2016 Annual Report
Table of Contents
Letter to Shareholders ................................................................................................................................. 3
Management Discussion & Analysis ........................................................................................................... 4
Consolidated Financial Statements ............................................................................................................ 23
Corporate Information ................................................................................................................................ 65
Mongolia Growth Group Ltd.
Mongolia Growth Group Ltd. (MGG) is a leading publicly traded property investment company in Ulaanbaatar,
Mongolia. MGG owns an extensive property portfolio, with an emphasis on institutional-grade commercial
assets.
MGG undertakes its own property acquisitions, develops brownfield land assets and repositions outdated
properties, relying on in-house services for all facets of both the investment portfolio and development
side of the business. In addition, MGG acts as a full-service third party provider for institutional clients.
Letter to Shareholders
Harris Kupperman
CEO and Chairman of the Board
Dear Shareholders,
2016 has seen us demonstrate continued progress in terms of
reducing costs, improving efficiencies and keeping AFFO losses
to a minimum.
On the cost side, 2016 showed a $571,303 (21%) reduction in
costs before non-capitalized development expense, depreciation
and equity compensation when compared with fiscal 2015. We
are continuing to work on finding additional cost cuts however
potential savings appear to be largely exhausted after two years
of aggressive cost reductions.
Adjusted Funds From Operations (AFFO) improved significantly
year over year from a loss of $581,338 in 2015 to a loss of
$199,829 in 2016.
Offsetting these improvements in our overall operations, our
revenues in Mongolian Tögrög terms have continued to slide
throughout 2016, with this slide further exacerbated by the
28.5% decline against the Canadian Dollar since the beginning
of 2016.
Unfortunately, our AFFO continues to be negative and trends
in the Mongolian economy indicate that this negative AFFO will
accelerate from here over at least the next few quarters—even
before factoring in the rapidly depreciating Mongolian Tögrög.
We’ve done all that we could to reduce costs, find new sources
of revenue and insulate shareholders from the accelerating
decline of the Mongolian economy. Unfortunately, I suspect
that this will not be enough to get us to positive AFFO and the
next few quarters will be quite bleak before the Mongolian
economy hopefully bottoms. Following this, I suspect that the
tremendous glut of commercial property that has recently
come online and is expected to come online over the next few
years, will lead to an oversupply in property that will take at
least a few years and likely quite longer to be absorbed, leading
to stubbornly high vacancy and dramatically lower rental rates
than we have had to contend with over the past few years.
These factors will likely forestall any recovery in property values
for many years into the future.
Unfortunately, we have not reached the scale needed to support
the cost structure of being a publicly traded company and are
unlikely to do so without raising substantial additional capital—
which is unlikely to be available to us on acceptable terms
for quite some time. As a result of this, I do not see a logical
event path that gets us beyond roughly break-even AFFO for
the foreseeable future, even if rental rates recover dramatically
from here.
As CEO and largest shareholder, I clearly recognize that owning
a collection of property that continues to have negative AFFO,
while depreciating in value is a very unattractive outcome. Now
that our AFFO losses have stabilized at a much reduced level,
we have the flexibility to chart a new course that hopefully has
better future returns for shareholders.
As we review the property market, we have concluded that
values are likely to be stable at best and potentially depreciating
in US and Canadian Dollar terms for many years into the future.
Since the start of 2016, we have been trying to dispose of
multiple assets with negligible operating income on the best
terms possible, so that we can increase liquidity as we try and
determine the correct path forward. Unfortunately, we have
struggled to make sales as domestic demand for property
assets remains soft and bank funding is difficult to come by.
Additionally, it may take quite some time before the economy
recovers sufficiently for us to make more than token asset sales.
I believe in the long-term future of Mongolia and believe that
we have an outstanding portfolio of property assets along with
a highly skilled team to manage them. Regrettably, this hasn’t
been sufficient for us to create value for shareholders and it
appears that it will not be sufficient in the future either. Our
goal over the past two years, since I returned as CEO, has been
to lose less money and preserve as much value for shareholders
as possible. This continues to be our goal.
Offsetting this rather negative outlook for our business, during
2016, one of our offshore subsidiaries purchased 19,000,000
shares of Mongolian Mining Corporation (975 – Hong Kong
Stock Exchange) at an average cost of 14 Hong Kong cents. At
the end of the year, we showed a mark-to-market gain of CDN
$731,041 on this position. We intend to continue seeking out
attractive publicly traded investment opportunities both in
Mongolia and abroad, where we can use our excess liquidity
from property sales to earn attractive returns on capital as we
await redeployment of this capital.
Despite everything that I’ve said above, I believe that our
shares are highly undervalued. During the year, the Corporation
repurchased 812,500 at an average price of $0.35. Despite our
very limited liquidity, I believe that repurchasing shares remains
a good use of our capital and the Corporation will continue on
this path as long as the shares remain highly undervalued and
we have sufficient liquidity to continue repurchasing shares. The
current economic situation in Mongolia is bleak and likely to get
worse—yet I haven’t lost hope in the ultimate future for MGG
and intend to continue increasing my shareholdings over time.
Sincerely,
Harris Kupperman
CEO and Chairman of the Board
3
Mongolia Growth Group Ltd | MONGOLIA GROWTH GROUP LTD.
Management Discussion & Analysis
December 31, 2016
The management of Mongolia Growth Group Ltd. (“MGG” or “the Corporation”) presents the Corporation’s management
discussion and analysis for the year ended December 31, 2016 (the “MD&A”), compared with the year ended December 31,
2015. As of January 1, 2011, the Corporation adopted International Financial Reporting Standards (“IFRS”). This MD&A provides
an overall discussion, followed by analyses of the performance of the Corporation’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 March 30, 2017 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
Corporation for the year ended December 31, 2016 and December 31, 2015 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 adjusted earnings before interest, taxes, unrealized fair value adjustments, share based payments
depreciation and amortization (“Adjusted EBITDA”). The Corporation uses Adjusted EBITDA as a measure of the performance
of its operating subsidiaries as it excludes depreciation and interest charges, which are a function of the Corporation’s specific
capital structure, and also excludes entity specific tax expense. 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 Corporation 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. “Operating Profits” is computed by calculating the profit before tax and any fair value
adjustments. The Corporation also refers to Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”).
“FFO” is not defined under IFRS. The Corporation calculates FFO in accordance with the Real Property Association of Canada (
“REALpac ”) White Paper on Funds from Operations issued April 2014. FFO is defined by the Corporation as net income (loss)
and comprehensive income (loss) calculated in accordance with IFRS, excluding: (i) Unrealized change in fair value of investment
properties (ii) depreciation and amortization of investment properties; (iii) gains (or losses) from sales of investment properties
and equipment; (iv) tax on gains or losses of sale on investment properties (v) deferred income tax (expense) recovery; (vi)
impairment/losses on all real estate assets (vii) Gains or losses on PPE properties (viii) share based payments. “AFFO” is not
defined under IFRS and may not be comparable to AFFO used by other issuers. The Corporation has defined AFFO as FFO subject
to certain adjustments, including: development expenses not capitalized, large one-time expenses and other adjustments as
determined by Management.
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 Corporation’s management may make estimates and have opinions that form the basis for the forward-
looking statements. The Corporation assumes no obligation to update such statements if circumstances, management’s
estimates, or opinions change.
Forward looking statements are included within the Outlook, CEO Message to Shareholders and Executive Strategy sections of
this MD&A.
4
| Mongolia Growth Group Ltd Section 1 – Overview
Financial and Operational Overview
During the fourth quarter of 2016, the Corporation continued to focus on reducing costs in the midst of a weakening Mongolian
economy; however cost reductions were partially offset by continued declines in rental revenues on assets that experienced
lease renewals along with continued depreciation of the Mongolian Tögrög against the Canadian Dollar. Offsetting this, a number
of properties that were developed by the Corporation in prior periods began to pay rent. During 2016, FFO improved significantly
from a loss of $755,767 in 2015 to an FFO gain of $157,405 in 2016. AFFO improved from a loss of $581,338 in 2015 to a loss of
$199,829 in 2016. These improvements were due to a 21.4% reduction in costs before depreciation, equity compensation and
non-capitalized development expenses when compared with 2015 due to several one-time events captured in the expenses for
the year.
The Corporation’s rental revenue decreased by 10.9% compared to the prior year, which was largely as a result of increased
vacancies in the office sector, increasing amount of rental discounts provided to tenants and a weaker currency. Additionally,
the Corporation was forced to reduce rental rates on many property assets when leases came up for renewal. The Corporation’s
office space experienced higher vacancy rates than usual due to the departure of a significant tenant at the Corporation’s head
office. The Corporation is working to increase the occupancy at this property, but has struggled to fill this space due to an
oversupply of office space and a weakening economy. Additionally, rental rates have continued to decline, particularly in the
office market, leading to an expectation that rental revenue will continue to decline in future quarters. While the Corporation
has experienced a low level of bad debt expense thus far in the economic crisis, an increasing number of tenants are showing
stress in their businesses and there is no certainty on whether the Corporation’s bad debt expense will increase in future periods.
Weakness in the economy has led to decreases in the Corporation’s occupancy rates particularly in the office space sector which
had an occupancy rate of 84.9% at the end of the year dragging down the Corporation’s overall weighted average occupancy rate
to 91.0%.
Due to a significant deterioration of the local economy, the Corporation recorded an unrealized fair value loss of $5,728,003 on
its investment properties portfolio during 2016 (2015-$7,926,701). If property values continue to decline, the Corporation will
likely need to record unrealized fair value losses in future periods.
During the year, the Corporation disposed of 4 investment properties for proceeds of $970,241. Proceeds from the sales of assets
during the year were used for working capital purposes and its Normal Course Issuer Bid (NCIB) program. It is anticipated that
the Corporation will continue to dispose of properties in future quarters in order to fund working capital needs, future public
securities purchases along with the renewed NCIB program. As of December 31, 2016, the Corporation had five investment
properties at a fair value of $2,132,267 classified as available for sale. (Q4 2015 – four classified as available for sale at a fair value
of $2,970,114).
During the year, the Mongolian Tögrög depreciated versus the Canadian dollar from 1,438 MNT/CAD on December 31, 2015
to 1,848 MNT/CAD on December 31 2016; a 28.5% decrease during the year. This depreciation led to a $10,651,263 other
comprehensive loss (2015 – 6,471,774 gain) during the year. Subsequent to the end of the quarter, the Mongolian Tögrög has
continued to experience a steady and continuous decline. During the year, the Corporation has experienced some difficulty in
converting Mongolian Tögrög to U.S. Dollars as banks seem to have a shortage of U.S. Dollars. At times, banks have imposed
various daily limits on convertibility that have hindered the Corporation’s ability to convert even small quantities of currency. The
Corporation continues to transfer money back to its Canadian headquarters, however there is no certainty that the Mongolian
banks will continue to allow such transfers in the future. The Corporation tries to keep as little of its cash reserves in Mongolian
Tögrög as is possible to operate the business.
Economic Overview
From 2009 until 2014, the Mongolian real estate sector benefitted from local economic growth. The majority of this growth was
attributable to the mining and construction booms 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 also served
to strengthen the local economy. In addition, an increase in other industries, particularly tourism and agriculture have helped to
grow the economy. The positive impact of improving consumer and business confidence led to a substantial increase in the gross
production of the local economy.
Since 2015, according to official government statistics, the Mongolian economy has witnessed a decrease in its growth rate, with
this decline accelerating since then. This slow-down has been caused by reduced prices for commodities, political uncertainty,
the arrest of certain foreign executives, a decrease in bank lending, along with doubt over the timing of the continuation of the
Oyu Tolgoi underground development. These factors have led to a substantial decline in foreign direct investment (FDI) which has
reduced the rate of growth of the economy.
Despite government statistics indicating overall economic growth, many sectors of the economy are under severe economic
distress, with most business people believing that the economy has in fact been experiencing a dramatic contraction since
sometime in 2014. Additionally, statistical indexes that are not affiliated with the Mongolian Government, such as the World
Economics Sales Managers Index, indicate that the economy has likely been contracting since early 2014. This economic
5
Mongolia Growth Group Ltd | contraction has impacted the property sector where vacancies have increased while rental rates have declined dramatically—
even before taking into account the decline in the currency. It is anticipated that certain austerity initiatives undertaken related
to the recently announced IMF loan, will serve to further impair current economic conditions. Additionally, there is uncertainty
that the IMF package will be implemented.
Management believes that the current economic slow-down is the result of policies that have discouraged Foreign Direct
Investment (“FDI”). When the government takes the appropriate steps to stimulate FDI, it is expected that the economy can
return to prior rates of economic growth. Management remains a believer in the long-term growth potential of Mongolia.
Property Overview
The general property market continues to be influenced by the overall Mongolian economy. With the accelerating decline in the
Mongolian economy, there has been a noticeable increase in vacancy, particularly in office and residential space. In the downtown
core, this has led to a substantial decline in pricing for both rental rates and sales for those two asset classes. High street retail
has seen less of an increase in supply, and demand for space remains adequate although lease rates have continued their decline
throughout 2016. While most data is anecdotal, office rental prices in the downtown core have declined between 50-80%, while
retail lease rates have declined by approximately a third in Mongolian Tögrög terms over the past 12-18 months. These declines
are further magnified by the decline in the currency against the Canadian Dollar. Recently, a number of prestigious office buildings
have offered highly aggressive rates in order to fill vacancies, including elongated free rental periods or even offering rental rates
that are below the levels needed to support property taxes and utilities. Based on those indicative rates, the Corporation would
experience a substantial decline in rental rates for existing office assets and it is expected that the Corporation’s rental revenues
will decline substantially in future periods. Additionally, there are a sizable number of office buildings and retail mini-malls that
are expected to be completed before the end of 2017. These properties are expected to put substantial additional pressure on
rental rates as they represent very sizable increases in supply at a time when demand continues to decline due to businesses
downsizing or ceasing operations. The Corporation cautions investors that in future periods it may be forced to accept rental
rates that do not cover basic operating costs such as utilities and property tax, even before considering additional allocated
overhead management costs. In such a situation, it would be expected that AFFO losses would expand dramatically from 2016
levels. Additionally, such lease rates may last for an elongated period of time and substantially deplete the Corporation’s liquidity.
Outside of the downtown of Ulaanbaatar, a noticeable increase in building activity has saturated most markets and led to a more
substantial decline in prices. In addition, there has been a recent increase in office and residential construction activity that will
likely lead to future saturation in those markets. Finally, there has been a noticeable increase in the number distressed property
owners, including banks that are experiencing a rapidly increasing number of bad debts and foreclosures. It is likely that these
individuals will be forced to liquidate their property assets, potentially at prices that are substantially below current market
prices. Recently, a number of banks that had been hesitant to sell properties at a loss have begun to market these prices at sizable
discounts to the valuations on their balance sheets. If sales are completed at large discounts to current prices, it would impact
the fair value of the Corporation’s assets and may lead to future sizable unrealized losses to the fair value of the Corporation’s
portfolio assets. Recent comments by the IMF have indicated that as part of the bail-out program, it intends to ensure that local
banks are adequately capitalized and regulated. This may force domestic banks to raise additional capital and/or sell assets to
improve their liquidity and risk capital levels. Such sales would severely impact current property values. Management cautions
shareholders that property prices have historically been, and will continue to be, volatile. It is expected that property prices will
continue to decline for the foreseeable future.
Management expects a continued demand for well-located street-level retail space, with a reduced demand level for office space.
MGG continues to have below market rates of vacancy in all asset classes and believes that it is substantially outperforming the
overall market in terms of occupancy and attributes its success to the size and capability of its leasing and marketing organization
though it has often had to offer substantial discounts in order to fill spaces. For more information on leasing, visit http://www.
MGGProperties.com.
The Corporation is focused on maintaining high levels of occupancy, even if it needs to continually lower rental rates.
MGG has seen a slight increase in bad debt and late payment of rent over the past year. Additionally, a large number of tenants
are asking to have their rents reduced due to the economic crisis. MGG proactively evaluates tenants based on past rental history
before changing the terms of rental contracts with a goal of keeping properties fully occupied at the cost of lowering rents. It
is anticipated that many existing leases will be re-negotiated to substantially lower rates when they expire over the next few
quarters.
It is expected that market rental rates will continue to decline, especially when converted back to Canadian dollars. Additionally,
overall rental revenue is expected to decline as existing leases are re-signed at current market rates that are often substantially
lower than the rates that existed when contracts were previously signed or existing tenants demand that the Corporation reduces
rental rates.
6
| Mongolia Growth Group Ltd Section 2 ‐ Executing the Strategy
Core Business
During the past six years, Management and employees have worked hard to build up the infrastructure needed to
manage MGG’s institutional property platform. This platform is unique in Mongolia and is one of the only platforms
capable of managing assets through the full cycle of ownership from acquisition and development, through disposition
and includes dedicated departments that manage maintenance, leasing, marketing and tenant management.
Management believes it has a strong team in place to lead the Corporation into its next phase of growth.
Section 2 - Executing the Strategy
Due to MGG’s unique platform, the Corporation has added third party leasing and property management to its focus,
in order to leverage its existing resources. Management believes that it has excess capacity to handle these functions
Core Business
and has seen a sizable increase in interest in using its brokerage operation as awareness spreads in the Ulaanbaatar
During the past six years, Management and employees have worked hard to build up the infrastructure needed to manage MGG’s
market. The Corporation intends to more actively target this brokerage opportunity now that its website is renewed
institutional property platform. This platform is unique in Mongolia and is one of the only platforms capable of managing assets
and relaunched at www.MGGproperties.com.
through the full cycle of ownership from acquisition and development, through disposition and includes dedicated departments
that manage maintenance, leasing, marketing and tenant management. Management believes it has a strong team in place to
Since inception, MGG has acquired a number of redevelopment properties. To date, the Corporation has also
lead the Corporation into its next phase of growth.
remodeled, rebuilt and completed additions on properties. During 2014 and 2015, the Corporation spent substantial
resources on redeveloping its Tuguldur retail center property; however these redevelopment efforts have been put
Due to MGG’s unique platform, the Corporation has added third party leasing and property management to its focus, in order to
on hold due to a slowing economy and uncertainty regarding the ability to lease added space due to the rapidly
leverage its existing resources. Management believes that it has excess capacity to handle these functions and has seen a sizable
increase in interest in using its brokerage operation as awareness spreads in the Ulaanbaatar market. The Corporation intends to
increasing vacancy level in the city. The Corporation did complete a 334 meter extension to Tuguldur during early
more actively target this brokerage opportunity now that its website is renewed and relaunched at www.MGGproperties.com.
2016 and a lease was signed with a well‐respected Mongolian tenant in early 2016. This tenant began to pay rent
during the third quarter of 2016. Due to the project going over budget and the sizable decline in market rents from
Since inception, MGG has acquired a number of redevelopment properties. To date, the Corporation has also remodeled, rebuilt
and completed additions on properties. During 2014 and 2015, the Corporation spent substantial resources on redeveloping its
when the project began until a lease was signed, this development project did not hit internal return targets, further
Tuguldur retail center property; however these redevelopment efforts have been put on hold due to a slowing economy and
validating the Corporation’s decision to cease all further development spending. As part of its cost savings initiative,
uncertainty regarding the ability to lease added space due to the rapidly increasing vacancy level in the city. The Corporation did
the Corporation has eliminated its development department as it is expected that there will be no need for additional
complete a 334 meter extension to Tuguldur during early 2016 and a lease was signed with a well-respected Mongolian tenant in
space in Ulaanbaatar for many years into the future. The Corporation is currently evaluating its strategy for the
early 2016. This tenant began to pay rent during the third quarter of 2016. Due to the project going over budget and the sizable
Corporation’s development pipeline as it will no longer have the internal resources to develop them and a
decline in market rents from when the project began until a lease was signed, this development project did not hit internal
return targets, further validating the Corporation’s decision to cease all further development spending. As part of its cost savings
monetization of these assets will increase the Corporation’s liquidity.
initiative, the Corporation has eliminated its development department as it is expected that there will be no need for additional
space in Ulaanbaatar for many years into the future. The Corporation is currently evaluating its strategy for the Corporation’s
Portfolio
development pipeline as it will no longer have the internal resources to develop them and a monetization of these assets will
increase the Corporation’s liquidity.
Mongolia Growth Group’s properties are located in the Downtown and the Central Business District of Ulaanbaatar.
Within the financial statements, MGG classifies properties in each of the following categories; Investment Properties,
Portfolio
Property and Equipment, and Other Assets/Prepaid Deposits. Fluctuations in the values of the Corporation’s property
Mongolia Growth Group’s properties are located in the Downtown and the Central Business District of Ulaanbaatar.
portfolio during the quarter can be attributed to changes in valuations, properties purchased and sold, and the change
in value of the functional currency (Mongolian Tögrög) versus the Canadian dollar.
Within the financial statements, MGG classifies properties in each of the following categories; Investment Properties, Property
and Equipment, and Other Assets/Prepaid Deposits. Fluctuations in the values of the Corporation’s property portfolio during
the quarter can be attributed to changes in valuations, properties purchased and sold, and the change in value of the functional
Investment Properties
currency (Mongolian Tögrög) versus the Canadian dollar.
Investment Properties include properties held to earn rental revenue, for capital appreciation, and/or for
Investment Properties
redevelopment. Investment Properties are initially valued at fair value, which is the purchase price plus any directly
Investment Properties include properties held to earn rental revenue, for capital appreciation, and/or for redevelopment.
attributable expenditure. Investment Properties are subsequently valued at fair value, which reflects market
Investment Properties are initially valued at fair value, which is the purchase price plus any directly attributable expenditure.
conditions at the date of the statement of financial position.
Investment Properties are subsequently valued at fair value, which reflects market conditions at the date of the statement of
financial position.
The following table represents properties classified as Investment Properties, as of December 31, 2016;
The following table represents properties classified as Investment Properties, as of December 31, 2016;
Residential
Office
Retail
Land and Redevelopment
Total
# of Properties
2
3
23
3
31
Property and Equipment
2016
Value at 31‐Dec‐16
$CDN
250,320
2,976,642
16,505,234
9,769,154
29,501,350
# of Properties
1
3
26
4
34
2015
Value at 31‐Dec‐15
$CDN
285,170
4,649,657
25,842,765
15,696,158
46,473,750
Properties are classified as Property and Equipment if the Corporation occupies more than 10% of the property. Properties
classified as Property and Equipment are measured at cost less accumulated depreciation, less any accumulated impairment
losses. All repairs and maintenance costs to these properties are charged to the consolidated statement of operations during the
period in which they occur unless eligible for capitalization. The Corporation’s headquarters, purchased in October 2011, falls
within this category. During the year, the Corporation’s headquarters building has experienced an increase in vacancy as a sizable
tenant ended its lease in March 2016 and the Corporation has struggled to lease the space since this time.
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
8
7
Mongolia Growth Group Ltd |
Property and Equipment
Property and Equipment
Properties are classified as Property and Equipment if the Corporation occupies more than 10% of the property.
Properties classified as Property and Equipment are measured at cost less accumulated depreciation, less any
Properties are classified as Property and Equipment if the Corporation occupies more than 10% of the property.
accumulated impairment losses. All repairs and maintenance costs to these properties are charged to the consolidated
Properties classified as Property and Equipment are measured at cost less accumulated depreciation, less any
Property and Equipment
statement of operations during the period in which they occur unless eligible for capitalization. The Corporation’s
accumulated impairment losses. All repairs and maintenance costs to these properties are charged to the consolidated
Properties are classified as Property and Equipment if the Corporation occupies more than 10% of the property.
headquarters, purchased in October 2011, falls within this category. During the year, the Corporation’s headquarters
statement of operations during the period in which they occur unless eligible for capitalization. The Corporation’s
Properties classified as Property and Equipment are measured at cost less accumulated depreciation, less any
building has experienced an increase in vacancy as a sizable tenant ended its lease in March 2016 and the Corporation
headquarters, purchased in October 2011, falls within this category. During the year, the Corporation’s headquarters
accumulated impairment losses. All repairs and maintenance costs to these properties are charged to the consolidated
building has experienced an increase in vacancy as a sizable tenant ended its lease in March 2016 and the Corporation
has struggled to lease the space since this time.
statement of operations during the period in which they occur unless eligible for capitalization. The Corporation’s
has struggled to lease the space since this time.
headquarters, purchased in October 2011, falls within this category. During the year, the Corporation’s headquarters
The following table represents properties classified as Property and Equipment, as of December 31, 2016;
building has experienced an increase in vacancy as a sizable tenant ended its lease in March 2016 and the Corporation
The following table represents properties classified as Property and Equipment, as of December 31, 2016;
has struggled to lease the space since this time.
2015
2016
# of Properties
# of Properties
Value at 31‐Dec‐16
2016
$CDN
Value at 31‐Dec‐16
‐
$CDN
1,672,645
‐
2016
‐
1,672,645
Value at 31‐Dec‐16
‐
‐
$CDN
1,672,645
‐
‐
1,672,645
1,672,645
‐
‐
1,672,645
The following table represents properties classified as Property and Equipment, as of December 31, 2016;
The following table represents properties classified as Property and Equipment, as of December 31, 2016;
# of Properties
1
1
1
‐
1
‐
# of Properties
‐
2
‐
1
2
1
‐
‐
2
# of Properties
‐
1
‐
‐
1
‐
# of Properties
‐
1
‐
‐
1
1
‐
‐
1
Residential
Office
Residential
Retail
Office
Land and Redevelopment
Retail
Total
Land and Redevelopment
Residential
Total
Office
Other Assets/ Prepaid Deposits
Retail
Land and Redevelopment
Other Assets/ Prepaid Deposits
Investment property purchases where the Corporation has paid either the full or partial purchase proceeds to the
Total
seller, but the Corporation has not yet received the official land or building title from the Mongolian Property office,
Investment property purchases where the Corporation has paid either the full or partial purchase proceeds to the
are recorded at cost as Prepaid Deposits on Investment Properties and classified within other assets.
seller, but the Corporation has not yet received the official land or building title from the Mongolian Property office,
Other Assets/ Prepaid Deposits
Other Assets/ Prepaid Deposits
are recorded at cost as Prepaid Deposits on Investment Properties and classified within other assets.
Investment property purchases where the Corporation has paid either the full or partial purchase proceeds to the seller, but the
Investment property purchases where the Corporation has paid either the full or partial purchase proceeds to the
The following table represents properties classified as Prepaid Deposits on Investment Properties, as of December 31,
Corporation has not yet received the official land or building title from the Mongolian Property office, are recorded at cost as
seller, but the Corporation has not yet received the official land or building title from the Mongolian Property office,
2016;
The following table represents properties classified as Prepaid Deposits on Investment Properties, as of December 31,
Prepaid Deposits on Investment Properties and classified within other assets.
are recorded at cost as Prepaid Deposits on Investment Properties and classified within other assets.
2016;
The following table represents properties classified as Prepaid Deposits on Investment Properties, as of December 31, 2016;
2015
The following table represents properties classified as Prepaid Deposits on Investment Properties, as of December 31,
2016;
Value at 31‐Dec‐15
2015
$CDN
Value at 31‐Dec‐15
99,316
$CDN
2,665,989
99,316
2015
‐
2,665,989
Value at 31‐Dec‐15
‐
‐
$CDN
2,765,305
‐
99,316
2,765,305
2,665,989
‐
‐
2,765,305
# of Properties
# of Properties
2016
# of Properties
# of Properties
‐
‐
Residential
‐
‐
Office
‐
Residential
‐
‐
‐
Retail
‐
Office
‐
# of Properties
# of Properties
1*
1*
Land and Redevelopment
‐
‐
Retail
1
1
Total
1*
1*
Land and Redevelopment
‐
Residential
‐
* This land asset is part of one of the land packages outlined in the Investment Properties section and is not a standalone land package.
1
1
Total
‐
‐
Office
* This land asset is part of one of the land packages outlined in the Investment Properties section and is not a standalone land package.
* This land asset is part of one of the land packages outlined in the Investment Properties section and is not a standalone land package.
‐
‐
Retail
Occupancy Rates
1*
1*
Land and Redevelopment
Occupancy Rates
Occupancy Rates
1
1
Total
A summary of MGG’s property portfolio occupancy rates is set forth in the following table:
* This land asset is part of one of the land packages outlined in the Investment Properties section and is not a standalone land package.
A summary of MGG’s property portfolio occupancy rates is set forth in the following table:
A summary of MGG’s property portfolio occupancy rates is set forth in the following table:
2016
Value at 31‐Dec‐16
$CDN
Value at 31‐Dec‐16
‐
$CDN
‐
2016
‐
‐
‐
Value at 31‐Dec‐16
42,759
‐
$CDN
42,759
42,759
‐
42,759
‐
‐
42,759
42,759
Occupancy Rates
A summary of MGG’s property portfolio occupancy rates is set forth in the following table:
31 –Dec‐ 2016
Occupancy Rate*
31 –Dec‐ 2016
Occupancy Rate*
84.9%
84.9%
95.1%
31 –Dec‐ 2016
91.0%
95.1%
Occupancy Rate*
91.0%
84.9%
31 –Dec‐ 2015
Occupancy Rate*
31 –Dec‐ 2015
Occupancy Rate*
91.7%
91.7%
84.4%
31 –Dec‐ 2015
87.4%
84.4%
Occupancy Rate*
87.4%
91.7%
Office
Office
Retail
2015
Value at 31‐Dec‐15
$CDN
Value at 31‐Dec‐15
‐
$CDN
‐
2015
‐
‐
‐
Value at 31‐Dec‐15
69,727
‐
$CDN
69,727
69,727
‐
69,727
‐
‐
69,727
69,727
31 –Dec‐ 2014
Occupancy Rate*
31 –Dec‐ 2014
Occupancy Rate*
98.2%
98.2%
91.2%
31 –Dec‐ 2014
94.2%
91.2%
Occupancy Rate*
94.2%
98.2%
95.1%
* Occupancy rates are calculated on a per meter basis;
Weighted Average**
Retail
* Occupancy rates are calculated on a per meter basis;
Weighted Average**
** Weighted Average is calculated based on total meters available for lease
Office
** Weighted Average is calculated based on total meters available for lease
* Occupancy rates are calculated on a per meter basis;
** Weighted Average is calculated based on total meters available for lease
Retail
Demand for retail space has remained strong, despite a difficult economy. Occupancy levels for the Corporation’s office space,
Demand for retail space has remained strong, despite a difficult economy. Occupancy levels for the Corporation’s
Weighted Average**
excluding its headquarters building, which lost a major tenant at the beginning of the year, have been good even while vacancy
office space, excluding its headquarters building, which lost a major tenant at the beginning of the year, have been
Demand for retail space has remained strong, despite a difficult economy. Occupancy levels for the Corporation’s
* Occupancy rates are calculated on a per meter basis;
levels throughout the city have increased significantly as additional supply has entered the market. The Corporation’s Tuguldur
good even while vacancy levels throughout the city have increased significantly as additional supply has entered the
office space, excluding its headquarters building, which lost a major tenant at the beginning of the year, have been
** Weighted Average is calculated based on total meters available for lease
Center has experienced a continued improvement in occupancy throughout the year and ended the year with average weekly
market. The Corporation’s Tuguldur Center has experienced a continued improvement in occupancy throughout the
good even while vacancy levels throughout the city have increased significantly as additional supply has entered the
occupancy of over 90% compared with occupancy of approximately 60% for much of 2015. Management attributes its success
Demand for retail space has remained strong, despite a difficult economy. Occupancy levels for the Corporation’s
year and ended the year with average weekly occupancy of over 90% compared with occupancy of approximately
throughout the portfolio due to increased marketing initiatives, industry leading property management and realistic price
market. The Corporation’s Tuguldur Center has experienced a continued improvement in occupancy throughout the
office space, excluding its headquarters building, which lost a major tenant at the beginning of the year, have been
expectations.
year and ended the year with average weekly occupancy of over 90% compared with occupancy of approximately
good even while vacancy levels throughout the city have increased significantly as additional supply has entered the
The Corporation would like to caution shareholders that it is experiencing abnormally high levels of tenant turnover and
market. The Corporation’s Tuguldur Center has experienced a continued improvement in occupancy throughout the
occupancy levels can fluctuate dramatically between months as tenants break leases. It is expected that turnover will increase
year and ended the year with average weekly occupancy of over 90% compared with occupancy of approximately
as the economy continues to decline and it is uncertain if the Corporation will be able to continue to find new tenants due to
the weak economy. Additionally, the Corporation often experiences added tenant improvement expenses when tenants break
leases. During 2016, this expense was unusually elevated compared to prior years and may continue in 2017.
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
91.0%
87.4%
94.2%
84.4%
91.2%
9
9
9
Leasing Schedule
In order to reduce the Corporation’s exposure to currency fluctuations and inflation, the Corporation targets shorter lease
durations with most tenants. Management’s experience is that this practice is in line with local industry standards, with the
expectation that once leases expire, existing tenants are offered the first right to re-lease the space at then prevailing market
rates.
8
| Mongolia Growth Group Ltd
60% for much of 2015. Management attributes its success throughout the portfolio due to increased marketing
initiatives, industry leading property management and realistic price expectations.
The Corporation would like to caution shareholders that it is experiencing abnormally high levels of tenant turnover
and occupancy levels can fluctuate dramatically between months as tenants break leases. It is expected that turnover
will increase as the economy continues to decline and it is uncertain if the Corporation will be able to continue to find
new tenants due to the weak economy. Additionally, the Corporation often experiences added tenant improvement
expenses when tenants break leases. During 2016, this expense was unusually elevated compared to prior years and
may continue in 2017.
Leasing Schedule
In order to reduce the Corporation’s exposure to currency fluctuations and inflation, the Corporation targets shorter
lease durations with most tenants. Management’s experience is that this practice is in line with local industry
standards, with the expectation that once leases expire, existing tenants are offered the first right to re‐lease the
space at then prevailing market rates.
During the first quarter of 2017, approximately 699 meters of leases, representing about $12,000 in monthly rental revenue will
expire.
During the first quarter of 2017, approximately 699 meters of leases, representing about $12,000 in monthly rental
revenue will expire.
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Retail
Office
Redevelopment
2017
2018
2019
2020
The weighted average remaining lease increased to 10.9 months in December 2016 from 10.4 months in December
2015, calculated as a percentage of monthly revenues.
The weighted average remaining lease increased to 10.9 months in December 2016 from 10.4 months in December 2015,
calculated as a percentage of monthly revenues.
It is Management’s belief that most existing leases are at rates that are above current prevailing market rates. With
the current economic crisis, many companies are suffering which is reflected in lower market rental rates in aggregate.
It is expected that the Corporation’s rental revenue may decline as leases are renewed at current market rates.
Offsetting this fact, many of the Corporation’s prior leases were signed at rates that did not reflect peak market rates.
It is Management’s belief that most existing leases are at rates that are above current prevailing market rates. With the current
economic crisis, many companies are suffering which is reflected in lower market rental rates in aggregate. It is expected that
the Corporation’s rental revenue may decline as leases are renewed at current market rates. Offsetting this fact, many of the
Corporation’s prior leases were signed at rates that did not reflect peak market rates.
Lease Type
Lease Renewal Date
SqM
Old Price Per Meter
(Mongolian Tögrög)
New Price Per Meter
(Mongolian Tögrög)
Most Recent Retail Lease Signings
Office Lease
Office Lease
Office lease
Retail Lease
Office lease
Office lease
Office lease
Office lease
Office lease
Office lease
Office lease
Office lease
Office lease
Office lease
16‐Oct
16‐Oct
16‐Oct
16‐Nov
16‐Nov
16‐Nov
16‐Nov
16‐Nov
16‐Nov
16‐Nov
16‐Nov
16‐Dec
16‐Dec
16‐Dec
22
54
12
169
24
20
60
24
55
33
30
23
85
54
30,000
30,000
35,000
35,608
31,958
30,000
25,000
25,000
25,454
39,393
40,000
30,000
30,000
40,000
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
10
Percent
Increase
(decrease)
‐24.24%
‐32.10%
0.00%
3.33%
‐37.42%
‐16.67%
‐20.00%
‐20.00%
‐21.43%
‐23.84%
‐30.00%
‐33.33%
‐33.33%
‐32.50%
22,727
20,370
35,000
36,795
20,000
25,000
20,000
20,000
20,000
30,000
28,000
20,000
20,000
27,000
Publicly Traded Securities
Publicly Traded Securities
During the year, one of the Corporation’s offshore subsidiaries purchased 19,000,000 shares of Mongolian Mining Corporation
During the year, one of the Corporation’s offshore subsidiaries purchased 19,000,000 shares of Mongolian Mining
at an average cost of approximately 14.2 Hong Kong cents for gross proceeds of $453,698. As of the end of the year, the shares
Corporation at an average cost of approximately 14.2 Hong Kong cents for gross proceeds of $453,698. As of the end
were worth $1,184,825 for a pre-tax gain of $731,041. These shares were purchased for investment purposes.
of the year, the shares were worth $1,184,825 for a pre‐tax gain of $731,041. These shares were purchased for
investment purposes.
The Corporation continues to evaluate various investment opportunities in globally traded public securities. The Corporation
views investment activities in public securities to be complimentary to its core property business and a potentially attractive use
The Corporation continues to evaluate various investment opportunities in globally traded public securities. The
for excess property sale proceeds awaiting re-deployment. The Corporation intends to increase the size of its securities portfolio
Corporation views investment activities in public securities to be complimentary to its core property business and a
over time.
potentially attractive use for excess property sale proceeds awaiting re‐deployment. The Corporation intends to
increase the size of its securities portfolio over time.
9
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
11
Mongolia Growth Group Ltd |
Section 3 – Results of Operations
Section 3 – Results of Operations
Selected Annual Financial Information (CAD)
Selected Annual Financial Information (CAD)
Total Revenue
Income
Net Income/ (loss) attributable to equity holders
of the Corporation
Total Comprehensive income/ (loss) attributable
to equity holders of the Corporation
Basic earnings per share ("EPS") (in CAD)
Net income/ (loss)
Diluted EPS (in CAD)
Net Income/ (loss)
Balance Sheet
Total Assets
Total liabilities
Total Equity
Shares Outstanding at year end
Book Value per share
Year ended
31‐Dec‐ 2016
Year ended
31‐Dec‐ 2015
Year ended
31‐Dec‐ 2014
1,609,966
1,947,508
1,918,916
(5,662,784)
(9,930,970)
(16,314,047)
(3,459,196)
(0.16)
(0.16)
34,511,276
1,978,836
32,532,440
34,806,599
0.93
(0.28)
(0.28)
50,815,170
1,840,825
48,974,345
35,512,829
1.38
4,151,782
2,631,084
0.12
0.12
54,106,591
3,176,142
50,930,449
34,848,745
1.46
Revenue from Investment Properties
Revenue from Investment Properties
For the year end December 31, 2016, rental revenue from Investment Properties was $1,783,896 versus $2,002,512 in the prior
For the year end December 31, 2016, rental revenue from Investment Properties was $1,783,896 versus $2,002,512
year. The decrease year over year was primarily attributable to leases being renewed at lower rates as well as a decrease in the
in the prior year. The decrease year over year was primarily attributable to leases being renewed at lower rates as
local currency versus the Canadian dollar.
well as a decrease in the local currency versus the Canadian dollar.
Gain/loss on sale of Investment Properties
Gain/loss on sale of Investment Properties
For the year end December 31, 2016, the Corporation reported a net loss of $223,532 on the sale of four investment properties
versus a net loss of $116,182 in the prior year on the sale of ten properties.
For the year end December 31, 2016, the Corporation reported a net loss of $223,532 on the sale of four investment
properties versus a net loss of $116,182 in the prior year on the sale of ten properties.
Revenue from Other Sources
Revenue from other sources consists of late fees and other income. For the year ending December 31, 2016, revenues from other
Revenue from Other Sources
sources totaled $49,602 compared to $61,178 for the year ending December 31, 2015. Revenues decreased due to a lower gain
on disposal of fixed asset than the previous year.
Revenue from other sources consists of late fees and other income. For the year ending December 31, 2016, revenues
from other sources totaled $49,602 compared to $61,178 for the year ending December 31, 2015. Revenues
Income Taxes
decreased due to a lower gain on disposal of fixed asset than the previous year.
The Corporation has subsidiaries in Mongolia that are subject to income taxes and, accordingly, has provided for current and
deferred income taxes with respect to those subsidiaries.
Income Taxes
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 deferred tax income of $143,126 for the
The Corporation has subsidiaries in Mongolia that are subject to income taxes and, accordingly, has provided for
year ended December 31, 2016 (2015 $238,472 income), is due to a difference in the fair value of the properties in Mongolia
current and deferred income taxes with respect to those subsidiaries.
and depreciation claimed for income tax purposes. The deferred tax liability on the balance sheet decreased $365,774 during
the year (Q4 2015 -109,032). The foreign exchange impact of the deferred tax liability of $222,648 (2015 $129,440) for the year
Differences between IFRS and statutory taxation regulations in Mongolia give rise to temporary differences between
ending December 31, 2016, is recorded in other comprehensive loss.
the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The deferred tax
Following an internal review in early 2015, the Corporation determined that it had been overpaying certain taxes to the Canadian
income of $143,126 for the year ended December 31, 2016 (2015 $238,472 income), is due to a difference in the fair
government during the period from 2011 until early 2015. The Tax Authorities agreed with the Corporation’s findings related
value of the properties in Mongolia and depreciation claimed for income tax purposes. The deferred tax liability on
to this tax issue. On October 3, 2016, the Corporation received a refund for $333,475. The Corporation intends to continue to
the balance sheet decreased $365,774 during the year (Q4 2015 ‐109,032). The foreign exchange impact of the
monitor its tax liabilities.
deferred tax liability of $222,648 (2015 $129,440) for the year ending December 31, 2016, is recorded in other
At year end, the Company reviewed its taxes receivable and determined that the Value Added Tax (VAT) amount that was not
comprehensive loss.
projected to be received/offset by the end of 2017 ($85,526) should be expensed and recorded as doubtful receivables.
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
12
10
| Mongolia Growth Group Ltd
Fair Value Adjustment on Investment Properties
As elected under IFRS, the Corporation’s investment portfolio is subsequently measured at fair value in the Corporation’s financial
statements. As of December 31, 2016, the Corporation had approximately 58% of its Investment Properties Portfolio including
its head office (classified in PP&E) valued by an international valuation firm and the remaining 42% (27 properties) were valued
by Management. For the year ended December 31, 2016, the fair value adjustment to investment properties was a loss of
$5,728,003 compared to a loss of $7,926,701 for the same period in 2015.
Unrealized short-term investment gain
During the year, one of the Corporation’s offshore subsidiaries purchased 19,000,000 shares of Mongolian Mining Corporation
(Ticker Symbol 975: Hong Kong Stock Exchange) at an average price of approximately 14.2 Hong Kong cents. At the end of the
quarter, the shares closed at 36.0 Hong Kong cents, leading to a pre-tax gain after currency adjustments of CDN $731,041. The
Corporation currently has no other publicly traded security positions, but continues to evaluate potential additional investments
in publicly traded securities.
Share Repurchase
During the year, the Corporation repurchased 812,500 of its common shares under its Normal Course Issuer Bid (NCIB) at an
average price of $0.35. As at December 31, 2016, the Company held 86,500 shares in Treasury to be cancelled during the first
quarter of 2017.
Property Operating Expenses
Property Operating Expenses consist of repairs and maintenance, bad debts, utilities, salaries, as well as land and property taxes.
For the year ending December 31, 2016 the property operating expenses were $1,354,014 compared to $1,576,751 during
the same period in 2015, representing a decrease of approximately 14%. This decrease was primarily due to a reduction in the
number of properties in the portfolio along with certain expense reductions as the Corporation becomes more efficient.
Corporate Expenses
Corporate expenses include senior management’s compensation, share-based costs, listing fees, professional fees, technology,
travel and administrative costs.
For the year ending December 31, 2016 general and administration expenses decreased to $503,987 from $1,291,511 in 2015.
This decrease from the previous year is primarily attributed to a reduction in share based payment expense, a reversal in corporate
tax expense as well as ongoing cost cutting initiatives.
Currency
Note 8 in the financial statements discloses the foreign exchange adjustment, which flows through the investment
The Mongolian Tögrög has fluctuated significantly over the past five years. The Mongolian Tögrög has depreciated 6.8%, 5.1%,
property classification during each period. As at December 31, 2016 the Corporation recognized a significant foreign
11.5% and 5.3% in 2011, 2012, 2013 and 2014 respectively versus the Canadian Dollar while appreciating 11.4% in 2015 and
exchange adjustment loss of $10,148,384 (2015 ‐gain of $6,144,456) to its investment property portfolio due to the
depreciating 28.5% in 2016. The fluctuation in the currency is reflected in the Corporation’s financial statements, most notably in
28.5% depreciation of the local currency during the year.
the investment property portfolio, as it is the largest item on the balance sheet. Note 8 in the financial statements discloses the
foreign exchange adjustment, which flows through the investment property classification during each period. As at December 31,
Operating Profit (Loss)
2016 the Corporation recognized a significant foreign exchange adjustment loss of $10,148,384 (2015 -gain of $6,144,456) to its
investment property portfolio due to the 28.5% depreciation of the local currency during the year.
In total the Corporation reported an Operating loss or an Adjusted EBITDA loss $307,586 during 2016 (2015 – loss of
Operating Profit (Loss)
$1,869,811). The Improvement in EBITDA since last year is due to the cost saving initiatives implemented during the
year.
In total the Corporation reported an Operating loss or an Adjusted EBITDA loss $307,586 during 2016 (2015 – loss of $1,869,811).
The Improvement in EBITDA since last year is due to the cost saving initiatives implemented during the year.
The following table reconciles net income before income tax to Adjusted EBITDA from operations.
The following table reconciles net income before income tax to Adjusted EBITDA from operations.
Net Income before Income taxes
Add Depreciation and Amortization
Subtract Interest and Investment Income/gains / Finance Expense
EBITDA
Subtract Fair Value Adjustment Gain (Add back loss) on all
properties including impairments on PPE and Other Assets
Total Adjusted EBITDA
2016
$
(5,763,752)
124,523
(751,311)
(6,390,540)
2015
$
(10,123,298)
137,608
(30,571)
(10,016,261)
6,082,954
8,146,450
(307,586)
(1,869,811)
Funds From Operations ("FFO")
While FFO does not have a standardized meaning prescribed by IFRS, it is a non‐IFRS financial measure of operating
performance widely used by the real estate industry. The Real Property Association of Canada (REALpac) recommends
that FFO be determined by reconciling FFO from net income.
During 2016, negative FFO improved to an income of $157,405 in 2016 from a loss of $755,767 in 2015. The
improvement is primary due to a continued reduction in expenses.
11
Adjusted Funds From Operations ("AFFO")
Since FFO does not consider capital expenditures and other one‐time expenses. AFFO is presented herein as an
alternative measure of determining available cash flow. AFFO is not defined by IFRS but the Corporation follows
recommendations by REALpac. During 2016, the Company’s AFFO loss decreased from $581,338 in 2015 to $199,829.
It should be noted that FFO and AFFO include certain one‐time costs related to the Corporation’s cost cutting plan
that were not sufficiently large to be broken out, but their exclusion would have further reduced the Corporation’s
AFFO loss for the year.
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
14
Mongolia Growth Group Ltd |
Funds From Operations (“FFO”)
While FFO does not have a standardized meaning prescribed by IFRS, it is a non-IFRS financial measure of operating performance
widely used by the real estate industry. The Real Property Association of Canada (REALpac) recommends that FFO be determined
by reconciling FFO from net income.
During 2016, negative FFO improved to an income of $157,405 in 2016 from a loss of $755,767 in 2015. The improvement is
primary due to a continued reduction in expenses.
Adjusted Funds From Operations (“AFFO”)
Since FFO does not consider capital expenditures and other one-time expenses. AFFO is presented herein as an alternative
measure of determining available cash flow. AFFO is not defined by IFRS but the Corporation follows recommendations by
REALpac. During 2016, the Company’s AFFO loss decreased from $581,338 in 2015 to $199,829.
It should be noted that FFO and AFFO include certain one-time costs related to the Corporation’s cost cutting plan that were
not sufficiently large to be broken out, but their exclusion would have further reduced the Corporation’s AFFO loss for the year.
Reconciliation of FFO and AFFO
Reconciliation of FFO and AFFO
The analysis below shows a reconciliation of the Corporation’s net income to FFO and AFFO for the year ended December 31,
The analysis below shows a reconciliation of the Corporation’s net income to FFO and AFFO for the year ended
2016
December 31, 2016
Net Income for the period
Add (deduct) items not affecting cash
Unrealized loss on fair value adjustment of investment properties
Impairment of property and equipment
Impairment of other assets
Unrealized change in short‐term investments
Depreciation and amortization
Loss (gain) from sales of investment properties
Tax on sales on investment property
Deferred Taxes
Allowance for doubtful VAT Receivable
Share Based Payments
Funds From Operations
Add (deduct)
Development costs not capitalized
Corporate tax refund
Forfeited purchase down payment
Adjusted Funds From Operations
Per Unit – Basic
Funds From Operations
Adjusted Funds From Operations
Year ended
31‐December
2016
($)
Year ended
31‐December
2015
($)
(5,662,784)
(9,930,970)
5,728,003
343,506
11,445
(731,041)
124,523
7,926,701
219,749
‐
‐
137,608
223,532
116,182
20,656
(143,126)
85,526
157,165
157,405
‐
(333,475)
(23,759)
(199,829)
(0.00)
(0.01)
35,710
(238,472)
977,725
(755,767)
174,429
‐
(581,338)
(0.02)
(0.01)
Per Unit – Diluted
Funds From Operations
Adjusted Funds From Operations
(0.00)
(0.01)
(0.02)
(0.01)
*As of Q3 2016, the Company changed its policy on the calculation of deferred taxes in the calculation of FFO and AFFO. The Company now calculates the change in
*As of Q3 2016, the Company changed its policy on the calculation of deferred taxes in the calculation of FFO and AFFO. The Company now calculates the change in deferred taxes by
deferred taxes by adding back the effects of foreign exchange movements to change in deferred tax on the balance sheet. As such, the 2015 deferred tax number
adding back the effects of foreign exchange movements to change in deferred tax on the balance sheet. As such, the 2015 deferred tax number does not match the number reported in
does not match the number reported in the 2015 MD&A (‐$109,032). For further information on the calculation of deferred tax, please see the income tax note on
the 2015 MD&A (-$109,032). For further information on the calculation of deferred tax, please see the income tax note on page 10 of the Annual Report.
page 12 of the MD&A.
Net Income
Net Income
For the year ended December 31, 2016, the Corporation incurred a net loss of $5,662,784, compared to a net loss of $9,930,970
for the year ended December 31, 2015. This significant loss is attributed to the substantial unrealized loss on fair value adjustment
For the year ended December 31, 2016, the Corporation incurred a net loss of $5,662,784, compared to a net loss of
on investment properties portfolio of $5,728,003 (2015 – loss of $7,926,701).
$9,930,970 for the year ended December 31, 2015. This significant loss is attributed to the substantial unrealized loss
Management cautions investors that the Corporation is primarily focused on increasing shareholder value on a per share basis.
on fair value adjustment on investment properties portfolio of $5,728,003 (2015 – loss of $7,926,701).
This means that operationally, management is more concerned with long-term asset appreciation at the expense of short-term
cash flow.
Management cautions investors that the Corporation is primarily focused on increasing shareholder value on a per
share basis. This means that operationally, management is more concerned with long‐term asset appreciation at the
expense of short‐term cash flow.
12
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
15
| Mongolia Growth Group Ltd
Section 4 ‐ Financial Condition
Section 4 - Financial Condition
Cash Flow
Cash Flow
Mongolia Growth Group’s primary sources of capital are cash generated from equity issuance, financing and asset
sales. Management expects to meet all of the Corporation’s obligations through current cash and cash equivalents
Mongolia Growth Group’s primary sources of capital are cash generated from equity issuance, financing and asset sales.
along with cash flows from asset sales.
Management expects to meet all of the Corporation’s obligations through current cash and cash equivalents along with cash
flows from asset sales.
The following table provides an overview of the Corporation’s cash flows from operating, financing and investing
The following table provides an overview of the Corporation’s cash flows from operating, financing and investing activities for the
activities for the year ended December 31, 2016 and 2015.
year ended December 31, 2016 and 2015.
Net change in cash related to:
Operating
Investing
Financing
Effects of exchange rates on cash
Net change in cash during the period
31‐Dec‐16
$
713,163
475,685
(285,023)
(57,610)
846,215
For the year ending
31‐Dec‐15
$
(1,391,362)
642,001
‐
139,212
(610,149)
Overall, the Corporation had cash inflows during 2016 compared to cash outflows in 2015. The Company’s cash inflows were
Overall, the Corporation had cash inflows during 2016 compared to cash outflows in 2015. The Company’s cash inflows
generated through investing activities from the disposal of investment properties and through an increase in non-cash working
were generated through investing activities from the disposal of investment properties and through an increase in
capital balance. The changes in components of cash flows for the year ended December 31, 2016 compared to the year ended
December 31, 2015 were the result of the following factors:
non‐cash working capital balance. The changes in components of cash flows for the year ended December 31, 2016
compared to the year ended December 31, 2015 were the result of the following factors:
• Operating–Operating cash inflows for the year ended 2016 increased primarily due to a positive change in non-cash
working capital due to a deposit received on the sale of an investment property, as well as lower operating
costs.
• Operating–Operating cash inflows for the year ended 2016 increased primarily due to a positive change in
non‐cash working capital due to a deposit received on the sale of an investment property, as
• Investing–Investing cash inflows for the year ended 2016 decreased due to short-term investments in marketable
well as lower operating costs.
securities made during the year offset by a lower disposal of investment properties than the previous year.
• Investing–Investing cash inflows for the year ended 2016 decreased due to short‐term investments in
• Financing–Financing cash outflows occurred due to the repurchase of 812,500 shares during the year. The Corporation
marketable securities made during the year offset by a lower disposal of investment
properties than the previous year.
did not repurchase any shares during the same period in 2015.
To date, the Corporation has been able to meet all of its capital and other cash requirements from its internal sources of cash.
• Financing–Financing cash outflows occurred due to the repurchase of 812,500 shares during the year. The
As at December 31, 2016, the Corporation had approximately $1,881,487 (2015 - $1,035,272) in cash and cash equivalents. Due
Corporation did not repurchase any shares during the same period in 2015.
to the expectation that AFFO will worsen in future quarters, the Corporation is focused on increasing liquidity and cash reserves
in Canada through asset sales.
To date, the Corporation has been able to meet all of its capital and other cash requirements from its internal sources
Total Assets
of cash. As at December 31, 2016, the Corporation had approximately $1,881,487 (2015 ‐ $1,035,272) in cash and cash
As of December 31, 2016, the Corporation had $3,204,065 (2015 - $1,363,271) in Current Assets out of which $1,881,487 (2015
equivalents. Due to the expectation that AFFO will worsen in future quarters, the Corporation is focused on increasing
- $1,035,272) was held in cash and cash equivalents. The increase in cash is due to the selling of 4 investment properties during
liquidity and cash reserves in Canada through asset sales.
the year as well as a cash deposit received prior to year-end for the sale of an investment. In addition, during the year, the
Corporation purchased short term investments which Management considers to be liquid and available to be sold at any time
Total Assets
should the Corporation require cash.
As of December 31, 2016, the Corporation had $3,204,065 (2015 ‐ $1,363,271) in Current Assets out of which
The majority of the Corporation’s assets are classified as Non-Current Assets, mainly Investment Properties. Investment
$1,881,487 (2015 ‐ $1,035,272) was held in cash and cash equivalents. The increase in cash is due to the selling of 4
Properties are carried at Fair Market Value and decreased during the year to $29,501,350 (2015 -$46,473,749) the year by way
of a dispositions, a large unrealized loss on fair value adjustment further magnified by an large decrease in the Mongolian Tögrög
investment properties during the year as well as a cash deposit received prior to year‐end for the sale of an
versus the Canadian dollar during the year.
investment. In addition, during the year, the Corporation purchased short term investments which Management
considers to be liquid and available to be sold at any time should the Corporation require cash.
Property and Equipment, which primarily consists of properties that are measured at their cost base, decreased from $2,978,150
in 2015 to $1,805,861 in 2016 primarily due to a decrease in the Canadian dollar versus the Mongolian Tögrög.
The majority of the Corporation’s assets are classified as Non‐Current Assets, mainly Investment Properties.
Total Liabilities
Investment Properties are carried at Fair Market Value and decreased during the year to $29,501,350 (2015 ‐
As of December 31, 2016, the Corporation had current liabilities of $1,354,501 (2015 - $850,716) consisting of payables and
$46,473,749) the year by way of a dispositions, a large unrealized loss on fair value adjustment further magnified by
accrued liabilities. The increase is due to a deposit of $673,585 received for the sale of an investment property.
an large decrease in the Mongolian Tögrög versus the Canadian dollar during the year.
As of December 31, 2016, the Corporation had no long term debt outstanding. The only non-current liability on the balance sheet
is deferred income taxes. Deferred tax liabilities decreased slightly during the year to $624,335 in 2016 (2015 - $990,109) due to
Property and Equipment, which primarily consists of properties that are measured at their cost base, decreased from
the decrease in value of the Corporation’s property portfolio.
$2,978,150 in 2015 to $1,805,861 in 2016 primarily due to a decrease in the Canadian dollar versus the Mongolian
Tögrög.
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
16
13
Mongolia Growth Group Ltd |
Total Liabilities
Total Liabilities
property.
As of December 31, 2016, the Corporation had current liabilities of $1,354,501 (2015 ‐ $850,716) consisting of
payables and accrued liabilities. The increase is due to a deposit of $673,585 received for the sale of an investment
As of December 31, 2016, the Corporation had current liabilities of $1,354,501 (2015 ‐ $850,716) consisting of
payables and accrued liabilities. The increase is due to a deposit of $673,585 received for the sale of an investment
Expired
Granted
Forfeited
Cancelled
31‐Dec‐15
35,512,829
31‐Dec‐15
3,288,000
35,512,829
3,288,000
31‐Dec 16
34,806,599*
31‐Dec 16
3,358,000
34,806,599*
3,358,000
* As at December 31, 2016, the Company held 86,500 of the common shares outstanding in Treasury to be cancelled during the first quarter of 2017.
property.
As of December 31, 2016, the Corporation had no long term debt outstanding. The only non‐current liability on the
balance sheet is deferred income taxes. Deferred tax liabilities decreased slightly during the year to $624,335 in 2016
As of December 31, 2016, the Corporation had no long term debt outstanding. The only non‐current liability on the
(2015 ‐ $990,109) due to the decrease in value of the Corporation’s property portfolio.
balance sheet is deferred income taxes. Deferred tax liabilities decreased slightly during the year to $624,335 in 2016
(2015 ‐ $990,109) due to the decrease in value of the Corporation’s property portfolio.
Total Equity
The equity of the Corporation consists of one class of common shares.
Total Equity
Total Equity
Outstanding
The equity of the Corporation consists of one class of common shares.
The equity of the Corporation consists of one class of common shares.
Common shares
Outstanding
Options to buy common shares
Common shares
Options to buy common shares
* As at December 31, 2016, the Company held 86,500 of the common shares outstanding in Treasury to be cancelled during the first quarter of 2017.
* As at December 31, 2016, the Company held 86,500 of the common shares outstanding in Treasury to be cancelled during the first quarter of 2017.
Options Outstanding
Options Outstanding
At December 31, 2016, the Corporation had 3,358,000 options that were exercisable (December 31, 2015; 2,510,500).
Options Outstanding
At December 31, 2016, the Corporation had 3,358,000 options that were exercisable (December 31, 2015; 2,510,500).
At December 31, 2016, the Corporation had 3,358,000 options that were exercisable (December 31, 2015; 2,510,500).
The Chart below shows the historical option grants and options outstanding as of December 31, 2016.
The Chart below shows the historical option grants and options outstanding as of December 31, 2016.
The Chart below shows the historical option grants and options outstanding as of December 31, 2016.
Total
Option Price
Exercisable
Total
‐
Exercisable
‐
‐
1,078,000
‐
‐
1,078,000
‐
‐
‐
‐
‐
‐
‐
‐
375,000
‐
915,000
375,000
640,000
915,000
350,000
640,000
3,358,000
350,000
3,358,000
Total Options
Outstanding
Total Options
‐
Outstanding
‐
‐
1,078,000
‐
‐
1,078,000
‐
‐
‐
‐
‐
‐
‐
‐
375,000
‐
915,000
375,000
640,000
915,000
350,000
640,000
3,358,000
350,000
3,358,000
Non
exercisable
Non
‐
exercisable
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
1.64
Option Price
1.75
1.64
1.9
1.75
4.2
1.9
4.77
4.2
4.25
4.77
4.0
4.25
4.13
4.0
1.09
4.13
0.72
1.09
0.74
0.72
0.38
0.74
Total
0.38
Total
100,000
Granted
300,000
100,000
1,363,000
300,000
900,000
1,363,000
175,000
900,000
150,000
175,000
190,000
150,000
475,000
190,000
375,000
475,000
935,000
375,000
640,000
935,000
350,000
640,000
5,953,000
350,000
5,953,000
‐
Expired
50,000
‐
‐
50,000
205,000
‐
20,000
205,000
5,000
20,000
‐
5,000
125,000
‐
‐
125,000
‐
‐
‐
‐
‐
‐
405,000
‐
405,000
‐
Cancelled
‐
‐
‐
‐
287,000
‐
55,000
287,000
95,000
55,000
190,000
95,000
275,000
190,000
‐
275,000
‐
‐
‐
‐
‐
‐
902,000
‐
902,000
100,000
Exercised
250,000
100,000
200,000
250,000
‐
200,000
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
550,000
‐
550,000
‐
Forfeited
‐
‐
85,000
‐
408,000
85,000
100,000
408,000
50,000
100,000
‐
50,000
‐
‐
‐
‐
20,000
‐
‐
20,000
‐
‐
738,000
‐
738,000
Acquisitions and Dispositions
Acquisitions and Dispositions
During 2016, the Corporation did not acquire any properties (2015 – nil). During the period, the company had capital expenditures
Acquisitions and Dispositions
During 2016, the Corporation did not acquire any properties (2015 – nil). During the period, the company had capital
of $77,839, however these expenditures were offset by the cancellation of an unfinished contract of $55,222, resulting in net
capital expenditures of $22,617 during the period. (2015 - $832,245) During the year, the Corporation disposed of four investment
expenditures of $77,839, however these expenditures were offset by the cancellation of an unfinished contract of
During 2016, the Corporation did not acquire any properties (2015 – nil). During the period, the company had capital
properties for cash proceeds of $970,241, resulting in a net loss of $223,532. During 2015, ten investment properties were sold
$55,222, resulting in net capital expenditures of $22,617 during the period. (2015 ‐ $832,245) During the year, the
Related Party Transactions
expenditures of $77,839, however these expenditures were offset by the cancellation of an unfinished contract of
for cash consideration of $1,669,455 resulting in net loss of $116,182.
Corporation disposed of four investment properties for cash proceeds of $970,241, resulting in a net loss of $223,532.
$55,222, resulting in net capital expenditures of $22,617 during the period. (2015 ‐ $832,245) During the year, the
Related Party Transactions
During 2015, ten investment properties were sold for cash consideration of $1,669,455 resulting in net loss of
Parties are generally considered to be related if the parties are under common control or if one party has the ability
Corporation disposed of four investment properties for cash proceeds of $970,241, resulting in a net loss of $223,532.
$116,182.
to control the other party or can exercise significant influence or joint control over the other party in making financial
Parties are generally considered to be related if the parties are under common control or if one party has the ability to control
During 2015, ten investment properties were sold for cash consideration of $1,669,455 resulting in net loss of
the other party or can exercise significant influence or joint control over the other party in making financial and operational
and operational decisions. In considering each possible related party relationship, attention is directed to the
$116,182.
decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not
substance of the relationship, not merely the legal form.
merely the legal form.
Exercised
Key management personnel of the Company include all directors and executive management. The summary of
Key management personnel of the Company include all directors and executive management. The summary of compensation for
compensation for key management personnel is as follows:
key management personnel is as follows:
Related Party Transactions
Salaries and other short‐term benefits to officers
Share‐based payments to directors and officers
2016
$
2015
$
186,341
107,722
294,063
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
170,685
492,661
663,346
17
Off-Balance Sheet Items
Off‐Balance Sheet Items
As of December 31, 2016, the Corporation had no off-balance sheet items.
As of December 31, 2016, the Corporation had no off‐balance sheet items.
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
17
Events Subsequent to Year End
Subsequent to year end, the Corporation disposed of one property for $1,441,660 with a book value at year
end of $1,481,887. The Corporation had received a deposit of $669,800 during Q4 2016.
14
As disclosed in the Corporation’s February 28, 2017 News Release, the Corporation announced that the TSX
Venture Exchange (the “Exchange”) had accepted a Notice of Intention to renew its normal course issuer bid
to purchase outstanding common shares of the Company on the open market in accordance with the policies
of the TSXV.
Securities Sought:
Up to 2,850,000 common shares (representing up to approximately 8.3% of the
34,524,099 common shares of the Corporation currently issued and outstanding, or approximately 9.9% of
the 28,592,349 common shares constituting the Corporation’s current Public Float (as that term is defined in
the policies of the Exchange).
Duration of the Bid:
Purchases under the Bid would begin on the date that is three clear trading days
following receipt of Exchange approval and would terminate on the date that is one year from the date on
which purchases began. Following receipt of Exchange Approval, the Corporation announced that purchases
under the Bid were permitted to commence on March 1, 2017, and the Bid will end no later than March 1,
2018.
Method of Acquisition & Member Broker: The Corporation has retained M Partners Inc. of Toronto,
Ontario as its broker Member for the purposes of conducting the Bid. Purchases under the Bid will be
conducted on the open market through the facilities of the Exchange.
Consideration Offered: The common shares will be purchased for cancellation at market price.
Reasons for the Bid:
The Corporation is undertaking the Bid because, in the opinion of its board of
directors, the market price of its common shares, from time to time, may not fully reflect the underlying
value of its operations and future growth prospects. The Corporation believes that in such circumstances,
the purchase of the common shares of the Corporation may represent an appropriate and desirable use of
the Corporation’s funds and further enhance market stability.
Persons Acting Jointly & in Concert: No person is acting jointly and in concert with the Corporation in
connection with the Bid.
Previous Purchases:
In the 12 months preceding the commencement of the Bid, the Corporation has
purchased 1,008,500 of its shares at an average price of $0.37 per common share.
Valuation:
After making reasonable enquiry, the Corporation is not aware of any appraisal or valuation
of the Corporation’s securities that has been prepared within the two years preceding the date of the NCIB
Form. In connection with the preparation of its audited financial statements for the financial year ending
December 31, 2015, the Corporation engaged, an arm’s length property valuator, to prepare three
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
18
| Mongolia Growth Group Ltd
Events Subsequent to Year End
• Subsequent to year end, the Corporation disposed of one property for $1,441,660 with a book value at year end of
$1,481,887. The Corporation had received a deposit of $669,800 during Q4 2016.
• The Corporation repurchased 196,000 of its shares at an average price of $0.34/share.
• As disclosed in the Corporation’s February 28, 2017 News Release, the Corporation announced that the TSX Venture
Exchange (the “Exchange”) had accepted a Notice of Intention to renew its normal course issuer bid to purchase
outstanding common shares of the Company on the open market in accordance with the policies of the TSXV.
Securities Sought: Up to 2,850,000 common shares (representing up to approximately 8.3% of the 34,524,099 common
shares of the Corporation currently issued and outstanding, or approximately 9.9% of the 28,592,349 common shares
constituting the Corporation’s current Public Float (as that term is defined in the policies of the Exchange).
Duration of the Bid: Purchases under the Bid would begin on the date that is three clear trading days following receipt of
Exchange approval and would terminate on the date that is one year from the date on which purchases began. Following
receipt of Exchange Approval, the Corporation announced that purchases under the Bid were permitted to commence on
March 1, 2017, and the Bid will end no later than March 1, 2018.
Method of Acquisition & Member Broker: The Corporation has retained M Partners Inc. of Toronto, Ontario as its broker
Member for the purposes of conducting the Bid. Purchases under the Bid will be conducted on the open market through
the facilities of the Exchange.
Consideration Offered: The common shares will be purchased for cancellation at market price.
Reasons for the Bid: The Corporation is undertaking the Bid because, in the opinion of its board of directors, the market
price of its common shares, from time to time, may not fully reflect the underlying value of its operations and future growth
prospects. The Corporation believes that in such circumstances, the purchase of the common shares of the Corporation
may represent an appropriate and desirable use of the Corporation’s funds and further enhance market stability.
Persons Acting Jointly & in Concert: No person is acting jointly and in concert with the Corporation in connection with
the Bid.
Previous Purchases: In the 12 months preceding the commencement of the Bid, the Corporation has purchased 1,008,500
of its shares at an average price of $0.37 per common share.
Valuation: After making reasonable enquiry, the Corporation is not aware of any appraisal or valuation of the Corporation’s
securities that has been prepared within the two years preceding the date of the NCIB Form. In connection with the
preparation of its audited financial statements for the financial year ending December 31, 2015, the Corporation engaged,
an arm’s length property valuator, to prepare three independent valuation reports in respect of the Corporation’s
Mongolian real estate investment assets. The valuations were prepared for internal accounting purposes.
Acceptance by Insiders, Affiliates and Associates & Benefits: To the knowledge of the Corporation at the time of filing the
NCIB Form, no director, senior officer or other Insider of the Corporation or any associate or affiliate of the Corporation
or any insider of the Corporation currently intends to sell common shares under the Bid. However, such sales by persons
through the facilities of the Exchange may occur if the personal circumstances of such persons change or any such person
makes a decision to sell shares as market circumstances may warrant. The benefits to any such person whose shares are
purchased under the bid would be the same as the benefits available to all other holders of the Corporation’s common
shares whose shares are purchased under the Bid.
• Shareholders may obtain a copy of the NCIB Form from the Corporation, without charge, by contacting
info@mongoliagrowthgroup.com
15
Mongolia Growth Group Ltd | Section 5 ‐ Quarterly Information
Section 5 - Quarterly Information
Quarterly Results
Quarterly Results
The following table is a summary of select quarterly information over the previous eight quarters:
The following table is a summary of select quarterly information over the previous eight quarters:
Revenue
Net income (loss)
Income (loss) per
common share
Total Assets
Weighted Average
Shares (No.)
Ending Shares (No.)
Q4 2016
348,301
196,138
Q3 2016
433,302
434,059
Q2 2016
338,203
(6,017,609)
Q1 2016
490,160
(275,372)
Q4 2015
526,949
(5,503,493)
Q3 2015
340,871
(2,701,490)
Q2 2015
501,936
(1,352,996)
Q1 2015
577,752
(372,991)
0.00
0.01
(0.17)
(0.01)
(0.16)
(0.08)
(0.04)
(0.01)
34,511,276
36,767,186
41,480,240
46,241,247
50,815,170
54,495,461
54,790,433
55,548,676
35,297,108
35,430,404
35,444,217
35,512,829
35,315,357
35,248,810
35,114,612
34,848,745
34,806,599
35,372,099
35,397,599
35,512,829
35,512,829
35,512,829
35,512,829
34,848,745
Revenue
Revenue
During the fourth quarter, the Corporation’s real estate subsidiary earned total revenue of $348,301 (Q4 2015 ‐
During the fourth quarter, the Corporation’s real estate subsidiary earned total revenue of $348,301 (Q4 2015 -$526,949) of
$526,949) of which rental income earned was $406,410 (Q4 2015 ‐ $491,837). The majority of this rental income
which rental income earned was $406,410 (Q4 2015 - $491,837). The majority of this rental income decrease is attributed
to lower rental rates and a decline in the currency. The quarterly revenue number also includes other revenue earned from
decrease is attributed to lower rental rates and a decline in the currency. The quarterly revenue number also includes
miscellaneous sources such as late fee, advertising and from sale of investment properties. During the fourth quarter, the
other revenue earned from miscellaneous sources such as late fee, advertising and from sale of investment properties.
Corporation experienced a loss on sale of investment properties of $62,279 (2015 – gain of $22,455), which negatively affected
During the fourth quarter, the Corporation experienced a loss on sale of investment properties of $62,279 (2015 –
the Corporation’s revenue.
gain of $22,455), which negatively affected the Corporation’s revenue.
During the 4th quarter of 2016, the Corporation also incurred an unrealized loss on fair value adjustment of $166,594 compared
to an unrealized loss on fair value adjustment of $5,655,640 during Q4 2015. During the 2016 year, a large part of the unrealized
During the 4th quarter of 2016, the Corporation also incurred an unrealized loss on fair value adjustment of $166,594
fair value adjustment loss was taken during the second quarter.
compared to an unrealized loss on fair value adjustment of $5,655,640 during Q4 2015. During the 2016 year, a large
Expenses
part of the unrealized fair value adjustment loss was taken during the second quarter.
Quarterly expenses related to corporate operations totaled $71,328 (Q4 2015 - $38,119). This increase is due to an increase in
legal expenses during the quarter.
Expenses
Net Income
Quarterly expenses related to corporate operations totaled $71,328 (Q4 2015 ‐ $38,119). This increase is due to an
increase in legal expenses during the quarter.
During the quarter, the Corporation experienced an income of $196,138 in comparison to a loss of $5,503,493 in the same
quarter of the previous year. This difference is manly attributed to the significant fair value adjustments loss recorded in the
fourth quarter of 2015 compared to the second quarter 2016.
Net Income
During the quarter, the Corporation experienced an income of $196,138 in comparison to a loss of $5,503,493 in the
same quarter of the previous year. This difference is manly attributed to the significant fair value adjustments loss
recorded in the fourth quarter of 2015 compared to the second quarter 2016.
MONGOLIA GROWTH GROUP LTD., Q4 2016 MD&A
20
16
| Mongolia Growth Group Ltd
Section 6 – Critical Estimates
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 judgments 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 Corporation. An external
appraiser estimates the fair value of the majority of the Investment Properties annually, the remainder are appraised internally
by Management. 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 Corporation operates in the emerging real estate market of Mongolia, which given
its current economic and industry conditions, has an increased inherent risk resulting from the lack of reliable and comparable
market information. At December 31, 2016, the unrealized loss on fair value adjustment of $5,728,003 (2015 - loss of $7,926,701).
Accuracy of Share Based Compensation Expense
The estimate of the 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 Corporation. 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 options and
future forfeiture rates. For the year ending December 31, 2016, the cost of the share based payments totaled $157,165 (2015 -
$977,725).
Operating Environment of the Corporation
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 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
Corporation.
During 2016, the Corporation has had difficulty in converting Mongolian Tögrög to U.S. Dollars at large Mongolian banks or to
wire that money to Canada. There can be no certainty regarding the ability to convert or wire money from Mongolia in the future.
Mongolia recently signed an agreement with the IMF. There is no certainty regarding the demands that the IMF may make upon
Mongolia for austerity or the impacts that this may have on the economy of Mongolia.
Assets and Liabilities Held for Sale
The Corporation makes judgments in determining whether certain non-current assets or group of assets and liabilities meet the
specified criteria under IFRS for classification as held for sale. At December 31, 2016, the Corporation has identified five (2015-
four) investment properties, with a fair value of $2,132,267 (December 31, 2015 - $2,970,114), which meet the specified criteria,
and has accounted for them as assets held for sale.
Deferred Tax Assets
Deferred tax assets are recognized to the extent that it is probable that deductible temporary differences will reverse in the
foreseeable future and there will be sufficient future taxable profits against which the deductible temporary differences can
be utilized. The Corporation reviews the carrying amount of deferred tax assets at the end of each reporting period which is
reduced to the extent that it is no longer probable that deferred tax assets recognized will be recovered, or increased to the
extent that sufficient future taxable profit will be available to allow all or part of a previously unrecognized deferred tax asset
to be recovered. Estimates of future taxable income are based on forecasted cash flows from operations, available tax planning
opportunities and expected timing of reversals of taxable temporary differences.
17
Mongolia Growth Group Ltd | Section 7 – Risk Management
Credit Risk
The Corporation’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 Corporation’s credit risk consisted of institutional deposits. The
majority of the funds invested are held in reputable Canadian or Mongolian banks. Recently, there have been rumors that
various commercial banks in Mongolia could fail. There is no way to tell if these rumors are accurate however, starting in early
July, the Corporation has had difficulty in converting Mongolian Tögrög into U.S. Dollars. If banks are unwilling or unable to give
the Corporation access to its U.S. Dollar deposits, the Corporation could experience severe liquidity issues.
The Corporation is exposed to credit risk as an owner of real estate in which tenants may become unable to pay contracted
rents. The Corporation mitigates this risk by carrying out due diligence on significant tenants. The Corporation’s properties
are diversified across residential and commercial classes. Historically, bad debts have not been a substantial expense for the
Corporation. Recently, the Corporation has experienced an increase in late rental payments. The Corporation believes that it will
collect all of this debt, but there is no certainty that this will occur.
Liquidity Risk
Under certain market conditions, such as during volatile markets or when trading in a security or market is otherwise impaired,
the liquidity of the Corporation’s portfolio positions may be reduced. In addition, the Corporation may from time to time hold
large positions with respect to a specific type of financial instrument, which may reduce the Corporation’s liquidity. During such
times, the Corporation may be unable to dispose of certain financial instruments, including longer-term financial instruments,
which would adversely affect its ability to rebalance its portfolio. In addition, such circumstances may force the Corporation
to dispose of financial instruments at reduced prices, thereby adversely affecting its performance. If there are other market
participants seeking to dispose of similar financial instruments at the same time, the Corporation may be unable to sell such
financial instruments or prevent losses relating to such financial instruments. Furthermore, if the Corporation incurs substantial
trading losses, the need for liquidity could rise sharply while its access to liquidity could be impaired. In addition, in conjunction
with a market downturn, the Corporation’s counterparties could incur losses of their own, thereby weakening their financial
condition and increasing the Corporation’s exposure to their credit risk.
The Corporation does not believe its current maturity profile 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, 2016.
As at December 31, 2016, the Corporation had working capital of $1,849,564 (2015- $512,555) comprised of cash and cash
equivalents, other assets, net of trade and accrued liabilities and income taxes payable. Management considers the funds on
hand to be sufficient to meet its ongoing obligations.
As of December 31, 2016, the Corporation does not have any material contractual obligations.
Market Risk
Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly
fluctuate due to changes in market prices. The value of the financial instruments can be affected by changes in interest rates,
foreign exchange rates, and equity and commodity prices. The Company is exposed to market risk in trading its investments and
unfavorable market conditions could result in dispositions of investments at less than favorable prices.
Currency Risk
The Corporation owns properties located in Mongolia and collects rental revenue in Mongolian Tögrög, and is therefore subject
to foreign currency fluctuations that may impact its financial position and results. Changes in the Mongolian Tögrög, U.S. dollar
and Canadian dollar foreign currency exchange rates impact the fair value of securities denominated in Mongolian Tögrög and
in U.S. dollars. All of the Corporation’s revenues are received in Mongolian Tögrög while approximately half of the Corporation’s
expenses are incurred in U.S. and Canadian Dollars. Therefore, a depreciation in the Mongolian Tögrög against the US and
Canadian Dollar will reduce AFFO. The exchange rate continues to be volatile and there is an expectation that the rate of currency
depreciation could increase.
Economic Volatility and Uncertainty
Over the past few years, economic volatility and uncertainty around the world has contributed to dramatically restricted access
to capital and reduced capital markets activity for more speculative businesses. The Corporation’s management believes that the
Corporation 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 economy. Economic volatility and uncertainty in Mongolia could result in inflation, hyperinflation, economic
stagnation, political extremism, and other similarly detrimental scenarios which could materially harm the Corporation.
18
| Mongolia Growth Group Ltd Preliminary growth estimates according to the National Statistics Office for 2016 was 1% while year over year inflation estimates
were 1.1% according to Mongol Bank.
Recently, Mongolia reached an initial agreement with the International Monetary Fund for a three-year program that includes a
$440 million loan package as part of a $5.5 billion bailout. However, there is no certainty that this bailout will be finalized.
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 required to augment the Corporation’s
operations.
Risks and Uncertainties
The Corporation, 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
Corporation 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.
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.
Financial Instruments
The Corporation’s financial instruments consist of cash and cash equivalents, investments and marketable securities, accounts
receivable and trade and accrued payables. The Corporation is subject to interest risk as it earns interest income from its cash
deposits. It is Management’s opinion that the Corporation 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 certain Financial Instruments of the Corporation as they are held in Mongolian
Tögrög. For further discussion of financial instrument risks, see the Insurance and Financial Risk Management note (Note 14 on
December 31, 2016 Financial Statements).
Unless the context otherwise requires, references to the “Corporation” include the Corporation and its subsidiaries and affiliates
collectively, including Mongolia Barbados Corp.
Changes in Investment Strategies
The Corporation may alter its investment strategies and restrictions without prior approval by shareholders to adapt to changing
circumstances.
Possible Negative Impact of Regulation
The regulatory environment is evolving and changes to it may adversely affect the Corporation. To the extent that regulators adopt
practices of regulatory oversight that create additional compliance, transaction, disclosure or other costs for the Corporation,
returns of the Corporation may be negatively affected. In addition, the regulatory or tax environment for securities, derivatives
and related instruments is evolving and may be subject to modification by government or judicial action that may adversely affect
the value of the investments held by the Corporation. The effect of any future regulatory or tax change on the Corporation is
impossible to predict.
Property Specific Risk
The Company currently has a standing agreement with the owner of a 42 sq. meter apartment which has been included in one
of the Company’s properties classified as land and development. The agreement entitles the owner of the apartment to 84
sq. meters of space on the first floor of a new building to be built on this land. The agreement expires at the end of 2017 and
has not yet been extended. A liability of $149,081 is currently included in the Company’s balance sheet to reflect this liability.
Management has no certainty that the agreement will be extended beyond 2017.
Use of Derivatives
The Corporation may use derivative instruments. The use of derivatives in general presents additional risks to those applicable
to trading only in the underlying assets. To the extent of the Corporation’s investment in derivatives it may take a credit risk with
respect to parties with whom it trades and may also bear the risk of settlement default. When used for hedging purposes, an
imperfect or variable degree of correlation between price movements of the derivative instrument and the underlying investment
sought to be hedged may prevent the Corporation from achieving the intended hedge effect or expose the Corporation to the
risk of loss. In addition, derivative instruments may not be liquid at all times, so that in volatile markets the Corporation may not
be able to close out a position without incurring a loss. No assurance can be given that short sales, hedging, leverage and other
techniques and strategies utilized by the Corporation to hedge its exposure will not result in material losses.
Custody Risk and Broker or Dealer Insolvency
The Corporation does not control the custodianship of all of its assets. The Corporation’s assets will be held in one or more
accounts maintained for the Corporation by its broker or brokers. Such brokers are subject to various laws and regulations in
19
Mongolia Growth Group Ltd | various jurisdictions that are designed to protect their customers in the event of their insolvency. However, the practical effect
of these laws and their application to the Corporation’s assets are subject to substantial limitations and uncertainties. Because
of the large number of entities and jurisdictions involved and the range of possible factual scenarios involving the insolvency
of a broker or any sub-custodians, agents or affiliates, it is impossible to generalize about the effect of their insolvency on the
Corporation and its assets. Investors should assume that the insolvency of any of the brokers or such other service providers
would result in the loss of all or a substantial portion of the Corporation’s assets held by or through such brokers and/or the delay
in the payment of withdrawal proceeds.
Investment and Trading Risks in General
All trades made by the Corporation risk the loss of capital. The Corporation may utilize trading techniques or instruments,
which can, in certain circumstances, maximize the adverse impact to which a client’s account may be subject. No guarantee
or representation is made that the Corporation’s investment program will be successful, and investment results may vary
substantially over time. Many unforeseeable events, including actions by various government agencies, and domestic and
international economic and political developments may cause sharp market fluctuations which could adversely affect the
Corporation’s portfolio and performance.
General Economic and Market Conditions
The success of the Corporation’s activities may be affected by general economic and market conditions, such as interest rates,
availability of credit, inflation rates, economic uncertainty, changes in laws, and national and international political circumstances.
These factors may affect the level and volatility of securities prices and the liquidity of the Corporation’s investments. Unexpected
volatility or illiquidity could impair the Corporation’s profitability or result in losses.
Issuer–Specific Changes
The value of an individual security or particular type of security can be more volatile than, and can perform differently from the
market as a whole.
Portfolio Turnover
The Corporation has not placed any limits on the rate of portfolio turnover and portfolio securities may be sold without regard
to the time they have been held when, in the opinion of the Corporation, investment considerations warrant such action. A high
rate of portfolio turnover involves correspondingly greater expenses than a lower rate.
Liquidity of Underlying Investments
Some of the securities in which the Corporation may invest may be thinly traded. There are no restrictions on the investment of
the Corporation in illiquid securities. It is possible that the Corporation may not be able to sell or repurchase significant portions
of such positions without facing substantially adverse prices. If the Corporation is required to transact in such securities before
its intended investment horizon, the performance of the Corporation, could suffer.
Highly Volatile Markets
The prices of financial instruments in which the Corporation’s assets may be invested can be highly volatile and may be influenced
by, among other things, specific corporate developments, interest rates, changing supply and demand relationships, trade, fiscal,
monetary and exchange control programs and policies of governments, and national and international political and economic
events and policies. The Corporation is subject to the risk of the failure of any of the exchanges on which the Corporation’s
positions trade or of their clearinghouses.
Emerging Markets
The Corporation may invest in the securities of companies which operate in some emerging markets. Operating in emerging
markets involves additional risks because companies in emerging markets may be less regulated and not subject to the same
standards, reporting practices and disclosure requirements that apply in more developed markets. In addition, some emerging
markets and legal systems may not adequately protect investor rights.
Small- to Medium- Capitalization Companies
The Corporation may invest a portion of its assets in the securities of companies with small- to medium-sized market capitalizations.
While the Corporation believes these investments often provide significant potential for appreciation, those securities may
involve higher risks in some respects than do investments in securities of larger companies. For example, while smaller companies
generally have potential for rapid growth, they often involve higher risks because they may lack the management experience,
financial resources, product diversification, and competitive strength of larger companies. In addition, in many instances, the
frequency and volume of their trading may be substantially less than is typical of larger companies. As a result, the securities
of smaller companies may be subject to wider price fluctuations. When making large sales, the Corporation may have to sell
portfolio holdings at discounts from quoted prices or may have to make a series of small sales over an extended period of time
due to the trading volume of smaller company securities.
20
| Mongolia Growth Group Ltd Fixed Income Securities
The Corporation may occasionally invest in bonds or other fixed income securities of issuers, including, without limitation, bonds,
notes and debentures issued by corporations. Fixed income securities pay fixed, variable or floating rates of interest. The value
of fixed income securities in which the Corporation invests will change in response to fluctuations in interest rates. In addition,
the value of certain fixed-income securities can fluctuate in response to perceptions of credit worthiness, political stability
or soundness of economic policies. Fixed income securities are subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit risk) and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). If fixed income
investments are not held to maturity, the Corporation may suffer a loss at the time of sale of such securities.
Equity Securities
To the extent that the Corporation holds equity portfolio investments, or short positions in equities, it will be influenced by stock
market conditions in those jurisdictions where the securities held by the Corporation, are listed for trading and by changes in the
circumstances of the issuers whose securities are held by the Corporation.
Options
Selling call and put options is a highly specialized activity and entails greater than ordinary investment risk. The risk of loss when
purchasing an option is limited to the amount of the purchase price of the option, however investment in an option may be
subject to greater fluctuation than an investment in the underlying security. In the case of the sale of an uncovered option there
can be potential for an unlimited loss. To some extent this risk may be hedged by the purchase or sale of the underlying security.
Shorting
Selling a security short (“shorting”) involves borrowing a security from an existing holder and selling the security in the market
with a promise to return it at a later date. Should the security increase in value during the shorting period, losses will incur to the
Corporation. There is in theory no upper limit to how high the price of a security may go. Another risk involved in shorting is the
loss of a borrow, a situation where the lender of the security requests its return. In cases like this, the Corporation, must either
find securities to replace those borrowed or step into the market and repurchase the securities. Depending on the liquidity of
the security shorted, if there are insufficient securities available at current market prices, the Corporation, may have to bid up
the price of the security in order to cover the short position, resulting in losses to the Corporation.
Trading Costs
The Corporation may engage in a high rate of trading activity resulting in correspondingly high costs being borne by the
Corporation.
Currency and Exchange Rate Risks
The Corporation’s assets will be denominated in multiple currencies. The Corporation will report their results in Canadian dollars.
The Corporation expects to report allocations of profit and loss for income tax purposes in Canadian dollars. Changes in currency
exchange rates may affect the value of the Corporation’s portfolio and the unrealized appreciation or depreciation of investments.
Leverage
The Corporation may use financial leverage by borrowing funds against the assets of the Corporation. Leverage increases
both the possibilities for profit and the risk of loss for the Corporation. From time to time, the credit markets are subject to
periods in which there is a severe contraction of both liquidity and available leverage. The combination of these two factors can
result in leveraged strategies being required to sell positions typically at highly disadvantageous prices in order to meet margin
requirements, contributing to a general decline in a wide range of different securities. Illiquidity can be particularly damaging to
leveraged strategies because of the essentially discretionary ability of dealers to raise margin requirements, requiring leveraged
strategy to attempt to sell positions to comply with such requirements at a time when there are effectively no buyers in the
market at all or at any but highly distressed prices. These market conditions have in the past resulted in major losses. Such
conditions, although unpredictable, can be expected to recur.
Internal Controls over Financial Reporting
Changes in securities laws no longer require the Chief Executive Officer and Chief Financial Officer of junior reporting issuers
to certify that they have designed internal control over financial reporting, or caused 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 IFRS.
Instead, an optional form of certification has been made available to junior reporting issuers and has been used by the
Corporation’s certifying officers since December 31, 2013 annual filings. The new certification reflects what the Corporation
considers to be a more appropriate level of CEO and CFO certification given the size and nature of the Corporation’s operations.
This certification requires the certifying officers to state that: they have reviewed the interim MD&A and consolidated financial
statements; they have determined that there is no untrue statement of a material fact, or any omission of material fact required
21
Mongolia Growth Group Ltd | to be stated which would make a statement or its omission misleading in light of the circumstances under which it was made
within the interim MD&A and consolidated financial statements; based on their knowledge, the interim filings, together with the
other financial information included in the interim filings, fairly present in all material respects the financial condition, results of
operations and cash flows of the Corporation as of the date and for the periods presented in the filings.
Accounting standards issued but not yet effective
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after
January 1, 2017 or later and have not been applied in preparing these consolidated financial statements. Those which are
relevant to the Company are set out below. The Company does not plan to adopt these standards early and is continuing to
evaluate the impact of such standards.
IFRS 9 Financial Instruments
IFRS 9, Financial Instruments, first issued in November 2009 with final version released in July 2014 by the IASB, brings together
the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39. IFRS 9
introduces a principles-based approach to the classification of financial assets based on an entity’s business model and the
nature of the cash flows of the asset. All financial assets, including hybrid contracts, are measured as at fair value through profit
and loss (FVTPL), fair value through OCI or amortized cost.
For financial liabilities, IFRS 9 includes the requirements for classification and measurement previously included in IAS 39.
IFRS 9 also introduces an expected loss impairment model for all financial assets not as at FVTPL. The model has three stages:
(1) on initial recognition, 12-month expected credit losses are recognized in profit or loss and a loss allowance is established; (2)
if credit risk increases significantly and the resulting credit risk is not considered to be low, full lifetime expected credit losses
are recognized; and (3) when a financial asset is considered credit-impaired, interest revenue is calculated based on the carrying
amount of the asset, net of the loss allowance, rather than its gross carrying amount.
Finally, IFRS 9 introduces a new hedge accounting model that aligns the accounting for hedge relationships more closely with an
entity’s risk management activities. The standard is effective for annual periods beginning on or after January 1, 2018.
The Company is currently assessing the impact of IFRS 9 and plans to adopt the new standard on the required effective date.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with
customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to
be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured
approach to measuring and recognising revenue.
The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under
IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2018 with
early adoption permitted. The Company is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the
required effective date.
IFRS 16 – Leases
IFRS 16 replaces IAS 17 Leases and related interpretations. The core principle is that a lessee recognize assets and liabilities for
all leases with a lease term of more than 12 months. A lessee is required to recognize a right-of-use asset representing its right
to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Assets and liabilities
arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments
(including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably
certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. The new standard is
intended to provide a faithful representation of leasing transactions, in particular those that do not currently require the lessees
to recognize an asset and liability arising from an operating lease. IFRS 16 is effective for annual periods beginning on January 1,
2019, with early adoption permitted for entities that would also apply IFRS 15 Revenue from Contracts with Customers.
Additional Information
Additional information relating to Mongolia Growth Group Ltd., including its interim financial statements, is available on SEDAR
at www.sedar.com.
22
| Mongolia Growth Group Ltd Mongolia Growth Group Ltd.
Consolidated Financial Statements
December 31, 2016
(expressed in Canadian dollars)
23
Mongolia Growth Group Ltd | Mongolia Growth Group
Ltd.
Consolidated Financial Statements
December 31, 2016
(Expressed in Canadian dollars)
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Mongolia Growth Group Ltd.
We have audited the accompanying consolidated financial statements of Mongolia Growth Group Ltd., which
comprise the consolidated statement of financial position as at December 31, 2016, and the consolidated
statements of operations, comprehensive loss, changes in equity and cash flows for the year then ended, and 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.
Auditors’ 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 auditors’ 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.
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2 | P a g e
| Mongolia Growth Group Ltd
Opinion
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of Mongolia Growth Group Ltd. as at December 31, 2016 and its financial performance and its cash
flows for the year then ended in accordance with International Financial Reporting Standards.
Other Matters
The consolidated financial statements of Mongolia Growth Group Ltd. for the year ended December 31, 2015
were audited by another auditor who expressed an unmodified opinion on those statements on April 19, 2016.
Vancouver, Canada Chartered Professional Accountants
“DAVIDSON & COMPANY LLP”
March 30, 2017
3 | P a g e
25
Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Consolidated Statements of Financial Position
As at December 31
(Expressed in Canadian dollars)
Assets
Current assets
Cash (note 5)
Marketable securities (note 6)
Other assets (note 7)
Non-current assets
Investment properties (note 8)
Property and equipment (note 9)
Total assets
Liabilities
Current liabilities
Trade payables and accrued liabilities (note 10)
Income taxes payable
Non-current liabilities
Deferred income tax liability (note 11)
Total liabilities
Equity
Share capital (note 12)
Contributed surplus
Accumulated other comprehensive loss
Deficit
Total equity
2016
$
2015
$
1,881,487
1,184,825
137,753
3,204,065
29,501,350
1,805,861
31,307,211
1,035,272
-
327,999
1,363,271
46,473,749
2,978,150
49,451,899
34,511,276
50,815,170
1,192,397
162,104
1,354,501
704,426
146,290
850,716
624,335
990,109
1,978,836
1,840,825
54,130,373
6,849,976
(11,786,528)
(16,661,381)
54,369,332
6,738,875
(1,135,265)
(10,998,597)
32,532,440
48,974,345
Total equity and liabilities
34,511,276
50,815,170
Commitment and contingencies (note 16)
Subsequent events (note 20)
Approved by the Board of Directors
“Robert Scott” Director “Brad Farquhar” Director
The accompanying notes are an integral part of these consolidated financial statements.
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4 | P a g e
| Mongolia Growth Group Ltd
Mongolia Growth Group Ltd.
Consolidated Statements of Operations
For the year ended December 31
(Expressed in Canadian dollars)
Revenue
Rental income
Loss on disposal of investment property
Other revenue
Total revenue
Expenses
Salaries and wages
Other expenses (note 19)
Development expense
Share based payment (note 12)
Depreciation (note 9)
2016
$
2015
$
1,783,896
2,002,512
(223,532) (116,182)
61,178
49,602
1,609,966
1,947,508
876,670
1,217,192
-
157,165
124,523
1,065,273
1,599,892
174,429
977,725
137,608
Total expenses
2,375,550
3,954,927
Net investment income
20,270
30,571
Unrealized loss on fair value adjustment on
Investment properties (note 8)
Impairment of Property and equipment (note 9)
Impairment of Other assets
Unrealized gain on short-term investments (note 6)
Recovery of consumption tax
(5,728,003)
(343,506)
(11,445)
731,041
333,475
(7,926,701)
(219,749)
-
-
-
Net loss before income taxes
(5,763,752)
(10,123,298)
Income taxes (note 11)
Net loss for the year
Net loss per share (note 12)
Basic
From net loss for the year
Diluted
From net loss for the year
100,968
192,328
(5,662,784)
(9,930,970)
(0.16)
(0.16)
(0.28)
(0.28)
The accompanying notes are an integral part of these consolidated financial statements.
5 | P a g e
27
Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Consolidated Statements of Comprehensive Loss
For the year ended December 31
(Expressed in Canadian dollars)
2016
$
2015
$
Net loss for the year
(5,662,784)
(9,930,970)
Other comprehensive income (loss)
Items that may be subsequently reclassified to income or loss
Unrealized losses on translation of financial statement
functional
operations with Mongolian Tögrög
currency to Canadian dollar reporting currency
(10,651,263)
6,471,774
Total comprehensive loss
(16,314,047)
(3,459,196)
The accompanying notes are an integral part of these consolidated financial statements.
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6 | P a g e
| Mongolia Growth Group Ltd
Mongolia Growth Group Ltd.
Consolidated Statements of Changes in Equity
For the year ended December 31
(Expressed in Canadian dollars)
Share
capital
$
Contributed
surplus
$
Accumulated
other
comprehensive
loss
$
Deficit
$
Total
$
Balance at January 1,
2015
Net loss for the year
Other comprehensive income
53,789,459
-
-
53,789,459
Liability settled by equity
Share based payments
Share capital issued (note 12)
525,367
-
54,506
5,815,656
-
-
5,815,656
-
977,725
(54,506)
(7,607,039)
-
6,471,774
(1,135,265)
(1,067,627) 50,930,449
(9,930,970)
(9,930,970)
6,471,774
-
47,471,253
(10,998,597)
-
-
-
-
-
-
525,367
977,725
-
Balance at December 31,
2015
54,369,332
6,738,875
(1,135,265)
(10,998,597)
48,974,345
Share
capital
$
Contributed
surplus
$
Accumulated
other
comprehensive
loss
$
Deficit
$
Total
$
54,369,332
6,738,875
(1,135,265)
(10,998,597)
48,974,345
-
-
54,369,332
-
-
6,738,875
-
(10,651,263)
(11,786,528)
(5,662,784)
-
(16,661,381)
(5,662,784)
(10,651,263)
32,660,298
46,064
(258,313)
-
(26,710)
(46,064)
-
157,165
-
-
-
-
-
-
-
-
-
-
(258,313)
157,165
(26,710)
54,130,373
6,849,976
(11,786,528)
(16,661,381)
32,532,440
Balance at January 1,
2016
Net loss for the year
Other comprehensive loss
Share capital issued
(note 12)
Share repurchase
Share based payments
Treasury stock
Balance at December 31,
2016
The accompanying notes are an integral part of these consolidated financial statements.
7 | P a g e
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Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Consolidated Statements of Cash Flows
For the year ended December 31
(Expressed in Canadian dollars)
Cash provided by (used in)
Operating activities
Net income (loss) for the year
Items not affecting cash
Depreciation of property and equipment (note 9)
Share based payments (note 12)
Deferred taxes (note 11)
Bad debt write off
Allowance for doubtful tax receivables (note 7)
Realized loss (gain) on disposal of property and equipment
Realized loss (gain) on disposal of investment properties (note 8)
Impairment of property and equipment
Impairment of other assets
Unrealized gain on marketable securities (note 6)
Unrealized loss (gain) on fair value adjustment on investment
properties (note 8)
2016
$
2015
$
(5,662,784 )
(9,930,970)
124,523
157,165
(365,774)
5,930
85,526
8,671
223,532
343,506
11,445
(731,041)
137,608
977,725
(234,440)
-
-
(17,175)
116,182
219,749
-
-
5,728,003
7,926,701
(71,298)
(804,620)
Net change in non-cash working capital balances (note 17)
784,461
(586,742)
Financing activities
Share repurchase
Investing activities
Acquisition of marketable securities (note 6)
Disposal (acquisition) of property and equipment - Net
Acquisition of investment properties (note 8)
Disposal of investment properties, net of taxes (note 8)
Effect of exchange rates on cash
Increase (decrease) in cash
Cash – Beginning of year
713,163
(1,391,362)
(285,023)
(285,023)
-
-
(453,698)
(18,241)
(22,617)
970,241
-
27,128
(832,245)
1,447,118
475,685
642,001
903,825
(749,361)
(57,610)
139,212
846,215
(610,149)
1,035,272
1,645,421
Cash – End of year
1,881,487
1,035,272
The accompanying notes are an integral part of these consolidated financial statements.
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| Mongolia Growth Group Ltd
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
As at December 31, 2016
1 Corporate information
Mongolia Growth Group Ltd. (MGG or the Company) was incorporated in Alberta on
December 17, 2007, and is a real estate investment and development Company participating in
the growth of the Mongolian economy through the ownership of commercial investment property
assets in Ulaanbaatar, Mongolia.
The Company’s common shares were previously listed 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 TSX
Venture Exchange (TSXV). The Company is now listed on the TSXV, having the symbol YAK.
MGG has one wholly-owned subsidiary at December 31, 2016, Mongolia Barbados Corp.
Mongolia Barbados Corp. owns the wholly-owned subsidiaries MGG Properties LLC and Big Sky
Capital LLC. Big Sky Capital LLC owns the wholly-owned subsidiaries, Carrollton LLC, Biggie
Industries LLC, Orpheus LLC, Endymion LLC, Zulu LLC, Crescent City LLC, Main Street
Acquisitions LLC, Oceanus LLC and Uya Ra LLC (together “the investment property
operations”). The investment property operations are conducted in Big Sky Capital LLC and its
subsidiaries. No active business operations occur in Mongolia Barbados Corp., MGG Properties
LLC, Oceanus LLC, and Main Street Acquisitions LLC at this time. MGG’s publicly traded
securities are currently held in a brokerage account owned by Mongolia Barbados Corp.
The Company is registered in Alberta, Canada, with its Head Office at its registered and records
address at Centennial Place, East Tower, 1900, 520 - 3rd Avenue S.W. Calgary, Alberta, Canada
T2P 0R3. The Company’s Canadian headquarters are located at 100 King Street West, Suite
5600, Toronto, Ontario, M5X 1C9, Canada. The Company’s Mongolian investment property
operations are based out of its office located at the MGG Properties Building on Seoul St. in
Ulaanbaatar, Mongolia.
At December 31, 2016, the Company is organized into two segments based on the business
operations:
• 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, and/or redevelopment; and
• The MGG Corporate office is located in Toronto, Canada and administers the financial
resources, investment portfolio and corporate reporting and legal functions of the
Company.
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, 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).
31
Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
2 Basic of presentation (continued)
These consolidated financial statements were approved by the Board of Directors of the Company
for issue on March 31, 2017.
3 Significant accounting policies
a.
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, as
modified by the revaluation of investment properties.
b. Basis of consolidation
These consolidated financial statements include the accounts of MGG and its wholly-
owned subsidiaries. Subsidiaries are entities controlled by MGG. Control exists when MGG
is exposed to, or has rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity. 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. Upon the disposal of a subsidiary,
amounts previously recognized in other comprehensive income in respect of that entity,
are reclassified to income or loss.
c.
Financial instruments
Financial assets
Financial assets are classified as either fair-value through profit or loss (FVTPL) or loans
and receivables. The classification depends on the purpose for which the asset was
acquired. The Company’s accounting policy for each category is as follows:
i) 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.
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| Mongolia Growth Group Ltd
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
Financial instruments (continued)
ii) 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 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.
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.
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:
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Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
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. 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. 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.
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 assets or
liabilities 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, and/or for redevelopment. Investment properties are initially measured at fair
value which is most often the purchase price plus any directly attributable expenditures.
Investment properties are subsequently measured at fair value, which reflects market
conditions at the date oof the consolidated 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.
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| Mongolia Growth Group Ltd
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
d. Investment properties (continued)
Properties under development are measured at cost.
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.
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.
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 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.
Investment property purchases where the Company has paid either the full or partial
purchase proceeds to the seller, but the Company has not yet received the official land or
building title from the Mongolian Property office are recorded at the lower of cost and fair
value as Prepaid deposits on investment properties and classified within other assets.
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.
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Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
f. Revenue recognition
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 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)
Investment income
Investment income is recorded as it accrues using the effective interest method.
g. Cash
Cash includes cash held at banks or on hand and demand deposits.
h. 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.
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| Mongolia Growth Group Ltd
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
h. Property and equipment (continued)
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
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 dispose 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.
i.
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 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.
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Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
i. Income taxes (continued)
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.
j. 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. At reporting dates,
monetary items are translated at the closing rate of exchange in effect at the consolidated
statement of financial position date.
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 Mongolian Tögrög, 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.
k. Comprehensive income
Comprehensive income consists of net income (loss) and Other Comprehensive Income
“OCI”. OCI includes changes in unrealized gains (losses) on the translation of financial
statement operations with Mongolian Tögrög functional currency.
l.
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.
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| Mongolia Growth Group Ltd
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
m. Share based payment
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. Additionally, the Company will at times
grant restricted stock of the Company under the terms of the Restricted Stock Award Plan.
Restrictions on such shares are removed as the vesting conditions are met. For restricted
shares, the holder is entitled to all dividend payments during the vesting period. 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.
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 fair value.
The fair value of stock options granted is measured using the Black-Scholes option pricing
model. The fair value of restricted shares granted is measured using the market price of the
Company’s shares.
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.
n. Earnings (loss) per share
For both continuing and discontinued operations, 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.
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Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
o.
Segment reporting
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 now managed as two operating
segments based on how information is produced internally for the purpose of making
operating decisions. The segments are defined as investment property operations and
corporate.
p. 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.
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.
q. 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.
r. Accounting standards issued but not yet effective
A number of new standards, amendments to standards and interpretations are effective for
annual periods beginning after January 1, 2017 or later and have not been applied in
preparing these consolidated financial statements. Those which are relevant to the Company
are set out below. The Company does not plan to adopt these standards early and is
continuing to evaluate the impact of such standards.
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| Mongolia Growth Group Ltd
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
IFRS 9 Financial Instruments
IFRS 9, Financial Instruments, first issued in November 2009 with final version released in
July 2014 by the IASB, brings together the classification and measurement, impairment and
hedge accounting phases of the IASB’s project to replace IAS 39. IFRS 9 introduces a
principles-based approach to the classification of financial assets based on an entity’s
business model and the nature of the cash flows of the asset. All financial assets, including
hybrid contracts, are measured as at fair value through profit and loss (FVTPL), fair value
through OCI or amortized cost.
For financial
measurement previously included in IAS 39.
liabilities, IFRS 9
includes the requirements for classification and
IFRS 9 also introduces an expected loss impairment model for all financial assets not as at
FVTPL. The model has three stages: (1) on initial recognition, 12-month expected credit
losses are recognized in profit or loss and a loss allowance is established; (2) if credit risk
increases significantly and the resulting credit risk is not considered to be low, full lifetime
expected credit losses are recognized; and (3) when a financial asset is considered credit-
impaired, interest revenue is calculated based on the carrying amount of the asset, net of the
loss allowance, rather than its gross carrying amount.
Finally, IFRS 9 introduces a new hedge accounting model that aligns the accounting for
hedge relationships more closely with an entity’s risk management activities. The standard
is effective for annual periods beginning on or after January 1, 2018.
The Company is currently assessing the impact of IFRS 9 and plans to adopt the new
standard on the required effective date.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to
revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an
amount that reflects the consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer. The principles in IFRS 15 provide a more
structured approach to measuring and recognising revenue.
The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under IFRS. Either a full or modified retrospective application is
required for annual periods beginning on or after January 1, 2018 with early adoption
permitted. The Company is currently assessing the impact of IFRS 15 and plans to adopt the
new standard on the required effective date.
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Mongolia Growth Group Ltd |
Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
IFRS 16 – Leases
IFRS 16 replaces IAS 17 Leases and related interpretations. The core principle is that a lessee
recognize assets and liabilities for all leases with a lease term of more than 12 months. A
lessee is required to recognize a right-of-use asset representing its right to use the
underlying leased asset and a lease liability representing its obligation to make lease
payments. Assets and liabilities arising from a lease are initially measured on a present value
basis. The measurement includes non-cancellable lease payments (including inflation-linked
payments), and also includes payments to be made in optional periods if the lessee is
reasonably certain to exercise an option to extend the lease, or not to exercise an option to
terminate the lease. The new standard is intended to provide a faithful representation of
leasing transactions, in particular those that do not currently require the lessees to recognize
an asset and liability arising from an operating lease. IFRS 16 is effective for annual periods
beginning on January 1, 2019, with early adoption permitted for entities that would also
apply IFRS 15 Revenue from Contracts with Customers.
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.
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.
Significant estimates made in the preparation of these consolidated financial statements include
the following areas:
• 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 8. Changes in
assumptions about these factors could materially affect the carrying value of investment
properties.
• Valuation of marketable securities and investments - The Company recognizes
marketable securities and investments at fair value. Fair value is determined on the
basis of market prices from independent sources, if available. If there is no market
price, then the fair value is determined by using valuation models with inputs derived
from observable market data where possible but where observable data is not available,
judgment is required to establish fair values.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
• 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 12.
• 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 global prices for commodities as well as being dependent upon
the effectiveness of economic, financial and monetary measures undertaken by the
legal, regulatory and political
Government of Mongolia
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.
together with
tax,
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
5 Cash
Cash at banks earns interest at floating rates based on daily bank deposit rates. The component of
cash accounts currently consists only of cash amounts held in banks or on hand.
The following table discloses the geographical location of cash:
Barbados
Canada
Mongolia
2016
$
45,275
13
1,408,483
427,729
2015
$
7,003
137,930
890,339
1,881,487
1,035,272
Cash is not collateralized. The carrying amount of cash approximates fair value.
The credit quality of cash 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
Total cash
2016
$
$
$
3,300
1,359,463
424,506
94,218
2015
$
3,245
137,853
887,171
7,003
1,881,487
1,035,272
The unrated balance relates to one private bank in Barbados (2015 – one), one investment
company in Canada (2015 – nil) and one investment company in the United States (2015 – nil).
6 Marketable Securities
Common shares of public companies:
Fair value - beginning of the year
Purchases
Foreign exchange gains
Unrealized gains
Fair value - end of the year
2016
$
2015
$
-
453,698
86
731,041
1,184,825
-
-
-
-
-
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
7 Other assets
Accounts receivable
less: Allowance for doubtful accounts
Prepaid expenses
Prepaid deposits on investment properties
2016
$
161,514
(85,526)
19,006
42,759
137,753
2015
$
222,601
-
35,671
69,727
327,999
Prepaid deposit on investment properties relates to one property for which a title has not been
obtained.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
8
Investment properties
Balance - beginning of year
Additions
Acquisitions
Capital expenditures
Transfer from prepaid deposits
Transfer from property and equipment
Disposals
Fair value adjustment
Foreign exchange adjustments
2016
$
2015
$
46,473,749
48,458,517
-
22,617
-
75,144
(1,193,773)
(5,728,003)
(10,148,384)
-
832,245
750,869
-
(1,785,637)
(7,926,701)
6,144,456
Balance – end of year
29,501,350
46,473,749
During the year ended December 31, 2016, the Company recorded a $5,728,003 unrealized fair
value loss (2015 - $7,926,701 loss) on its investment properties.
Four investment properties were sold during the year for total cash consideration of $970,241
(net of taxes), resulting in a net loss of $223,532 on these transactions. In comparison, during
the year ended December 31, 2015, ten investment properties were sold for cash consideration of
$1,669,455 resulting in net loss of $116,182 on these transactions.
As of December 31, 2016, included in investment properties are five (2015 – four) investment
properties actively being marketed for sale that are to be disposed without redevelopment with a
fair value of $2,132,267 (December 31, 2015 - $2,970,114). As at December 31, 2016, a deposit of
$673,585 (2015 – $48,688) has been received relating to the sale of one of these properties.
Investment properties by major category are as follows:
Residential
Office
Retail
Land and redevelopment sites
2016
$
250,320
2,976,642
16,505,234
9,769,154
2015
$
285,170
4,649,657
25,842,764
15,696,158
29,501,350
46,473,749
Investment properties with an aggregate fair value of $16,459,265 (2015 - $40,075,384) and an
office building classified as property and equipment of $1,672,645 (2015 - $2,765,305), 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 remaining
balance of investment properties was valued internally.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
8 Investment properties (continued)
The Company determined the fair value of investment properties using the income approach and
the sales comparison 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 this
method, year one income is stabilized and capped at a rate deemed appropriate for each
investment property.
The sales comparison approach analyzes all available information of sales of comparable
properties that have recently taken place or have recently been marketed and adjusts the price to
reflect differences in the property valued and sold.
The entire portfolio of investment properties has been valued using the income approach, the
sales comparison approach or a combination thereof.
The Company currently has a standing agreement with the owner of a 42 sq. meter apartment
which has been included in one of the Company’s properties classified as land and development.
The agreement entitles the owner of the apartment to 84 sq. meters of space on the first floor of a
new building to be built on this land. The agreement expires at the end of 2017 and has not yet
been extended. A liability of $149,081 is currently included in the Company’s balance sheet to
reflect this liability. Management has no certainty that the agreement will be extended beyond
2017. If the agreement is not extended, the Company could face an impairment. As of today, the
Company cannot determine thee of any future impairment.
Under the fair value hierarchy, the fair value of the Company's investment properties is
considered a level three, as defined in note 3.
The key valuation assumptions for commercial investment properties are as follows:
Maximum
Minimum
2016
Weighted-
average
Capitalization rate
11.5%
9.0%
10.1%
Capitalization rate
11.0%
8.5%
9.5%
Maximum Minimum
2015
Weighted-
average
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
8 Investment properties (continued)
The following sensitivity table outlines the impact of a 0.25% change in the weighted average
capitalization rate on investment properties at December 31, 2016:
Change to fair value if
capitalization rate
increased 0.25%
Change to fair value if
capitalization rate
decreases 0.25%
Com Commercial property
$(118,393)
$132,157
Additional valuation assumptions include the rental revenue per square meter, grade quality of
the property and comparable market data. Changes to these assumptions could have a material
impact on the fair value of the Company’s investment properties.
Investment properties of $101,551 (2015 - $753,746) have no rental revenue associated with them
at December 31, 2016, consisting of one property held for sale that management has determined
is easier to sell while vacant. The 2015 amount consisted of a different property where the
Company had not yet received the property title and was not available for rent.
Investment properties include land held under operating leases with an aggregate fair value of
$9,769,154 (2015 – $15,696,158) at December 31 2016.
Certain investment properties held by the Company are leased out by the Company under
operating leases. The future minimum lease payments under non-cancellable leases are as
follows:
Less than 1 year
Between 1 and 5 years
2016
$
2015
$
1,145,691
444,230
1,647,994
612,571
1,589,921
2,260,565
Direct operating expenses arising from investment properties that generated rental income
during the year was $1,350,803 (2015 – $1,557,740). Direct operating expenses arising from
investment properties that did not generate rental income during the year was $3,211
(2015 - $19,011).
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
9 Property and equipment
Furniture
and
fixtures
$
Equipment
$
Vehicles
$
Buildings
$
Total
$
2016
Cost
At January 1
Additions
Disposals
Transfers
Impairment
Foreign exchange
adjustment
108,439
2,235
(7,163)
-
-
240,759
288
(493)
-
-
30,248
-
(26,310)
-
-
3,072,284
24,833
-
(85,042)
(343,506)
3,451,730
27,356
(33,966)
(85,042)
(343,506)
(24,554)
(55,473)
(3,938)
(674,272)
(758,237)
At December 31
78,957
185,081
-
1,994,297
2,258,335
Furniture
and
fixtures
$
Equipment
$
Vehicles
$
Buildings
$
Total
$
2016
Accumulated
depreciation
At January 1
Depreciation
Transfers
Disposals
Foreign exchange
adjustment
28,915
9,375
-
(3,765)
123,304
46,418
-
(21)
14,382
1,074
-
(12,395)
306,979
67,656
(9,898)
-
473,580
124,523
(9,898)
(16,181)
(8,321)
(41,717)
(3,061)
(66,451)
(119,550)
At December 31
26,204
127,984
Net book value at
December 31
52,753
57,097
-
-
298,286
452,474
1,696,011
1,805,861
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
9 Property and equipment (continued)
Furniture
and
fixtures
$
Equipment
$
Vehicles
$
Buildings
$
Total
$
2015
Cost
At January 1
Additions
Disposals
Impairment
Foreign exchange
adjustment
102,343
1,743
(5,197)
-
177,233
41,344
(369)
-
26,829
-
-
-
2,972,460
-
(54,596)
(219,749)
3,278,865
43,087
(60,162)
(219,749)
9,550
22,551
3,419
374,169
409,689
At December 31
108,439
240,759
30,248
3,072,284
3,451,730
Furniture
and
fixtures
$
Equipment
$
Vehicles
$
Buildings
$
Total
$
2015
Accumulated
depreciation
At January 1
Depreciation
Disposals
Foreign
exchange
20,202
9,661
(3,184)
67,527
49,399
(369)
10,276
2,642
-
205,910
75,906
(3,569)
303,915
137,608
(7,122)
adjustment
2,236
6,747
1,464
28,732
39,179
At December 31
28,915
123,304
14,382
306,979
473,580
Net book value at
December 31
79,524
117,455
15,866
2,765,305
2,978,150
10 Trade payables and accrued liabilities
Trade and accrued payables
Security deposit
Unearned revenue
Deposit on investment property sales
2016
$
340,492
135,357
42,963
673,585
1,192,397
2015
$
450,063
163,668
42,007
48,688
704,426
The carrying amounts above reasonably approximate fair value at the consolidated statement of
financial position date. All trade and other payables are current.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
11 Income taxes
a) Effective tax rate
The income tax expense reflects an effective tax rate that differs from the combined tax rate
for Canadian federal and provincial corporate taxes for the following:
2016
$
2015
$
Net income (loss) before income taxes
Combined statutory tax rate
(5,763,752)
26.5%
(10,123,298)
26.5%
Tax payable (recoverable) based on statutory tax
rate
Effect of:
Permanent differences
Change in statutory, foreign tax, foreign
exchange rates and other
Change in unrecognised deductible tax differences
Provision for (recovery of) income taxes
Current
Deferred
(1,527,395)
(2,682,674)
1,635,962
(153,284)
(56,251)
(100,968)
150,537
2,118,993
220,816
(192,328)
264,806
(365,774)
42,112
(234,440)
Provision
(recovery of)
for
continuing operations
income
taxes
-
(100,968)
(192,328)
b) Deferred income taxes
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.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
11 Income taxes (continued)
The significant components of the Company’s deferred tax assets and liabilities are as follows:
Deferred Tax Assets (liabilities)
Investment properties
2016
2015
$ (624,335)
$ (990,109)
Net deferred tax liability
$ (624,335)
$ (990,109)
The significant components of the Company’s temporary differences, unused tax credits and
unused tax losses that have not been included on the consolidated statement of financial position
are as follows:
Temporary Differences 2016
Expiry Date
Range
2015
Expiry Date
Range
Property and equipment
Canadian eligible capital
(CEC)
11,000
No expiry date
14,000
No expiry date
179,000
No expiry date
193,000
No expiry date
Allowable capital losses
60,000
No expiry date
741,000
No expiry date
Non-capital losses
available for future period
8,625,000
2030 to 2036
8,510,000
2030 to 2035
Tax attributes are subject to review, and potential adjustment, by tax authorities.
Following an internal review in early 2015, the Corporation determined that it had been
overpaying certain taxes to the Canadian government during the period from 2011 until early
2015. The Tax Authorities agreed with the Corporation’s findings related to this tax issue. On
October 3, 2016, the Corporation received a refund for $333,475, which is included in profit and
loss. The Corporation intends to continue to monitor its tax liabilities.
At year end, the Company reviewed its taxes receivable and determined that the Value Added Tax
(VAT) amount that was not projected to be received/offset by the end of 2017 ($85,526) should
be expensed and recorded as doubtful receivables.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
12 Share capital and contributed surplus
Common shares
The Company is authorized to issue an unlimited number of common and preferred shares.
The issued and outstanding common shares are as follows:
Number of
shares
Amount
$
Balance, December 31, 2014
34,848,745
53,789,459
New shares issued
RSAs vested
Balance, December 31, 2015
Shares re-purchased
Treasury stock
RSAs vested
Balance, December 31, 2016
640,691
23,393
525,367
54,506
35,512,829
(726,000)
-
19,770
34,806,599
54,369,332
(258,313)
(26,710)
46,064
54,130,373
As at December 31, 2016, the Company held 86,500 shares in Treasury to be cancelled
during the first quarter of 2017.
a) Stock options
Balance, January 1, 2015
Granted
Cancelled
Forfeited
December 31, 2015
Balance, January 1, 2016
Granted
Expired
Forfeited
December 31, 2016
Number of
options
2,448,000
1,575,000
(615,000)
(120,000)
3,288,000
3,288,000
350,000
(280,000)
-
3,358,000
Weighted
average
exercise
price
$
2.61
0.73
3.98
1.56
1.45
1.45
0.38
4.21
-
1.11
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
12 Share capital and contributed surplus (continued)
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 and are exercisable
within a maximum of ten (10) years. The vesting period for all options is at the discretion of
the directors. The exercise price will be set by the directors at the time of grant and cannot be
less than the discounted market price of the Company’s common shares. At December 31,
2016, the Company had 122,660 (2015 – 239,890) common shares available for the granting
of future options under the new plan. The Company does not have any cash-settled
transactions. Full details of the Company’s option plan can be found in “Schedule C” of the
Management Information Circular on the Company’s website and filed on Sedar.
A summary of the Company’s options as at December 31 and changes during the years then
ended follows:
December
31,
2016
Weighted
average
exercise
price
Balance, beginning of the year
Options Expired
Options cancelled
Options granted
Options exercised
Options forfeited
3,288,000
(280,000)
-
350,000
-
-
$
1.45
4.21
-
0.38
-
-
December
31,
2015
2,448,000
-
(615,000)
1,575,000
-
(120,000)
Balance, end of the year
3,358,000
1.11
3,288,000
Exercisable
3,358,000
2,510,500
Weighted remaining
average life (years)
2.74
Weighted
average
exercise
price
$
2.61
-
3.98
0.73
-
1.56
1.45
1.53
1.49
During the year, no options were exercised (2015 – nil).
Additionally during 2016, 280,000 options (2015- nil) with a weighted average exercise price
of $4.21 expired.
The fair value of $64,372 associated with the options issued in March 2016 was calculated
using the Black-Scholes model for options valuation, assuming volatility of 67.5% on the
underlying units, a risk free interest rate of 0.54%, an expected option life of 3 years, a
dividend rate of 0% 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 TSXV 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.
The Company considered its historical share price over the last four years in determining the
volatility to use in the option valuation.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
12 Share capital and contributed surplus (continued)
The approximate impact of an increase of 1o% in the volatility assumption for the options
issued in the current year would increase net loss of the Company by $7,669 (2015- $67,272).
The approximate impact of a decrease of 10% in the volatility assumption would decrease net
loss of the Company by $8,062 (2015 - $73,154.)
Options outstanding 2016
Number
outstanding
Number
exercisable
Weighted
average
remaining
life (years)
Weighted
average
exercise price
$
Weighted
average at
grant date
1,078,000
375,000
915,000
640,000
350,000
3,358,000
1,078,000
375,000
915,000
640,000
350,000
3,358,000
2.10
2.94
3.25
3.27
2.21
2.74
1.90
1.09
0.72
0.74
0.38
1.11
2.13
1.15
0.74
0.40
0.40
1.21
Options outstanding 2015
Number
outstanding
Number
exercisable
Weighted
average
remaining
life (years)
Weighted
average
exercise price
$
Weighted
average at
grant date
130,000
20,000
5,000
125,000
1,078,000
375,000
915,000
640,000
3,288,000
130,000
20,000
5,000
125,000
758,000
375,000
457,500
640,000
2,510,500
0.32
0.69
0.92
0.17
3.11
3.94
4.26
4.27
3.51
4.20
4.77
4.25
4.13
1.90
1.09
0.72
0.74
1.45
4.04
4.70
4.14
4.09
2.13
1.15
0.74
0.80
1.54
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
12 Share capital and contributed surplus (continued)
Restricted Stock Awards
The Company has also adopted a Restricted Stock Award plan (“the RSA Plan”) whereby it
can grant RSAs to directors, officers, employees, and technical consultants of the Company.
The maximum number of RSAs that may be reserved for issuance under the RSA Plan is
limited to 200,000 Common Shares and will be subject to the aggregate limits set forth
under the Option Plan, such that unvested Common Shares under the RSA Plan will be
considered “Common Shares reserved for issuance” under the Share Option Plan. The
Restricted Period in respect to the Restricted Shares shall end once the Restricted Shares
shall become vested. One third of each grant of Restricted Shares will vest on each of the
first, second and third anniversaries of the grant date.
The Company has granted restricted stock of the Company to certain individuals under the
terms of the RSA plan of the Company. Full details of the Company’s RSA plan can be found
in “Schedule B” of the Management Information Circular on the Company’s website and
filed on Sedar.
The number of restricted shares granted under the Restricted Stock Award Plan was as
follows:
December 31, 2016
December 31, 2015
Balance, beginning of year
RSAs forfeited
RSAs vested
Balance, end of the year
23,393
(3,623)
(19,770)
-
46,786
-
(23,393)
23,393
The fair value of the restricted shares granted during the 2016 year was $40,064 (2015-
$7,954) at the time of the grant (weighted average grant price of $2.33 per share) and was
based on the market price of the Company’s shares at that time.
During the 2016 year, the Company recorded net compensation expense of $10,686 (2015 -
$39,527) for the Restricted Share Plan within the share based payment expenses.
b) Earnings per share
The following table summarizes the shares used in calculating earnings (loss) per share:
Weighted average number of shares - basic
Effect of dilutive stock options
35,297,108
-
2016
$
2015
$
35,315,357
-
Weighted average number of shares - diluted
35,297,108
35,315,357
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
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.
13 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, 2016,
the Company’s working capital was $1,849,564 (2015 - $512,555) and the Company had no debt.
Current assets
Current liabilities
Working capital
14 Financial risk management
2016
$
3,204,065
1,354,501
2015
$
1,363,271
850,716
1,849,564
512,555
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.
Catastrophe risk
During 2016, the Company obtained insurance on buildings and all permanent fixtures totalling
approximately $22,770,000 (2015 - $23,700,000).
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 receivables.
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Notes to the Consolidated Financial Statements
For the year ended December 31
14 Financial risk management (continued)
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
Accounts receivable
less: Allowance for doubtful accounts
2016
$
1,881,487
161,514
(85,526)
2015
$
1,035,272
222,601
-
Maximum credit risk exposure on the consolidated
statement of financial position
1,957,475
1,257,873
The Company’s exposure to credit risk is managed through risk management policies and
procedures with emphasis on the quality of the investment portfolio. The majority of the funds
invested are held in reputable Barbadian, Canadian or Mongolian banks (note 4).
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.
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 investment property operating expenses.
As at December 31, 2016, 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, 2016. The Company does
not have material liabilities that can be called unexpectedly at the demand of a third party.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
14 Financial risk management (continued)
The following table summarizes the undiscounted cash flows of financial assets and liabilities by
contractual or expected maturity:
December 31, 2016
One year or
less
$
One to two
years
$
No maturity
date
$
Financial Assets
Cash
Accounts receivables
less: Allowance for doubtful
accounts
Financial Liabilities
Trade payables and accrued
liabilities
1,881,487
161,514
(85,526)
1,957,475
1,192,397
-
-
-
-
-
-
-
-
-
-
December 31, 2015
One year or
less
$
One to two
years
$
No maturity
date
$
1,035,272
222,601
1,257,873
704,426
-
-
-
-
-
-
-
-
Financial Assets
Cash
Accounts receivables
Financial Liabilities
Trade payables and accrued
liabilities
Market risk
Market risk includes interest rate risk, currency risk and other price 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.
The Company is not directly exposed to interest rate risk at December 31, 2016 and
2015.
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Notes to the Consolidated Financial Statements
For the year ended December 31
14 Financial risk management (continued)
ii) Currency risk
Currency risk represents the risk that the Company incurs losses due to exposure to
foreign currency fluctuations. The Company owns properties and carries out related
business operations in Mongolia, and is therefore subject to foreign currency
fluctuations that may impact its financial position and results.
The approximate impact of a fluctuation of 10% in the Mongolian Tögrög against the
Canadian dollar would impact the OCI of the Company by $3,076,824 (2015 -
$4,773,378).
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. The Company’s
marketable securities are exposed to other price 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.
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
15 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.
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
16 Commitments and contingencies
2016
$
186,341
107,722
294,063
2015
$
170,685
492,661
663,346
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.
17 Supplementary cash flow information
Changes in non-working capital arising from
Other assets
Trade payables and accrued liabilities
Income tax payable
2016
$
32,350
696,958
55,153
2015
$
(12,659)
(579,139)
5,056
Changes in non-cash working capital from operating
activities
784,461
(586,742)
Income tax paid during the year was $43,987 (2015 - $44,528).
Interest paid during the year was nil (2015 - nil).
During the year ended December 31, 2016 $75,144 (2015 – nil) was transferred from property
and equipment to investment properties (note 8).
During the year ended December 31, 2016 $46,064 was reclassified from contributed surplus to
share capital which was the fair value of RSA’s vested (note 12).
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
18 Segment information
The Company’s operations are conducted in two reportable segments; Investment Property
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 redevelopment. These
properties are managed by Big Sky Capital LLC and its subsidiaries.
The Company evaluates performance based on net income (loss) before income taxes.
Rental income
Property operating expenses
Non capitalized development
expense
Unrealized gain on fair value
on
adjustment
investment properties
Impairment of PPE and
Other Assets
Unrealized Mark to Market
gain
Share based payment
Other expenses
Depreciation
Net investment income
Loss on disposal of investment property
Other revenue
Recovery of consumption tax
Net
income (loss) before
income taxes
Investment
Property
$
1,783,896
(1,354,014)
-
Corporate
$
-
-
-
2016
Total
$
1,783,896
(1,354,014)
-
(5,728,003)
-
(5,728,003)
(354,951)
-
(59,062)
(340,335)
(118,152)
17,925
(223,532)
47,602
-
731,041
(98,103)
(399,513)
(6,371)
2,345
2,000
333,475
(354,951)
731,041
(157,165)
(739,848)
(124,523)
20,270
(223,532)
49,602
333,475
(6,328,626)
564,874
(5,763,752)
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
18 Segment information (continued)
Rental income
Property operating expenses
Non capitalized
development expense
Unrealized gain on fair value
adjustment on
investment properties
and property and
equipment
Impairment of PPE and
Other Assets
Share based payment
Other expenses
Depreciation
Net investment income
Loss on disposal of
investment property
Other revenue
Net
income (loss) before
income taxes
Balance as of
December 31, 2016
Total assets
Property and equipment
Investment properties
Expenditures
Property and equipment
Investment properties
Balance as of
December 31, 2015
Total assets
Property and equipment
Investment properties
Expenditures
Property
and
equipment
Investment properties
Investment
Property
$
2,002,512
(1,576,751)
(174,429)
Corporate
$
2015
Total
$
-
-
-
2,002,512
(1,576,751)
(174,429)
(7,926,701)
-
(7,926,701)
(219,749)
(431,107)
(348,817)
(132,312)
30,353
(116,182)
61,216
-
(546,618)
(739,597)
(5,296)
218
-
(38)
(219,749)
(977,725)
(1,088,414)
(137,608)
30,571
(116,182)
61,178
(8,831,967)
(1,291,331)
(10,123,298)
Investment
Property
$
31,867,291
1,805,861
29,501,350
27,356
22,617
Investment
Property
$
50,661,225
2,971,779
46,473,749
Corporate
$
Total
$
2,643,985
-
-
-
-
34,511,276
1,805,861
29,501,350
27,356
22,617
Corporate
$
153,945
6,371
-
Total
$
50,815,170
2,978,150
46,473,749
43,087
832,245
-
-
43,087
832,245
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Mongolia Growth Group Ltd.
Notes to the Consolidated Financial Statements
For the year ended December 31
18 Segment information (continued)
Revenue
Property and
equipment
Investment
property
Canada
Mongolia
2016
$
2015
$
2016
$
2015
2016
$
2,000
-
-
6,371
$
-
2015
$
-
1,607,966
1,947,508
1,805,861
2,971,779
29,501,350
46,473,749
1,609,966
1,947,508
1,805,861
2,978,150
29,501,350
46,473,749
19 Other expenses
Investor Relations
Repairs and maintenance
Office
Professional fees
Travel
Advertising
Land and property tax
Insurance
Utilities
Bad debt
Allowance for doubtful tax receivables
Other
2016
$
25,470
90,997
69,825
397,442
55,969
16,331
175,939
58,388
150,529
5,930
85,526
84,846
2015
$
132,146
71,471
85,571
615,319
108,158
13,257
198,668
113,199
172,140
-
-
89,963
1,217,192
1,599,892
20 Subsequent events
• Subsequent to year end, the Corporation disposed of one property for $1,441,660 with a book
value at year end of $1,481,887. The Corporation had received a deposit of $669,800 during
Q4 2016.
• The Corporation repurchased 196,000 of its shares at an average price of $0.34/share.
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| Mongolia Growth Group Ltd
Board of Directors
Harris Kupperman
CEO and Chairman of Mongolia Growth Group Ltd
Mr. Kupperman is a co-founder of Mongolia Growth
Group. Mr. Kupperman was the President and CEO of
the Corporation from February 2011 to March 2014,
where he stepped down as CEO to continue his role as
Executive Chairman, then returned as CEO in December
2014. Mr. Kupperman publishes AdventuresInCapitalism.
com; a site dedicated to uncovering unique opportunities
around the world. He spent 10 years as President of
Praetorian Capital, a macro themed small cap focused
hedge fund based in Miami. He graduated from Tulane
University College with a history degree. Mr. Kupperman
served as a Director at Aeroquest International Limited
(TSX:AQL) from 2010-2011.
Jim Dwyer
Independent Director
Mr. Dwyer is Chairman of Mongoljin Private Capital
Ltd
in Ulaanbaatar. Mr. Dwyer was a New York-
based investment banker specializing in mergers and
acquisitions for 30 years and completed over 100 M&A
transactions. In addition, he founded and managed M&A
departments for two major investment banking firms:
Shearson Loeb Rhoades and UBS-North America. Mr.
Dwyer first visited Mongolia in 2001 to represent the
Government of Mongolia as lead investment banker for
the privatization of its largest bank, Trade & Development
Bank. Thereafter, he served as lead investment banker for
the privatization of the largest Government owned retail
bank, Khan Bank. He co-founded the Business Council
of Mongolia (BCM) and served as Executive Director from
its formation in 2007 to April 2016. Mr. Dwyer received
his MBA from Columbia Graduate School of Business
(Columbia University).
Byambaa Losolsuren
Independent Director
Mrs. Losolsuren is a founder of the Trend Capital LLC,
investment advisory firm. In the past, she was one
of the key partners at UMC, being in charge of asset
management arm, where she launched and managed
three local investment funds. She was instrumental in
drafting of the first Investment Fund Law of Mongolia,
which was successfully passed by the Parliament in
2013. Prior to that, she worked on a number of projects
in the financial sector of Mongolia implemented by the
Asian Development Bank. Mrs. Losolsuren also serves as
an independent director of the local insurance company.
Columnist at the Mongolian Economy journal and at the
online platform www.trends.mn. She holds a BA from the
National University of Mongolia, and MBA degree from
Waseda University, Japan. Earned her PMP designation
from PMI in 2015.
Nick Cousyn
Independent Director
Mr. Cousyn is a Capital Markets professional with 15 years
of alternatives and traditional industry experience. Before
moving to Mongolia, Mr. Cousyn was a licensed securities
professional in the U.S. with extensive experience in
relationship management and trading which spanned
equities, fixed income, derivatives and distressed debt.
Since 2012, Mr. Cousyn has served as Chief Operating
Officer and head of research for BDSec (MO:BDS),
Mongolia’s
investment bank. Mr.
Cousyn also serves as Co-Chair of the Business Council
of Mongolia Capital Market Working Group and is a Senior
Council Member and guest lecturer at Mongolia’s Institute
for Finance and Economics. Mr. Cousyn holds a BA in
Economics from the University of California at Riverside.
largest broker and
Brad Farquhar
Independent Director
Mr. Farquhar is Executive Vice-President and Chief
Financial Officer of Input Capital Corp. (TSXV: INP), the
world¹s first agricultural streaming company. He formerly
served in a similar capacity at Assiniboia Capital Corp.,
which built Canada’s largest farmland fund before selling
it to the Canada Pension Plan Investment Board in 2014.
In addition, Mr. Farquhar is President of Nomad Mongolia
LP, an investment partnership that invests in Mongolia
and other frontier economies in Asia. Mr. Farquhar is a
trained financial planner. He received a MPA in Electoral
Governance from Griffith University in Australia, studied
political science at Carleton University, and completed
a BA at Providence College. Mr. Farquhar is a Director
of Input Capital Corp, the Legacy Group of Companies,
Greenfield Carbon Offsetters Inc., on the advisory board
of AgFunder.com and Chair of the board of directors of
SIM Canada.
Robert Scott
Independent Director
Mr. Scott, CPA, CA, CFA brings more than 20 years of
professional experience in accounting, corporate finance,
and merchant and commercial banking. Mr. Scott earned
his CFA in 2001, his CA designation in 1998 and has a
B.Sc. from the University of British Columbia. He is a
Founder and President of Corex Management Inc., a
private company providing accounting, administration,
and corporate compliance services to privately held
and publicly traded companies, and has served on the
management teams and boards of numerous Canadian
publicly traded companies with a strong track record of
cost effectively running operations. Mr. Scott has also
listed several companies on the TSX Venture Exchange
gaining extensive IPO, RTO, regulatory and reporting
experience, and currently holds senior management and
board positions with a number of TSX Venture Exchanges
Issuers.
Officers
Harris Kupperman
Genevieve Walkden, MBA, CFP, CAIA
CEO and Chairman of the Board
CFO and Corporate Secretary
Auditors
Legal
Transfer Agent
Davidson & Company LLP
Vancouver, BC
Borden Ladner Gervais LLP
Computershare Investor Services
Calgary, AB
100 University Ave., 8th Floor
Farris, Vaughan, Wills & Murphy LLP
Vancouver, BC
Toronto, ON M5J 2Y1
Tel: 1 800 564 6253
www.investorcentre.com/service
65
Mongolia Growth Group Ltd | TSX - Venture
Canada: YAK
USA: MNGGF
MONGOLIA GROWTH GROUP Ltd.
First Canadian Place,100 King Street West,
56th Floor, Toronto, Ontario M5X 1C9, Canada
Tel: (877) 644-1186
Fax: (866) 468-9119
66
info@mongoliagrowthgroup.com | www.mongoliagrowthgroup.com
| Mongolia Growth Group Ltd