations and joint ventures. The Company is in the process of evaluating the impact of the new standard
on the Company’s consolidated financial statements.
IFRS 12 - “Disclosure of Interests in Other Entities”
IFRS 12 requires the disclosure of information that enables users of financial statements to evaluate the
nature of, and risks associated with, its interest in other entities and the effects of those interests on its
financial position, financial performance and cash flows.
Early adoption of IFRS 12 is only permitted if IFRS 10, IFRS 11, IFRS 12 and the consequential
amendments to IAS 17 and IAS 18 are adopted at the same time, with the exception of early adopting only
the disclosure provision for IFRS 12 without the other new standards. The Company is in the process of
evaluating the impact of the new standard on the Company’s consolidated financial statements.
IFRS 13 - “Fair Value Measurement”
IFRS 13 provides a definition of fair value, a single framework for measuring fair value and disclosure
requirements about fair value measurements. The Company is in the process of evaluating the impact of
the new standard on the Company’s consolidated financial statements.
IAS 1 - “Presentation of Financial Statements”
IAS 1 was amended in 2011 to require earnings (loss) and OCI to be presented together either as a single
statement of comprehensive income or separate income statement and statement of comprehensive
income. The amendments also requires presentation of OCI based on whether or not the balance may
subsequently be reclassified to net income, with the tax associated with each type of OCI based on whether
or not the balance may subsequently be reclassified to net income (loss), with the tax associated with each
type of OCI balance to be presented separately. IAS 1 amendments are to be applied for annual periods
beginning on or after July 1, 2012 with earlier adoption permitted. The impact of the adoption of this
standard on the components of the financial statements cannot be reasonably estimated at this time.
4 Significant accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires management to make estimates and
assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and
judgements are continually evaluated based on historical experiences and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. In the future, actual experience
may differ from these estimates and assumptions.
46
(16)
(17)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
IFRS 7 - “Financial Instruments: Disclosures”
IFRS 11 - “Joint Arrangements”
IFRS 7 was amended by the IASB in October 2010, and requires entities to provide the disclosures for all
transferred financial assets that are not recognized and for a continuing involvement in a transferred
financial asset, existing at the reporting date, irrespective of when the related transfers transaction
occurred. The amendment is effective for annual periods beginning on or after January 1, 2012. IFRS 7 was
further amended by the IASB in December 2011. The amendment requires entities to provide disclosures
IFRS 11 provides a new definition of joint arrangement focusing on the rights and obligations of the
arrangement, rather than its legal form. The IFRS classifies joint arrangements into two types, joint
operations and joint ventures. The Company is in the process of evaluating the impact of the new standard
on the Company’s consolidated financial statements.
related to offsetting financial assets and liabilities. The amendment is effective for annual periods
IFRS 12 - “Disclosure of Interests in Other Entities”
IFRS 12 requires the disclosure of information that enables users of financial statements to evaluate the
nature of, and risks associated with, its interest in other entities and the effects of those interests on its
financial position, financial performance and cash flows.
Early adoption of IFRS 12 is only permitted if IFRS 10, IFRS 11, IFRS 12 and the consequential
amendments to IAS 17 and IAS 18 are adopted at the same time, with the exception of early adopting only
the disclosure provision for IFRS 12 without the other new standards. The Company is in the process of
evaluating the impact of the new standard on the Company’s consolidated financial statements.
OCI that do not clearly represent a return of investment, the dividends are recognized in net income (loss)
IFRS 13 - “Fair Value Measurement”
would generally be recorded in OCI.
IAS 1 - “Presentation of Financial Statements”
IFRS 13 provides a definition of fair value, a single framework for measuring fair value and disclosure
requirements about fair value measurements. The Company is in the process of evaluating the impact of
the new standard on the Company’s consolidated financial statements.
IAS 1 was amended in 2011 to require earnings (loss) and OCI to be presented together either as a single
statement of comprehensive income or separate income statement and statement of comprehensive
income. The amendments also requires presentation of OCI based on whether or not the balance may
subsequently be reclassified to net income, with the tax associated with each type of OCI based on whether
or not the balance may subsequently be reclassified to net income (loss), with the tax associated with each
type of OCI balance to be presented separately. IAS 1 amendments are to be applied for annual periods
beginning on or after July 1, 2012 with earlier adoption permitted. The impact of the adoption of this
standard on the components of the financial statements cannot be reasonably estimated at this time.
4 Significant accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires management to make estimates and
assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and
judgements are continually evaluated based on historical experiences and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. In the future, actual experience
may differ from these estimates and assumptions.
(16)
(17)
47
beginning on or after January 1, 2014.
IFRS 9 - “Financial Instruments”
IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard
addresses classification and measurement of financial assets and replaces the multiple category and
measurement models in IAS 39 “Financial Instruments: Recognition and Measurement” for debt
instruments with a new model only having two categories: amortized cost and fair value. IFRS 9 also
replaces the models for measuring equity instruments and such instruments are either recognized at
FVTPL or at fair value through OCI. Where such equity instruments are measured at fair value through
under net investment income; however, other gains and losses associated with such instruments remain in
AOCI indefinitely.
Requirements for financial liabilities were added in October 2010 which largely carried forward existing
requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at FVTPL
The IASB recently issued an amendment to this standard that delays the effective date from accounting
periods beginning on or after January 1, 2013 to January 1, 2015. The amendment also modifies the relief
from restating prior periods. As part of this relief, the IASB published an amendment to IFRS 7 to require
additional disclosure on transition from IAS 39 to IFRS 9. The Company continues to monitor
developments in this area.
IFRS 10 - “Consolidated Financial Statements”
IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements
when an entity controls one or more other entities. The IFRS defines the principle of control and
establishes control as the basis for determining which entities are consolidated in the consolidated
financial statements. The Company is in the process of evaluating the impact of the new standard on the
Company’s consolidated financial statements.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
5 Cash and cash equivalents
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
The effect of a change in an accounting estimate is recognized prospectively by including it in net income (loss)
in the period of the change, if the change affects that period only, or in the period of the change and future
periods, if the change affects both.
Cash at banks earns interest at floating rates based on daily bank deposit rates. The component of cash and cash
equivalents account currently consists only of cash amounts held in banks or on hand.
Significant estimates made in the preparation of these consolidated financial statements include the following
areas:
The following table discloses the geographical location of cash and cash equivalents:
Fair value of investment properties - The estimate of fair value of investment properties is the most
critical accounting estimate to the Company. An external appraiser estimates the fair value of the
majority of investment properties annually. The fair value of investment properties is based on the
nature, location and condition of the specific asset. The fair value of investment properties represents
an estimate of the price that would be made in an arm’s length transaction between knowledgeable,
willing parties. The Company operates in the emerging real estate market of Mongolia, which given its
current economic, political and industry conditions, gives rise to an increased inherent risk given the
lack of reliable and comparable market information. The significant estimates underlying the fair value
determination are disclosed in note 10. Changes in assumptions about these factors could materially
affect the carrying value of investment properties.
Valuation of insurance contract liabilities - The estimate of the ultimate liability arising from claims
made under insurance contracts is another critical accounting estimate. There are several sources of
uncertainty that need to be considered in the estimate of the liability that the Company will ultimately
pay for such claims. The ultimate cost of claims liabilities is estimated by using a range of standard
actuarial claims projection techniques in accordance with Canadian accepted actuarial practice. Further
information on methodology of the calculation and assumptions involved in estimating insurance
contract liabilities including sensitivity analysis are disclosed in note 14.
Accuracy of share based compensation expense - The estimate of the ultimate expense arising from
share based compensation plans is another critical accounting estimate. There are several sources of
uncertainty that need to be considered in the estimate of the share based compensation expense
recorded by the Company. The ultimate expense is estimated by using a number of key assumptions
such as the expected volatility of the share price, the dividends expected on the shares, the risk-free
interest rate for the expected life of the option and future forfeiture rates. Further information on key
assumptions including sensitivity analysis is included in note 15.
Operating environment of the Company - Mongolia displays many characteristics of an emerging
market including relatively high inflation and interest rates. The tax and customs legislation in
Mongolia is subject to varying interpretations and frequent changes. The future economic performance
of Mongolia is tied to the continuing demand from China and continuing high global prices for
commodities as well as being dependent upon the effectiveness of economic, financial and monetary
measures undertaken by the Government of Mongolia together with tax, legal, regulatory and political
developments. Management is unable to predict all developments that could have an impact on the
Mongolian economy and consequently what effect, if any, they could have on the future financial
position of the Company.
Barbados
Canada
Mongolia
Cash
Cash equivalents
impaired.
fair value.
Cash on hand
A or A+ rated
-B or B+ rated
Unrated
2012
$
2011
$
39,443
1,515,119
7,147,691
1,867,474
15,298,986
2,912,488
8,702,253
20,078,948
2012
$
2011
$
8,702,253
-
19,145,052
933,896
8,702,253
20,078,948
2012
$
10,146
1,550,838
6,981,315
159,954
2011
$
3,016
17,160,922
2,773,791
141,219
Cash and cash equivalents are not collateralized. All amounts are classified as neither past due and not
Term deposits with banks included in cash and cash equivalents have original maturities of less than three
months and bear interest at a rate of nil (2011 - 6.6%) per annum. The settlement and term deposits are placed
in commercial banks operating in Mongolia. The carrying amount of cash and cash equivalents approximates
The credit quality of cash and cash equivalents balances may be summarized based on Standard and Poor’s
ratings or equivalents of Moody’s and/or Fitch ratings. The credit quality at December 31 was as follows:
Total cash and cash equivalents
8,702,253
20,078,948
The unrated balance relates to five (2011 - one) commercial banks in Mongolia, which have not been rated by
any rating agency and one private bank in Barbados which is also unrated.
48
(18)
(19)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
The effect of a change in an accounting estimate is recognized prospectively by including it in net income (loss)
in the period of the change, if the change affects that period only, or in the period of the change and future
periods, if the change affects both.
Fair value of investment properties - The estimate of fair value of investment properties is the most
critical accounting estimate to the Company. An external appraiser estimates the fair value of the
majority of investment properties annually. The fair value of investment properties is based on the
nature, location and condition of the specific asset. The fair value of investment properties represents
an estimate of the price that would be made in an arm’s length transaction between knowledgeable,
willing parties. The Company operates in the emerging real estate market of Mongolia, which given its
current economic, political and industry conditions, gives rise to an increased inherent risk given the
lack of reliable and comparable market information. The significant estimates underlying the fair value
determination are disclosed in note 10. Changes in assumptions about these factors could materially
affect the carrying value of investment properties.
Valuation of insurance contract liabilities - The estimate of the ultimate liability arising from claims
made under insurance contracts is another critical accounting estimate. There are several sources of
uncertainty that need to be considered in the estimate of the liability that the Company will ultimately
pay for such claims. The ultimate cost of claims liabilities is estimated by using a range of standard
actuarial claims projection techniques in accordance with Canadian accepted actuarial practice. Further
information on methodology of the calculation and assumptions involved in estimating insurance
contract liabilities including sensitivity analysis are disclosed in note 14.
Accuracy of share based compensation expense - The estimate of the ultimate expense arising from
share based compensation plans is another critical accounting estimate. There are several sources of
uncertainty that need to be considered in the estimate of the share based compensation expense
recorded by the Company. The ultimate expense is estimated by using a number of key assumptions
such as the expected volatility of the share price, the dividends expected on the shares, the risk-free
interest rate for the expected life of the option and future forfeiture rates. Further information on key
assumptions including sensitivity analysis is included in note 15.
Operating environment of the Company - Mongolia displays many characteristics of an emerging
market including relatively high inflation and interest rates. The tax and customs legislation in
Mongolia is subject to varying interpretations and frequent changes. The future economic performance
of Mongolia is tied to the continuing demand from China and continuing high global prices for
commodities as well as being dependent upon the effectiveness of economic, financial and monetary
measures undertaken by the Government of Mongolia together with tax, legal, regulatory and political
developments. Management is unable to predict all developments that could have an impact on the
Mongolian economy and consequently what effect, if any, they could have on the future financial
position of the Company.
Significant estimates made in the preparation of these consolidated financial statements include the following
areas:
The following table discloses the geographical location of cash and cash equivalents:
Cash at banks earns interest at floating rates based on daily bank deposit rates. The component of cash and cash
equivalents account currently consists only of cash amounts held in banks or on hand.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
5 Cash and cash equivalents
Barbados
Canada
Mongolia
Cash
Cash equivalents
2012
$
2011
$
39,443
1,515,119
7,147,691
1,867,474
15,298,986
2,912,488
8,702,253
20,078,948
2012
$
2011
$
8,702,253
-
19,145,052
933,896
8,702,253
20,078,948
Cash and cash equivalents are not collateralized. All amounts are classified as neither past due and not
impaired.
Term deposits with banks included in cash and cash equivalents have original maturities of less than three
months and bear interest at a rate of nil (2011 - 6.6%) per annum. The settlement and term deposits are placed
in commercial banks operating in Mongolia. The carrying amount of cash and cash equivalents approximates
fair value.
The credit quality of cash and cash equivalents balances may be summarized based on Standard and Poor’s
ratings or equivalents of Moody’s and/or Fitch ratings. The credit quality at December 31 was as follows:
Cash on hand
A or A+ rated
-B or B+ rated
Unrated
2012
$
10,146
1,550,838
6,981,315
159,954
2011
$
3,016
17,160,922
2,773,791
141,219
Total cash and cash equivalents
8,702,253
20,078,948
The unrated balance relates to five (2011 - one) commercial banks in Mongolia, which have not been rated by
any rating agency and one private bank in Barbados which is also unrated.
(18)
(19)
49
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
6
Investments and marketable securities
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
b) Fair value hierarchy
a) Carrying and fair value of investments and marketable securities
The Company has categorized its assets measured at fair value into the three-level fair value hierarchy as
summarized below, based upon the priority of the inputs to the respective valuation technique as defined
The carrying and fair values of the Company’s investment portfolio by financial instrument categories are
as follows:
in note 3:
Classified as
loans and
receivables
$
Designated
as FVTPL
$
Total
carrying
value
$
2012
Total fair
value
$
-
100
100
100
3,992,447
-
3,992,447
3,992,447
3,992,447
100
3,992,547
3,992,547
Classified as
loans and
receivables
$
Designated
as FVTPL
$
Total
carrying
value
$
2011
Total fair
value
$
-
511,253
511,253
511,253
40,305
3,465,203
-
-
40,305
3,465,203
40,305
3,465,203
3,505,508
511,253
4,016,761
4,016,761
Money market fund
Barbados
Term deposits
Mongolia
Money market fund
Barbados
Term deposits
Canada
Mongolia
Deposits with Mongolian banks are denominated in Mongolian National Tögrögs and are placed with five
(2011 - four) commercial banks operating in Mongolia. Deposits with Mongolian banks are neither past
due nor impaired and are not collateralized. All deposits bear fixed interest rates ranging from 13.8% to
16.2% (2011 - 11.0% to 15.6%).
Deposits with financial institutions in Canada bear a fixed interest rate of nil (2011 - 0.8%).
FVTPL
Money market fund
Level 1
$
100
Level 1
$
2012
Total
$
100
2011
Total
$
2012
$
-
1,445,637
2,546,910
2011
$
40,305
2,666,708
1,309,748
3,992,547
4,016,761
FVTPL
Money market fund
511,253
511,253
The Company has not adjusted the quoted price for any instruments included in Level 1. There are no
investments that meet the Level 2 or 3 fair value measurement criteria. No investments were transferred
between levels in 2012 and 2011.
c) Credit quality of investments and marketable securities
The credit quality of investments and marketable securities may be summarized based on Standard and
Poor’s ratings or equivalents of Moody’s and/or Fitch ratings. The credit quality at December 31 was as
follows:
A+ rated
-B or B+ rated
Unrated
The unrated balance relates to three (2011 - one) commercial banks in Mongolia, which have not been
rated by any rating agency and one (2011 - one) private bank in Barbados which is also unrated.
50
(20)
(21)
a) Carrying and fair value of investments and marketable securities
The carrying and fair values of the Company’s investment portfolio by financial instrument categories are
as follows:
2012
Total fair
value
$
2011
Total fair
value
$
$
-
$
-
Money market fund
Barbados
Term deposits
Mongolia
100
100
100
3,992,447
-
3,992,447
3,992,447
3,992,447
100
3,992,547
3,992,547
Classified as
loans and
receivables
Designated
as FVTPL
$
Total
carrying
value
$
Money market fund
Barbados
Term deposits
Canada
Mongolia
511,253
511,253
511,253
40,305
3,465,203
-
-
40,305
3,465,203
40,305
3,465,203
3,505,508
511,253
4,016,761
4,016,761
Deposits with Mongolian banks are denominated in Mongolian National Tögrögs and are placed with five
(2011 - four) commercial banks operating in Mongolia. Deposits with Mongolian banks are neither past
due nor impaired and are not collateralized. All deposits bear fixed interest rates ranging from 13.8% to
16.2% (2011 - 11.0% to 15.6%).
Deposits with financial institutions in Canada bear a fixed interest rate of nil (2011 - 0.8%).
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
6
Investments and marketable securities
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
b) Fair value hierarchy
The Company has categorized its assets measured at fair value into the three-level fair value hierarchy as
summarized below, based upon the priority of the inputs to the respective valuation technique as defined
in note 3:
Classified as
loans and
receivables
Designated
as FVTPL
$
Total
carrying
value
$
FVTPL
Money market fund
Level 1
$
100
Level 1
$
2012
Total
$
100
2011
Total
$
FVTPL
Money market fund
511,253
511,253
The Company has not adjusted the quoted price for any instruments included in Level 1. There are no
investments that meet the Level 2 or 3 fair value measurement criteria. No investments were transferred
between levels in 2012 and 2011.
c) Credit quality of investments and marketable securities
The credit quality of investments and marketable securities may be summarized based on Standard and
Poor’s ratings or equivalents of Moody’s and/or Fitch ratings. The credit quality at December 31 was as
follows:
A+ rated
-B or B+ rated
Unrated
2012
$
-
1,445,637
2,546,910
2011
$
40,305
2,666,708
1,309,748
3,992,547
4,016,761
The unrated balance relates to three (2011 - one) commercial banks in Mongolia, which have not been
rated by any rating agency and one (2011 - one) private bank in Barbados which is also unrated.
(20)
(21)
51
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
d) Maturity schedule of fixed-term investments
e) Net investment income (loss)
Money market fund
Barbados
Term deposits
Mongolia
Money market fund
Barbados
Term deposits
Canada
Mongolia
One year or
less
$
One to five
years
$
100
3,992,447
3,992,547
-
-
-
One year or
less
$
One to five
years
$
2012
Total
$
100
3,992,447
3,992,547
2011
Total
$
Interest income
Term deposits and money market fund
Cash and cash equivalents
Investment expense
f) Realized loss on sale of AFS financial assets
511,253
-
511,253
Barbados AFS financial assets
40,305
2,018,220
-
1,446,983
40,305
3,465,203
7 Other assets
2,569,778
1,446,983
4,016,761
The carrying amount of investments and marketable securities approximates fair value due to their
short-term maturity. The carrying amount of the term deposits maturing in more than one year
approximates their fair value as they were placed with the bank close to the end of fiscal 2011. Although
these investments are classified as long-term, they are callable at any time.
Amounts due from policyholder
Accounts receivable
Prepaid expenses
Prepaid deposits on investment properties
Net realized loss on sale of AFS financial assets
-
(592,277)
8 Reinsurance assets (note 14)
Reinsurers’ share of provision for unearned premiums
Reinsurers’ share of loss provision
The entire balance of reinsurance assets is considered to be current.
52
(22)
2012
$
2011
$
847,548
16,468
252,946
34,976
864,016
(304,355)
(703)
(39,891)
863,313
(344,246)
2012
$
2011
$
-
(592,277)
2012
$
222,011
255,628
367,619
1,626,240
2011
$
197,550
94,539
135,860
-
2,471,498
427,949
2012
$
261,853
422,432
684,285
2011
$
7,760
-
7,760
(23)
Money market fund
Barbados
Term deposits
Mongolia
Money market fund
Barbados
Term deposits
Canada
Mongolia
less
$
100
3,992,447
3,992,547
511,253
40,305
2,018,220
2012
Total
$
100
2011
Total
$
3,992,447
3,992,547
511,253
40,305
3,465,203
-
-
-
-
-
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
d) Maturity schedule of fixed-term investments
e) Net investment income (loss)
One year or
One to five
years
$
Net realized loss on sale of AFS financial assets
-
(592,277)
2012
$
2011
$
Interest income
Term deposits and money market fund
Cash and cash equivalents
Investment expense
One year or
One to five
less
$
years
$
f) Realized loss on sale of AFS financial assets
1,446,983
7 Other assets
2,569,778
1,446,983
4,016,761
Barbados AFS financial assets
The carrying amount of investments and marketable securities approximates fair value due to their
short-term maturity. The carrying amount of the term deposits maturing in more than one year
approximates their fair value as they were placed with the bank close to the end of fiscal 2011. Although
these investments are classified as long-term, they are callable at any time.
Amounts due from policyholder
Accounts receivable
Prepaid expenses
Prepaid deposits on investment properties
8 Reinsurance assets (note 14)
Reinsurers’ share of provision for unearned premiums
Reinsurers’ share of loss provision
The entire balance of reinsurance assets is considered to be current.
(22)
847,548
16,468
252,946
34,976
864,016
(304,355)
(703)
(39,891)
863,313
(344,246)
2012
$
2011
$
-
(592,277)
2012
$
222,011
255,628
367,619
1,626,240
2011
$
197,550
94,539
135,860
-
2,471,498
427,949
2012
$
261,853
422,432
684,285
2011
$
7,760
-
7,760
(23)
53
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
The Company determined the fair value of investment properties using the sales comparison approach and the
income approach, which are generally accepted appraisal methodologies.
Under the income approach, the methodology used was the direct capitalization approach which is based on
rental income and yields. Rental incomes were based on current rent and reasonable and supportable
assumptions that represent what knowledgeable, willing parties would assume about rental income from future
rent in light of current conditions adjusted for non-recoverable property costs. Yields were determined using
data from real estate agencies, market reports and property location among other things in determining the
appropriate assumptions.
Under the overall capitalization method, year one income is stabilized and capped at a rate deemed appropriate
for each investment property. Commercial property has been fair valued under this approach.
The sales comparison approach analyzes all available information of sales of comparable properties that have
recently taken place and adjusts the price to reflect differences in the property valued and sold. Residential
property has been fair valued under this approach.
The key valuation assumptions for investment properties are as follows:
Capitalization rate
14.2%
7.6%
10.8%
Maximum
Minimum
2012
Weighted-
average
2011
Weighted-
average
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
9 Deferred acquisition expenses
The movement in deferred acquisition expenses during the year was as follows:
Carrying amount at January 1
Acquisition expenses deferred
Acquisition expenses amortized
Foreign exchange adjustment
At December 31
2012
$
15,175
119,251
(40,857)
(394)
93,175
2011
$
-
16,555
(1,379)
(1)
15,175
The Company did not have any commission income from reinsurance during the period.
10 Investment properties
Balance - beginning of period
Additions
Acquisitions
Capital expenditures
Transfer from property and equipment
Disposals
Unrealized fair value adjustment(1)
Foreign exchange adjustments
2012
$
26,166,286
8,190,935
374,890
140,251
(1,656,768)
(1,490,336)
(938,516)
2011
$
-
21,621,505
819,698
-
-
5,740,919
(2,015,836)
Balance - end of period
30,786,742
26,166,286
(1) Unrealized gain (loss) on fair value adjustment on investment properties recorded in the consolidated
statement of operations includes an impairment provision of $1,206,876 for investment properties
classified as prepaid deposits.
Included in investment properties are properties actively being marketed for sale that are to be disposed of
without redevelopment with a fair value of $775,559 (2011 - $1,757,511). During the year, the Company sold
investment properties for gross proceeds of $1,669,536. A gain of $12,768 on these transactions has been
recorded in other revenue on the consolidated statement of operations.
Maximum
Minimum
Capitalization rate
15.6%
7.6%
10.6%
Additional valuation assumptions include the rental revenue per square meter, grade quality of the property
and comparable market data.
Investment properties held by the Company are leased out under operating leases. The future minimum lease
payments under non-cancellable leases are as follows:
Investment properties with an aggregate fair value of $18,819,566 (2011 - $21,555,999) at December 31, were
valued by an external independent valuation professional who is deemed to be qualified appraiser who holds a
recognized, relevant, professional qualification and who has recent experience in the locations and categories of
the investment properties valued. The carrying value of investment properties valued by the external appraiser
at December 31, 2012 and 2011 agrees to the valuations reported by the external appraiser.
Less than 1 year
Between 1 and 5 years
2012
$
2011
$
2,011,716
2,011,052
688,026
2,911,911
4,022,768
3,599,937
54
(24)
(25)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
9 Deferred acquisition expenses
The movement in deferred acquisition expenses during the year was as follows:
The Company did not have any commission income from reinsurance during the period.
Carrying amount at January 1
Acquisition expenses deferred
Acquisition expenses amortized
Foreign exchange adjustment
At December 31
10 Investment properties
Balance - beginning of period
Additions
Acquisitions
Capital expenditures
Transfer from property and equipment
Disposals
Unrealized fair value adjustment(1)
Foreign exchange adjustments
2012
$
15,175
119,251
(40,857)
(394)
93,175
2011
$
-
16,555
(1,379)
(1)
15,175
2012
$
26,166,286
8,190,935
374,890
140,251
(1,656,768)
(1,490,336)
(938,516)
2011
$
-
-
-
21,621,505
819,698
5,740,919
(2,015,836)
Balance - end of period
30,786,742
26,166,286
(1) Unrealized gain (loss) on fair value adjustment on investment properties recorded in the consolidated
statement of operations includes an impairment provision of $1,206,876 for investment properties
classified as prepaid deposits.
Included in investment properties are properties actively being marketed for sale that are to be disposed of
without redevelopment with a fair value of $775,559 (2011 - $1,757,511). During the year, the Company sold
investment properties for gross proceeds of $1,669,536. A gain of $12,768 on these transactions has been
recorded in other revenue on the consolidated statement of operations.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
The Company determined the fair value of investment properties using the sales comparison approach and the
income approach, which are generally accepted appraisal methodologies.
Under the income approach, the methodology used was the direct capitalization approach which is based on
rental income and yields. Rental incomes were based on current rent and reasonable and supportable
assumptions that represent what knowledgeable, willing parties would assume about rental income from future
rent in light of current conditions adjusted for non-recoverable property costs. Yields were determined using
data from real estate agencies, market reports and property location among other things in determining the
appropriate assumptions.
Under the overall capitalization method, year one income is stabilized and capped at a rate deemed appropriate
for each investment property. Commercial property has been fair valued under this approach.
The sales comparison approach analyzes all available information of sales of comparable properties that have
recently taken place and adjusts the price to reflect differences in the property valued and sold. Residential
property has been fair valued under this approach.
The key valuation assumptions for investment properties are as follows:
Capitalization rate
14.2%
7.6%
10.8%
Maximum
Minimum
2012
Weighted-
average
Maximum
Minimum
2011
Weighted-
average
Capitalization rate
15.6%
7.6%
10.6%
Additional valuation assumptions include the rental revenue per square meter, grade quality of the property
and comparable market data.
Investment properties held by the Company are leased out under operating leases. The future minimum lease
payments under non-cancellable leases are as follows:
Investment properties with an aggregate fair value of $18,819,566 (2011 - $21,555,999) at December 31, were
valued by an external independent valuation professional who is deemed to be qualified appraiser who holds a
recognized, relevant, professional qualification and who has recent experience in the locations and categories of
the investment properties valued. The carrying value of investment properties valued by the external appraiser
at December 31, 2012 and 2011 agrees to the valuations reported by the external appraiser.
Less than 1 year
Between 1 and 5 years
(24)
2012
$
2011
$
2,011,716
2,011,052
688,026
2,911,911
4,022,768
3,599,937
(25)
55
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Investment properties include land held under operating leases with an aggregate fair value of $9,458,693
(2011 - $3,670,841) at December 31.
Direct operating expenses arising from investment properties that generated rental income during the year was
$764,440 (2011 - $623,615). Direct operating expenses arising from investment properties that did not generate
rental income during the year was $222,967 (2011 - $13,892).
11 Property and equipment
Furniture
and fixtures
$
Equipment
$
Vehicles
$
Buildings
$
2012
Total
$
Cost
At January 1
Additions
Disposals
Transfer to investment
properties
Foreign exchange
adjustment
109,122
66,104
(35,996)
81,605
55,517
(4,012)
234,039
36,666
-
4,241,393
275,423
-
4,666,159
433,710
(40,008)
-
-
-
(140,251)
(140,251)
(340)
(7,373)
(2,354)
(137,858)
(147,925)
At December 31
138,890
125,737
268,351
4,238,707
4,771,685
Furniture
and fixtures
$
Equipment
$
Vehicles
$
Buildings
$
2012
Total
$
Accumulated
depreciation
At January 1
Depreciation
Disposals
Foreign exchange
adjustment
5,780
16,508
(4,460)
9,926
30,744
(1,159)
8,618
23,859
-
17,825
99,779
(9,476)
42,149
170,890
(15,095)
(222)
(1,541)
(387)
(140)
(2,290)
At December 31
17,606
37,970
32,090
107,988
195,654
Net book value at
December 31
121,284
87,767
236,261
4,130,719
4,576,031
Furniture
and fixtures
$
Equipment
Vehicles
Buildings
$
$
-
-
118,186
86,324
4,750,289
5,242,383
-
-
-
287,584
(32,521)
(9,064)
(4,719)
(21,024)
(508,896)
(543,703)
$
-
-
2011
Total
$
-
(32,521)
2011
Total
$
Furniture
and fixtures
$
Equipment
Vehicles
Buildings
$
$
$
At December 31
109,122
81,605
234,039
4,241,393
4,666,159
-
6,251
-
10,604
-
9,392
-
19,510
-
45,757
(471)
(678)
(774)
(1,685)
(3,608)
At December 31
5,780
9,926
8,618
17,825
42,149
12 Trade payables and accrued liabilities
103,342
71,679
225,421
4,223,568
4,624,010
Cost
At January 1
Additions
Disposals
Foreign exchange
adjustment
Accumulated
depreciation
At January 1
Depreciation
Foreign exchange
adjustment
Net book value at
December 31
Trade and accrued payables
Premiums received in advance
Security deposit
Unearned revenue
2012
$
833,349
4,949
130,084
27,932
2011
$
688,808
5,007
78,039
87,359
996,314
859,213
The carrying amounts above reasonably approximate fair value at the balance sheet date. All trade and other
payables are current.
56
(26)
(27)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Investment properties include land held under operating leases with an aggregate fair value of $9,458,693
(2011 - $3,670,841) at December 31.
Direct operating expenses arising from investment properties that generated rental income during the year was
$764,440 (2011 - $623,615). Direct operating expenses arising from investment properties that did not generate
rental income during the year was $222,967 (2011 - $13,892).
11 Property and equipment
Furniture
and fixtures
$
Equipment
Vehicles
Buildings
$
$
$
109,122
66,104
(35,996)
81,605
55,517
(4,012)
234,039
36,666
4,241,393
275,423
4,666,159
433,710
(40,008)
-
-
-
(140,251)
(140,251)
(340)
(7,373)
(2,354)
(137,858)
(147,925)
-
-
At December 31
138,890
125,737
268,351
4,238,707
4,771,685
Furniture
and fixtures
$
Equipment
Vehicles
Buildings
$
$
$
Furniture
and fixtures
$
Equipment
$
Vehicles
$
Buildings
$
2011
Total
$
Cost
At January 1
Additions
Disposals
Foreign exchange
adjustment
-
118,186
-
-
86,324
-
-
287,584
(32,521)
-
4,750,289
-
-
5,242,383
(32,521)
(9,064)
(4,719)
(21,024)
(508,896)
(543,703)
At December 31
109,122
81,605
234,039
4,241,393
4,666,159
Furniture
and fixtures
$
Equipment
$
Vehicles
$
Buildings
$
2011
Total
$
Accumulated
depreciation
At January 1
Depreciation
Foreign exchange
adjustment
-
6,251
-
10,604
-
9,392
-
19,510
-
45,757
(471)
(678)
(774)
(1,685)
(3,608)
At December 31
5,780
9,926
8,618
17,825
42,149
Net book value at
December 31
103,342
71,679
225,421
4,223,568
4,624,010
12 Trade payables and accrued liabilities
5,780
16,508
(4,460)
9,926
30,744
(1,159)
8,618
23,859
-
17,825
99,779
(9,476)
42,149
170,890
(15,095)
(222)
(1,541)
(387)
(140)
(2,290)
At December 31
17,606
37,970
32,090
107,988
195,654
121,284
87,767
236,261
4,130,719
4,576,031
Trade and accrued payables
Premiums received in advance
Security deposit
Unearned revenue
2012
$
833,349
4,949
130,084
27,932
2011
$
688,808
5,007
78,039
87,359
996,314
859,213
The carrying amounts above reasonably approximate fair value at the balance sheet date. All trade and other
payables are current.
Cost
At January 1
Additions
Disposals
Transfer to investment
properties
Foreign exchange
adjustment
Accumulated
depreciation
At January 1
Depreciation
Disposals
Foreign exchange
adjustment
Net book value at
December 31
(27)
57
2012
Total
$
2012
Total
$
(26)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
13 Income taxes
a) Effective tax rate
The provision for income taxes reflects an effective tax rate that differs from the combined tax rate for
Canadian federal and provincial corporate taxes for the following:
Net income (loss) before income taxes
Combined statutory tax rate
Tax payable (recoverable) based on statutory tax rate
Effect of:
Permanent differences
Tax rate variances of foreign subsidiaries
Deferred tax assets not recognized
Other
Provision for (recovery of) income taxes
Current
Deferred
b) Deferred income taxes
2012
$
2011
$
(6,052,070)
26.5%
2,176,650
28.25%
(1,603,799)
614,904
189,128
923,247
303,697
209,407
21,680
209,407
(187,727)
21,680
142,573
(397,239)
373,505
93,754
827,497
827,497
-
827,497
Differences between IFRS and statutory taxation regulations in Mongolia give rise to temporary
differences between the carrying amount of assets and liabilities for financial reporting purposes and their
tax bases.
The Company did not recognize a deferred tax asset in these consolidated financial statements as there is
uncertainty with regard to the recoverability of the asset for both the Canadian and Mongolian entities.
There are $1,861,000 (2011 - $36,000) of non-capital loss carryforwards relating to the Mongolian entities
that will expire in 2013. The Company also did not recognize deferred tax assets related to taxable
temporary differences of $81,000. In accordance with Mongolian tax law, the taxable losses can be carried
forward for two years and are deductible up to 50% of the taxable income of that year.
In accordance with Canadian tax law, the taxable losses can be forward twenty years. There are $2,953,429
(2011 - $1,293,266) of non-capital losses relating to the Canadian entity.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
The losses expire as follows:
Year of expiry
2028
2029
2030
2031
2032
Non-capital loss
$
8,572
75,387
275,393
933,914
1,660,163
2012
$
557,903
56,043
613,946
No future tax benefit has been recorded on these non-capital loss carry forwards as the timing for potential
realization of these future benefits is uncertain.
Components of the deferred tax liabilities are as follows:
2011
$
-
-
-
2012
Net
$
Deferred tax liabilities
Investment properties
Investment in related party
In 2011, the deferred tax liabilities of $801,673 were included in income tax payable.
14 Insurance contract liabilities
a) Insurance contract liabilities consist of:
Insurance
contract
liabilities
$
Reinsurers’
portion
$
Property and casualty
Unearned premiums
Unpaid claims
1,031,176
1,269,428
(261,853)
(422,432)
769,323
846,996
Insurance contract liabilities
2,300,604
(684,285)
1,616,319
Current
Non-current
2,300,604
(684,285)
1,616,319
-
-
-
Insurance contract liabilities
2,300,604
(684,285)
1,616,319
58
(28)
(29)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
13 Income taxes
a) Effective tax rate
Net income (loss) before income taxes
Combined statutory tax rate
Effect of:
Other
Permanent differences
Tax rate variances of foreign subsidiaries
Deferred tax assets not recognized
Provision for (recovery of) income taxes
Current
Deferred
b) Deferred income taxes
The provision for income taxes reflects an effective tax rate that differs from the combined tax rate for
Canadian federal and provincial corporate taxes for the following:
Tax payable (recoverable) based on statutory tax rate
(1,603,799)
614,904
2012
$
2011
$
(6,052,070)
26.5%
2,176,650
28.25%
189,128
923,247
303,697
209,407
21,680
209,407
(187,727)
21,680
142,573
(397,239)
373,505
93,754
827,497
827,497
-
827,497
Differences between IFRS and statutory taxation regulations in Mongolia give rise to temporary
differences between the carrying amount of assets and liabilities for financial reporting purposes and their
tax bases.
The Company did not recognize a deferred tax asset in these consolidated financial statements as there is
uncertainty with regard to the recoverability of the asset for both the Canadian and Mongolian entities.
There are $1,861,000 (2011 - $36,000) of non-capital loss carryforwards relating to the Mongolian entities
that will expire in 2013. The Company also did not recognize deferred tax assets related to taxable
temporary differences of $81,000. In accordance with Mongolian tax law, the taxable losses can be carried
forward for two years and are deductible up to 50% of the taxable income of that year.
In accordance with Canadian tax law, the taxable losses can be forward twenty years. There are $2,953,429
(2011 - $1,293,266) of non-capital losses relating to the Canadian entity.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
The losses expire as follows:
Year of expiry
2028
2029
2030
2031
2032
Non-capital loss
$
8,572
75,387
275,393
933,914
1,660,163
No future tax benefit has been recorded on these non-capital loss carry forwards as the timing for potential
realization of these future benefits is uncertain.
Components of the deferred tax liabilities are as follows:
Deferred tax liabilities
Investment properties
Investment in related party
2012
$
557,903
56,043
613,946
In 2011, the deferred tax liabilities of $801,673 were included in income tax payable.
14 Insurance contract liabilities
a) Insurance contract liabilities consist of:
Insurance
contract
liabilities
$
Reinsurers’
portion
$
2011
$
-
-
-
2012
Net
$
Property and casualty
Unearned premiums
Unpaid claims
1,031,176
1,269,428
(261,853)
(422,432)
769,323
846,996
Insurance contract liabilities
2,300,604
(684,285)
1,616,319
Current
Non-current
2,300,604
-
(684,285)
-
1,616,319
-
Insurance contract liabilities
2,300,604
(684,285)
1,616,319
(28)
(29)
59
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Insurance
contract
liabilities
$
Reinsurers’
portion
$
2011
Net
$
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
c) Property and casualty unpaid claims
Property and casualty
Unearned premiums
Unpaid claims
310,993
50,827
(7,760)
-
303,233
50,827
Provision for reported claims undiscounted
Effect of discounting and PFADs
1,152,238
117,190
Insurance contract liabilities
361,820
(7,760)
354,060
1,269,428
(422,432)
846,996
Current
Non-current
361,820
-
(7,760)
-
354,060
-
Insurance contract liabilities
361,820
(7,760)
354,060
b) The movements in unearned premiums for the year were:
Provision for reported claims undiscounted
Effect of discounting and PFADs
At January 1
Gross premiums written
Premiums earned
Foreign currency adjustment
Insurance
contract
liabilities
$
310,993
2,004,415
(1,263,553)
(20,679)
Reinsurers’
portion
$
2012
Net
$
(7,760)
(889,222)
635,129
-
303,233
1,115,193
(628,424)
(20,679)
At December 31
1,031,176
(261,853)
769,323
At January 1
Gross premiums written
Premiums earned
At December 31
Insurance
contract
liabilities
$
-
391,702
(80,709)
Reinsurers’
portion
$
-
(10,683)
2,923
2011
Net
$
-
381,019
(77,786)
310,993
(7,760)
303,233
Gross premiums written and premiums earned include respective instalment service charges.
Gross unpaid
Reinsurers’
claims
$
portion
$
(373,011)
(49,421)
Gross unpaid
Reinsurers’
portion
claims
$
46,995
3,832
50,827
$
-
-
-
2012
Net
$
779,227
67,769
2011
Net
$
46,995
3,832
50,827
Management believes that the unpaid claims provision is appropriately established in the aggregate and is
adequate to cover the ultimate net cost on a discounted basis. The determination of this provision, which
includes unpaid claims, adjustment expenses and expected salvage and subrogation requires an
assessment of future claims development. This assessment takes into account the consistency of the
Company’s claim handling procedures, the amount of information available, the characteristics of the line
of business from which the claims arise and the delay inherent in claims reporting. This provision is an
estimate and as such is subject to variability that may arise from future events, such as the receipt of
additional claims information, changes in judicial interpretation of contracts or significant changes in
frequency and severity of claims. As the insurance company is at a start-up stage, there is no historical loss
information available. As a result, the Company has calculated the unpaid claims provision based on the
expected loss method. Under the expected loss method, ultimate losses are based upon some prior
measure of the anticipated losses relative to some measure of exposure, which the Company has used
earned premium. The expected loss ratios were based on Mongolian industry experience and expected loss
ratios used in determining the Company’s premium rates. Any such changes in assumptions will be
reflected in the consolidated statement of operations for the period in which the change occurred.
60
(30)
(31)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
c) Property and casualty unpaid claims
Insurance contract liabilities
361,820
(7,760)
354,060
1,269,428
(422,432)
846,996
310,993
50,827
(7,760)
-
303,233
50,827
Provision for reported claims undiscounted
Effect of discounting and PFADs
1,152,238
117,190
(373,011)
(49,421)
779,227
67,769
Gross unpaid
claims
Reinsurers’
portion
$
$
2012
Net
$
b) The movements in unearned premiums for the year were:
Provision for reported claims undiscounted
Effect of discounting and PFADs
Gross unpaid
claims
Reinsurers’
portion
$
46,995
3,832
50,827
$
-
-
-
2011
Net
$
46,995
3,832
50,827
Management believes that the unpaid claims provision is appropriately established in the aggregate and is
adequate to cover the ultimate net cost on a discounted basis. The determination of this provision, which
includes unpaid claims, adjustment expenses and expected salvage and subrogation requires an
assessment of future claims development. This assessment takes into account the consistency of the
Company’s claim handling procedures, the amount of information available, the characteristics of the line
of business from which the claims arise and the delay inherent in claims reporting. This provision is an
estimate and as such is subject to variability that may arise from future events, such as the receipt of
additional claims information, changes in judicial interpretation of contracts or significant changes in
frequency and severity of claims. As the insurance company is at a start-up stage, there is no historical loss
information available. As a result, the Company has calculated the unpaid claims provision based on the
expected loss method. Under the expected loss method, ultimate losses are based upon some prior
measure of the anticipated losses relative to some measure of exposure, which the Company has used
earned premium. The expected loss ratios were based on Mongolian industry experience and expected loss
ratios used in determining the Company’s premium rates. Any such changes in assumptions will be
reflected in the consolidated statement of operations for the period in which the change occurred.
(31)
61
Insurance
contract
liabilities
$
Reinsurers’
portion
$
Property and casualty
Unearned premiums
Unpaid claims
Current
Non-current
361,820
-
(7,760)
-
354,060
-
Insurance contract liabilities
361,820
(7,760)
354,060
At December 31
1,031,176
(261,853)
769,323
Insurance
contract
liabilities
$
310,993
2,004,415
(1,263,553)
(20,679)
Insurance
contract
liabilities
$
-
391,702
(80,709)
Reinsurers’
portion
$
(7,760)
(889,222)
635,129
-
303,233
1,115,193
(628,424)
(20,679)
Reinsurers’
portion
$
-
(10,683)
2,923
At January 1
Gross premiums written
Premiums earned
Foreign currency adjustment
At January 1
Gross premiums written
Premiums earned
At December 31
Gross premiums written and premiums earned include respective instalment service charges.
310,993
(7,760)
303,233
2011
Net
$
2012
Net
$
2011
Net
$
-
381,019
(77,786)
(30)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
The loss ratios used in the calculations are as follows:
15 Share capital and contributed surplus
Accident insurance
Automobile insurance
Property insurance
Drivers’ insurance
Liability insurance
Construction insurance
Cargo insurance
Finance insurance
Aviation
2012
%
70
55
60
115
60
60
60
720
60
2011
%
70
55
60
70
60
60
60
-
-
This estimate does reflect the time value of money. In that respect, the Company determines the discount
rate based upon the expected return of investments held in the portfolio that approximates the cash flow
requirements of the unpaid claims. The discount rate applied was 1% (2011 - 3%) and then again at 0.5%
(2011 - 2%) to allow a margin for adverse deviations in the interest rate. To recognize the uncertainty
inherent in determining unpaid claim amounts, the Company includes provision for PFADs relating to
claim development, reinsurance recoveries and future investment income. Margins for claims development
used for calculating the provision for adverse deviation range from 10% to 15% depending on the line of
business.
Significant estimates used in the valuation of insurance contract liabilities are the discount rate and the
expected loss ratios. A change in the discount rate by 2% or in the expected loss ratios by 10% would not
have a material impact.
d) Net premiums earned for the year ended December 31 consist of:
Gross premiums written
Premiums ceded
Increase in unearned premiums
Foreign exchange adjustment
2012
$
2,004,415
(889,222)
(769,323)
282,554
2011
$
391,702
(10,683)
(303,233)
-
February 2, 2011 (1)
April 8, 2011
June 22, 2011
December 23, 2011
Net premiums earned
628,424
77,786
(1) 25,370,904 shares were issued on February 2, 2011. Following this private placement there was a 2:1
share consolidation.
The Company is authorized to issue an unlimited number of common and preferred shares.
a) Authorized
b) Common shares
The issued and outstanding common shares are as follows:
Balance, December 31, 2010
Consolidation of common shares (1:2)
Issued for cash
Share issue costs
Number of
shares
Amount
2,964,300
438,547
1,482,150
32,661,202
-
51,571,284
(328,013)
$
-
Balance December 31, 2011
34,143,352
51,681,818
Balance, December 31, 2012
34,143,352
51,681,818
Common shares issued
The common shares issued during the previous year were completed through a series of four private
placements. The shares issued and proceeds raised were as follows:
Number of
shares issued
12,685,452
11,257,923
4,871,673
3,846,154
Amount
$
4,611,253
14,860,458
17,099,573
15,000,000
32,661,202
51,571,284
62
(32)
(33)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
The loss ratios used in the calculations are as follows:
15 Share capital and contributed surplus
Accident insurance
Automobile insurance
Property insurance
Drivers’ insurance
Liability insurance
Construction insurance
Cargo insurance
Finance insurance
Aviation
2012
%
70
55
60
60
60
60
115
720
60
2011
%
70
55
60
70
60
60
60
-
-
This estimate does reflect the time value of money. In that respect, the Company determines the discount
rate based upon the expected return of investments held in the portfolio that approximates the cash flow
requirements of the unpaid claims. The discount rate applied was 1% (2011 - 3%) and then again at 0.5%
(2011 - 2%) to allow a margin for adverse deviations in the interest rate. To recognize the uncertainty
inherent in determining unpaid claim amounts, the Company includes provision for PFADs relating to
claim development, reinsurance recoveries and future investment income. Margins for claims development
used for calculating the provision for adverse deviation range from 10% to 15% depending on the line of
business.
have a material impact.
Significant estimates used in the valuation of insurance contract liabilities are the discount rate and the
expected loss ratios. A change in the discount rate by 2% or in the expected loss ratios by 10% would not
d) Net premiums earned for the year ended December 31 consist of:
a) Authorized
The Company is authorized to issue an unlimited number of common and preferred shares.
b) Common shares
The issued and outstanding common shares are as follows:
Balance, December 31, 2010
Consolidation of common shares (1:2)
Issued for cash
Share issue costs
Number of
shares
Amount
$
2,964,300
438,547
1,482,150
32,661,202
-
-
51,571,284
(328,013)
Balance December 31, 2011
34,143,352
51,681,818
Balance, December 31, 2012
34,143,352
51,681,818
Common shares issued
The common shares issued during the previous year were completed through a series of four private
placements. The shares issued and proceeds raised were as follows:
Gross premiums written
Premiums ceded
Increase in unearned premiums
Foreign exchange adjustment
2012
$
2,004,415
(889,222)
(769,323)
282,554
2011
$
391,702
(10,683)
(303,233)
-
February 2, 2011 (1)
April 8, 2011
June 22, 2011
December 23, 2011
Number of
shares issued
12,685,452
11,257,923
4,871,673
3,846,154
Amount
$
4,611,253
14,860,458
17,099,573
15,000,000
32,661,202
51,571,284
Net premiums earned
628,424
77,786
(1) 25,370,904 shares were issued on February 2, 2011. Following this private placement there was a 2:1
share consolidation.
(32)
(33)
63
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
c) Stock options
Balance, December 31, 2010
Cancelled - prior share based payment plan
Granted
Forfeited - current share based payment plan
Balance, December 31, 2011
Cancelled - prior share based payment plan
Granted
Forfeited - current share based payment plan
December 31, 2012
Number of
options
296,430
(296,430)
1,825,000
(128,000)
1,697,000
1,697,000
(5,000)
190,000
(100,000)
1,782,000
Weighted
average
exercise
price
$
0.20
(0.20)
3.42
(4.20)
3.36
3.36
(4.25)
4.00
(4.36)
3.40
The Company has established a share based payment plan (the “Plan”) to encourage ownership of its
shares by key management personnel (directors and executive management), employees and other key
service providers, and to provide compensation for certain services. The Plan provides for the issuance of
stock options in an aggregate number of up to 10% of the Company’s issued and outstanding shares,
calculated from time to time. At December 31, 2012, the Company had 1,632,335 (2011 - 1,717,335)
common shares available for the granting of future options under the new plan. The Company does not
have any cash-settled transactions.
Pursuant to the Company’s previous stock option plan, 351,428 stock options were granted to directors
and officers on October 9, 2008. These options allowed the holder to acquire common shares at a price of
$0.20 per share for each option exercised. The options were fully vested and were exercisable at any time
prior to their expiry on October 9, 2013. Concurrent with the cancellation of the common shares of the
Company on February 2, 2011, the Company also cancelled 296,430 of the stock options issued to its
directors and officers.
On March 9, 2011, 600,000 options were granted to consultants of the Company. These options allow the
holder to acquire common shares at a price of $1.64 per share for each option exercised. 500,000 of these
options vest and become exercisable on March 9, 2014 and are exercisable up until their expiry on
March 9, 2021. 100,000 of these options vest and become exercisable on March 9, 2013 up until their
expiry on March 9, 2014. On May 16, 2012, the Company approved a Board resolution that allowed for
200,000 of the options to vest immediately at a modified price of $1.90 per share for each option issued.
64
(34)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
On April 25, 2011, 900,000 options were granted to employees and consultants of the Company. These
options allow the holder to acquire common shares at a price of $4.20 per share for each option exercised.
650,000 of these options vest in four equal annual tranches each year over four years and expire on
April 25, 2016. 75,000 of these options shall vest on April 25, 2013 and expire April 25, 2014. 175,000 of
these options shall vest on April 25, 2013 and expire April 25, 2016.
On September 7, 2011, 175,000 options were granted to employees and consultants of the Company. These
options allow the holder to acquire common shares at a price of $4.77 per share for each option exercised.
55,000 of these options vest in four equal annual tranches each year over four years and expire on
September 7, 2016. 120,000 of these options shall vest and become exercisable on September 7, 2013 and
expire on September 7, 2016.
On December 2, 2011, 150,000 options were granted to employees. These options allow the holder to
acquire common shares at a price of $4.25 per share for each option exercised. These options vest in four
equal annual tranches each year over four years and expire on December 2, 2016.
On March 23, 2012, 190,000 options were granted to employees. These options allow the holder to acquire
common shares at a price of $4.00 per share for each option exercised. 170,000 of these options vest in
four equal annual tranches each year over four years and expire on March 23, 2017. 20,000 of these
options shall vest and become exercisable on March 23, 2014 and expire on March 23, 2017.
At period
end, the Company had 358,000 options that were exercisable (2011 - nil).
A summary of the Company’s options as at December 31 and changes during the periods then ended
‐
follows:
December 31,
December 31,
2012
exercise price
2011
exercise price
Weighted
average
Weighted
average
$
Balance, beginning of the
year
Options cancelled
Options granted
Options forfeited
1,697,000
(5,000)
190,000
(100,000)
3.36
4.25
4.00
4.36
296,430
(296,430)
1,825,000
(128,000)
Balance, end of the year
1,782,000
3.40
1,697,000
Exercisable
358,000
2.94
-
Weighted remaining
average life (years)
3.84
$
0.20
(0.20)
3.42
(4.20)
3.36
5.70
(35)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
c) Stock options
Balance, December 31, 2010
Cancelled - prior share based payment plan
Granted
Forfeited - current share based payment plan
Balance, December 31, 2011
Cancelled - prior share based payment plan
Granted
Forfeited - current share based payment plan
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Number of
options
296,430
(296,430)
1,825,000
(128,000)
1,697,000
1,697,000
(5,000)
190,000
(100,000)
1,782,000
Weighted
average
exercise
price
$
0.20
(0.20)
3.42
(4.20)
3.36
3.36
(4.25)
4.00
(4.36)
3.40
On April 25, 2011, 900,000 options were granted to employees and consultants of the Company. These
options allow the holder to acquire common shares at a price of $4.20 per share for each option exercised.
650,000 of these options vest in four equal annual tranches each year over four years and expire on
April 25, 2016. 75,000 of these options shall vest on April 25, 2013 and expire April 25, 2014. 175,000 of
these options shall vest on April 25, 2013 and expire April 25, 2016.
On September 7, 2011, 175,000 options were granted to employees and consultants of the Company. These
options allow the holder to acquire common shares at a price of $4.77 per share for each option exercised.
55,000 of these options vest in four equal annual tranches each year over four years and expire on
September 7, 2016. 120,000 of these options shall vest and become exercisable on September 7, 2013 and
expire on September 7, 2016.
On December 2, 2011, 150,000 options were granted to employees. These options allow the holder to
acquire common shares at a price of $4.25 per share for each option exercised. These options vest in four
equal annual tranches each year over four years and expire on December 2, 2016.
On March 23, 2012, 190,000 options were granted to employees. These options allow the holder to acquire
common shares at a price of $4.00 per share for each option exercised. 170,000 of these options vest in
four equal annual tranches each year over four years and expire on March 23, 2017. 20,000 of these
options shall vest and become exercisable on March 23, 2014 and expire on March 23, 2017.
shares by key management personnel (directors and executive management), employees and other key
At period
end, the Company had 358,000 options that were exercisable (2011 - nil).
‐
A summary of the Company’s options as at December 31 and changes during the periods then ended
follows:
December 31,
2012
Weighted
average
exercise price
$
December 31,
2011
Weighted
average
exercise price
$
Balance, beginning of the
year
Options cancelled
Options granted
Options forfeited
1,697,000
(5,000)
190,000
(100,000)
3.36
4.25
4.00
4.36
296,430
(296,430)
1,825,000
(128,000)
Balance, end of the year
1,782,000
3.40
1,697,000
Exercisable
358,000
2.94
-
Weighted remaining
average life (years)
3.84
0.20
(0.20)
3.42
(4.20)
3.36
5.70
(35)
65
The Company has established a share based payment plan (the “Plan”) to encourage ownership of its
service providers, and to provide compensation for certain services. The Plan provides for the issuance of
stock options in an aggregate number of up to 10% of the Company’s issued and outstanding shares,
calculated from time to time. At December 31, 2012, the Company had 1,632,335 (2011 - 1,717,335)
common shares available for the granting of future options under the new plan. The Company does not
have any cash-settled transactions.
Pursuant to the Company’s previous stock option plan, 351,428 stock options were granted to directors
and officers on October 9, 2008. These options allowed the holder to acquire common shares at a price of
$0.20 per share for each option exercised. The options were fully vested and were exercisable at any time
prior to their expiry on October 9, 2013. Concurrent with the cancellation of the common shares of the
Company on February 2, 2011, the Company also cancelled 296,430 of the stock options issued to its
directors and officers.
On March 9, 2011, 600,000 options were granted to consultants of the Company. These options allow the
holder to acquire common shares at a price of $1.64 per share for each option exercised. 500,000 of these
options vest and become exercisable on March 9, 2014 and are exercisable up until their expiry on
March 9, 2021. 100,000 of these options vest and become exercisable on March 9, 2013 up until their
expiry on March 9, 2014. On May 16, 2012, the Company approved a Board resolution that allowed for
200,000 of the options to vest immediately at a modified price of $1.90 per share for each option issued.
(34)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
The fair value associated with the options issued was calculated using the Black-Scholes model for options
valuation, assuming volatility of 90% on the underlying units, a risk free interest rate ranging from 1.44%
to 2.9% depending on the date the options were granted and a forfeiture rate of nil based on the
composition of the option holders. Share prices for the calculation were the closing price on the CNSX on
the date of issue of the options. The Company has assumed the options will be exercised at the end of the
term of the option.
Being a newly listed entity, the Company considered its historical share price over the last twenty months.
However, given the lack of sufficient information on historical volatility, it also considered historical
volatility of similar entities following a comparable period in their lives.
The approximate impact of an increase of 10% in the volatility assumption would decrease net income of
the Company by $103,000. The approximate impact of a decrease of 10% in the volatility assumption
would increase net income of the Company by $115,000.
The following options were issued, outstanding and exercisable at December 31:
Options outstanding 2012
16 Management of capital structure
Number outstanding
Weighted average
remaining life
(years)
Weighted
average exercise
price
$
Weighted
average at grant
date
400,000
200,000
722,000
150,000
120,000
190,000
1,782,000
6.50
8.25
3.33
3.67
3.92
4.33
3.84
1.64
1.90
4.20
4.77
4.25
4.00
3.40
1.78
1.78
4.04
4.70
4.14
4.00
3.35
Options outstanding 2011
Number outstanding
Weighted average
remaining life
(years)
Weighted
average exercise
price
$
Weighted
average at grant
date
600,000
772,000
175,000
150,000
1,697,000
66
8.08
4.33
4.67
4.92
5.70
1.64
4.20
4.77
4.25
3.36
1.78
4.04
4.70
4.14
3.32
(36)
The following table summarizes the shares used in calculating earnings (loss) per share:
2012
$
2011
$
34,143,352
1,738,913
23,902,851
1,101,214
Weighted average number of shares - basic
Effect of dilutive stock options
Weighted average number of shares - diluted
35,882,265
25,004,065
Basic earnings (loss) per share are derived by dividing net income (loss) for the year by the weighted
average number of common shares outstanding for the period. The effect of potentially dilutive securities
is excluded if they are anti-dilutive.
There have been no significant capital transactions from the reporting date to the date of this filing which
have had a material impact on earnings per share.
The Company’s objective when managing capital is to ensure the Company is capitalized in a manner which
provides a strong financial position for its shareholders.
The Company’s capital structure includes equity and working capital. In managing its capital structure, the
Company considers future investment and acquisition opportunities, potential credit available and potential
issuances of new equity. The Company’s objective is to maintain a flexible capital structure that will allow it to
execute its stated business. Upon acquiring investment properties and operating businesses, the Company will
strive to balance its proportion of debt and equity within its capital structure in accordance with the needs of
the continuing business. The Company may, from time to time, issue shares and adjust its spending to manage
current and projected proportions as deemed appropriate.
The method used by the Company to monitor its capital is based on an assessment of the Company’s working
capital position relative to its projected obligations. At December 31, 2012, the Company’s working capital was
$12,554,733 (2011 - $21,059,481) and the Company had no debt.
Current assets
Current liabilities
Working capital
The Company’s Mongolian insurance operations, Mandal General Insurance LLC, (Mandal) are regulated by
the Mongolian insurance regulator, the Financial Regulatory Commission (FRC).
2012
$
2011
$
15,943,758
3,389,025
23,099,610
2,040,129
12,554,733
21,059,481
(37)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
The fair value associated with the options issued was calculated using the Black-Scholes model for options
The following table summarizes the shares used in calculating earnings (loss) per share:
valuation, assuming volatility of 90% on the underlying units, a risk free interest rate ranging from 1.44%
to 2.9% depending on the date the options were granted and a forfeiture rate of nil based on the
composition of the option holders. Share prices for the calculation were the closing price on the CNSX on
the date of issue of the options. The Company has assumed the options will be exercised at the end of the
term of the option.
Being a newly listed entity, the Company considered its historical share price over the last twenty months.
However, given the lack of sufficient information on historical volatility, it also considered historical
volatility of similar entities following a comparable period in their lives.
The approximate impact of an increase of 10% in the volatility assumption would decrease net income of
the Company by $103,000. The approximate impact of a decrease of 10% in the volatility assumption
would increase net income of the Company by $115,000.
The following options were issued, outstanding and exercisable at December 31:
Number outstanding
Weighted average
remaining life
(years)
Weighted
average exercise
price
$
Weighted
average at grant
date
400,000
200,000
722,000
150,000
120,000
190,000
1,782,000
600,000
772,000
175,000
150,000
1,697,000
Number outstanding
Weighted average
remaining life
(years)
Weighted
average exercise
Weighted
average at grant
date
Options outstanding 2011
6.50
8.25
3.33
3.67
3.92
4.33
3.84
8.08
4.33
4.67
4.92
5.70
1.64
1.90
4.20
4.77
4.25
4.00
3.40
price
$
1.64
4.20
4.77
4.25
3.36
1.78
1.78
4.04
4.70
4.14
4.00
3.35
1.78
4.04
4.70
4.14
3.32
(36)
Weighted average number of shares - basic
Effect of dilutive stock options
2012
$
2011
$
34,143,352
1,738,913
23,902,851
1,101,214
Weighted average number of shares - diluted
35,882,265
25,004,065
Basic earnings (loss) per share are derived by dividing net income (loss) for the year by the weighted
average number of common shares outstanding for the period. The effect of potentially dilutive securities
is excluded if they are anti-dilutive.
There have been no significant capital transactions from the reporting date to the date of this filing which
have had a material impact on earnings per share.
Options outstanding 2012
16 Management of capital structure
The Company’s objective when managing capital is to ensure the Company is capitalized in a manner which
provides a strong financial position for its shareholders.
The Company’s capital structure includes equity and working capital. In managing its capital structure, the
Company considers future investment and acquisition opportunities, potential credit available and potential
issuances of new equity. The Company’s objective is to maintain a flexible capital structure that will allow it to
execute its stated business. Upon acquiring investment properties and operating businesses, the Company will
strive to balance its proportion of debt and equity within its capital structure in accordance with the needs of
the continuing business. The Company may, from time to time, issue shares and adjust its spending to manage
current and projected proportions as deemed appropriate.
The method used by the Company to monitor its capital is based on an assessment of the Company’s working
capital position relative to its projected obligations. At December 31, 2012, the Company’s working capital was
$12,554,733 (2011 - $21,059,481) and the Company had no debt.
Current assets
Current liabilities
Working capital
2012
$
2011
$
15,943,758
3,389,025
23,099,610
2,040,129
12,554,733
21,059,481
The Company’s Mongolian insurance operations, Mandal General Insurance LLC, (Mandal) are regulated by
the Mongolian insurance regulator, the Financial Regulatory Commission (FRC).
(37)
67
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Mandal’s objectives when managing capital are (i) to comply with capital requirements set by the Mongolian
laws and FRC, and (ii) to safeguard Mandal’s ability to continue as a going concern.
Insurance companies in Mongolia are subject to the following capital regulatory requirements prescribed by
FRC:
Compliance with the requirements to the minimal share capital set by FRC Order No.153 of June 25, 2009
“Order on approving minimum share capital requirement of general insurance company”;
Compliance with the requirements to the composition and structure of the assets as set by FRC Order
No. 170 dating June 16, 2010 “Order on approving revised regulation on the requirement of capital
allocation and investment of general insurance company”.
Compliance with the above ratios is monitored by the Company on a quarterly basis with issuance of reports
outlining their calculation reviewed and signed by the Chief Executive Officer of Mandal and submitted to FRC.
As at December 31, 2012, Mandal complied with all aforementioned capital requirements.
Mandal’s share capital amount of $4,512,252 (2011 - $4,628,000) was above the regulatory minimum of
$1,445,536 in accordance with the minimum set by FRC.
17 Insurance and financial risk management
The Board of Directors ensures that management has put appropriate risk management processes in place.
Through the Audit Committee, the Board oversees such risk management procedures and controls.
Management provides updates to the Audit Committee on a quarterly basis with respect to risk management.
The principal risk the Company faces under insurance contracts is that actual claims or the timing thereof differ
from expectations. This is influenced by the frequency of claims, severity of claims and subsequent development
of long-term claims. Therefore the objective of the Company is to ensure sufficient reserves are available to
cover these claims.
underwriting rules.
exposure.
Insurance risk management
The Company principally issues the following types of property and casualty contracts: motor insurance,
including voluntary motor-third party liability, property, accident and liability insurance.
The most significant risks that the Company must manage with respect to unpaid claims and other financial
instruments are product and pricing, underwriting and liability, claim settlement, catastrophe and reinsurance,
credit, market and liquidity risks.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Product and pricing risk
Product and pricing risk is the risk of financial loss from entering into insurance contracts when the liabilities
assumed exceed the expectation reflected in the pricing of the insurance product. The Company prices its
products by taking into account several factors including claims frequency, severity trends, product line expense
ratios, special risk factors, capital requirements and investment income. These factors are reviewed and
adjusted as needed on a regular basis to ensure they are reflective of current trends and market climate.
In some instances, the Company may choose to adjust prices to below what it feels is acceptable in order to
maintain a competitive position. However, the Company attempts to maintain a pricing level that ensures it is
able to produce an acceptable return.
Underwriting and liability risk
Underwriting and liability risk is the exposure to financial loss resulting from the selection and approval of risks
to be insured, the retention and transfer of risks, the reserving and adjudication of claims, and the management
of contractual and non-contractual product options.
The Company has specific underwriting guidelines for declining to issue, terminating, or refusing to renew a
contract for each line of business. The underwriting guidelines for risk eligibility are developed in cooperation
between the Risk Management Committee, MGG corporate management team and underwriting staff and the
underwriting department. These guidelines must be developed in consideration of jurisdictional underwriting
rules and comply with evolving jurisdictional regulation on restricted criteria. The Company considers stability,
fairness and the expectations of its existing and potential policyholders when making deliberate changes to its
The Company establishes a guideline that is utilized to ensure that the limits of insurance for a particular risk
do not exceed the Company’s net retention or maximum written limits and the proper approval authority for
the risk is obtained. Net retention is the maximum amount of insurance the Company will retain on a single
Possible accumulation of large claims in such lines as property insurance, liability insurance and others is the
major factor that could have a significant impact on the Company’s financial cash flows and performance
indicators. Based on this, the Company chooses a risk management policy and reinsurance protection
management policy, so as to minimize the impact of this factor.
The above risk exposure is mitigated by diversification across a portfolio of insurance. All risks insured relate to
Mongolian customers.
Identification and responding to insurance operation risk is the responsibility of the Chief Risk Officer (CRO).
The CRO has annual objectives and an annual plan agreed with the Company’s Chief Executive Officer. This
includes risk management activities on insurance underwriting, claim processing, IT infrastructure, re-
insurance activities, and overall risk management activities of Mandal.
68
(38)
(39)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Mandal’s objectives when managing capital are (i) to comply with capital requirements set by the Mongolian
Product and pricing risk
laws and FRC, and (ii) to safeguard Mandal’s ability to continue as a going concern.
Insurance companies in Mongolia are subject to the following capital regulatory requirements prescribed by
FRC:
Compliance with the requirements to the minimal share capital set by FRC Order No.153 of June 25, 2009
“Order on approving minimum share capital requirement of general insurance company”;
Compliance with the requirements to the composition and structure of the assets as set by FRC Order
No. 170 dating June 16, 2010 “Order on approving revised regulation on the requirement of capital
allocation and investment of general insurance company”.
Compliance with the above ratios is monitored by the Company on a quarterly basis with issuance of reports
outlining their calculation reviewed and signed by the Chief Executive Officer of Mandal and submitted to FRC.
As at December 31, 2012, Mandal complied with all aforementioned capital requirements.
Mandal’s share capital amount of $4,512,252 (2011 - $4,628,000) was above the regulatory minimum of
$1,445,536 in accordance with the minimum set by FRC.
17 Insurance and financial risk management
The Board of Directors ensures that management has put appropriate risk management processes in place.
Through the Audit Committee, the Board oversees such risk management procedures and controls.
Management provides updates to the Audit Committee on a quarterly basis with respect to risk management.
The principal risk the Company faces under insurance contracts is that actual claims or the timing thereof differ
from expectations. This is influenced by the frequency of claims, severity of claims and subsequent development
of long-term claims. Therefore the objective of the Company is to ensure sufficient reserves are available to
cover these claims.
Insurance risk management
The Company principally issues the following types of property and casualty contracts: motor insurance,
including voluntary motor-third party liability, property, accident and liability insurance.
The most significant risks that the Company must manage with respect to unpaid claims and other financial
instruments are product and pricing, underwriting and liability, claim settlement, catastrophe and reinsurance,
credit, market and liquidity risks.
Product and pricing risk is the risk of financial loss from entering into insurance contracts when the liabilities
assumed exceed the expectation reflected in the pricing of the insurance product. The Company prices its
products by taking into account several factors including claims frequency, severity trends, product line expense
ratios, special risk factors, capital requirements and investment income. These factors are reviewed and
adjusted as needed on a regular basis to ensure they are reflective of current trends and market climate.
In some instances, the Company may choose to adjust prices to below what it feels is acceptable in order to
maintain a competitive position. However, the Company attempts to maintain a pricing level that ensures it is
able to produce an acceptable return.
Underwriting and liability risk
Underwriting and liability risk is the exposure to financial loss resulting from the selection and approval of risks
to be insured, the retention and transfer of risks, the reserving and adjudication of claims, and the management
of contractual and non-contractual product options.
The Company has specific underwriting guidelines for declining to issue, terminating, or refusing to renew a
contract for each line of business. The underwriting guidelines for risk eligibility are developed in cooperation
between the Risk Management Committee, MGG corporate management team and underwriting staff and the
underwriting department. These guidelines must be developed in consideration of jurisdictional underwriting
rules and comply with evolving jurisdictional regulation on restricted criteria. The Company considers stability,
fairness and the expectations of its existing and potential policyholders when making deliberate changes to its
underwriting rules.
The Company establishes a guideline that is utilized to ensure that the limits of insurance for a particular risk
do not exceed the Company’s net retention or maximum written limits and the proper approval authority for
the risk is obtained. Net retention is the maximum amount of insurance the Company will retain on a single
exposure.
Possible accumulation of large claims in such lines as property insurance, liability insurance and others is the
major factor that could have a significant impact on the Company’s financial cash flows and performance
indicators. Based on this, the Company chooses a risk management policy and reinsurance protection
management policy, so as to minimize the impact of this factor.
The above risk exposure is mitigated by diversification across a portfolio of insurance. All risks insured relate to
Mongolian customers.
Identification and responding to insurance operation risk is the responsibility of the Chief Risk Officer (CRO).
The CRO has annual objectives and an annual plan agreed with the Company’s Chief Executive Officer. This
includes risk management activities on insurance underwriting, claim processing, IT infrastructure, re-
insurance activities, and overall risk management activities of Mandal.
(38)
(39)
69
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Mandal has approved policies on policy underwritings, claim processing, actuarial activity, reinsurance
activities, and operation of a Risk Management Committee. These policies define the procedures and approval
limits for policy underwriting and claim activities for Mandal.
The Risk Management Committee is responsible for analyzing tariffs and conditions of policies, loss ratios,
reinsurance and profitability assessment, as well as making decisions on claims. The meetings of the Risk
Management Committee are held on a regular basis. The activities of this Committee are overseen and
approved by the Board of Directors, which is responsible for making final decisions on introduction of new
insurance products, approving Mandal’s policies and procedures and dealing with strategic or other significant
issues facing the Mandal. All significant transactions exposing Mandal to insurance risk are monitored by the
Board of Directors. All insurance policies with risk above MNT 5 billion need to be approved by the Board of
Directors. Mandal has defined limits for signing insurance contracts in order to ensure identification and
monitoring of significant exposures. All insurance contracts are signed by the Company’s CEO.
70
(40)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Mandal has approved policies on policy underwritings, claim processing, actuarial activity, reinsurance
activities, and operation of a Risk Management Committee. These policies define the procedures and approval
limits for policy underwriting and claim activities for Mandal.
The Risk Management Committee is responsible for analyzing tariffs and conditions of policies, loss ratios,
reinsurance and profitability assessment, as well as making decisions on claims. The meetings of the Risk
Management Committee are held on a regular basis. The activities of this Committee are overseen and
approved by the Board of Directors, which is responsible for making final decisions on introduction of new
insurance products, approving Mandal’s policies and procedures and dealing with strategic or other significant
issues facing the Mandal. All significant transactions exposing Mandal to insurance risk are monitored by the
Board of Directors. All insurance policies with risk above MNT 5 billion need to be approved by the Board of
Directors. Mandal has defined limits for signing insurance contracts in order to ensure identification and
monitoring of significant exposures. All insurance contracts are signed by the Company’s CEO.
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Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Claim settlement
Under an insurance agreement, the insured party must notify the insurance company of a loss incurred within a
clearly defined time period, limited to three days, as stated in most of Mandal’s insurance contracts and/or
policies. This relatively short time limit represents a common practice in the Mongolian insurance market.
Claims settlement processes are carried out in accordance with Mandal’s claims policy. Mandal has a special
subdivision, which is responsible for claims settlement. This subdivision collects all necessary information
about accidents (i.e. loss occurring events), performs registration of claims, evaluates possible exposure and
proceeds with disbursement of claims within determined limits. Insurance claims are paid only upon provision
to Mandal of all necessary documents supporting occurrence of an insurance event. The claims settlement
subdivision is also responsible for raising subrogation claims, preparation of reports on claims paid and claims
reported, which are submitted to insurance managers.
Mandal has clearly defined limits related to claims approval and settlement process.
When a loss is claimed, Mandal notifies the relevant reinsurer on the loss claimed, if the insurance agreement
was reinsured. Once Mandal pays the claim, it sends the payment documents to the reinsurer.
Mandal has reinsurance in force during the year to cede 100% of the risks associated with the accident medical
and travel product line.
Claims development
end of each valuation year.
Catastrophe risk
The following table shows the estimate of cumulative incurred claims, including both claims notified and IBNR
for each successive accident year at the statement of financial position date, together with cumulative payments
to date. The Company has elected to present its claims development on an accident year basis as this is
consistent with how the business is managed. The Company has elected to translate claims payments using the
average rate for the month in which they are paid, and estimated claims at the rate of exchange applicable at the
During fiscal 2011, the Company did not have insurance coverage related to its investment property portfolio or
its buildings classified as own-use and recorded in property and equipment. On March 3, 2012, the Company,
through its insurance subsidiary, has obtained insurance on building and all permanent fixtures totalling
approximately $25,000,000. Subsequent to issuing this policy, the Company’s insurance subsidiary obtained a
reinsurance agreement to cede 99% of the risk to Hannover Rc (90%) and People’s Insurance Company of
China (9%) related to this coverage, and updated the policy to include all investment properties which were
acquired in 2012.
(43)
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Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Claim settlement
Under an insurance agreement, the insured party must notify the insurance company of a loss incurred within a
clearly defined time period, limited to three days, as stated in most of Mandal’s insurance contracts and/or
policies. This relatively short time limit represents a common practice in the Mongolian insurance market.
Claims settlement processes are carried out in accordance with Mandal’s claims policy. Mandal has a special
subdivision, which is responsible for claims settlement. This subdivision collects all necessary information
about accidents (i.e. loss occurring events), performs registration of claims, evaluates possible exposure and
proceeds with disbursement of claims within determined limits. Insurance claims are paid only upon provision
to Mandal of all necessary documents supporting occurrence of an insurance event. The claims settlement
subdivision is also responsible for raising subrogation claims, preparation of reports on claims paid and claims
reported, which are submitted to insurance managers.
Mandal has clearly defined limits related to claims approval and settlement process.
When a loss is claimed, Mandal notifies the relevant reinsurer on the loss claimed, if the insurance agreement
was reinsured. Once Mandal pays the claim, it sends the payment documents to the reinsurer.
Mandal has reinsurance in force during the year to cede 100% of the risks associated with the accident medical
and travel product line.
Claims development
The following table shows the estimate of cumulative incurred claims, including both claims notified and IBNR
for each successive accident year at the statement of financial position date, together with cumulative payments
to date. The Company has elected to present its claims development on an accident year basis as this is
consistent with how the business is managed. The Company has elected to translate claims payments using the
average rate for the month in which they are paid, and estimated claims at the rate of exchange applicable at the
end of each valuation year.
Catastrophe risk
During fiscal 2011, the Company did not have insurance coverage related to its investment property portfolio or
its buildings classified as own-use and recorded in property and equipment. On March 3, 2012, the Company,
through its insurance subsidiary, has obtained insurance on building and all permanent fixtures totalling
approximately $25,000,000. Subsequent to issuing this policy, the Company’s insurance subsidiary obtained a
reinsurance agreement to cede 99% of the risk to Hannover Rc (90%) and People’s Insurance Company of
China (9%) related to this coverage, and updated the policy to include all investment properties which were
acquired in 2012.
(43)
73
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Credit risk
Credit risk is the risk of an unexpected financial loss to the Company if a third party fails to fulfill its
performance obligations under the terms of a financial instrument. The Company’s credit risk arises principally
from the Company’s cash and cash equivalents, investments and marketable securities and accounts receivable.
The following table summarizes the Company’s maximum exposure to credit risk on the consolidated statement
of financial position. The maximum credit exposure is the carrying value of the asset, net of any allowances for
loss.
Cash and cash equivalents
Investments and marketable securities
Amounts due from policyholders
Accounts receivable
Reinsurance assets
2012
$
8,702,253
3,992,547
222,011
255,628
684,285
2011
$
20,078,948
4,016,761
197,550
94,539
7,760
Maximum credit risk exposure on the consolidated statement of
financial position
13,856,724
24,395,558
The Company’s exposure to credit risk is managed through risk management policies and procedures with
emphasis on the quality of the investment portfolio. For the year, most of the Company’s investments consisted
of institutional deposits. The majority of the funds invested are held in reputable Barbadian, Canadian or
Mongolian banks. The Company is in the early stages of development and is continually improving its policies
regarding monitoring its credit risk.
The Company is exposed to credit risk as an owner of real estate in that tenants may become unable to pay the
contracted rents. The Company mitigates this risk by carrying out appropriate credit checks and related due
diligence on the significant tenants. The Company’s properties are diversified across residential and commercial
classes.
Amounts due from policy holders are short-term in nature and are not subject to material credit risk.
Liquidity risk
Liquidity risk is the risk of having insufficient cash resources to meet financial obligations without raising funds
at unfavourable rates or selling assets on a forced basis. Liquidity risk arises from the general business activities
and in the course of managing the assets and liabilities. The purpose of liquidity management is to ensure that
there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity
requirements of the Company’s business are met primarily by funds generated from operations, liquid
investments and income and other returns received on investments. Cash provided from these sources is used
primarily for claims and claim adjustment expense payments and investment property operating expenses. The
timing and amount of catastrophe claims are inherently unpredictable and may create increased liquidity
requirements.
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
As at December 31, 2012, the Company does not believe the current maturity profile of the Company lends itself
to any material liquidity risk, taking into account the level of cash and cash equivalents, investments and
marketable securities as at December 31, 2012. The Company does not have material liabilities that can be
called unexpectedly at the demand of a client.
The following table summarizes the undiscounted cash flows of financial assets and liabilities by contractual or
expected maturity:
December 31, 2012
One year or
One to two
No maturity
less
$
years
$
date
$
Financial Assets
Cash and cash equivalents
Receivables
Reinsurance assets
Investments
Financial Liabilities
Trade payables and accrued liabilities
Insurance contract liabilities
Financial Assets
Cash and cash equivalents
Receivables
Reinsurance assets
Investments
Financial Liabilities
Trade payables and accrued liabilities
Insurance contract liabilities
8,702,253
255,628
684,285
3,992,547
13,634,713
996,314
2,300,604
3,296,918
20,078,948
94,539
7,760
2,569,778
859,213
361,820
1,221,033
-
-
-
-
-
-
-
-
-
-
-
-
-
-
December 31, 2011
One year or
One to two
No maturity
less
$
years
$
date
$
1,446,983
22,751,025
1,446,983
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
74
(44)
(45)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Credit risk
Credit risk is the risk of an unexpected financial loss to the Company if a third party fails to fulfill its
performance obligations under the terms of a financial instrument. The Company’s credit risk arises principally
from the Company’s cash and cash equivalents, investments and marketable securities and accounts receivable.
The following table summarizes the Company’s maximum exposure to credit risk on the consolidated statement
of financial position. The maximum credit exposure is the carrying value of the asset, net of any allowances for
loss.
Cash and cash equivalents
Investments and marketable securities
Amounts due from policyholders
Accounts receivable
Reinsurance assets
2012
$
8,702,253
3,992,547
222,011
255,628
684,285
2011
$
20,078,948
4,016,761
197,550
94,539
7,760
Maximum credit risk exposure on the consolidated statement of
financial position
13,856,724
24,395,558
The Company’s exposure to credit risk is managed through risk management policies and procedures with
emphasis on the quality of the investment portfolio. For the year, most of the Company’s investments consisted
of institutional deposits. The majority of the funds invested are held in reputable Barbadian, Canadian or
Mongolian banks. The Company is in the early stages of development and is continually improving its policies
regarding monitoring its credit risk.
The Company is exposed to credit risk as an owner of real estate in that tenants may become unable to pay the
contracted rents. The Company mitigates this risk by carrying out appropriate credit checks and related due
diligence on the significant tenants. The Company’s properties are diversified across residential and commercial
Amounts due from policy holders are short-term in nature and are not subject to material credit risk.
classes.
Liquidity risk
Liquidity risk is the risk of having insufficient cash resources to meet financial obligations without raising funds
at unfavourable rates or selling assets on a forced basis. Liquidity risk arises from the general business activities
and in the course of managing the assets and liabilities. The purpose of liquidity management is to ensure that
there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity
requirements of the Company’s business are met primarily by funds generated from operations, liquid
investments and income and other returns received on investments. Cash provided from these sources is used
primarily for claims and claim adjustment expense payments and investment property operating expenses. The
timing and amount of catastrophe claims are inherently unpredictable and may create increased liquidity
requirements.
(44)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
As at December 31, 2012, the Company does not believe the current maturity profile of the Company lends itself
to any material liquidity risk, taking into account the level of cash and cash equivalents, investments and
marketable securities as at December 31, 2012. The Company does not have material liabilities that can be
called unexpectedly at the demand of a client.
The following table summarizes the undiscounted cash flows of financial assets and liabilities by contractual or
expected maturity:
Financial Assets
Cash and cash equivalents
Receivables
Reinsurance assets
Investments
Financial Liabilities
Trade payables and accrued liabilities
Insurance contract liabilities
December 31, 2012
One year or
less
$
One to two
years
$
No maturity
date
$
8,702,253
255,628
684,285
3,992,547
13,634,713
996,314
2,300,604
3,296,918
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
December 31, 2011
One year or
less
$
One to two
years
$
No maturity
date
$
Financial Assets
Cash and cash equivalents
Receivables
Reinsurance assets
Investments
Financial Liabilities
Trade payables and accrued liabilities
Insurance contract liabilities
20,078,948
94,539
7,760
2,569,778
-
-
-
1,446,983
22,751,025
1,446,983
859,213
361,820
1,221,033
-
-
-
-
-
-
-
-
-
-
-
(45)
75
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Market risk
Market risk includes interest rate risk, currency risk and equity risk.
i)
Interest rate risk
Interest rate risk is the potential for financial loss arising from changes in interest rates. Changes in
interest rate levels generally impact the financial results to the extent that reinvestment yields are
different than the original yields on fixed income securities. Changes in interest rates will affect the
fair value of the fixed income securities. During periods of rising interest rates, the market value of the
existing fixed income securities will generally decrease. During periods of declining interest rates the
opposite is true. For investments classified as AFS, these increases and decreases in fixed income
securities will result in corresponding increases and decreases in OCI until the securities are sold and
any gain or loss is realized or the securities are written down to reflect an impairment loss. The
primary technique for measuring interest rate risk related to fixed income securities is duration
analysis.
The approximate impact of an increase of 100 basis points in interest rates would increase the net
income of the Company by $39,925 (2011 - $40,167). The approximate impact of a decrease of 100
basis points in interest rates would decrease net income of the Company by $39,925 (2011 - $40,167).
Changes in interest rates also have an impact on the rate used to discount insurance contract
liabilities. Consequently, changes in interest rates will affect the carrying value of the insurance
contract liabilities. During periods of rising interest rates, the carrying value of insurance contract
liabilities will generally decrease and profit will increase. During periods of declining interest rates the
opposite is true. A change of 100 basis in interest rates points up or down would not have a material
impact on the carrying value of insurance contract liabilities.
ii) Currency risk
Currency risk represents the risk that the Company incurs losses due to exposure to foreign currency
fluctuations. The Company owns properties located in Mongolia and marketable securities in
Mongolia and Barbados, and is therefore subject to foreign currency fluctuations that may impact its
financial position and results. Changes in the Mongolian Tögrög and U.S. to Canadian dollar foreign
currency exchange rate impact the fair value of securities denominated in Mongolian Tögrög and in
U.S. dollars. The Mongolian operations hold their investments in Mongolian Tögrög denominated
securities and the Canadian operations hold securities denominated in Canadian and U.S. dollars.
The approximate impact of an increase of 10% in the Mongolian Tögrög against the Canadian dollar
would increase the OCI of the Company by $4,633,059 (2011 - $3,581,255). The approximate impact
of a decrease of 10% in the Mongolian Tögrög against the Canadian dollar would decrease OCI of the
Company by $4,633,059 (2011 - $3,581,255).
The approximate impact of an increase of 10% in the U.S. dollar against the Canadian dollar would
increase net income of the Company by $87,994 (2011 - $367,962).
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
iii) Other price risk
Other price risk market fluctuation risk is where fluctuations in the value of equity securities affect the
level and timing of recognition of gains and losses on securities held, and cause changes in realized
and unrealized gains and losses. As the Company does not have any equity investments, it does not
have any exposure to equity risk.
Economic risk
Mongolian tax, currency and customs legislation is subject to varying interpretations, and changes, which can
occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of
the Company may be challenged by tax authorities.
Mongolian tax authorities may be taking a more assertive position in their interpretation of the legislation and
assessments, and it is possible that transactions and activities that have not been challenged in the past may be
challenged by tax authorities. As a result, significant additional taxes, penalties and interest may be assessed.
Fiscal periods remain open to review by the authorities in respect of taxes for five calendar years preceding the
year of review. Under certain circumstances reviews may cover longer periods.
Mongolian tax legislation does not provide definitive guidance in certain areas, specifically in areas such as
Value added tax (VAT), corporate income tax, personal income tax and other areas. From time to time, the
Company adopts interpretations of such uncertain areas that reduce the overall tax rate of the Company. As
noted above, such tax positions may come under heightened scrutiny as a result of recent developments in
administrative and court practices. The impact of any challenge by the tax authorities cannot be reliably
estimated; however, it may be significant to the financial position and/or the overall operations of the entity.
The Company’s management believes that its interpretation of the relevant legislation is appropriate and the
Company’s tax positions will be sustained. Management believes that tax risks are remote at present.
Management performs regular re-assessments of tax risk and its position may change in the future as a result of
the change in conditions that cannot be anticipated with sufficient certainty at present.
18 Related party transactions
Parties are generally considered to be related if the parties are under common control or if one party has the
ability to control the other party or can exercise significant influence or joint control over the other party in
making financial and operational decisions. In considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal form.
76
(46)
(47)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
Market risk
Market risk includes interest rate risk, currency risk and equity risk.
i)
Interest rate risk
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
iii) Other price risk
Other price risk market fluctuation risk is where fluctuations in the value of equity securities affect the
level and timing of recognition of gains and losses on securities held, and cause changes in realized
and unrealized gains and losses. As the Company does not have any equity investments, it does not
have any exposure to equity risk.
Interest rate risk is the potential for financial loss arising from changes in interest rates. Changes in
interest rate levels generally impact the financial results to the extent that reinvestment yields are
Economic risk
different than the original yields on fixed income securities. Changes in interest rates will affect the
fair value of the fixed income securities. During periods of rising interest rates, the market value of the
existing fixed income securities will generally decrease. During periods of declining interest rates the
opposite is true. For investments classified as AFS, these increases and decreases in fixed income
securities will result in corresponding increases and decreases in OCI until the securities are sold and
any gain or loss is realized or the securities are written down to reflect an impairment loss. The
primary technique for measuring interest rate risk related to fixed income securities is duration
analysis.
The approximate impact of an increase of 100 basis points in interest rates would increase the net
income of the Company by $39,925 (2011 - $40,167). The approximate impact of a decrease of 100
basis points in interest rates would decrease net income of the Company by $39,925 (2011 - $40,167).
Changes in interest rates also have an impact on the rate used to discount insurance contract
liabilities. Consequently, changes in interest rates will affect the carrying value of the insurance
contract liabilities. During periods of rising interest rates, the carrying value of insurance contract
liabilities will generally decrease and profit will increase. During periods of declining interest rates the
opposite is true. A change of 100 basis in interest rates points up or down would not have a material
impact on the carrying value of insurance contract liabilities.
ii) Currency risk
Currency risk represents the risk that the Company incurs losses due to exposure to foreign currency
fluctuations. The Company owns properties located in Mongolia and marketable securities in
Mongolia and Barbados, and is therefore subject to foreign currency fluctuations that may impact its
financial position and results. Changes in the Mongolian Tögrög and U.S. to Canadian dollar foreign
currency exchange rate impact the fair value of securities denominated in Mongolian Tögrög and in
U.S. dollars. The Mongolian operations hold their investments in Mongolian Tögrög denominated
securities and the Canadian operations hold securities denominated in Canadian and U.S. dollars.
The approximate impact of an increase of 10% in the Mongolian Tögrög against the Canadian dollar
would increase the OCI of the Company by $4,633,059 (2011 - $3,581,255). The approximate impact
of a decrease of 10% in the Mongolian Tögrög against the Canadian dollar would decrease OCI of the
Company by $4,633,059 (2011 - $3,581,255).
The approximate impact of an increase of 10% in the U.S. dollar against the Canadian dollar would
increase net income of the Company by $87,994 (2011 - $367,962).
Mongolian tax, currency and customs legislation is subject to varying interpretations, and changes, which can
occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of
the Company may be challenged by tax authorities.
Mongolian tax authorities may be taking a more assertive position in their interpretation of the legislation and
assessments, and it is possible that transactions and activities that have not been challenged in the past may be
challenged by tax authorities. As a result, significant additional taxes, penalties and interest may be assessed.
Fiscal periods remain open to review by the authorities in respect of taxes for five calendar years preceding the
year of review. Under certain circumstances reviews may cover longer periods.
Mongolian tax legislation does not provide definitive guidance in certain areas, specifically in areas such as
Value added tax (VAT), corporate income tax, personal income tax and other areas. From time to time, the
Company adopts interpretations of such uncertain areas that reduce the overall tax rate of the Company. As
noted above, such tax positions may come under heightened scrutiny as a result of recent developments in
administrative and court practices. The impact of any challenge by the tax authorities cannot be reliably
estimated; however, it may be significant to the financial position and/or the overall operations of the entity.
The Company’s management believes that its interpretation of the relevant legislation is appropriate and the
Company’s tax positions will be sustained. Management believes that tax risks are remote at present.
Management performs regular re-assessments of tax risk and its position may change in the future as a result of
the change in conditions that cannot be anticipated with sufficient certainty at present.
18 Related party transactions
Parties are generally considered to be related if the parties are under common control or if one party has the
ability to control the other party or can exercise significant influence or joint control over the other party in
making financial and operational decisions. In considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal form.
(46)
(47)
77
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Summary of significant transactions with related parties for the year ended December 31, 2012 are presented
below:
The Company’s Mongolian insurance operation, Mandal General Insurance LLC, was not in compliance with
the solvency limit set by FRC Order No. 211 as of December 31, 2011.
Borrowing obtained from and paid back to related parties -
Praetorian Capital Management LLC
Payment of rental expense - UMC Holding LLC
2012
$
-
-
-
2011
$
137,330
29,100
166,430
The deficit under this regulation for the solvency limit was approximately $483,000. As per Mongolian
legislation, FRC had the right to take any corrective actions when an insurance company is not complying with
the regulations including imposing a fine or even cancelling the insurance license. During fiscal 2012, the
solvency limit under this regulation has since been adjusted and Mandal General Insurance LLC is in full
compliance with the regulation as of December 31, 2012.
20 Supplementary cash flow information
Praetorian Capital Management LLC (“Praetorian”) is a company controlled by the Company’s CEO.
Praetorian paid the initial start-up and formation expenses of MGG and its subsidiaries. These expenses were
reimbursed to Praetorian without interest.
The Company has paid rental payments to UMC Holding LLC which is owned by a director of one of the
Company’s subsidiaries.
Key management personnel of the Company include all directors and executive management. The summary of
compensation for key management personnel is as follows:
Changes in non-working capital arising from
Other assets
Trade payables and accrued liabilities
Reinsurance assets
Deferred acquisition expense
Income tax payable
Insurance contract liabilities
2012
$
2011
$
(3,138,778)
151,262
(691,198)
(80,066)
(33,102)
1,989,745
(409,303)
849,536
(7,760)
(15,175)
819,096
361,820
Changes in non-cash working capital from operating activities
(1,802,137)
1,598,214
Salaries and other short-term employee benefits
Share-based payments
19 Contingent liabilities
2012
$
125,229
456,717
2011
$
44,015
267,452
21 Segment information
581,946
311,467
decisions and evaluating performance.
The Company’s operations are conducted in three reportable segments as Investment Property Operations,
Insurance Operations and Corporate. The Company reports information about its operating segments based on
the way management organizes and reports the segments within the organization for making operating
From time to time and in the normal course of business, claims against the Company may be received. On the
basis of management’s assessments and professional legal advice, management is of the opinion that no
material losses will be incurred and no provision or disclosure has been made in these consolidated financial
statements.
The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in
the performance of their service to the Company to the extent permitted by law.
Corporate administers financial resources and the corporate investment portfolio and is comprised of
investment income, corporate costs and other activities not specific to other reportable segments and is shown
The Company is also subject to litigation arising in the normal course of conducting its insurance business. The
Company is of the opinion that this litigation will not have a significant effect on the financial position, financial
performance or cash flows of the Company.
separately.
Investment Property operations consist of commercial and residential investment property in Mongolia held for
the purposes of rental revenue, capital appreciation or both. These properties are managed by Big Sky Capital
LLC and its subsidiaries.
Insurance Operations includes general property and casualty insurance products in Mongolia. Insurance
underwriting and claims handling functions are administered through Mandal General Insurance LLC.
78
(48)
(49)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
Summary of significant transactions with related parties for the year ended December 31, 2012 are presented
below:
The Company’s Mongolian insurance operation, Mandal General Insurance LLC, was not in compliance with
the solvency limit set by FRC Order No. 211 as of December 31, 2011.
Borrowing obtained from and paid back to related parties -
Praetorian Capital Management LLC
Payment of rental expense - UMC Holding LLC
2012
$
-
-
-
2011
$
137,330
29,100
166,430
The deficit under this regulation for the solvency limit was approximately $483,000. As per Mongolian
legislation, FRC had the right to take any corrective actions when an insurance company is not complying with
the regulations including imposing a fine or even cancelling the insurance license. During fiscal 2012, the
solvency limit under this regulation has since been adjusted and Mandal General Insurance LLC is in full
compliance with the regulation as of December 31, 2012.
20 Supplementary cash flow information
Praetorian Capital Management LLC (“Praetorian”) is a company controlled by the Company’s CEO.
Praetorian paid the initial start-up and formation expenses of MGG and its subsidiaries. These expenses were
reimbursed to Praetorian without interest.
The Company has paid rental payments to UMC Holding LLC which is owned by a director of one of the
Company’s subsidiaries.
Key management personnel of the Company include all directors and executive management. The summary of
compensation for key management personnel is as follows:
Salaries and other short-term employee benefits
Share-based payments
19 Contingent liabilities
2012
$
125,229
456,717
2011
$
44,015
267,452
581,946
311,467
From time to time and in the normal course of business, claims against the Company may be received. On the
basis of management’s assessments and professional legal advice, management is of the opinion that no
material losses will be incurred and no provision or disclosure has been made in these consolidated financial
statements.
The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in
the performance of their service to the Company to the extent permitted by law.
The Company is also subject to litigation arising in the normal course of conducting its insurance business. The
Company is of the opinion that this litigation will not have a significant effect on the financial position, financial
performance or cash flows of the Company.
Changes in non-working capital arising from
Other assets
Trade payables and accrued liabilities
Reinsurance assets
Deferred acquisition expense
Income tax payable
Insurance contract liabilities
2012
$
2011
$
(3,138,778)
151,262
(691,198)
(80,066)
(33,102)
1,989,745
(409,303)
849,536
(7,760)
(15,175)
819,096
361,820
Changes in non-cash working capital from operating activities
(1,802,137)
1,598,214
21 Segment information
The Company’s operations are conducted in three reportable segments as Investment Property Operations,
Insurance Operations and Corporate. The Company reports information about its operating segments based on
the way management organizes and reports the segments within the organization for making operating
decisions and evaluating performance.
Investment Property operations consist of commercial and residential investment property in Mongolia held for
the purposes of rental revenue, capital appreciation or both. These properties are managed by Big Sky Capital
LLC and its subsidiaries.
Insurance Operations includes general property and casualty insurance products in Mongolia. Insurance
underwriting and claims handling functions are administered through Mandal General Insurance LLC.
Corporate administers financial resources and the corporate investment portfolio and is comprised of
investment income, corporate costs and other activities not specific to other reportable segments and is shown
separately.
(48)
(49)
79
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
The Company evaluates performance based on net income (loss) before income taxes.
Rental income
Property operating expenses
Unrealized losses on fair
value adjustment on
investment properties
Net premiums earned
Claims and insurance
benefits incurred
Share based payment
Other expenses
Depreciation
Net investment income
Gain on disposal of
investment property
Other revenue (expense)
Investment
Property
$
1,572,603
(987,407)
(2,697,212)
-
-
(643,857)
(275,993)
(127,417)
282,114
12,768
(19,860)
Insurance
$
Corporate
$
-
-
-
-
-
(470,695)
(1,610,224)
(9,624)
6,745
-
-
-
628,424
(1,042,387)
(253,168)
(1,001,244)
(33,849)
574,454
-
43,759
2012
Total
$
1,572,603
(987,407)
(2,697,212)
628,424
(1,042,387)
(1,367,720)
(2,887,461)
(170,890)
863,313
-
-
12,768
23,899
Net loss before income taxes
(2,884,261)
(1,084,011)
(2,083,798)
(6,052,070)
Investment
Property
$
495,242
(637,507)
5,740,919
-
-
(290,800)
(107,269)
(31,106)
32,796
16,283
Insurance
$
Corporate
$
-
-
-
77,786
(51,591)
(1,087,493)
(517,733)
(11,744)
247,470
-
-
-
-
-
-
(420,310)
(650,874)
(2,907)
(624,512)
-
2011
Total
$
495,242
(637,507)
5,740,919
77,786
(51,591)
(1,798,603)
(1,275,876)
(45,757)
(344,246)
16,283
5,218,558
(1,343,305)
(1,698,603)
2,176,650
(50)
(51)
Rental income
Property operating expenses
Unrealized gains on fair
value adjustment on
investment properties
Net premiums earned
Claims and insurance
benefits incurred
Share based payment
Other expenses
Depreciation
Net investment income (loss)
Other revenue
Net income (loss) before
income taxes
80
2012
Total
$
2011
Total
$
Investment
Property
$
43,964,089
4,337,876
30,786,742
Investment
Property
$
32,726,312
4,451,542
26,166,286
Balance as of
December 31, 2012:
Total assets
Property and equipment
Investment properties
Expenditures
Property and
equipment
Investment properties
Balance as of
December 31, 2011:
Total assets
Property and equipment
Investment properties
Expenditures
Property and
equipment
Investment properties
Insurance
Corporate
$
$
5,758,399
211,250
-
1,584,043
26,905
-
51,306,531
4,576,031
30,786,742
318,096
6,896,289
113,467
-
2,147
-
433,710
6,896,289
Insurance
Corporate
$
$
4,852,712
138,086
-
17,757,865
34,382
-
55,336,889
4,624,010
26,166,286
4,479,040
20,425,367 `
149,830
-
37,289
-
4,666,159
20,425,367
Revenue
Property and
equipment
2012
$
2011
$
2012
$
2011
$
Investment property
2012
2011
$
-
$
-
Canada
Mongolia
-
-
26,905
34,382
2,237,694
589,311 4,549,126 4,589,628 30,786,742 26,166,286
2,237,694
589,311 4,576,031 4,624,010 30,786,742 26,166,286
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
(expressed in Canadian dollars)
The Company evaluates performance based on net income (loss) before income taxes.
Balance as of
December 31, 2012:
Total assets
Property and equipment
Investment properties
Expenditures
Property and
equipment
Investment properties
Balance as of
December 31, 2011:
Total assets
Property and equipment
Investment properties
Expenditures
Property and
equipment
Investment properties
Investment
Property
$
43,964,089
4,337,876
30,786,742
Insurance
$
Corporate
$
2012
Total
$
5,758,399
211,250
-
1,584,043
26,905
-
51,306,531
4,576,031
30,786,742
318,096
6,896,289
113,467
-
2,147
-
433,710
6,896,289
Investment
Property
$
32,726,312
4,451,542
26,166,286
Insurance
$
Corporate
$
2011
Total
$
4,852,712
138,086
-
17,757,865
34,382
-
55,336,889
4,624,010
26,166,286
4,479,040
20,425,367 `
149,830
-
37,289
-
4,666,159
20,425,367
Revenue
Property and
equipment
Investment property
2012
$
2011
$
2012
$
2011
$
2012
$
2011
$
Net loss before income taxes
(2,884,261)
(1,084,011)
(2,083,798)
(6,052,070)
Investment
Property
$
1,572,603
(987,407)
(2,697,212)
-
-
(643,857)
(275,993)
(127,417)
282,114
12,768
(19,860)
Investment
Property
$
495,242
(637,507)
5,740,919
-
-
(290,800)
(107,269)
(31,106)
32,796
16,283
Rental income
Property operating expenses
Unrealized losses on fair
value adjustment on
investment properties
Net premiums earned
Claims and insurance
benefits incurred
Share based payment
Other expenses
Depreciation
Net investment income
Gain on disposal of
investment property
Other revenue (expense)
Rental income
Property operating expenses
Unrealized gains on fair
value adjustment on
investment properties
Net premiums earned
Claims and insurance
benefits incurred
Share based payment
Other expenses
Depreciation
Net investment income (loss)
Other revenue
Net income (loss) before
income taxes
Insurance
Corporate
$
-
-
-
628,424
(1,042,387)
(253,168)
(1,001,244)
(33,849)
574,454
-
43,759
$
-
-
-
77,786
(51,591)
(1,087,493)
(517,733)
(11,744)
247,470
-
(470,695)
(1,610,224)
(9,624)
6,745
$
-
-
-
-
-
-
-
$
-
-
-
-
-
(420,310)
(650,874)
(2,907)
(624,512)
-
Insurance
Corporate
5,218,558
(1,343,305)
(1,698,603)
2,176,650
2012
Total
$
1,572,603
(987,407)
(2,697,212)
628,424
(1,042,387)
(1,367,720)
(2,887,461)
(170,890)
863,313
12,768
23,899
2011
Total
$
495,242
(637,507)
5,740,919
77,786
(51,591)
(1,798,603)
(1,275,876)
(45,757)
(344,246)
16,283
(50)
2,237,694
589,311 4,576,031 4,624,010 30,786,742 26,166,286
(51)
81
-
589,311 4,549,126 4,589,628 30,786,742 26,166,286
Canada
Mongolia
-
2,237,694
26,905
34,382
-
-
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
22 Other expenses
Professional fees
Travel
Advertising
Net claims incurred
Land and property tax
Insurance
Utility expense
Other expenses
2012
$
1,293,477
217,092
190,168
1,042,387
209,501
24,644
82,532
822,479
2011
$
492,953
106,341
105,714
51,591
55,094
16,102
34,449
722,448
3,882,280
1,584,692
82
(52)
Mongolia Growth Group Ltd.
Notes to Consolidated Financial Statements
December 31, 2012
(expressed in Canadian dollars)
22 Other expenses
Professional fees
Travel
Advertising
Net claims incurred
Land and property tax
Insurance
Utility expense
Other expenses
2012
$
1,293,477
217,092
190,168
1,042,387
209,501
24,644
82,532
822,479
2011
$
492,953
106,341
105,714
51,591
55,094
16,102
34,449
722,448
3,882,280
1,584,692
Corporate Information
Board of Directors
Auditors
Jordan Calonego, CFA
COO of MGG
Thunder Bay, Ontario
PricewaterhouseCoopers
LLP
Winnipeg, MB
Registered Office
700 – 2nd Street SW, Suite 1400
Calgary, AB T2P 4V5
Canada
Executive Office
34 Cumberland St N, Suite 706
Thunder Bay, ON P7A 4L3
Canada
Tel: (807) 346-8688
Fax: (866) 468-9119
info@mongoliagrowthgroup.com
Mongolian Office
Sukhbaatar District, 2nd Khoroo
5th Khoroolol – 14251
Seoul St 7/1
Ulaanbaatar, Mongolia
Tel: 976 7711 0740
info@bigsky.mn
Legal
Gowlings Lafleur
Henderson LLP
Calgary, AB
Blakes, Cassels & Graydon
LLP
Calgary, AB
Registrar and
Transfer Agent
Olympia Trust
2300 125 – 9th Ave SE Calgary,
Alberta T2G0P6
Tel: (403) 261-0900
cssinquiries@olympiatrust.com
Share Listing
TSX Venture Exchange: YAK
US Listing: MNGGF
William Fleckenstein
President of Fleckenstein
Capital
Seattle, Washington, USA
Harris Kupperman
Chairman & CEO of MGG
Miami, Florida, USA
Byambaa Losolsuren
Partner at UMC Capital
Ulaanbaatar, Mongolia
John Shaw
President of McWhinney
Denver, Colorado
Paul Sweeney
Independent Business
Consultant
Surrey, British Columbia
Officers
Harris Kupperman
Chief Executive Officer
Matthew Aiken, CA
Chief Financial Officer
Jordan Calonego, CFA
Chief Operating Officer
(52)
83
Mongolia Growth Group Ltd.
706 – 34 Cumberland St N, Thunder Bay, Ontario P7A 4L3, Canada
84