tonga airports limited financial statements for the...

TONGA AIRPORTS LIMITED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

Contents

Directors' report........................................................................................................................................................................................................2 - 3

Directors' statement........................................................................................................................................................................................................4

Independent auditor's report........................................................................................................................................................................................................5 - 6

Statement of comprehensive income........................................................................................................................................................................................................7

Statement of changes in equity........................................................................................................................................................................................................8

Statement of financial position........................................................................................................................................................................................................9

Statement of cash flows........................................................................................................................................................................................................10

Notes to the financial statements........................................................................................................................................................................................................11 - 30

Disclaimer on additional financial information........................................................................................................................................................................................................31

Detailed income statement........................................................................................................................................................................................................32

Detailed income statement by cost centre........................................................................................................................................................................................................33

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DIRECTORS' REPORT


Directors

The Directors of the company in office during the year and up to the date of this report are:

• Sione Ngongo Kioa - Chairman (appointed on 11 May 2018)

• Sitiveni Halapua (appointed on 27 April 2018)

• John Wycliffe Havea (appointed on 14 May 2018)

• Fine Tohi (appointed on 11 May 2018)

• Viliami Takau Jr

Principal activities

Results

Dividends

Reserves

Bad and doubtful debts

Non current assets

Basis of accounting

The operating profit for the year was TOP 1,362,324 (2017: TOP 2,622,993) after providing TOP 411,176 (2017: TOP

726,899) for income tax.

Prior to the completion of the financial statements of the Company, the Directors took reasonable steps to ascertain whether any

non-current assets were unlikely to be realised in the ordinary course of business compared to their values as shown in the

accounting records of the Company. Where necessary these assets have been written down or adequate provision has been made

to bring the values of such assets to an amount that they might be expected to realise.

As at the date of this report, the Directors are not aware of any circumstances, which would render the values attributed to non-

current assets in the Company's financial statements misleading.

The Directors propose that no transfer be made to reserves except for transfers required by International Financial Reporting

Standard.

In accordance with a resolution of the Board of Directors, the Directors herewith submit the statement of financial position of

Tonga Airports Limited ("the Company") as at 30 June 2018, the statement of comprehensive income, statement of changes in

equity and statement of cash flows for the year ended on that date and report as follows:

The Directors declared no interim dividends for the financial year (2017: TOP 2,000,000).

The directors believe the basis of the preparation of the financial statements is appropriate and that the Company will be able to

continue in operation for at least twelve months from the date of this statement. Accordingly, the directors believe the

classification and carrying amounts of assets and liabilities as stated in these financial statements to be appropriate.

The principal activities of the Company during the financial year included provision of air navigation services, the operation and

management of the Fua'amotu International Airport and other airports throughout Tonga. There was no significant change in

business activity during the year.

Prior to the completion of the Company's financial statements, the Directors took reasonable steps to ascertain that action had

been taken in relation to writing off of bad debts and the provision for doubtful debts. In the opinion of Directors, adequate

provision has been provided for doubtful debts.

As at the date of this report, the Directors are not aware of any circumstances, which would render the amount written off for

bad debts, or the provision for doubtful debts in the Company, inadequate to any substantial extent.

2


STATEMENT OF COMPREHENSIVE INCOME


Notes 2018 2017

TOP TOP

Continuing operations

Revenue 2.1 11,596,453 12,137,573

Other income 2.2 1,850,093 1,850,093

Total revenue 13,446,546 13,987,666

Expenses

Salaries and employee benefits 2.3 (3,537,164) (3,446,342)

Depreciation and amortisation (4,275,988) (4,334,033)

Other operating expenses 2.4 (3,859,894) (2,857,399)

Profit before tax from continuing operations 1,773,500 3,349,892

Income tax expense 3 (a) (411,176) (726,899)

Profit for the year from continuing operations 1,362,324 2,622,993

Other comprehensive income

Other comprehensive income for the year - -

1,362,324 2,622,993

Earnings per share

-16 0.04 0.07

basic, for profit for the year attributable to ordinary

equity holders

The accompanying notes form an integral part of the statement of comprehensive income.

Total comprehensive income for the year, net of tax

7


STATEMENT OF CHANGES IN EQUITY


Note 2018 2017

TOP TOP

Retained earnings

Balance at the beginning of the year 719,148 96,155

Net comprehensive income for the year 1,362,324 2,622,993

Dividends paid (2,000,000) (2,000,000)

Balance at the end of the year 81,472 719,148

Share capital

Balance at the beginning of the year 36,543,226 36,543,226

Balance at the end of the year 14 36,543,226 36,543,226

Total equity 36,624,698 37,262,374

The accompanying notes form an integral part of this statement of changes in equity.

8


STATEMENT OF CASH FLOWS


Note 2018 2017

TOP TOP

Cash flows from operating activities

Net profit before tax from continuing operations 1,773,500 3,349,892

Adjustment to reconcile profit before tax to net cash flows

Non-cash adjustment:

Depreciation and amortisation 4,275,988 4,334,033

Amortisation of deferred revenue (1,850,093) (1,850,093)

Loss on disposal of property, plant and equipment - 17,920

Movement in provision for employee entitlements (46,542) 31,027

Movement in provision for land lease 3,249 3,249

Working capital adjustments:

(Decrease)/decrease in trade receivables (185,715) 254,961

Decrease in other assets 281,978 254,706

Decrease/(increase) in inventories 5,776 (59,638)

Increase/(decrease) in trade and other payables 206,345 (203,127)

(Decrease) in income tax payable (851,554) (1,160,611)

Net cash flows from operating activities 3,612,932 4,972,319

Cash flows (used in) investing activities

Net investments in term deposits and bonds (88,604) (81,181)

Proceeds from sale of property, plant and equipment - 2,349

Acquisition of property, plant and equipment (1,376,163) (1,338,141)

Net cash flows (used in) investing activities (1,464,767) (1,416,973)

Cash flows from financing activities

Dividends paid to shareholder (2,000,000) (2,000,000)

Net cash flows (used in) financing activities (2,000,000) (2,000,000)

Net increase in cash held 148,165 1,555,346

Cash at beginning of year 4,371,905 2,816,559

Cash at end of year 4 (b) 4,520,070 4,371,905

The accompanying notes form an integral part of the statement of cash flows.

10


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS


1. Corporate Information

1.2 Basis of preparation of the Financial Statements

1.3

a) Foreign currencies

b) Revenue recognition

Interest Income on investment is recognised on accrual basis on time proportion.

Aeronautical services

Interest

Summary of significant accounting policies

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the

exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign

currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising

on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss

on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised

in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).

Statement of compliance

Any goodwill arising on acquisition of foreign operation and any fair value adjustments to the carrying amounts of

assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and

translated at the spot rate of exchange at the reporting date.

The financial statements of Tonga Airports Limited ('the company') for the year ended 30 June 2018 was authorised for

issue in accordance with a resolution of the Directors dated 30th November 2018. Tonga Airports Limited is incorporated in

the Kingdom of Tonga and all the shares of the company are owned by the Government of Tonga.

These financial statements have been prepared under the convention of historical cost accounting and do not take into

account changing money valued or current valuations of non-current assets unless stated otherwise. All amounts are stated

in Tongan Pa'anga.

The principal activities of the company are described in Note 23.

The company's financial statements are presented in Tongan Pa'anga, which is the company's functional currency.

Transactions in foreign currencies are initially recorded by the company at their respective functional currency spot

rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign

currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising

on settlement or translation of monetary items are recognised in profit or loss.

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the company and the

revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair

value of the consideration received or receivable, taking into account contractually defined terms of payment and

excluding taxes or duty. The company has concluded that it is the principal in all of its revenue arrangements since it is

the primary obligor in all the revenue arrangements, has pricing latitude and is also exposed to inventory and credit

risks. The specific recognition criteria described below must also be met before revenue is recognised.

The company recognises revenue when the amount of revenue can be reliably measured; it is probable that future

economic benefits will flow to the entity and when specific have been met for each of the company's activities. Sales

revenue represents revenue earned from the provision of aeronautical services and is stated net of returns, trade

allowances and Consumption Tax.

The financial statements of Tonga Airports Limited have been prepared in accordance with International Financial Reporting

Standards (IFRS) issued by the International Accounting Standards Board.

11


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (continued)


1.3

b) Revenue recognition (continued)

c) Taxes

Current Income Tax

Deferred tax

•

•

•

•

Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of

profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which

applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and

liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are

recognised for all taxable temporary differences, except:

When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction

that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor

taxable profit or loss; and

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no

longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has

become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits

and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will

be available against which the deductible temporary differences, and the carry forward of unused tax credits and

unused tax losses can be utilised, except:

When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of

an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects

neither the accounting profit nor taxable profit or loss; and

Summary of significant accounting policies (continued)

Grant income

In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests

in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable

that the temporary differences will not reverse in the foreseeable future.

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the

taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or

substantively enacted at the reporting date in the countries where the company operates and generates taxable

income.

Grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions

will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over

the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an

asset, it is recognised as income in equal amounts over the expected useful life of the related asset.

When the company receives grants of non-monetary assets, the asset and the grant are recorded at nominal amounts

and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the

benefits of the underlying asset by equal annual instalments.

In respect of deductible temporary differences associated with investments in subsidiaries, associates and

interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the

temporary differences will reverse in the foreseeable future and taxable profit will be available against which the

temporary differences can be utilised.

12




1.3

c) Taxes (continued)

Consumption Tax

Expenses and assets are recognised net of the amount of sales tax, except:

•

•

d) Property, plant and equipment

Buildings and infrastructure 1% - 33%

Motor vehicles 6% - 10%

Office furniture and equipment 10% - 33%

e) Leases

When receivables and payables are stated with the amount of sales tax included.

The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at

the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on

the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right

is not explicitly specified in an arrangement.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or

when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of

the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is

included in the income statement when the asset is derecognised.

Construction in progress, plant and equipment is stated at cost, net of accumulated depreciation and accumulated

impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing

costs for long-term construction projects if the recognition criteria are met. When significant parts of plant and

equipment are required to be replaced at intervals, the company depreciates them separately based on their specific

useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant

and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are

recognised in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset

after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

The net amount of Consumption tax recoverable from, or payable to, the taxation authority is included as part of

receivables or payables in the statement of financial position.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset

is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted

at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or

loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.


The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each

financial year end and adjusted prospectively, if appropriate.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax

assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation

authority.

When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in

which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense

item, as applicable; and

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:

13




1.3

e) Leases (continued)

Company as a lessee

Company as a lessor

f) Borrowing costs

g) Intangible assets

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either

individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine

whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made

on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the

difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the

statement of profit or loss when the asset is derecognised.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever

there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method

for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the

expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are

considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting

estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or

loss in the expense category that is consistent with the function of the intangible assets.

Leases in which the company does not transfer substantially all the risks and rewards of ownership of an asset are

classified as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to

the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.

Contingent rents are recognised as revenue in the period in which they are earned.


Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets

acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible

assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated

intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in

profit or loss in the period in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially

all the risks and rewards incidental to ownership to the company is classified as a finance lease. Finance leases are

capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the

present value of the minimum lease payments. Lease payments are apportioned between finance charges and

reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.

Finance charges are recognised in finance costs in the statement of profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the

company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated

useful life of the asset and the lease term.

Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line

basis over the lease term.

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a

substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All

other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other

costs that an entity incurs in connection with the borrowing of funds.

14




1.3

h) Financial instruments - initial recognition and subsequent measurement

(i) Financial assets

Initial recognition and measurement

Subsequent measurement

Financial assets at fair value through profit or loss

Loan and receivables

Held-to-maturity investments

The company has not designated any financial assets upon initial recognition as at fair value through profit or loss.

This category is the most relevant to the company. Loans and receivables are non-derivative financial assets with fixed

or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are

subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment. Amortised

cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral

part of the EIR. The EIR amortisation is included in finance income in the statement of profit or loss. The losses arising

from impairment are recognised in the statement of profit or loss in finance costs for loans and in cost of sales or

other operating expenses for receivables. This category generally applies to trade and other receivables. For more

information on receivables, refer to Note 7.

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets

designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading

if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated

embedded derivatives, are also classified as held for trading unless they are designated as effective hedging

instruments as defined by IAS 39. The company has not designated any financial assets at fair value through profit or

loss. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value

with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income

(positive net changes in fair value) in the statement of profit or loss.

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to

maturity when the company has the positive intention and ability to hold them to maturity. After initial measurement,

held to maturity investments are measured at amortised cost using the EIR, less impairment. Amortised cost is

calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of

the EIR. The EIR amortisation is included as finance income in the statement of profit or loss. The losses arising from

impairment are recognised in the statement of profit or loss as finance costs. The company had TOP 4,988,397

(2017: TOP 4,899,793) held-to-maturity investments for the years ended 30 June 2018 and 2017.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or

convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the company

commits to purchase or sell the asset.

For purposes of subsequent measurement financial assets are classified in four categories:

The company's financial assets include cash and trade and other receivables.

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and

receivables, held-to-maturity investments, AFS financial assets, or as derivatives designated as hedging instruments in

an effective hedge, as appropriate. All financial assets are recognised initially at fair value plus, in the case of financial

assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the

financial asset.


15




1.3

h) Financial instruments - initial recognition and subsequent measurement (continued)

(i) Financial assets (continued)

Available-for-sale investments

Derecognition

•

•

Available-for-sale financial assets include equity investments and debt securities. Equity investments classified as AFS

are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt

securities in this category are those that are intended to be held for an indefinite period of time and that may be sold

in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, AFS financial assets are subsequently measured at fair value with unrealised gains or losses

recognised in OCI and credited in the AFS reserve until the investment is derecognised, at which time the cumulative

gain or loss is recognised in other operating income, or the investment is determined to be impaired, when the

cumulative loss is reclassified from the AFS reserve to the statement of profit or loss in finance costs. Interest earned

whilst holding AFS financial assets is reported as interest income using the EIR method.

The rights to receive cash flows from the asset have expired, or

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the

original carrying amount of the asset and the maximum amount of consideration that the company could be required

to repay.


The company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay

the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and

either (a) the company has transferred substantially all the risks and rewards of the asset, or (b) the company has

neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of

the asset.

When the company has transferred its rights to receive cash flows from an asset or has entered into a pass-through

arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither

transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the

company continues to recognise the transferred asset to the extent of the company’s continuing involvement. In that

case, the company also recognises an associated liability. The transferred asset and the associated liability are

measured on a basis that reflects the rights and obligations that the company has retained.

The company evaluates whether the ability and intention to sell its AFS financial assets in the near term is still

appropriate. When, in rare circumstances, the company is unable to trade these financial assets due to inactive

markets, the company may elect to reclassify these financial assets if the management has the ability and intention to

hold the assets for foreseeable future or until maturity. For a financial asset reclassified from the AFS category, the

fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss

on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment

using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the

remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount

recorded in equity is reclassified to the statement of profit or loss.

A financial asset (or, where a part of a financial asset or part of a group of similar financial assets) is derecognised

when:

16




1.3


(ii) Impairment of financial assets

(iii) Financial liabilities

Initial recognition and measurement

Subsequent measurement

Financial liabilities at fair value through profit or loss

Gains or losses on liabilities held for trading are recognised in the statement of profit or loss.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of

directly attributable transaction costs.

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities

designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near

term. This category also includes derivative financial instruments entered into by the company that are not designated

as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also

classified as held for trading unless they are designated as effective hedging instruments.

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans

and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

The measurement of financial liabilities depends on their classification, as described below:

The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and

the present value of estimated future cash flows (excluding future expected credit losses that have not yet been

incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective

interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the

statement of profit or loss. Interest income (recorded as finance income in the statement of profit or loss) continues to

be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash

flows for the purpose of measuring the impairment loss. Loans together with the associated allowance are written off

when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to

the company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of

an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or

reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs

in the statement of profit or loss.


For financial assets carried at amortised cost, the company first assesses whether impairment exists individually for

financial assets that are individually significant, or collectively for financial assets that are not individually significant.

If the company determines that no objective evidence of impairment exists for an individually assessed financial asset,

whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and

collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an

impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

Financial assets carried at amortised cost

The company's financial liabilities include trade and other payables.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial

date of recognition, and only if the criteria in IAS 39 are satisfied. The company has not designated any financial

liabilities as at fair value through profit or loss.

17




1.3


(iii) Financial liabilities (continued)

Loans and borrowings

This category generally applies to interest-bearing loans and borrowings.

Derecogniton

(iv) Offsetting of financial instruments

(v) Fair value of financial instruments

i) Inventories

Raw materials - purchase cost ;

Finished goods

j) Impairment of non financial assets

The company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any

indication exists, or when annual impairment testing for an asset is required, the company estimates the asset’s

recoverable amount.

Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognised in OCI, in

respect of the purchases of raw materials.

- cost of direct materials and labour and an appropriate portion of fixed and variable overheads

but excluding borrowing costs;


Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of

financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an

intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note

21.

The fair value of financial instruments that are traded in active markets at each reporting date is determined by

reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short

positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the

fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s

length market transactions; reference to the current fair value of another instrument that is substantially the same;

discounted cash flow analysis or other valuation models.

Inventories are valued at the lower of cost and net realisable value.

This is the category most relevant to the company. After initial recognition, interest-bearing loans and borrowings are

subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when

the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking

into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR

amortisation is included as finance costs in the statement of profit or loss.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When

an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms

of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of

the original liability and the recognition of a new liability. The difference in the respective carrying amounts is

recognised in the statement of profit or loss.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion

and the estimated costs necessary to make the sale.

18




1.3 Summary of significant accounting policies (continued)

j) Impairment of non financial assets (continued)

k) Cash and short term deposits

l) Provisions

m) Employee entitlements

Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past

event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation

and a reliable estimate can be made of the amount of the obligation. When the company expects some or all of a

provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate

asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the

statement of profit or loss net of any reimbursement.

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-

term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as

defined above, net of outstanding bank overdrafts.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax

discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

In determining fair value less costs of disposal, recent market transactions are taken into account. If no such

transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by

valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

Impairment losses of continuing operations, including impairment on inventories, are recognised in the statement of

profit or loss in expense categories consistent with the function of the impaired asset, except for properties previously

revalued with the revaluation taken to OCI. For such properties, the impairment is recognised in OCI up to the amount

of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an

indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists,

the company estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed

only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last

impairment loss was recognised.

The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed

the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised

for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a

revalued amount, in which case, the reversal is treated as a revaluation increase.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of

disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not

generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying

amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its

recoverable amount.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects,

when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the

passage of time is recognised as a finance cost.

Provisions are made for wages and salaries, incentive payments and annual leave estimated to be payable to

employees at reporting date on the basis of statutory and contractual requirements.

19




1.3 Summary of significant accounting policies (continued)

n) Trade and other payables

o) Comparative figures

p) Earnings per share

1.4

New and amended standards and interpretations

The nature and the impact of each amendment is described below:

Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative

Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses

1.5 Significant accounting judgments, estimates and assumptions

Other disclosures relating to the Group’s exposure to risks and uncertainties includes:

• Capital management

• Financial instruments risk management and policies

• Sensitivity analyses disclosures

Changes in accounting policies and disclosures

Comparative figures have been amended where necessary, for changes in presentation in the current year.

Operating Lease Commitments

The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities,

including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses).

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against

which it may make deductions on the reversal of deductible temporary difference related to unrealised losses. Furthermore,

the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances

in which taxable profit may include the recovery of some assets for more than their carrying amount.

Liabilities for trade creditors and other amounts are carried at cost (inclusive of Consumption Tax where applicable)

which is the fair value of the consideration to be paid in the future for goods and services received whether or not

billed to the company. Amounts payable that have been denominated in foreign currencies have been translated to

local currency using the rates of exchange ruling at the end of the financial year.

The Company applied amendments retrospectively. However, their application has no effect on the Company’s financial

position and performance as the Company has no deductible temporary differences or assets that are in the scope of the

amendments.

In the process of applying the company's accounting policies, management has made the following judgments, which have

the most significant effect on the amounts recognised in the consolidated financial statements:

Basic earnings per share is determined by dividing net profit after income tax attributable to shareholders of the

company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of

ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during

the year.

The preparation of the Company’s financial statements requires management to make judgements, estimates and

assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying

disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in

outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

The company has entered into commercial property leases on its investment property portfolio. The company has

determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not

constituting a major part of the economic life of the commercial property and the fair value of the asset, that it retains all

the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

Judgments

The Company applied for the first time certain amendments to the standards, which are effective for annual periods

beginning on or after 1 January 2017. The Company has not early adopted any standards, interpretations or amendments

that have been issued but are not yet effective.

20




1.5 Significant accounting judgments, estimates and assumptions (continued)

1.6

IFRS 9 Financial Instruments

The Company plans to adopt the new standard on the required effective date and will not restate comparative information.

IFRS 15 Revenue from Contracts with Customers

Estimations and assumptions

Standards issued but not yet effective

The lease rentals for 2014 onwards is being paid by TAL. The directors believe that the lease rent liability at 30 June 2018

as adequately provided for in the financial statements as at that date and no significant changes to these estimates are

anticipated.

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s

financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become

effective.

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments:

Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the

accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is

effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge

accounting, retrospective application is required but providing comparative information is not compulsory. For hedge

accounting, the requirements are generally applied prospectively, with some limited exceptions.

IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for 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.

Impairment of non financial assets

Provision for land lease

A provision exists for land lease. The company commenced operations on 2 July 2007 as a corporatised entity enacted

under the Public Enterprises Act taking over the provision of airport services previously managed by the Government of

Tonga. The company is finalising with the Government for lease rentals prior to year 2013 for the properties acquired by

the company as a corporatised entity. The company has accrued on an annual basis the estimated lease rental likely to be

payable for the period 2008 to 2013 once the payment terms is clarified.

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the

higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on

available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices

less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are

derived from the budget for the next five years and do not include restructuring activities that the company is not yet

committed to or significant future investments that will enhance the asset’s performance of the CGU being tested.

The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full

retrospective application or a modified retrospective application is required for annual periods beginning on or after 1

January 2018. Early adoption is permitted. The Company plans to adopt the new standard on the required effective date

using the full retrospective method.

The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows

and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles

with indefinite useful lives recognised by the company.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have

a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial

year, are described below. The company based its assumptions and estimates on parameters available when the

consolidated financial statements were prepared. Existing circumstances and assumptions about future developments,

however, may change due to market changes or circumstances arising that are beyond the control of the company. Such

changes are reflected in the assumptions when they occur.

21




1.6

IFRS 16 Leases

Standards issued but not yet effective (continued)

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains

a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form

of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and

requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases

under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal

computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a

lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right

to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately

recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before

an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified

retrospective approach. The standard’s transition provisions permit certain reliefs.

22




2. Revenue and expense 2018 2017

Included in revenue are:

2.1 Revenue TOP TOP

Aeronautical - international 9,317,673 9,999,372

Aeronautical - domestic 839,019 935,903

Non-aeronautical 1,439,761 1,202,298

11,596,453 12,137,573

2.2 Other income TOP TOP

Amortisation of deferred income 1,850,093 1,850,093

Included in expenses are:

2.3 Salaries and employee benefits TOP TOP

Salaries and wages 3,537,164 3,446,342

2.4 Other operating expenses TOP TOP

Auditors fees 14,000 14,000

Board expenses 222,253 296,591

Doubtful debts 257,282 (30,467)

Land lease 195,466 194,849


Repairs - infrastructure 205,136 118,735

Safety levy expenses 216,118 139,434

Other operating expenses 2,749,639 2,106,337

3,859,894 2,857,399

3. Income tax expense

(a)

TOP TOP

Accounting profit before income tax 1,773,500 3,349,892

At the Tonga rate of 25% (2017: 25%) 443,375 837,473

Over-provision in prior year (32,199) (110,574)

411,176 726,899

(b) Income statement TOP TOP

Current income tax:

Current income tax charge 500,475 837,473

Adjustments in respect of previous year (89,299) (110,574)

Income tax expense 411,176 726,899

A reconciliation between tax expense and the product of accounting profit multiplied by the tax rate for the year ended 30

June 2018 and 30 June 2017 is as follows:

Income tax attributable to operating profit

23




3. Income tax expense (continued) 2018 2017

(c) Deferred income tax at 30 June 2018 and 30 June 2017 relates to the following:

Deferred income tax: TOP TOP

(673,967) (678,381)

35,542 47,177

68,196 3,875

(570,229) (627,329)

Reflected in the statement of financial position as follows:

Deferred income tax asset 103,738 51,052

Deferred income tax liability (673,967) (678,381)

Deferred income tax liability (net) (570,229) (627,329)

4.

a) Cash and cash equivalents TOP TOP

Cash at banks 3,950,479 3,834,086

Short term deposits - MBF Bank 567,641 536,269

Cash on hand 1,950 1,550

4,520,070 4,371,905

Cash at banks earns interest at floating rates based on daily bank deposit rates.

b)

TOP TOP

Cash at banks 3,950,479 3,834,086

Short term deposits - MBF Bank 567,641 536,269

Cash on hand 1,950 1,550

4,520,070 4,371,905

5. Inventories TOP TOP

Fuel 55,042 65,306

Canteen stock 4,488 -

Total inventories at the lower of cost and net realisable value 59,530 65,306

6. Held to maturity assets

Current TOP TOP

106,454 104,804

2,346,391 2,259,437

2,452,845 2,364,241

Non-current

National Reserve Bank of Tonga Bonds 1,156,000 1,156,000

Term deposits with ANZ Bank 1,379,552 1,379,552

2,535,552 2,535,552

Term deposit with Bank of South Pacific Limited

Term deposit with ANZ Bank

Provisions for employee entitlements

Provisions for doubtful debts

The year-end interest rate receivable on term deposits ranges from 1.75% - 6.5% (2017: 1.75% - 6.5%) per annum and the

interest rate for bonds range from 2.5% - 3% (2017: 2.5% - 3%) per annum.

Accelerated depreciation for tax purposes

For the purpose of statement of cash flows, cash and cash equivalents comprise the following at 30 June:

Cash and cash equivalents

24




2018 2017

7. Trade receivables TOP TOP

Trade receivables 1,739,026 1,550,142

Less provision for doubtful debts (18,670) (15,501)

1,720,356 1,534,641

Movements in the provision for impairment of receivables were as follows:

TOP TOP

Opening balance 15,501 45,968

Arising during the year 3,169 -

Utilised/reversed - (30,467)

18,670 15,501

At 30 June 2018 and 30 June 2017, the ageing analysis of trade receivables is as follows:

30 days 60 days 90 days & over

TOP TOP TOP TOP

215,479 71,523 104,912 18,670

290,170 91,098 47,076 15,501

8. Other assets TOP TOP

Refundable deposits and prepayments 2,401,946 2,362,463

Other receivables 387,393 407,165

Provision for doubtful debts (254,113) -

Consumption tax receivable 101,736 149,312

2,636,962 2,918,940

9. Trade and other payables TOP TOP

Trade payables 863,566 614,524

Other payables and accruals 270,326 210,437

1,133,892 824,961

-

10. Employee benefit liability TOP TOP

Current

Post employment benefits 19,105 19,105

Annual leave liability 142,166 188,708

161,271 207,813

The movement in employee benefit liability over the year is as follows: TOP TOP

Opening balance 188,708 157,681

Net movement during the year (46,542) 31,027

Closing balance 142,166 188,708

Terms and conditions of the above financial liabilities are:

The retirement fund maintained by the company was terminated in 2012 and the balance remaining is the unclaimed

amounts payable to former employees.

Considered

impaired

Trade payables and accruals are on commercial terms and conditions and are payable within 60 - 90 days.

TOP

1,739,026 1,328,442

1,106,297

Trade receivables are non interest bearing and are generally on 30-90 day terms. As at 30 June 2018, TOP 18,670 (2017:

TOP 15,501) trade receivables were impaired for the company and were fully provided for.

1,550,142

TOP

Past due but not impaired

2018

2017

Total

Employee benefits liability is recognised for employee entitlements in accordance with the policy noted in 1.3 (m).

Neither past

due nor

impaired

25




11. Property, plant and equipment

Land &

Building

Office

Furniture &

Equipment

Motor

vehicles Infrastructure

Work in

Progress Total

TOP TOP TOP TOP TOP TOP

At 1 July 2016 10,946,773 5,218,369 4,020,519 61,428,577 1,355,406 82,969,644

Additions 322,477 408,285 266,602 173,673 167,104 1,338,141

Disposals - - (19,666) - (14,340) (34,006)

614,446 517,650 - - (1,132,096) -

At 30 June 2017 11,883,696 6,144,304 4,267,455 61,602,250 376,074 84,273,779

Additions 442,241 405,873 342,331 53,739 234,565 1,478,749

Reclassifications 187,984 - - - (187,984) -

At 30 June 2018 12,513,921 6,550,177 4,609,786 61,655,989 422,655 85,752,528

Depreciation and impairment

At 1 July 2016 3,984,476 2,858,230 2,440,752 11,556,577 - 20,840,035

Depreciation charge for the year 583,471 562,342 338,842 2,849,378 - 4,334,033

Depreciation reversed - - (13,737) - - (13,737)

At 30 June 2017 4,567,947 3,420,572 2,765,857 14,405,955 - 25,160,331

Depreciation charge for the year 605,849 590,329 308,356 2,771,454 - 4,275,988

At 30 June 2018 5,173,796 4,010,901 3,074,213 17,177,409 - 29,436,319

At 30 June 2018 7,340,125 2,539,276 1,535,573 44,478,580 422,655 56,316,209

At 30 June 2017 7,315,749 2,723,732 1,501,598 47,196,295 376,074 59,113,448

Assets under construction

12. Provision 2018 2017

Land lease provision TOP TOP

Opening balance 1,104,412 1,101,163

Arising during the year 194,350 194,350

Utilised/paid during the year (191,101) (191,101)

Closing balance 1,107,661 1,104,412

Provision for land lease has been accounted for as per Note 1.3 (l) and Note 1.5.

13. Deferred income TOP TOP

Opening balance 32,007,472 33,857,565

Amortisation for the year (1,850,093) (1,850,093)

Closing balance 30,157,379 32,007,472

The deferred income is shown on the statement of financial position as follows:-

Current 1,850,093 1,850,093

Non-current 28,307,286 30,157,379

30,157,379 32,007,472

Net book value

The company receives as part of the Tonga Transport Sector Consolidation Project, financial support from the World Bank.

The above transactions took place with respect to grant income received from the World Bank through Tonga Aviation

Investment Project ('TAIP'). Grant income has been accounted for as per Note 1.3(b).

Reclassifications

Cost

The Company receives as part of the Tonga Transport Sector Consolidation Project, financial support from the World Bank,

through Tonga Aviation Investment Project ('TAIP'). As at 30 June 2018, TAIP had projects amounting to TOP 4,667,598 (2017:

TOP 3,486,665), under construction and will be donated to the Company upon completion, subsequent to the end of the financial

year. The initial gross amount was estimated at fair value by reference to the market price of these assets on the date on which

control is obtained.

26




14. Share capital 2018 2017

Authorised TOP TOP

Ordinary shares of TOP 1 each 100,000,000

Ordinary shares issued and fully paid TOP TOP

36,543,226 ordinary shares of TOP 1 each 36,543,226 36,543,226

-

15. Dividends paid and proposed TOP TOP

Opening balance - -

Arising during the year 2,000,000 2,000,000

Paid during the year (2,000,000) (2,000,000)

Closing balance - -

16. Earnings per share

2018 2017

TOP TOP

0.04 0.07

1,362,324 2,622,993

Number of equity shares outstanding 36,543,226 36,543,226

17. Related party disclosures

a) Controlling Entities

b) Transactions with related parties

Revenue from various Government Ministries TOP TOP

VIP Lounge 17,565 27,913

Other Income 2,750 1,200

20,315 29,113

c) Compensation of key management personnel of the company TOP TOP

Short-term employee benefits 704,510 454,666

d) Directors

• Sione Ngongo Kioa - Chairman (appointed on 11 May 2018)

• Sitiveni Halapua (appointed on 27 April 2018)

• John Wycliffe Havea (appointed on 14 May 2018)

• Fine Tohi (appointed on 11 May 2018)

• Viliami Takau Jr

100,000,000

Tonga Airports Limited is owned by the Government of Tonga.

The following reflect the income and share data used in the basic and diluted earnings per share computations:

There have been no other transactions involving ordinary shares between the reporting date and the date of completion of

these financial statements.

The Directors of the company in office during the year and up to the date of this report are:

Net profit attributable to ordinary equity holders for basic and diluted earnings

Basic, for profit for the year attributable to ordinary equity holders

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to the ordinary equity

holders of the parent by the weight average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders (after

adjusting for interest on the convertible preference shares) by the weighted average number of ordinary shares outstanding

during the year.

During the year the company entered into transactions with related parties in the ordinary course of business under normal

commercial terms. Significant transactions during the year are as follows:

27




18. Contingent liabilities

The company did not have any contingent liabilities at balance date (2017: nil)

19. Expenditure commitments

a) Capital commitments

b) Operating lease commitments

2018 2017

TOP TOP

Within one year 191,601 191,601

766,402 766,402

Later than five years 7,744,509 7,936,110

8,702,512 8,894,113

20. Financial risk management objectives and policies

Foreign currency risk

Effect on profit before tax

TOP

Effect on profit before tax

TOP

2017 (1,022)

-1%

At 30 June 2018, the company had capital commitments of TOP 46,000 (2017: nil).

Future minimum rental payable under non-cancellable operating leases as at 30 June 2018 and 30 June 2017 are as

follows:

The company's principal financial liabilities, other than derivatives, comprise trade and other payables. The main purpose of

these financial liabilities is to raise finance for the company's operations. The company has various financial assets such as

trade receivables, loans to related parties, available-for-sale investments, related party receivables, and cash which arise

directly from its operations. The main risks arising from the company's financial statements are market risk and credit risk.

The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

Increase/decrease in NZD Rate

The company has transactional currency exposures. Such exposures arises from sales by the company in currency other

than Tongan Pa'anga and purchases of materials in foreign currency. Foreign currency risk is an inherent business risk as

the Reserve Bank of Tonga and banks do not permit hedging.

The following table demonstrates the sensitivity to a reasonable possible change in the USD exchange rate (2017: AUD and

NZD exchange rate), with all other variables held constant, of the company's profit before tax.

After one year but not more than five years

On 7 November 2013 the company entered into lease agreements with the Ministry of Infrastructure to lease its land

for 50 years ending on 6 November 2063. Under the agreements, lease rental is payable at TOP 122,487 per annum

for land situated at Fua'amotu, TOP 40,744 per annum for land situated at Toloa and TOP 17,169 per annum for land

situated at Pelehake.

On 20 June 2014 the company entered into lease agreement with Ministry of Infrastructure for land at Vava'u for 50

years ending on 19 June 2064. Under the lease agreement, lease rental is payable at TOP 10,701 per annum.

On 21 July 2014 the company entered into lease agreement with His Majesty Tupou VI King of Tonga for land at Toloa

for 50 years ending on 20 July 2064. Under the lease agreement, lease rental is payable at TOP 500 per annum.

+1%

+1%

-1% 1,249

(9,326)

-1% 11,398

2018

2018 (443)

542

Increase/decrease in USD Rate

+1%

28




20. Financial risk management objectives and policies (continued)

Credit risk

Liquidity risk

Year ended 30 June 2018 On demand 1 to 12

months

1 to 5 years > 5 years Total

TOP TOP TOP TOP TOP

Trade and other payables - 1,133,892 - - 1,133,892

- 1,133,892 - - 1,133,892

Year ended 30 June 2017 On demand 1 to 12

months

1 to 5 years > 5 years Total

TOP TOP TOP TOP TOP

Trade and other payables - 824,961 - - 824,961

- 824,961 - - 824,961

Capital Management

2018 2017

TOP TOP

Trade and other payables 1,133,892 824,961

Less cash and cash equivalents (4,520,070) (4,371,905)

Net debt (3,386,178) (3,546,944)

Equity 36,624,698 37,262,374

Total capital 36,624,698 37,262,374

Capital and net debt 33,238,520 33,715,430

It is the company policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In

addition, receivable balances are monitored on an ongoing basis with the result that the company's exposure to bad debts is

not significant.

The company trades with only recognised, credit worthy third parties. There are no significant concentrations of credit risk

within the company. With respect to credit risk arising from other financial assets of the company which comprise of cash

and cash equivalents, available-for-sale financial instruments, and loan notes, the company's exposure to credit risk arises

from default of the counter party, with a maximum exposure equal to the carrying amount of these investments.

The company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To

maintain or adjust the capital structure, the company may adjust the dividend payment to shareholders, return capital to

shareholders or issue new shares. No changes were made in the objectives, polices or processes during the years 30 June

2018 and 30 June 2017. The company monitors capital using a gearing ratio which is net debt divided by total capital. The

company includes within net debt, trade and other payables, less cash and cash equivalents. Capital includes equity shares

attributable to equity holders of the parent less minority interests.

The primary objective of the company's capital management is to ensure that it maintains a strong credit rating and a

healthy capital ratio in order to support its business and maximise shareholder value.

The company monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the

maturity of both its financial investments and financials assets (e.g. accounts receivables, other financial assets) and

projected cash flows from operations. The company's objective is to maintain a balance between continuity of funding and

flexibility through the use of bank overdrafts and bank loans. The table below summaries the maturity profile of the

company's financial liabilities at 30 June 2018 and 30 June 2017:

29




21. Financial instruments

Fair values

Fair value

2018 2017 2018 2017

Financial assets TOP TOP TOP TOP

Cash at bank and on hand 4,520,070 4,371,905 4,520,070 4,371,905

Held to maturity assets 4,988,397 4,899,793 4,988,397 4,988,397

9,508,467 9,271,698 9,508,467 9,360,302

22. Subsequent events

23. Principal activities

24. Company details

Company Incorporation

The company was incorporated in Tonga under the Public Enterprises Act, 2002 and Tonga Companies Act, 1995.

Company Operations

Number of Employees

As at reporting date, the holding company employed a total of 189 employees (2017: 191).

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or

event of a material and unusual nature likely, in the opinion of the directors, to affect significantly the operations of the

Company, the results of those operations or the state of affairs of the Company in the subsequent financial year.

Set out below is a comparison by category of carrying amounts and fair values of all the company's financial instruments

that are carried in the financial statements:

Market values have been used to determine the fair value of available-for-sale financial assets. The fair values of

borrowings has been calculated by discounting the expected future cash flows at prevailing interest rates. The fair value of

loan notes and other financial assets have been calculated using market interest rates.

The company's operations is located at Fua'amotu, Nukualofa, Tonga.

The principal activities of the Company during the financial year included provision of air navigation services, the operation

and management of the Fua'amotu International Airport and other airports throughout Tonga. There was no significant

change in business activity during the year.

Carrying amount

30


DISCLAIMER ON ADDITIONAL FINANCIAL INFORMATION


The additional financial information, being the attached detailed Income Statement has been compiled by the management of

Tonga Airports Limited.

To the extent permitted by law, we do not accept liability for any loss or damage which any person, other than Tonga Airports

Limited may suffer arising from any negligence on our part. No person should rely on the additional financial information without

having an audit or review conducted.

31


DETAILED INCOME STATEMENT


2018 2017

TOP TOP

Revenue

Aeronautical - international 9,317,673 9,999,372

Aeronautical - domestic 839,019 935,903

Non-aeronautical 1,439,761 1,202,298

11,596,453 12,137,573

Add other income

Amortisation of deferred income 1,850,093 1,850,093

Total income 13,446,546 13,987,666

Expenses

Advertising and marketing 7,401 9,766

Auditor's remuneration 14,000 14,000

Bad debts 23,594 -

Board expenses 222,253 296,591

Cleaning 249,475 277,967

Communications 101,969 98,407

Consultancy fees 39,521 40,299

Depreciation 4,275,988 4,334,033

Donation 8,000 12,526

Doubtful debts expense/(recovered) 257,282 (30,467)

Fuel 428,875 239,423

General expenses 274,958 125,064

Insurance 237,752 239,963

Land lease 195,466 194,849

Legal expenses 8,320 3,348

License fees 33,344 36,077


Marketing expenses 297,149 -

Operational supplies 772 477

Printing and stationery 60,646 54,091

Rental 2,217 2,559

Repairs - infrastructure 205,136 118,735

Repairs - office and equipment 56,639 60,248

Safety levy expenses 216,118 139,434

Salaries & wages 3,537,164 3,446,342

Training 103,000 163,546

Travelling 283,503 236,803

Uniforms 35,087 30,587

Utilities 403,606 409,629

Vehicle repairs 93,811 65,557

Total expenses 11,673,046 10,637,774

Net profit before tax 1,773,500 3,349,892

The Detailed Income Statement is to be read in conjunction with the disclaimer set out on page 31.

32


DETAILED INCOME STATEMENT BY COST CENTRE


TOP (000) TOP (000) TOP (000) TOP (000) TOP (000) TOP (000) TOP (000)

Revenue

Aeronautical income 9,444 36 136 1 4 537 10,158

Non-aeronautical income 1,189 4 7 2 2 235 1,439

10,633 40 143 3 6 772 11,597

Expenses

Staff costs 2,913 30 122 29 40 404 3,538

Depreciation 1,879 24 67 7 42 347 2,366

Other operating costs 3,389 19 66 66 14 365 3,919

Total expenses 8,181 73 255 102 96 1,116 9,823

Net profit/(loss) before tax 2,452 (33) (112) (99) (90) (344) 1,774

The Detailed Income Statement by cost centre is to be read in conjunction with the disclaimer set out on page 31.

Fua'amotu

International

Airport

Outer Island Airports

ConsolidatedEua Airport Ha'apai Airport

Niuafo'ou

Airport

Niuatopu-tapu

Airport Vava'u Airport

33

tonga airports limited financial statements for the...

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