Contents. Orascom Development Holding AG Income statement F-85 Statutory balance sheet F-86 Notes to the financial statements F-87 F-1

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1 Contents Orascom Development Holding AG (consolidated financial statements) Consolidated statement of comprehensive income F-3 Consolidated statement of financial position F-4 Consolidated statement of changes in equity F-6 Consolidated statement of cash flows F-7 Notes to the consolidated financial statements F-10 Orascom Development Holding AG Income statement F-85 Statutory balance sheet F-86 Notes to the financial statements F-87 F-1

2 Orascom Development Holding AG Consolidated financial statements together with auditor's report for the year ended 31 December 2017 F-2

3 Orascom Development Holding AG Consolidated statement of comprehensive income for the year ended 31 December 2017 CHF Notes CONTINUING OPERATIONS Revenue 6/7 244,445, ,361,504 Cost of sales 7.2 (207,540,762) (226,055,966) GROSS PROFIT 36,904,483 11,305,538 Investment income 9 6,912,718 6,370,112 Other gains 10 11,260,572 3,064,859 Administrative expenses (37,406,435) (46,710,878) Finance costs 11 (35,870,455) (44,800,269) Share of losses of associates 20 (16,910,741) (17,299,645) Other losses 12 (313,038) (147,414,540) (LOSS) BEFORE TAX (35,422,896) (235,484,823) Income tax expense 14 (5,632,519) (8,351,012) (LOSS) FOR THE YEAR (41,055,415) (243,835,835) OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX Items that will not be reclassified subsequently to profit or loss Gain on revaluation of property, plant and equipment reclassified to investment property ,554,571 - Net (loss) on revaluation of financial assets at FVTOCI 1,203,236 (2,666,099) Remeasurement of defined benefit obligation ,430 (14,281) Items that may be reclassified subsequently to profit or loss Exchange differences arising on translation of foreign operations TOTAL OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF INCOME TAX 17,007,237 (2,680,380) (7,862,574) (124,790,087) (7,862,574) (124,790,087) 9,144,663 (127,470,467) TOTAL COMPREHENSIVE INCOME FOR THE YEAR (31,910,752) (371,306,302) (Loss)/profit attributable to: Owners of the Parent Company (41,361,129) (196,415,554) Non-controlling interests 305,714 (47,420,281) Total comprehensive income attributable to: (41,055,415) (243,835,835) Owners of the Parent Company (34,781,514) (274,771,316) Non-controlling interests 2,870,762 (96,534,986) Earnings per share from continuing operations (31,910,752) (371,306,302) Basic 15 (1.04) (4.86) Diluted 15 (1.04) (4.86) Khaled Bichara Group CEO Ashraf Nessim Group CFO F-3

4 Orascom Development Holding AG Consolidated statement of financial position at 31 December 2017 CHF Notes 31 December December 2016 ASSETS NON-CURRENT ASSETS Property, plant and equipment ,121, ,596,957 Investment property 17 7,500,868 5,501,334 Goodwill 18 2,829,971 2,893,347 Investments in associates 20 60,822,300 78,551,111 Non-current receivables 21 38,078,230 42,450,100 Deferred tax assets ,007, ,920 Other financial assets ,388 3,516,633 TOTAL NON-CURRENT ASSETS 876,037, ,502,402 CURRENT ASSETS Inventories ,583, ,960,013 Trade and other receivables 24 68,881,179 55,834,930 Current receivables due from related parties 40 23,715,470 19,930,353 Other current assets 25 45,093,158 40,055,756 Cash and bank balances 26 99,454,931 80,834, ,727, ,616,004 Assets held for sale ,977,030 67,230,735 TOTAL CURRENT ASSETS 471,704, ,846,739 TOTAL ASSETS 1,347,742,646 1,285,349,141 F-4

5 Orascom Development Holding AG Consolidated statement of financial position at 31 December 2017 CHF Notes 31 December December 2016 EQUITY AND LIABILITIES CAPITAL AND RESERVES Issued capital ,510, ,510,283 Reserves 29 (347,312,031) (365,520,995) (Accumulated losses) 30 (177,726,563) (120,782,194) Equity attributable to owners of the Parent Company 412,471, ,207,094 Non-controlling interests ,135, ,467,237 TOTAL EQUITY 561,607, ,674,331 NON-CURRENT LIABILITIES Borrowings ,966, ,631,013 Trade and other payables 33 11,472,492 11,576,940 Retirement benefit obligation , ,232 Notes payable 358,173 - Deferred tax liabilities ,423,374 22,925,809 TOTAL NON-CURRENT LIABILITIES 145,729, ,780,994 CURRENT LIABILITIES Trade and other payables 33 39,574,361 24,690,585 Borrowings ,782, ,937,486 Due to related parties 40 3,598, ,940 Current tax liabilities ,663,966 2,128,992 Provisions 34 65,558,335 68,626,934 Other current liabilities ,820, ,530, ,998, ,774,923 Liabilities directly associated with assets held for sale 27 84,407,246 54,118,893 TOTAL CURRENT LIABILITIES 640,405, ,893,816 TOTAL LIABILITIES 786,135, ,674,810 TOTAL EQUITY AND LIABILITIES 1,347,742,646 1,285,349,141 Khaled Bichara Group CEO Ashraf Nessim Group CFO F-5

6 Orascom Development Holding AG Consolidated statement of changes in equity for the year ended 31 December 2017 CHF Issued Capital Share premium Treasury shares Share-based payment reserve PP&E revaluation reserve Investments revaluation reserve General reserve Foreign currency translation reserve Reserve from common control transactions Equity swap settlement (Accumulated losses) Attributable to owners of the Parent Company Noncontrolling interests Total Balance at 1 January ,510,283 98,570,244 (3,268,681) - - (14,590,160) 4,916,868 (275,993,824) (98,692,949) (2,114,229) 78,164, ,502, ,127, ,629,996 Loss for the year (196,415,554) (196,415,554) (47,420,281) (243,835,835) Other comprehensive income for the year, net of income tax (2,666,099) - (75,675,382) - - (14,281) (78,355,762) (49,114,705) (127,470,467) Total comprehensive income for the year (2,666,099) - (75,675,382) - - (196,429,835) (274,771,316) (96,534,986) (371,306,302) Distribution of ordinary shares - - 3,241, (2,517,189) 724, ,695 Transactions costs in relation to delisting of EDRs in Egypt - (82,000) (82,000) - (82,000) Share-based payments (note 39) , , ,333 Non-controlling interests share in equity of consolidated subsidiaries ,874,609 4,874,609 Balance at 31 December ,510,283 98,488,244 (26,797) 833,333 - (17,256,259) 4,916,868 (351,669,206) (98,692,949) (2,114,229) (120,782,194) 451,207, ,467, ,674,331 Balance at 1 January ,510,283 98,488,244 (26,797) 833,333 - (17,256,259) 4,916,868 (351,669,206) (98,692,949) (2,114,229) (120,782,194) 451,207, ,467, ,674,331 Loss for the year (41,361,129) (41,361,129) 305,714 (41,055,415) Other comprehensive income for the year, net of income tax ,978,470 1,203,236 - (4,851,521) ,430 6,579,615 2,565,048 9,144,663 Total comprehensive income for the year ,978,470 1,203,236 - (4,851,521) - - (41,111,699) (34,781,514) 2,870,762 (31,910,752) Acquisition of ordinary shares through delisting of EDRs (note 1) - - (5,421,560) (5,421,560) - (5,421,560) Distribution of ordinary shares , , , ,727 Share-based payments (note 39) , , ,332 Losses from sale of financial assets at FVTOCI ,880, (15,880,794) Acquisition of non-controlling interests of subsidiary through swap of shares of investments in associates (note 20) (291,390) - - (291,390) 274,409 (16,981) Non-controlling interests share in equity of consolidated subsidiaries ,523,474 5,523,474 Balance at 31 December ,510,283 98,488,244 (4,570,754) 1,666,665 9,978,470 (172,229) 4,916,868 (356,520,727) (98,984,339) (2,114,229) (177,726,563) 412,471, ,135, ,607,571 F-6

7 Orascom Development Holding AG Consolidated cash flow statement for the year ended 31 December 2017 CHF Notes CASH FLOWS FROM OPERATING ACTIVITIES Loss for the year (41,055,415) (243,835,835) Adjustments for: Income tax expense recognized in profit or loss ,632,519 8,351,012 Share of losses of associates 20 16,910,741 17,299,645 Finance costs recognized in profit or loss 11 35,870,455 44,800,269 Investment income recognized in profit or loss 9 (6,912,718) (6,370,112) Write down on inventory 23-13,529,631 Impairment loss on receivables and other current assets 24-6,360,984 Reversal of impairment loss on trade receivables ,435 (109,181) Impairment loss of receivables on acquisition of subsidiary - 843,588 Impairment loss on property, plant and equipment 12/16-18,611,089 Gain on sale or disposal of property, plant and equipment 10 (17,255) (14,944) Gain in relation to settlement of borrowings 10 (6,313,871) - Gain on disposal of financial investments 10 - (2,888,614) Gain on revaluation of investment properties 17 (616,649) (161,301) Depreciation and amortization of non-current assets 16 24,458,515 35,958,484 Share-based payments , ,333 Unrealized net foreign exchange losses (4,299,773) 113,243,690 MOVEMENTS IN WORKING CAPITAL (Increase) in trade and other receivables (679,305) (26,113,426) Decrease/(increase) in finance lease receivables 4,759,269 (1,800,511) (Increase) in inventories 5,173,473 7,344,753 (Increase)/decrease in other assets (10,858,228 15,628,489 Increase/(decrease) in trade and other payables 56,071 (5,316,634) (Decrease) in provisions (3,068,599) (14,458,403) Increase in other liabilities 9,335,427 22,891,260 Cash generated by operations 29,994,424 4,627,266 Interest paid (7,815,303) (9,701,214) Income tax paid (3,209,708) (3,980,401) Net cash generated by/(used in) operating activities 18,969,413 (9,054,349) F-7

8 Orascom Development Holding AG Consolidated cash flow statement for the year ended 31 December 2017 CHF Notes CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment 16 (37,156,116) (41,684,521) Proceeds from disposal of property, plant and equipment - 452,858 Proceeds on sale of financial assets 3,341,013 2,888,614 Interest received 1,919,593 6,370,112 Net cash inflow from acquisition of subsidiaries 36-2,516,016 Net cash (used in) investing activities (31,895,509) (29,456,921) CASH FLOWS FROM FINANCING ACTIVITIES Payments for transaction costs due to capital increase (1,873,095) Payments for treasury shares (5,421,560) - Non-controlling interests shares in change of equity for consolidated subsidiaries 31 5,523,475 4,874,609 Repayment of borrowings 32 (21,114,120) (45,695,877) Proceeds from borrowings 32 57,011,138 18,013,828 Net cash generated by/(used in) financing activities 35,998,933 (24,680,535) Net increase/(decrease) in cash and cash equivalents 23,072,836 (63,191,805) Cash and cash equivalents at the beginning of the year 82,172, ,636,917 Effects of exchange rate changes on the balance of cash held in foreign currencies (1,573,515) (22,272,800) Cash and cash equivalents at the end of the year 103,671,633 82,172,312 Included in cash and cash equivalents 26 99,454,931 80,834,952 Included in assets held for sale 27 4,216,702 1,337,360 F-8

9 Index to the notes to the consolidated financial statements Page 1 General information 10 2 Application of new and revised International Financial Reporting Standards 10 3 Significant accounting policies 14 4 Critical accounting judgments and key sources of estimation uncertainty 26 5 The group and major changes in group entities 28 6 Revenue 28 7 Segment information 28 8 Employee benefits expense 32 9 Investment income Other gains Finance costs Other losses Compensation of key management personnel Income taxes relating to continuing operations Earnings per share Property, plant and equipment Investment property Goodwill Subsidiaries Investments in associates Non-current receivables Other financial assets Inventories Trade and other receivables Other current assets Cash and cash equivalents Assets held for sale Capital Reserves (net of income tax) (Accumulated losses) Non-controlling interests Borrowings Trade and other payables Provisions Other current liabilities Acquisition of a subsidiary Retirement benefit plans Financial instruments Share-based payments Related party transactions Non-cash transactions Operating lease arrangements Commitments for expenditure Litigation Subsequent events Approval of financial statements 75 F-9

10 Notes to the consolidated financial statements for the year ended 31 December GENERAL INFORMATION Orascom Development Holding AG ( ODH or the Parent Company ), a limited company incorporated in Altdorf, Switzerland, is a public company whose shares are traded on the SIX Swiss Exchange. In addition, Egyptian Depository Receipts ( EDRs ) of the Parent Company were traded at the EGX Egyptian Exchange. One EDR represents 1/20 of an ODH share. On 1 March 2017, the Extraordinary General Meeting of ODH approved the Board of Directors' proposal regarding the voluntary delisting of the Egyptian Depositary Receipts (EDRs) from the Egyptian Exchange. The Board of Directors called the meeting in accordance with the requests of the relevant authorities in Egypt to present to the shareholders of the Company the proposal to approve the delisting. Based on the Extraordinary General Meeting's approval, the Company undertook all further actions required to complete the delisting of the EDRs. On 24 May 2017, the Listing Committee of the Egyptian Exchange approved the delisting, which was completed as at 30 May The majority of the EDR holders have chosen to swap their EDRs into shares of ODH that had previously been underlying the EDRs and only 9.9% out of the 189,123,620 EDRs were tendered to the Company for repurchase at a price of EGP 5.25 (CHF 0.29) per EDR or CHF 5.79 per ODH share. As a result, the Company acquired 935,486 own shares at the total value of CHF 5.4 million. The ODH shares remain listed at the SIX Swiss Exchange. The Company and its subsidiaries (the Group ) is a leading developer of fully integrated towns that include hotels, private villas and apartments, leisure facilities such as golf courses, marinas and supporting infrastructure. The Group s diversified portfolio of projects is spread over seven jurisdictions, with primary focus on touristic towns and recently affordable housing. The Group's diversified portfolio of destinations is spread over seven jurisdictions (Egypt, UAE, Oman, Switzerland, Morocco, Montenegro and United Kingdom), with primary focus on touristic destinations. The Group currently operates nine destinations; four in Egypt (El Gouna, Taba Heights, Fayoum Makadi, and Harram City), The Cove in the United Arab Emirates, Jebel Sifah and Salalah Beach in Oman, Luštica Bay in Montenegro and Andermatt in Switzerland. The addresses of its registered office and principal place of business are disclosed in the introduction to the annual report. 2 APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS ( IFRS ) 2.1 Amendments to IFRSs and the new Interpretation that are mandatorily effective for the current year In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for the current year. None of the revised Standards and the new Interpretation has had a material effect on these consolidated financial statements. The details of the revised Standards and the new Interpretation are as follows: Amendments to IFRS 12 Disclosure of Interests in Other Entities The Group has applied the amendments to IFRS 12 Disclosure of Interests in Other Entities for the first time in the current year. The amendment to IFRS 12 Disclosure of Interests in Other Entities clarifies the scope of the standard by specifying that the disclosure requirements in the standard, except for those in paragraphs B10-B16, apply to an entity s interests listed in paragraph 5 that are classified as held for sale, as held for distribution or as discontinued operations in accordance with IFRS 5. The application of these amendments has had no impact on the disclosures or on the amounts recognised in the Group s consolidated financial statements. Amendments to IAS 7 Statement of Cash Flows Disclosure Initiative The Group has applied the amendments to IAS 7 Statement in Cash Flows in relation to the disclosure initiative for the first time in the current year. IAS 7 Statement of Cash Flows is amended to clarify that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. The application of these amendments led to the reconciliation table shown within note 32.3 but did not have any impact on the amounts recognised in the Group s consolidated financial statements. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior period. F-10

11 Amendments to IAS 12 Income Taxes The Group has applied the amendments to IAS 12 Income Taxes in relation to the recognition of deferred tax assets for unrealised losses for the first time in the current year. IAS 12 Income Taxes is amended to clarify the following aspects: - Unrealised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use. - The carrying amount of an asset does not limit the estimation of probable future taxable profits. - Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences. - An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilisation of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type. The application of these amendments has had no impact on the disclosures or on the amounts recognised in the Group s consolidated financial statements. 2.2 Standards and Interpretations in issue but not yet effective At the date of authorisation of these consolidated financial statements, the Group has not adopted the following Standards and Interpretations that have been issued but are not yet effective. They will be effective for annual periods beginning on or after the dates indicated below, with earlier application permitted. IFRS 9 Financial Instruments 1 January 2018 IFRS 15 Revenue from Contracts with Customers (and the related clarifications) 1 January 2018 IFRS 16 Leases 1 January 2019 Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions 1 January 2018 Amendments to IFRS 9 Prepayment Features with Negative Compensation 1 January 2019 Amendments to IAS 19 Plan Amendment, Curtailment or Settlement 1 January 2019 Amendments to IAS 28 Sale or Contribution of Assets between an investor and its Associate 1 January 2019 Amendments to IAS 40 Transfer of Investment Property 1 January 2018 Various Annual Improvements to IFRS Standards Cycle 1 January 2019 IFRIC 22 Foreign Currency Transactions and Advance Consideration 1 January 2018 IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019 IFRS 9 Financial Instruments The Group has not yet applied the requirements for general hedge accounting (issued in November 2013), another revised version of IFRS 9 issued in July 2014 which mainly includes a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a fair value through other comprehensive income (FVTOCI) measurement category for certain simple debt instruments. As the Group does not apply hedge accounting and does not measure any simple debt instruments at FVTOCI, the only requirements of IFRS 9, which are not yet applied by the Group are those on impairment of financial assets. IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised. Trade and other receivables (note 24), which are measured at amortised cost, are mainly impacted by the impairment provisions of IFRS 9. The Group will apply the simplified approach to recognise lifetime expected credit losses for its trade and other receivables as required or permitted by IFRS. For all other financial assets, the Group expects to recognise 12-month expected credit losses if there are any in the future. In general, management of the Group anticipates that the application of the expected credit loss model of IFRS 9 will result in earlier recognition of credit losses and will increase the amount of bad debt allowance. IFRS 15 Revenue from Contracts with Customers The new Standard IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue. Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15. F-11

12 Unlike the scope of IAS 18, the recognition and measurement of interest income and dividend income from debt and equity investments are no longer within the scope of IFRS 15. Instead, they are within the scope of IFRS 9 Financial Instruments. In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance. The Group recognises revenue from the following sources: Revenue from rendering of services and rental income which includes various revenue streams in relation hotel services, destination managements and other operations directly related to managing holiday destinations; Revenue from real estate constructions; and Revenue from land sales So far, revenue from construction of real estate was recognised over time using a milestone approach. Under the new requirements of IFRS 15, land related to the construction of villas is recognised when the land is sold (point in time) whereas all other revenue from construction of apartment units and villas are recognised over time using a percentage of completion approach (output method). Management expects, that this results in revenue recognised earlier under the new revenue requirements compared to the actual revenue requirements, however the detailed analyses are not yet finalised. On transition to IFRS 15, management decided to apply the modified approach, where any impact on initial application of IFRS 15 are recognised through retained earnings as at 1 January 2018 and prior year comparatives are therefore not adjusted. For all other revenue streams, management does not expect any significant impact, except for additional disclosures in the notes to the consolidated financial statements. The presentation and disclosure requirements in IFRS 15 are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and significantly increases the volume of disclosures required in the Group s consolidated financial statements. IFRS 16 Leases The new Standard provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases and its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between leases and service contracts on the basis of whether there is an identified asset controlled by the customer. Significant changes to lessee accounting are introduced, with the distinction between operating and finance leases removed and assets and liabilities recognised in respect of all leases (subject to limited exceptions for short-term leases and leases of low value assets). In contrast, the Standard does not include significant changes to the requirements for accounting by lessors. As at 31 December 2017, the Group has non-cancellable operating lease commitments of CHF 3.7 million. IAS 17 does not require the recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease in note 42. A first assessment indicates that these arrangements will meet the definition of a lease under IFRS 16 and therefore the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases upon the application of IFRS 16. Even though it is not practicable to provide a reasonable estimate of the financial effect until management of the Group completes their review, the new requirements are expected to have some impact on the amounts recognised in the Group s consolidated financial statements. In contrast, for finance leases where the Group is a lessee and in cases where the Group is a lessor (for both operating and finance leases), management of the Group does not anticipate that the application of IFRS 16 will have a significant impact on the amounts recognised in the Group s consolidated financial statements. It is expected that the Group will apply the modified retrospective approach, which would mean that the cumulative effect of initially applying the standard is recognised at the date of initial application and there is no restatement of comparative information. Amendments to IFRS 2 Share-based Payments Amends IFRS 2 Share- based Payment to clarify the standard in relation to the accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features, and the accounting for modifications of share-based payment transactions form cash-settled to equity-settled. Management of the Group does not expect any significant changes from the amended Standard. Amendments to IFRS 9 Financial Instruments Amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. Management of the Group does not expect any significant changes from the amended Standard. F-12

13 Amendments to IAS 19 Employee Benefits The amendments in Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) are: if a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement. in addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. Management of the Group does not expect any significant changes from the amended Standard. Amendments to IAS 28 Investments in Associates and Joint Ventures The amendment clarifies that an entity applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. Management of the Group does not expect any significant changes from the amended Standard. Amendments to IAS 40 Investment Property Amend IAS 40 Investment Property to state that and entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management s intentions for the use of a property by itself does not constitute evidence of a change in use. The list of examples of evidence is now presented as a non-exhaustive list of examples instead of the previous exhaustive list. Management of the Group does not expect any significant changes from the amended Standard. Annual Improvements to IFRS Standards Cycle Makes amendments to the following standards: IFRS 3 and IFRS 11 - The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. IAS 12 - The amendments clarify that all income tax consequences of dividends (i.e. distribution of profits) should be recognised in profit or loss, regardless of how the tax arises. IAS 23 - The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings. Management of the Group does not expect any significant changes from the amended Standards. IFRIC 22 Foreign Currency Transactions and Advance Consideration The interpretation addresses foreign currency transactions or parts of transactions where: there is consideration that is denominated or priced in a foreign currency; the entity recognises a prepayment asset or a deferred income liability in respect of that consideration, in advance of the recognition of the related asset, expense or income; and the prepayment asset or deferred income liability is non-monetary. The Interpretations Committee came to the following conclusion: the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the nonmonetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. Management of the Group does not expect any significant changes from this new interpretation. IFRIC 23 Uncertainty over Income Tax Treatments The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers: whether tax treatments should be considered collectively assumptions for taxation authorities' examinations the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates the effect of changes in facts and circumstances Management of the Group does not expect any significant changes from this new interpretation. F-13

14 3 SIGNIFICANT ACCOUNTING POLICIES 3.1 Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). 3.2 Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair value or amortized cost, as appropriate and investment properties that are measured at fair value as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The principal accounting policies are set out below. 3.3 Basis of consolidation The consolidated financial statements of the Group incorporate the financial statements of the Parent Company and entities (including special purpose entities) controlled by the Parent Company (its subsidiaries). Control is achieved when the Company has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to use its power to affect its returns The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company s voting rights in an investee are sufficient to give it power, including: The size of the Company s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; Potential voting rights held by the Company, other vote holders or other parties; Rights arising from other contractual arrangements; and Any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the noncontrolling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the noncontrolling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of a group entity to bring its accounting policies into line with the Group s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Changes in the Group's ownership interests in existing subsidiaries Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Parent Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received or receivable and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at re-valued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Parent Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 Financial Instruments or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity. 3.4 Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. F-14

15 At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisitiondate amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-bytransaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS. When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. Business combinations that took place prior to 1 January 2010 were accounted for in accordance with the previous version of IFRS 3. The policy described above is applied to all business combinations that took place on or after January For common control transactions in which all of the combining entities or businesses ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory, the Group recognises the difference between purchase consideration and carrying amount of net assets of acquired entities or businesses as an adjustment to equity. This accounting treatment is also applied to later acquisitions of some or all shares of the non-controlling interests in a subsidiary. 3.5 Investments in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results, assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income of the associate. When the Group's share of losses of an associate exceeds the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. 3.6 Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see note 3.4) less accumulated impairment losses, if any. F-15

16 For the purposes of impairment testing, goodwill acquired in a business combination is allocated, starting from the acquisition date, to each of the Group s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. When assessing each unit or group of units to which the goodwill is so allocated, the Group s objective is to test goodwill for impairment at a level that reflects the way the Group manages its operations and with which the goodwill would naturally be associated under the reporting system in place. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods. The Group s policy for goodwill arising on the acquisition of an associate is described in note Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Different policies for revenue recognition apply across the Group's business segments. The following table shows the link between the accounting policies for revenue recognition and segment information. Accounting policies Segments classified by type of activity Revenue on sale of land Sale of land Revenue from agreements for construction of real estate Real estate and construction Construction revenue Real estate and construction Hotels Revenue from the rendering of services Destination management Other operations Dividend and interest income Other operations Rental income Other operations Revenue on sale of land Revenue from sale of land, sale of land right and associated cost are recognised when land is delivered and the significant risks, rewards of ownership and control have been transferred to the buyer, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Management uses its judgment and considers the opinion obtained from the legal advisors in assessing whether the Group s contractual and legal rights and obligations in the agreements are satisfied and the above criteria are met Revenue from agreements for construction of real estate Management uses its judgment to analyze the Group's agreements for the construction of real estate and any related agreements to conclude whether or not the contractual terms of such agreements indicate that they are, in substance, for the provision of construction services or for the delivery of goods that are not complete at the time of entering into the agreement. Such conclusion depends on the terms of the agreement and all the surrounding facts and circumstances and on whether such an agreement meets the definition of a construction contract, as described in below. In accordance with IFRIC 15, an agreement for the construction of real estate will meet the definition of a construction contract when the buyer is able to specify the major structural elements of the design of the real estate before construction begins and / or specify major structural changes once construction is in progress, whether it exercises that ability or not. Where such conditions are met, revenue and costs associated with such contracts are accounted for in accordance with IAS 11 Construction Contracts (see 3.7.3). Where an agreement for the construction of real estate does not meet the definition of a construction contract and is not for the rendering of services, then it is accounted for as a sale of goods under the scope of IAS 18 Revenue. Management concluded that all contracts entered into for the construction of real estate meet the revenue recognition criteria for the sale of goods. Accordingly, revenue from the sale of real estate is recognised when all the following conditions are satisfied: the Group has transferred to the buyer the significant risks and rewards of ownership of the real estate, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the real estate sold, the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the entity. F-16

17 3.7.3 Construction revenue A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in term of their design, technology and function or their ultimate purpose or use. Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period measured based on the completion of a physical proportion of the contract work. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer, their amount can be measured reliably and its receipt is considered probable. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that is probable to be recovered. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When contract costs incurred to date plus recognized profits less recognized losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognized profits less recognized losses, the surplus is shown as amounts due to customers for contract work. Amounts received before the related work is performed are included in the consolidated statement of financial position, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated statement of financial position under trade and other receivables. Construction contract revenue comprises revenue arising from finishing of sold units, extra works requested by customers and any construction agreement with third parties Revenue from the rendering of services Revenue from services is recognised in the accounting periods in which the services are rendered Dividend and interest income Dividend income from investments other than in associates is recognised when the shareholder s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount on original recognition Rental income The Group s policy for recognition of revenue from operating leases is described in Cost of sales Cost of sales comprises costs related directly to the sale of goods or rendering of services. These costs include also administration expenses of revenue generating entities in the Group. Under administration expenses are costs allocated for corporate and head quarter functions as well as non revenue generating entities, such as corporate companies, holding companies and start up companies. Companies providing these services are marked as HQ in the subsidiaries' list in note Leasing Leases are classified as finance leases whenever the terms of the lease substantially transfer all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases The Group as lessor Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's net investment outstanding in respect of the leases. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term The Group as lessee Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group s general policy on borrowing costs (see 3.10 below). Contingent rentals are recognised as expenses in the periods in which they are incurred. F-17

18 If a sale and leaseback transaction results in a finance lease, the asset is recognized at its previous carrying amount and any gain/loss recognized over the lease term. In case of a loss, management assesses whether the asset is impaired. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except when another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except when another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 3.9 Foreign currencies The individual financial statements of each subsidiary are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the preparation of the Group s consolidated financial statements, the results and financial position of each subsidiary are translated into Swiss Franc (CHF), which is the Group s presentation currency. In preparing the financial statements of each individual group entity, transactions in currencies other than the entity s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Nonmonetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for: Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; Exchange differences on monetary items that qualify as hedging instruments in transactions entered into to hedge certain foreign currency risks (see below for hedging accounting policies); and Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group s foreign operations are translated into Swiss Francs (CHF) using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in the Group s foreign currency reserve, a separate component in equity (attributed to non-controlling interests as appropriate). On the disposal of a foreign operation (i.e. disposal of the Group s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in other comprehensive income in respect of that operation attributable to the owners of the Parent are reclassified to profit or loss. In the case of a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e. reductions in the Group's ownership interest in associates that do not result in the Group losing significant influence), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the exchange rate prevailing at the end of each reporting period. Exchange differences arising are recognised in equity. The exchange rates for the major foreign currencies against CHF relevant to the annual consolidated financial statements were: Currency table Average Year end Average Year end 1 EGP Egyptian Pound USD US Dollar EUR Euro OMR Oman Rial AED United Arab Emirates Dirham MAD Moroccan Dirham JOD Jordanian Dinar F-18

19 3.10 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time, as the assets are substantially ready for their intended use or sale. The following principles apply when borrowing costs are partly or fully capitalized by the Group as part of a qualifying asset: Where hedge accounting is not applied to minimize the interest rate risk on borrowings used to fund that asset and, therefore derivatives are classified as at fair value through profit or loss, all gains / losses on non-hedging derivatives are immediately recognized in profit or loss. Where variable rate borrowings are used to finance a qualifying asset and a derivative is designated to cash flow hedge the variability in interest rates on such borrowings, any gain or loss on the hedging derivative that is effective and, therefore previously recognized in other comprehensive income, is reclassified from equity to profit or loss when the hedged risk impacts profit or loss. The hedged interest component of the qualifying asset (hedged risk) impacts profit or loss when the qualifying asset is amortized, impaired or sold. Where fixed rate borrowings are used to finance a qualifying asset and a derivative is designated to hedge the fair value exposure to changes in interest rates of such borrowings, the synthetic floating interest rate that is achieved as a result of a highly effective hedge is capitalized, so that borrowing costs always reflect the hedged interest rate. The amount of borrowing costs capitalized in such a case comprises the actual fixed rate on the borrowings plus the effect of swapping this fixed rate into floating rates. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. As the financing activity is co-ordinated centrally and generally by the parent and some of the main subsidiaries, the group determines the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset. The group includes all borrowings of the parent and its subsidiaries when computing the weighted average of the borrowing costs applicable to the borrowings that are outstanding during the period other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that an entity capitalises during the period shall not exceed the amount of borrowing costs it incurred during that period, provided that the carrying amount of the qualifying asset on which eligible borrowing costs have been capitalized does not exceed its recoverable amount (being the higher of fair value less costs to sell or amount in use for that asset) Retirement benefit costs Employee pension and retirement benefits are based on the regulations and prevailing circumstances of those countries in which the Group is represented. In Switzerland, ordinary pension and retirement benefit plans qualify as defined-benefit plans and are accounted for in conformity with IAS 19 Employee Benefits. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses are recognized immediately through other comprehensive income, whereas past service-costs (vested and unvested) are recognized immediately in profit or loss. The retirement benefit obligation recognised in the consolidated statement of financial position represents the present value of the defined benefit obligation reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the plan. Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contribution Taxation Income tax expense represents the sum of the tax currently payable and deferred tax Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the Balance Sheet Liability Method. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. F-19

20 Such deferred tax liabilities are not recognised if the temporary difference arises from goodwill and no deferred tax assets or liabilities are recognised for temporary differences resulting from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis Current and deferred tax for the year Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination Property, plant and equipment Buildings, plant and equipment, furniture and fixtures held for use in the production, supply of goods or services or for administrative purposes are stated in the consolidated statement of financial position at cost less any accumulated depreciation and accumulated impairment losses. Properties in the course of construction for production, administrative purposes or for a currently undetermined future use are carried at cost less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group s accounting policy as described in note Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation of buildings, plant and equipment as well as furniture and fixtures commences when the assets are ready for their intended use. Freehold land is not depreciated. Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership of the leased asset will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the net sales proceeds and the carrying amount of the asset and is recognised in profit or loss. The following estimated useful lives are used in the calculation of depreciation: Buildings Plant and equipment Furniture and fixtures years 4 25 years 3 20 years F-20

21 3.14 Investment property Investment properties are properties (land or a building or part of a building or both) held by the Group entities to earn rentals and / or for capital appreciation (including property under construction for such purposes). Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value at the end of each reporting period. Gains and losses arising from changes in the fair value of investment properties are recognised in profit or loss including an adjustment to the related deferred tax position in the period in which they arise. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The fair value of investment properties reflects market conditions at the end of each reporting period and is determined without any deduction for transaction costs which the Group may incur on sale or other disposal. The fair value of investment properties is determined based on evaluations performed by independent valuators or internal valuations. Property is only transferred to, or from, investment property when, and only when, there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. If property becomes an investment property which is carried at fair value, any difference at the date of change in use between the carrying amount of the property and its fair value is recognised through other comprehensive income. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on de-recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised Impairment of tangible assets At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss Inventories Inventories are stated at the lower of cost and net realizable value. Costs, including an appropriate portion of fixed and variable production overheads as well as other costs incurred in bringing the inventories to their present location and condition, are assigned to inventories by the method most appropriate to the particular class of inventory, with the majority being valued on a weighted average basis. For items acquired on credit and where payment terms of the transaction are extended beyond normal credit terms, the cost of that item is its cash price equivalent at the recognition date with any difference from that price being treated as an interest expense on an effective-yield basis (see note 11). Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Estimates of net realisable value are generally made on an item-by-item basis, except in circumstances, where it is more appropriate to group items of similar or related inventories. The net realizable value of an item of inventory may fall below its cost for many reasons including, damage, obsolescence, slow moving items, a decline in selling prices, or an increase in the estimate of costs to complete and costs necessary to make the sale. In such cases, the cost of that item is written-down to its net realizable value and the difference is recognized immediately in profit or loss. Properties intended for sale in the ordinary course of business or in the process of construction or development for such a sale are included in inventories. These are stated at the lower of cost and net realizable value. The cost of development properties includes the cost of land and other related expenditure attributable to the construction or development during the period in which activities are in progress that are necessary to get the properties ready for its intended sale. F-21

22 3.17 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset, if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably Financial instruments Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss Financial assets All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the timeframe established by regulation or convention in the market place. All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets Classification of financial assets Debt instruments that meet the following conditions are subsequently measured at amortised cost less impairment loss (except for debt investments that are designated as at fair value through profit or loss on initial recognition): the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All other financial assets are subsequently measured at fair value Effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees or points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments measured subsequently at amortised cost. Interest income is recognised in profit or loss and is included in the investment income line item Financial assets at fair value through other comprehensive income (FVTOCI) On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading. A financial asset is held for trading if: it has been acquired principally for the purpose of selling it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments revaluation reserve. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the investments. The Group has designated all investments in equity instruments that are not held for trading as at FVTOCI on initial application of IFRS 9. F-22

23 Dividends on these investments in equity instruments are recognised in profit or loss when the Group s right to receive the dividends is established in accordance with IAS 18 Revenue. Dividends earned are recognised in profit or loss and are included in the investment income line item Financial assets at fair value through profit or loss (FVTPL) Investments in equity instruments are classified as at FVTPL, unless the Group designates an investment that is not held for trading as at fair value through other comprehensive income (FVTOCI) on initial recognition. Debt instruments that do not meet the amortised cost are measured at FVTPL. In addition, debt instruments that meet the amortised cost criteria but are designated as at FVTPL are measured at FVTPL. A debt instrument may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The Group has not designated any debt instrument as at FVTPL. Debt instruments are reclassified from amortised cost to FVTPL when the business model is changed such that the amortised cost criteria are no longer met. Reclassification of debt instruments that are designated as at FVTPL on initial recognition is not allowed. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss is included in the 'other gains and losses' line item in the consolidated statement of comprehensive income. Fair value is determined in the manner described in note Interest income on debt instruments as at FVTPL is included in the net gain or loss described above. Dividend income on investments in equity instruments at FVTPL is recognised in profit or loss when the Group's right to receive the dividends is established in accordance with IAS 18 Revenue and is included in the net gain or loss as described above Impairment of financial assets Financial assets that are measured at amortised cost are assessed for impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or breach of contract, such as a default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or the disappearance of an active market for that financial asset because of financial difficulties. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. The amount of the impairment loss recognised is the difference between the asset's carrying amount and the present value of estimated future cash flows reflecting the amount of collateral and guarantee, discounted at the financial asset's original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised De-recognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. F-23

24 On derecognition of a financial asset measured at amortised cost, the difference between the asset s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. On derecognition of a financial asset that is classified as FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is reclassified to retained earnings Financial liabilities and equity instruments Classification as debt or equity Debt and equity instruments issued by a Group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met: a) The instrument includes no contractual obligation: i. to deliver cash or another financial asset to another entity; or ii. to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer. b) If the instrument will or may be settled in the issuer s own equity instruments, it is: i. a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or ii. a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. A contract that will be settled by the Group entity receiving or delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Repurchase of the Company s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company s own equity instruments Financial liabilities All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL. A financial liability is classified as current liability when it satisfies any of the following criteria: - It is expected to be settled in the entity s normal operating cycle - It is held primarily for the purposes of trading; - It is due to be settled within twelve months after the reporting period; - The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. All other financial liabilities are classified as non-current. However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, financial guarantee contracts issued by the Group, and commitments issued by the Group to provide a loan at below-market interest rate are measured in accordance with the specific accounting policies set out below. Financial liabilities subsequently measured at amortised cost Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expense that is not capitalised as part of costs of an asset is included in the 'finance costs' line item. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss Derivative financial instruments If required, the Group enters into derivative financial instruments mainly to manage its exposure to interest rate and foreign exchange rate risk. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. F-24

25 A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is recognized as a financial liability. A derivative that has a remaining maturity of less than twelve months from the end of the reporting period or has a remaining maturity greater than twelve months but is expected to be settled within twelve months is presented as current asset or liability. A derivative that is designated and effective in a hedging relationship with a non-current hedged item is presented as a non-current asset or liability in accordance with the presentation of the hedged item. A derivative that has a maturity of more than twelve months from the end of the reporting period and is not intended to be settled within twelve months is presented as a non-current asset or liability, even if that derivative is not part of a designated and effective hedge accounting Assets held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When a Group entity acquires a non-current asset (or disposal group) exclusively with a view to its subsequent disposal, it classifies the non-current asset (or disposal group) as held for sale at the acquisition date only if the one-year requirement above is met and it is highly probable that the other criteria above that are not met at that date will be met within a short period following the acquisition. When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. When the above criteria required for the held for sale classification are no longer met, the Group ceases to classify the asset (or disposal group) as held for sale. At that date, the Group measures any non-current asset that ceases to be classified as held for sale (or ceases to be included in a disposal group classified as held for sale) at the lower of: Its carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any depreciation, amortization or revaluations that would have been recognized had the asset (or disposal group) not been classified as held for sale; and Its recoverable amount at the date of subsequent decision not to sell. The Group includes any required adjustment to the carrying amount of a non-current asset (or disposal group), that ceases to be classified as held for sale, in profit or loss from continuing operations in the period in which the criteria of held for sale classification are no longer met. The Group presents that adjustment in the same caption in the statement of comprehensive income used to present any gain or loss recognized on the remeasurement of that non-current asset (or disposal group) that had been previously classified as held for sale provided that it had not met the definition of a discontinued operation upon initial classification as heldfor-sale. Comparative figures in the financial statements for prior periods presented are not restated as a result of the change in the plan to sell unless the non-current asset (or disposal group) had previously met the definition of a discontinued operation, in which case, the results of operations of the component previously presented in discontinued operations is reclassified and included in income from continuing operations for the prior period presented in the statement of comprehensive income. This also applies to the presentation of the statement of cash flows Share-based payment arrangements Share-based payment transactions of the Parent Company Share-based payment transactions in which the terms of the arrangement provide the entity with the choice to settle the transaction in cash (or other assets) or in equity instruments issued by the entity, are accounted for as a cash-settled share-based payment transaction if, and to the extent that, the entity has incurred a liability to settle in cash or other assets, or as an equity-settled sharebased payment transaction if, and to the extent that, no such liability has been incurred. Share-based payment arrangements whose terms provide the Company with the choice to settle the transaction in cash or, at its discretion, in its own equity shares issued to employees are accounted for as equity-settled and measured at the fair value of the contingent consideration by reference to the market price of the Company's equity shares at the grant date. Details regarding the determination of the fair value of equity-settled share-based payment transaction are set out in note 39. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimate, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled share-based payment reserve in equity. F-25

26 Upon settlement of a share-based payment transaction in which the terms of the arrangement provide the entity with a choice of settlement, then: if the entity elects to settle in cash, the cash payment is accounted for as the repurchase of an equity interest (i.e. as a deduction from equity, except as noted in (c) below. if the entity elects to settle by issuing equity instruments, no further accounting is made (other than a transfer from one component of equity to another, if necessary), except as noted in (c) below. if the entity elects the settlement alternative with the higher fair value, as at the date of settlement, an additional expense is recognized for the excess value given (i.e. the difference between the cash paid and the fair value of the equity instruments that would otherwise have been issued, or the difference between the fair value of the equity instruments issued and the amount of cash that would otherwise have been paid, whichever is applicable. 4 CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group s accounting policies, which are described in note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 4.1 Critical judgments in applying accounting policies The following are the critical judgments, apart from those involving estimations (see note 4.2), that management has made in the process of applying the Group s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements Revenue recognition Real estate sales The operating cycle of residential construction projects predominantly starts when the Group enters into agreements to sell the real estate units off-plan. The Group treats the sale of real estate units as sale of goods in accordance with IAS 18 Revenue and IFRIC 15 Agreements for the Construction of Real Estates. Management takes the view that the critical event of revenue recognition hinges on the transfer of significant risks and rewards of ownership and control to the buyer. When management makes this assessment it ensures that the detailed criteria for revenue recognition from the sale of goods as set out in IAS 18 and IFRIC 15 - including the transfer of significant risks and rewards of ownership and control to the buyer - are satisfied and that recognition of revenue from the sale of real estate is appropriate in the current reporting period. Given the structure of the real estate sale contracts and the application of IAS 18 and IFRIC 15 as described above, revenue recognition from residential construction projects can occur in independent stages which consist of the sale of land, constructed, but unfinished units and finished units. The transfer of significant risks and rewards of ownership and control of each stage is documented in an official delivery protocol and signed by representatives of the Group as well as the buyer Deferred taxation on investment property For the purposes of measuring deferred tax liabilities or deferred tax assets arising from investment properties management concluded that the Group s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sales. Therefore, in determining the Group s deferred taxation on investment properties, management has determined that the presumption that the carrying amounts of investment properties measured using the fair value model are recovered entirely through sale is rebutted. As a result, the Group has recognised deferred taxes on changes in fair value of investment properties. 4.2 Key sources of estimation uncertainty The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year Impairment of tangible assets and investments in associates At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets and investments in associates to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise, they are allocated to the smallest Group of cash-generating units for which a reasonable and consistent allocation basis can be identified. F-26

27 In light of the political development in Egypt, management reconsidered the recoverability of the Group's significant items of property, plant and equipment and its investments in associates, which are included in the consolidated statement of financial position at 31 December 2017 at CHF 765,121,094 and CHF 60,822,300 respectively (31 December 2016: CHF 762,596,957 and CHF 78,511,111). In 2016, the impairment reviews resulted in total impairment losses of CHF 18.6 million on property under construction. The impairment reviews in 2017 did not result in any impairment losses of property, plant and equipment or investments in associates. Management is aware that the slow-down in processes and logistics still impacts the business operations considerably. Therefore, they periodically reconsider their assumptions in light of the macroeconomic developments regarding future anticipated margins on their products. Detailed sensitivity analysis has been carried out and management is confident that the carrying amount of these assets will be recovered in full, even if returns are reduced. This situation will be closely monitored, and adjustments made in future periods if future market activity indicates that such adjustments are appropriate Useful lives of property, plant and equipment The carrying value of the Group's property, plant and equipment at the end of the current reporting period is CHF 765,121,094 (31 December 2016: CHF 762,596,957). Management s assessment of the useful life of property, plant and equipment is based on the expected use of the assets, the expected physical wear and tear on the assets, technological developments as well as past experiences with comparable assets. A change in the useful life of any asset may affect the amount of depreciation that is to be recognized in profit or loss for future periods Provisions The carrying amount of provisions at the end of the current reporting period is CHF 65,558,335 (31 December 2016: CHF 68,626,934). This amount is based on estimates of future costs for infrastructure completion, legal cases, government fees, employee benefits and other charges including taxes in relation to the Group s operations (see note 34). As the provisions cannot be determined exactly, the amount could change based on future developments. Changes in the amount of provisions due to change in management estimates are accounted for on a prospective basis and recognized in the period in which the change in estimates arises Impairment of trade and other receivables An allowance for doubtful receivables is recognized to record foreseeable losses arising from events such as a customer s insolvency. The carrying amount of the allowance for trade and other receivables at the end of the current reporting period is CHF 17,692,833 (31 December 2016: CHF 18,340,388) (see note 24). In determining the amount of the allowance, several factors are considered. These include the aging of accounts receivables balances, the current solvency of the customer and the historical write-off experience Classification and valuation of investment property Generally real estate units are constructed either for the Group s own use or for the sale to third parties and carried at cost. However, when a unit may not be sold, as soon as a long term rent contract over more than 1 year is agreed with a third party at market conditions, the unit is classified as an investment property and measured at the fair value obtained from independent, third party valuation experts. The fair value of investment properties at 31 December 2017 is CHF 7,500,868 (31 December 2016: CHF 5,501,334). The fair values at 31 December 2017 were determined based on an internal valuation model. Note 17 provides detailed information about the valuation techniques applied and the key assumptions used in the determination of the fair value of each investment property Net realisable value of inventory Inventory mainly includes real estate construction work under progress which is recognised at cost or net realisable value. The majority of real estate under construction (approximately three quarters) is already sold at market prices which are significantly higher than construction cost. Therefore, the estimation uncertainty only relates to the unsold real estate under construction. In general, the profit margins on these real estate projects are high and management currently does not expect any of these projects to be sold below cost except for the following: In 2017, no impairment (2016: CHF 13.5 million) was made in relation to inventory of development projects Infrastructure cost The Group has an obligation under the terms of its sale and purchase agreements to develop the infrastructure of the sold land. Infrastructure cost is deemed to form part of the cost of revenue and is based on management estimate of the future budgeted costs to be incurred in relation to the project including, but are not limited to, future subcontractor costs, estimated labour costs, and planned other material costs. The provision for infrastructure costs requires the Group s management to revise its estimate of such costs on a regular basis in light of current market prices for inclusion as part of the cost of revenue Liquidity shortages and related uncertainties For further details on management s plans to manage liquidity shortages and related uncertainty please refer to note F-27

28 4.2.9 Minimum building obligations One part of the Group s business is to acquire land for the development of tourism projects. Out of these business opportunities often no legally binding commitments incur however the Group has unbinding business opportunity commitments in relation to their projects. These contingent liabilities are further explained in note Due to the complexity of the projects and the ongoing negotiations, estimation of the contingent liability involves a high degree of uncertainty. 5 THE GROUP AND MAJOR CHANGES IN GROUP ENTITIES The Group comprises the Parent Company and its subsidiaries operating in different countries. Except for the acquisition of Mozn Investment & Tourism S.A.E. ( Mozn ), the entity owning the Citadel Azur hotel, in 2016 (for further details see note 36) there have been no major changes in the group structure in 2017 and Orascom Hotels & Development SAE ( OHD ), which changed its name to Orascom Development Egypt SAE ( ODE ), remains the principal operating subsidiary and is located in Egypt. The group controls its subsidiaries directly and indirectly. 6 REVENUE An analysis of the Group s revenue for the year is as follows: Revenue from the rendering of services and rental income 174,370, ,916,662 Revenue from agreements for construction of Real Estate and construction revenue 69,523,826 65,432,308 Revenue on sale of land 551,232 2,012,534 TOTAL 244,445, ,361,504 7 SEGMENT INFORMATION 7.1 Products and services from which reportable segments derive their revenues The Group has four reportable segments, as described below, which are the Group s strategic divisions. The strategic divisions offer different products and services and are managed separately because they require different skills or have different customers. For each of the strategic divisions, the Country CEOs and the Head of Segments review the internal management reports at least on a quarterly basis. The following summary describes the operation in each of the Group s reportable segments: Hotels Include provision of hospitality services in two- to five-star hotels owned by the Group which are managed by international or local hotel chains or by the Group itself. Real estate and construction Include acquisition of land in undeveloped areas and addition of substantial value by building residential real estate and other facilities in stages. Land sales Include sale of land and land rights to third parties on which the Group have developed or will develop certain infrastructure facilities and where the Group does not have further development commitments. Destination management Include provision of facility and infrastructure services at operational resorts and towns. The real estate and construction segment includes two lines of business each of which is considered as a separate operating segment. For financial statements presentation purposes, these individual operating segments have been aggregated into a single operating segment taking into account the following factors: These operating segments have similar long-term gross profit margins; The nature of the products and production processes are similar. Other operations include the provision of services from businesses not allocated to any of the segments listed above comprising rentals from investment properties, mortgages, sports, hospital services, educational services, marina, limousine rentals, laundry services and other services. None of these segments meets any of the quantitative thresholds for determining a reportable segment in 2017 or F-28

29 The following is an analysis of the Group's revenue from continuing operations by its major products and services. Segment Product Revenue from external customers Hotels Hotels managed by international chains 70,394,423 66,032,406 Hotels managed by local chains 18,279,971 16,139,841 Hotels managed by the Group 42,437,235 38,002,104 Segment total 131,111, ,174,351 Real estate and construction Tourism real estate 69,523,826 64,932,570 Construction work - 499,738 Segment total 69,523,826 65,432,308 Land sales Sales of land and land rights 551,232 2,012,534 Destination management Utilities (e.g. water, electricity) 14,108,422 15,866,467 Other operations Mortgage (Real estate financing) 15,680,350 8,022,882 Sport (Golf) 1,011, ,121 Rentals (i) 2,699,781 3,662,727 Hospital services 4,118,983 3,718,242 Educational services 1,202,338 2,120,816 Marina 3,614,855 4,568,022 Limousine 16,790 34,905 Laundry services - 28,444 Others 805,042 10,964,685 Segment total 29,150,136 33,875,844 TOTAL 244,445, ,361,504 (i) Rentals include income from investment property of CHF 2,699,781 (2016: CHF 3,662,727). F-29

30 7.2 Segment revenue and results The following is an analysis of the Group s revenue and results from continuing operations by reportable segments: CHF Total segment revenue Inter-segment revenue Revenue external customers Cost of revenue Depreciation Gross profit/(loss) Segment result Hotels 131,847, ,248,448 (735,421) (1,074,097) 131,111, ,174,351 (88,459,597) (96,008,534) (15,579,386) (13,416,235) 27,072,646 10,749,582 23,187,618 (24,833,860) Real estate and construction 103,000,587 72,560,397 (33,476,761) (7,128,089) 69,523,826 65,432,308 (49,999,041) (48,539,736) (433,759) (134,226) 19,091,026 16,758,346 23,520,182 51,245,283 Land sales 2,313,811 1,331,418 (1,762,579) 681, ,232 2,012,534 (781,879) (1,802,755) (260,536) (686,887) (491,183) (477,108) (675,820) 24,819,389 Destination management 28,526,269 33,356,556 (14,417,847) (17,490,089) 14,108,422 15,866,467 (18,834,581) (19,237,488) (3,795,060) (6,336,559) (8,521,219) (9,707,580) (8,470,781) (11,926,561) Other operations 40,619,840 43,343,053 (11,469,704) (9,467,209) 29,150,136 33,875,844 (25,007,149) (24,508,969) (4,389,774) (15,384,577) (246,787) (6,017,702) 450,060 (2,510,767) Total 306,307, ,839,872 (61,862,312) (34,478,368) 244,445, ,361,504 (183,082,247) (190,097,482) (24,458,515) (35,958,484) 36,904,483 11,305,538 38,011,259 36,793,484 Unallocated items 1) : Share of (losses) of associates (16,910,741) (17,299,645) Other gains 5,256,342 2,901,393 Other losses (1,266,220) (181,316,575) Investment income 715,508 1,542,885 Central administration costs and directors salaries (37,406,435) (46,710,878) Finance costs (23,822,609) (31,395,487) Loss before tax (continuing operations) (35,422,896) (235,484,823) Income tax expenses (5,632,519) (8,351,012) Loss for the year (continuing operations) (41,055,415) (243,835,835) 1) For the purposes of segment reporting, part of the amounts reported for these items in the consolidated statement of comprehensive income have been allocated in the table above to their relevant segments. The accounting policies of the reportable segments are the same as the Group s accounting policies described in note 3. Segment result represents the profit earned by each segment without allocation of central administration costs and directors salaries, share of profits (losses) of associates, investment income, other gains and losses, finance costs and income tax expense, as included in the internal management reports that are regularly reviewed by the Board of Directors. This measure is considered being most relevant for the purposes of resources allocation and assessment of segment performance. Except for the impairment loss of CHF 18.6 million on property under construction of development projects in 2016, no impairment loss in respect property, plant and equipment as well as goodwill was recognized in 2017 and Further, a write-down of CHF 13.5 million was made in relation to inventory of development projects in 2016 (note 23). In 2017, no write-down was made. The impairment losses have been allocated to the real estate and construction segment. F-30

31 7.3 Segment assets and liabilities Segment assets and liabilities CHF 31 December December 2016 SEGMENT ASSETS Hotels 525,422, ,382,904 Real estate and construction 506,542, ,610,543 Land sales 190,262, ,273,533 Destination management 76,135,895 79,635,393 Other operations 41,185, ,022,695 Segment assets before elimination 1,339,547,753 1,504,925,068 Inter-segment elimination (517,643,154) (684,242,468) Segment assets after elimination 821,904, ,682,600 Unallocated assets 418,861, ,435,806 Assets held for sale 106,977,030 67,230,735 CONSOLIDATED TOTAL ASSETS 1,347,742,646 1,285,349,141 CHF 31 December December 2016 SEGMENT LIABILITIES Hotels 258,196, ,545,744 Real estate and construction 307,527, ,393,094 Land sales 50,939,385 52,001,900 Destination management 81,174,357 73,322,825 Other operations 22,178, ,579,803 Segment liabilities before elimination 720,015, ,843,366 Inter-segment elimination (427,134,521) (522,967,523) Segment liabilities after elimination 292,880, ,875,843 Unallocated liabilities 408,847, ,680,074 Liabilities directly associated with assets held for sale 84,407,246 54,118,893 CONSOLIDATED TOTAL LIABILITIES 786,135, ,674,810 For the purposes of monitoring segment performance and allocation of resources between segments, all assets and liabilities are allocated to reportable segments except for the assets of holding companies or companies which are not yet operational. Goodwill is allocated to reportable segments as described in note 18. It is the Group s policy to reassess the classification of certain assets and liabilities within the reporting segments once a certain development stage of the destination is achieved. In 2016 and 2015 no such transfers were made Additions to non-current assets Hotels 26,062,398 22,857,636 Real estate and construction 651, ,910 Destination management 24,618,640 15,191,687 Other operations 4,071,614 3,897,173 TOTAL 55,404,173 42,191,406 F-31

32 7.4 Geographical information The Group currently operates in eight principal geographical areas Egypt, Oman, United Arab Emirates, Jordan, Switzerland, UK, Montenegro and Morocco. The Group's revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed below: Revenue Non-current assets Egypt 151,234, ,982, ,109, ,613,535 Oman 39,770,321 47,233, ,381, ,502,323 United Arab Emirates 30,282,051 28,903,499 62,629,915 58,822,085 Montenegro 21,050, ,639 94,678,223 61,663,108 Morocco 11,882 40,123 92, ,511 Others 2,095,601 3,017,043 67,560,578 67,147,076 TOTAL 244,445, ,361, ,451, ,991,638 The revenue realized from a single client did not exceed the rate of 10% or more of the total Group s revenue during 2017 and Non-current assets exclude investments in associates, financial instruments and deferred tax assets. 7.5 Additional information on segment results Total segment result of CHF 38.0 million (2016: CHF 36.8 million) mainly increased due to the following: - There was a small increase in the real estate and construction segment revenue as more units were delivered in Montenegro compared to prior year. The increase was partly netted off by less units delivered in Oman compared to prior year. However, segment profit decreased significantly mainly due to units delivered in Montenegro which had a lower margin than the units delivered in Egypt and Oman in the comparative period. Further, the devaluation of the EGP increased the construction cost while revenue which was deferred is impacted less. - The hotel segment had a successful year closing and a notable performance boost. In 2017, the hotel segment reported a revenue increase of 9.1% growing from CHF million to CHF million, and a corresponding growth in gross profit of 153.3% growing from CHF 10.7 million to CHF 27.1 million. El Gouna in Egypt was a key contributor to this performance boost reporting a GOP growth of 67% growing from CHF 13.9 million to CHF 23.3million. Also at Makadi, the yields from the lease agreement that was put into action in January 2017 amounted to CHF 3.3 million going up from a GOP loss of CHF 1.9 million in Hawana Salalah continued to be one of the Group s highly rewarding destinations reporting a GOP growth of 19% growing from CHF 8.7 million to CHF 10.4 million. The Cove, on the other hand, maintained its positive momentum with a slight GOP increase going from CHF 10.8 million to CHF 11.1 million. - No significant sale of land incurred in 2017 and The segment profit in 2016 mainly results from foreign exchange gains in Egyptian subsidiaries due to outstanding receivables in USD. 8 EMPLOYEE BENEFITS EXPENSE Employee benefits expense 67,135,358 78,124,234 Thereof included in cost of sales 50,052,533 60,577,748 Thereof included in administration expenses 17,082,825 17,546,486 F-32

33 9 INVESTMENT INCOME Interest income: - Bank deposits 1,919,593 2,253,002 - Other loans and receivables 4,993,125 4,104,644 Dividends received from equity investments - 12,466 TOTAL 6,912,718 6,370,112 Investment income earned on financial assets by category of assets is CHF 6,912,718 (2016: CHF 6,357,646) for loans and receivables including cash and bank balances as well as CHF 0 (2016: 12,466) for financial assets at fair value through other comprehensive income. Gains or (losses) relating to financial assets classified as at fair value through profit or loss is included in Other gains in note OTHER GAINS (i) Gain in relation to settlement of borrowing with a third party (i) 6,313,871 - Net foreign exchange gains 4,299,781 - Gain from change in fair value of investment property (note 17) 616, ,301 Gain on disposal of property, plant and equipment 17,255 14,944 Gain on disposal of financial investments (ii) - 2,888,614 Other gains 13,016 - TOTAL 11,260,572 3,064,859 Med Taba for Hotels signed a full settlement agreement with Proparco by agreeing to pay one lump sum final payment of EUR million (CHF 13.3 million) corresponded to 66% of the total outstanding principle which amounted to EUR million (CHF 20.2 million) in addition to paying 100% of the due interest till settlement date. The company paid part of the said 66% in 2016 and the final payment took place in February The 34% remaining of total outstanding principle amounting to EUR 5.87 million (CHF 6.3 million) is booked as other gain in Q (ii) Gain from selling shares in stock exchange 11 FINANCE COSTS Interest on bank overdrafts and loans (37,542,292) (47,429,715) Total interest expense for financial liabilities not classified as at fair value through profit or loss (37,542,292) (47,429,715) Less: amounts included in the cost of qualifying assets (i) 1,671,837 2,629,446 TOTAL (35,870,455) (44,800,269) (i) The amount of capitalization cost of qualifying assets (project under construction and work in progress) has decreased compared to prior year. This is mainly due to decreased activities in relation to the current hotel projects and real estate projects in Egypt and Oman, which are eligible for the capitalization of interest expense. However, overall finance cost decreased by CHF 8.9 million from CHF 44.8 million to CHF 35.9 million as the devaluation of the Egyptian Pound in the last 2 years led to a significant decrease in finance cost. The rate used by the Group to determine the amount of borrowing costs eligible for capitalization is 9% per annum (2016: 7.75% per annum). F-33

34 12 OTHER LOSSES (i) Write-down on inventory(i) - (13,529,631) Loss on disposal of financial assets (313,038) - Net foreign exchange (losses) (note 29.6) - (113,243,690) Impairment related to property under construction (ii) - (18,611,089) Impairment loss of receivables on acquisition of subsidiaries (note 36) - (843,588) Other losses - (1,186,542) TOTAL (313,038) (147,414,540) In 2017, there were no impairment losses on inventory. In 2016, CHF 13.5 million were recognised on inventory of development projects. (ii) In 2016, impairment losses on property under construction of 18.6 million were recognised on development projects. In 2017, no such losses incurred. 13 COMPENSATION OF KEY MANAGEMENT PERSONNEL Salaries 4,519,999 3,485,161 Other short-term employee benefits 216, ,290 Post-employment benefits 36,000 48,968 TOTAL COMPENSATION OF KEY MANAGEMENT PERSONNEL 4,771,999 3,675,419 In addition to the amounts mentioned above, the CEO was granted a contingent compensation which is dependent solely on the development of the share price of the Company. For further details on this share-based payment refer to notes 29.3 and 39. There is a compensation plan in place for the Board of Directors which consists of a fixed compensation subject to an annual review. As to the compensation of the members of Executive Management, the base salary is either (in case of members who have served in that capacity since the Company was formed in 2008) carried over from their previous employment with ODE, or (in case of members appointed at a later time) determined in a discretionary decision of the CEO approved by the Nomination & Compensation Committee. In respect of the bonus part of the compensation, proposals by the CEO are presented to the Nomination & Compensation Committee which discusses such proposals and approves them if deemed fit. The annual proposals and decisions concerning the compensation of the members of Executive Management are based on an evaluation of the individual performance of each member, as well as of the performance of the business area for which each member is responsible (in case of the executive members of the Board, the performance of the Orascom Development Group as a whole). The CEO forms the respective proposals in his discretion, based on his judgment of the relevant individuals' and business areas' achievements. The disclosures required by the Swiss Code of Obligations on Board and Executive committee compensation are shown in the compensation report. Total compensation of directors and Executive Management is part of the employees benefit expense allocated between cost of sales and administrative expenses (see note 8). F-34

35 13.1 Holding of Shares BOARD OF DIRECTORS Samih Sawiris 1 Chairman 27,406,233 27,391,814 Franz Egle Member 78,849 51,285 Adil Douiri Member 42,191 25,379 Carolina Müller-Möhl Member 54,600 36,272 Naguib S. Sawiris 2 Member 9,613 - Marco Sieber Member 48,577 27,195 Jürgen Fischer Member 113,196 94,868 Jürg Weber Member 51,451 23,929 TOTAL BOARD OF DIRECTORS 27,804,710 27,650,742 EXECUTIVE MANAGEMENT Khaled Bichara 3 CEO - - Ashraf Nessim 4 CFO - - Abdelhamid Abouyoussef Chief Hotels Officer 100, ,000 Nermine Faltas 5 Chief Human Resources & Organization Development Officer - - Tarek Gadallah 5 Group General Counsel - - TOTAL EXECUTIVE MANAGEMENT 100, ,000 1 total includes direct and indirect holding ownership as per note During the Annual General Meeting on 10 May 2016, Naguib S. Sawiris was elected as new member of the Board of Directors. 3 As at 1 January 2016, Khaled Bichara was appointed as Group CEO 4 As at 10 May 2016, Ashraf Nessim was appointed as interim Group CFO 5 Member of the Executive Management since 1 April 2017 As at 31 December 2017, an amount of CHF 0.2 million was due from key executives relating to the allocation of ODE shares in No other loans or credits were granted to members of the Board, the Executive Management or parties closely linked to them during 2017 and INCOME TAXES 14.1 Income tax recognised in profit or loss CURRENT TAX Current tax (income)/expense for the current year 6,774,555 4,563,472 DEFERRED TAX 6,774,555 4,563,472 Deferred tax (income)/expense recognized in the current year (1,142,036) 3,787,540 Adjustments to deferred tax attributable to changes in tax rates and laws - - TOTAL INCOME TAX EXPENSE RECOGNIZED IN THE CURRENT YEAR RELATING TO CONTINUING OPERATIONS (1,142,036) 3,787,540 5,632,519 8,351,012 F-35

36 The following table provides reconciliation between income tax expense recognized for the year and the tax calculated by applying the applicable tax rates on accounting profit: Profit/(loss) before tax from continuing operations (35,422,896) (235,484,823) Income tax expense/(benefit) calculated at 16.10% (2016: 13.25%) (5,703,140) (31,203,798) Unrecognized deferred tax assets during the year 14,005,457 42,637,842 Effect of income that is exempt from taxation (10,846,156) (9,860,142) Effect of (income)/expenses that are not (added)/deductible in determining taxable profit 8,176,358 6,777,110 INCOME TAX EXPENSE RECOGNIZED IN PROFIT OR LOSS 5,632,519 8,351,012 The average effective tax rate of 16.10% (2016: 13.25%) is the effective tax rate from countries in which the company generates taxable profit. The average effective tax rate mainly decreased due to the following: 14.2 Income tax recognized in other comprehensive income DEFERRED TAX Remeasurement of property, plant and equipment reclassified to investment property (4,552,950) - TOTAL INCOME TAX RECOGNISED IN OTHER COMPREHENSIVE INCOME (4,552,950) Current tax assets and liabilities Current tax expense 6,774,555 4,563,472 Foreign currency difference (1,110,589) (2,434,480) CURRENT TAX LIABILITIES 5,663,966 2,128, Deferred tax balances Deferred tax assets and liabilities arise from the following: 2017 CHF Opening balance Charged to income Exchange difference Reclassified as assets held for sale Closing balance ASSETS Temporary differences Property, plant & equipment 992,920 6,352 8,592-1,007,864 Tax losses carried forward - 2,236,517 (150,387) (2,086,130) - 992,920 2,242,869 (141,795) (2,086,130) 1,007,864 LIABILITIES Temporary differences Property, plant & equipment 21,999,483 1,559,228 (465,670) (2,115,140) 20,977,901 Investment property 926,326 (458,395) (22,458) - 445,473 22,925,809 1,100,833 (488,128) (2,115,140) 21,423,374 NET DEFERRED TAX LIABILITY 21,932,889 (1,142,036) (346,333) (29,010) 20,415,510 F-36

37 2016 CHF Opening balance Charged to income Exchange difference Recognized in other comprehensive income Closing balance ASSETS Temporary differences Property, plant & equipment 4,521,152 (2,959,192) (569,040) - 992,920 Tax losses 8,172,331 (6,852,186) (1,320,145) ,693,483 (9,811,378) (1,889,185) - 992,920 LIABILITIES Temporary differences Property, plant & equipment 40,865,187 (6,020,209) (14,065,385) 1,219,890 21,999,483 Investment property 2,182,089 (3,628) (1,252,135) - 926,326 43,047,276 (6,023,837) (15,317,520) 1,219,890 22,925,809 NET DEFERRED TAX LIABILITY 30,353,793 3,787,541 (13,428,335) 1,219,890 21,932, Unrecognized deferred tax assets Deferred tax assets not recognized at the reporting date: Tax losses in Parent Company (expiry 2018) (i) 846,695, ,695,821 Tax losses in Parent Company (expiry 2019) (i) 1,032,630,753 1,032,630,753 Tax losses in Parent Company (expiry 2020) (i) 29,383,250 29,383,250 Tax losses in Parent Company (expiry 2021) (i) 86,373,116 86,373,116 Tax losses in Parent Company (expiry 2022) (i) 2,955,358 2,955,358 Tax losses in Parent Company (expiry 2023) (i) - - Temporary differences in subsidiaries (ii) 90,070, ,045,729 (i) At 31 December 2016, the Parent Company s tax losses amounted to CHF 1,998,038,298 which mainly related to tax losses caused by impairment charges recognized on investments as result of the original restructuring of the Group. The historical cost value of these investments was the fair value of the investments at the date of the stock market listing in Switzerland. The Parent Company incorporated in Switzerland is a holding company and enjoys a privileged taxation for dividend income from subsidiaries, as such income is tax exempted if certain criteria are met. The Parent Company does not expect to have any substantial income streams other than tax exempted dividend income in the foreseeable future and therefore it is not probable that the unused tax losses can be utilized. Therefore, and unchanged to prior year, all tax losses accumulated in the Parent Company which amounted to CHF 1,988,038,298 at 31 December 2017 were treated as unrecognized deferred tax assets. (ii) At 31 December 2017, the Group has not recognised deferred tax assets for gains recognized at the subsidiaries level on intercompany land sales which took place in During 2017, the Group has not recognised any deferred tax asset on the sale transaction as the development of this land either has not yet been started or is still in the early stages of development and therefore it is not evident that future taxable profits are probable. The residual temporary differences in 2106 were unrecognized tax losses in subsidiaries which expired in F-37

38 15 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings from continuing operations attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. As the Company does not have any dilutive potential, the basic and diluted earnings per share are the same. The earnings from continuing operations and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows: EARNINGS (for basic and diluted earnings per share) (Loss)/profit for the period attributable to owners of the parent (41,361,129) (196,415,554) NUMBER OF SHARES (for basic and diluted earnings per share) Weighted average number of ordinary shares for the purposes of EPS 39,913,457 40,399,443 EARNINGS PER SHARE FROM CONTINUING OPERATIONS (1.04) (4.86) F-38

39 16 PROPERTY, PLANT AND EQUIPMENT CHF Freehold land Buildings Plant and equipment Furniture and fixtures Property under construction Assets under finance lease Total COST Balance at 1 January ,736, ,475, ,047,563 74,936, ,876,796 6,936,223 1,225,008,586 Additions 784,909 18,255,345 6,193,555 5,302,377 11,215,734-41,751,920 Acquired through business combination (note 36) 29,362,420 23,254, ,539 35,107 1,719,654-54,544,821 Transfer from property under construction - 24,807, (24,807,267) - - Transfer from inventory (note 23) 2,246 2,369, , ,539,198 Reclassified to assets held for sale (note 27) (5,296) (152,881) (182,574) (157,933) - (498,684) Disposals (191,536) (440,721) (318,071) (40,188) - (990,516) Foreign currency exchange differences (28,302,160) (232,113,279) (41,574,945) (24,573,326) (23,144,505) (4,051,138) (353,759,353) Balance at 31 December ,583, ,851,720 83,413,473 55,199, ,662,291 2,885, ,595,972 Additions 816,278 17,606,569 7,447,453 2,735,540 26,798,333-55,404,173 Transfer to investment property (note 17) (135,182) (16,806,084) (6,145,834) (4,087,248) - (27,174,348) Transfer from property under construction - 35,189, ,727 - (36,130,218) - - Transfer to inventory (note 23) (229,103) (3,528,856) (118,692) (138,580) (4,460,873) - (8,476,104) Disposals (5,827) - (79,619) (428,905) - (514,351) Foreign currency exchange differences (4,436,111) (13,444,095) (2,495,350) (1,434,584) 1,244,668 (63,196) (20,628,668) Balance at 31 December ,593, ,868,745 82,962,158 51,845, ,114,201 2,821, ,206,674 F-39

40 CHF Freehold land Buildings Plant and equipment Furniture and fixtures Property under construction Assets under finance lease Total ACCUMULATED DEPRECIATION AND IMPAIRMENT Balance at 1 January ,601,948 90,949,869 63,930,080 16,286,128 1,884, ,652,118 Eliminated on disposals of assets - (15,782) (266,380) (203,041) - - (485,203) Reclassified to assets held for sale (note 27) - (221) (135,921) (167,358) - - (303,500) Depreciation expense - 14,957,404 8,689,680 12,009, ,353 35,958,484 Impairment loss (note 12) - 18,611,089 18,611,089 Foreign currency exchange differences - (56,196,500) (39,345,656) (32,275,845) (3,254,091) (1,361,881) (132,433,973) Balance at 31 December ,346,849 59,891,592 43,292,883 31,643, , ,999,015 Eliminated on disposals of assets - (64,604) (261,811) - - (326,415) Transfer to investment property (note 17) - (10,841,825) (4,826,849) (3,656,882) - - (19,325,556) Transfer to inventory (note 23) (432,918) (137,247) (109,316) - - (679,481) Depreciation expense - 13,868,240 6,853,727 3,497, ,848 24,458,515 Foreign currency exchange differences - (3,339,865) (2,093,221) (1,611,753) (969,956) (25,703) (8,040,498) Balance at 31 December ,600,481 59,623,398 41,150,821 30,673,170 1,037, ,085,580 CARRYING AMOUNT At 31 December ,583, ,504,871 23,521,881 11,906, ,019,165 2,060, ,596,957 At 31 December ,593, ,268,264 23,338,760 10,695, ,441,031 1,784, ,121,094 At 31 December 2017, property, plant and equipment (PPE) of the Group with a carrying amount of CHF million (31 December 2016: CHF 88.3 million) were pledged to secure borrowings of the Group as described in note 32. See note 11 for the capitalized finance cost during the year. During 2017, three hotels in Makadi in the total fair value amount of CHF 27.9 million were transferred to investment property as they were rented out to FTI, a related party tour operator, for three years. The gain on revaluation of property reclassified to investment property of CHF 15.6 million is shown net of tax within other comprehensive income (note 29.4). In 2016, impairment losses on property under construction of CHF 18.6 million were recognised on development projects. In 2017, no such impairment losses incurred. F-40

41 17 INVESTMENT PROPERTY The following table summarizes movements, which have occurred, during the current reporting period, on the carrying amount of investment property. FAIR VALUE OF COMPLETED INVESTMENT PROPERTY Balance at the beginning of the year 5,501,334 10,981,552 Addition - 439,486 Transfer from property, plant and equipment (note 16) 27,956,313 - Reclassified to assets held for sale (note 27) (27,956,313) - Revaluation gain (through P&L) (note 10) 616, ,301 Foreign currency translation adjustment 1,382,885 (6,081,005) Balance at the end of the year 7,500,868 5,501,334 The fair values at 31 December 2017 were determined based on an internal valuation model performed by Group management. In estimating the fair value of the investment properties, management considers the current use of the properties as their highest and best use. The internal valuation model relies on the Discounted Cash Flow (DCF) method to determine the fair value of the investment property. The Discounted Cash Flow (DCF) approach describes a method to value the investment property using the concepts of the time value of money. All future cash flows are estimated and discounted to give them a present value. This valuation method is in conformity with the International Valuation Standards. The same method was used for any previous external valuations. As investment property only consists of a few properties in Egypt, management has decided to use an internal valuation model due to efficiency and cost saving reasons. For the valuation of the investment property which is situated in Egypt the model used cash flow projections based on financial budgets for the next five years and an average discount rate of 21.9% (cost of equity). For the terminal value a perpetual growth rate of 3% was used. In 2016 an average discount rate of 22.7% and a perpetual growth rate of 3% were used. All of the Group s investment property is held under freehold interests. The following table summarizes income and direct operating expenses from investment properties rented out to third parties. Rental income from investment properties (i) 2,699,781 3,662,727 Direct operating expenses (including repairs and maintenance) arising from investment properties that generated rental income during the period 195, ,832 (i) See note 7.1 for further information on the Group s rental income. 18 GOODWILL Cost 2,829,971 2,893,347 Accumulated impairment losses - - Carrying amount at end of year 2,829,971 2,893,347 COST Balance at beginning of year 2,893,347 6,476,682 Effect of foreign currency exchange differences (63,376) (3,583,335) Balance at end of year 2,829,971 2,893,347 F-41

42 18.1 Allocation of goodwill to cash-generating units Annual test for impairment An impairment test of goodwill was performed by the Group to assess the recoverable amount of its goodwill. No impairment was recorded as result of this test. All cash-generating units were tested for impairment using the Discounted Cash Flow (DCF) method in accordance with IFRS. The Group s business segments have been identified as cash generating units. The DCF model utilized to evaluate the recoverable amounts of these units was based on a five-year projection period. A further description of the assumptions used in the model is given in the following paragraphs. The carrying amount of goodwill that has been allocated for impairment testing purposes is as follows: CHF Segment Hotel companies * Hotels 2,829,971 2,893,347 *Each subsidiary considered separately Hotels 2,829,971 2,893,347 The recoverable amount of each cash-generating unit has been determined based on a value in use calculation which uses cash flow projections based on the financial budgets approved by management covering a five-year period with an average discount rate of 21.9% per annum (2016: 22.7% per annum) was used for the value in use calculation. The discount rate is based on a risk free posttax interest rate of 11.6% (the pre-tax risk free rate used is 14.5%; applying the 20% Egyptian tax rate for sovereign bonds, the posttax risk free rate of 11.6% resulted), a beta of 1.3 (2016: 1.27) as well as a risk premium of 8% (2016: 7%). For the terminal value calculation, a terminal growth rate of 2% (2016 3%) was used. Sensitivity analysis, where the average discount rate was increased by 4.5% and the growth rate reduced by 0.5%, which according to management is a reasonably possible change in key assumptions, did not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. Furthermore, management believes that any reasonably possible change in the key assumptions (sensitivity analysis) on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. F-42

43 19 SUBSIDIARIES The Group has control over all the subsidiaries below either directly or indirectly through subsidiaries controlled by the Parent Company. Details of the Group s significant subsidiaries at the end of the reporting period are as follows: Country Company name Domicile FC Egypt Share/paidin capital Proportion of ownership interest and voting power held by the Group Abu Tig for Hotels Company Red Sea EGP 3,412, % 2 Accasia for Hotels Company Cairo EGP 25,000, % 5 Arena for Hotels Company S.A.E Cairo EGP 20,000, % 4 Azur for Floating Hotels Company S.A.E 1) Cairo EGP 3,000, % 5 Captain for Hotels Company Red Sea EGP 768, % 3 El Dawar for Hotels Company Cairo EGP 9,560, % 3 El Khamsa for Hotels & Touristic Establishments El Golf for Hotels Company & Touristic Establishments Red Sea EGP 48,000, % Cairo EGP 22,000, % 5 El Gouna for Hotels Company S.A.E Cairo EGP 79,560, % 5 El Gouna Hospital Company Red Sea EGP 19,000, % El Gouna Services Company Red Sea EGP 250, % El Mounira for Hotels Company S.A.E Red Sea EGP 14,000, % 4 El Tebah for Hotels & Touristic Establishments Company Cairo EGP 52,000, % 5 El Wekala for Hotels Company Cairo EGP 39,000, % 4 International Company for Taba Touristic Projects (Taba Resorts) Cairo EGP 96,000, % 5 International Hotel Holding Cairo EGP 452,367, % Marina 2 for Hotels & Touristic Establishments Company Marina 3 for Hotels & Touristic Establishments Company Cairo EGP 19,250, % 4 Cairo EGP 26,000, % 4 Med Taba for Hotels Company S.A.E Cairo EGP 51,000, % 4 Misr El Fayoum for Touristic Development Company S.A.E Cairo EGP 28,000, % Mokbela for Hotels Company S.A.E Cairo EGP 85,000, % 5 Orascom Development Egypt S.A.E Cairo EGP 1,108,307, % Orascom Housing Company Cairo EGP 22,000, % Paradisio for Hotels & Touristic Establishments Company S.A.E Red Sea EGP 18,500, % 4 Rihana for Hotels Company S.A.E Red Sea EGP 13,000, % 4 Roaya for Tourist & Real Estate Development SAE Royal for Investment & Touristic Development S.A.E Red Sea EGP 50,000, % Cairo EGP 50,000, % 4 Taba First Hotel Company S.A.E Cairo EGP 105,000, % 5 Taba Heights Company S.A.E South Sinai EGP 157,510, % Tamweel Leasing Finance Co. ILC Cairo EGP 50,000, % Tamweel Mortgage Finance Company S.A.E Cairo EGP 100,000, % Tawila for Hotel Company S.A.E Cairo EGP 68,000, % 5 Mozn Investment and Tourism S.A.E. Red Sea EGP 268,520, % 5 Segment HO* R&C LS DM Other HQ F-43

44 Country Company name Domicile FC Montenegro Lustica Development Ad Podgorica Morocco Oued Chibika Development (SA) Chbika Rive Hotel Oman Madrakah Hotels Management Company LLC Muriya Tourism Development Company (S.A.O.C) Salalah Beach Tourism Development Company (S.A.O.C) Sifah Tourism Development Company (S.A.O.C) Podgorica Casablanca Casablanca Share/paid in capital Proportion of ownership interest and voting power held by the Group EUR 11,025, % MAD 367,420, % MAD 66,000, % UC Muscat OMR 4,350, % Muscat OMR 25,525, % Muscat OMR 35,922, % Muscat OMR 42,947, % Soda Tourism Development Co. 2) Muscat OMR 12,646, % Wateera Property Management Company LLC United Arab Emirates RAK Tourism Investment FZC Muscat OMR 270, % Ras al Khaimah AED 7,300, % 5 United Kingdom Eco-Bos Development Limited Cornwall GBP 10,000, % Segment HO* R&C LS DM Other HQ 1) The direct ownership of ODE in in Azur for Floating Hotels Company S.A.E. is 51% therefore the Group has control over this company even though from a Group perspective the ownership is below 50%. 2) The Group has control over Soda Tourism Development Company as one of Group s subsidiaries holds a 70% interest. Abbreviations: HO Hotels R&C Real estate and construction LS Land sales DM Destination management HQ Headquarter or not yet operational Other Other operations * Number of stars the hotel holds UC Hotel under construction F-44

45 19.1. Details of non-wholly owned subsidiaries that have material non-controlling interests The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests. The assessment whether a non-controlling interest is material is based on the carrying amounts of such non-controlling interests. Name of subsidiary Proportion of ownership interest and voting power held by non-controlling interests Profit/(loss) allocated to non-controlling interests Accumulated non-controlling interests 31/12/ /12/ /12/ /12/ /12/ /12/2016 Orascom Development Egypt S.A.E % 15.21% 3,648,362 (26,021,932) 31,058,373 20,137,970 Sifah Tourism Development Co % 30.00% (4,889,586) (4,012,170) 23,708,323 30,541,755 RAK Tourism Investment FZC 27.00% 27.00% (150,315) (87,553) 12,461,818 13,133,936 Individually immaterial subsidiaries with non-controlling interests 81,907,368 76,653,576 TOTAL 149,135, ,467,237 Summarised financial information in respect of each of the Group s subsidiaries that has material non-controlling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations. ODE Sifah RAK 31/12/ /12/ /12/ /12/ /12/ /12/2016 Current assets 306,605, ,194,040 66,314,322 82,734,908 10,411,272 7,717,081 Non-current assets 229,312, ,291,944 93,896, ,417,943 78,801,530 76,399,769 Current liabilities (403,449,128) (330,161,230) (80,824,590) (83,316,341) (18,586,965) (32,559,943) Non-current liabilities (34,195,887) (82,077,620) (358,173) (30,661) (24,470,955) (2,912,700) Equity attributable to owners (67,214,637) (41,109,164) (55,319,419) (71,264,094) (33,693,064) (35,510,271) Non-controlling interests (31,058,373) (20,137,970) (23,708,323) (30,541,755) (12,461,818) (13,133,936) Revenue 140,872, ,479,624 7,296,611 6,976,443 30,282,051 28,903,499 Profit/(loss) for the year 23,986,600 (171,084,363 (16,298,620) (13,373,899) (556,723) (324,272) attributable to owners 20,338,238 (145,062,431) (11,409,034) (9,361,729) (406,408) (236,719 attributable to non-controlling interests 3,648,362 (26,021,932) (4,889,586) (4,012,170) (150,315) (87,553) Other comprehensive income for the year 91,692,090 (155,029,062) - 1,170,814-1,498,512 attributable to owners 77,745,723 (131,449,142) - 819,570-1,093,914 attributable to non-controlling interests 13,946,367 (23,579,920) - 351, ,598 Total comprehensive income for the year 115,678,690 (326,113,425) (16,298,620) (12,203,085) (556,723) 1,174,240 attributable to owners 98,083,961 (276,511,573) (11,409,034) (8,542,159) (406,408) 857,195 attributable to non-controlling interests 17,594,729 (49,601,852) (4,889,586) (3,660,926) (150,315) 317,045 Net cash inflow/(outflow) 24,204,292 7,732,041 1,563,536 2,090,211 2,512,310 38,454 from operating activities 29,306,416 75,596,834 1,563,536 2,090,211 2,512,310 4,366,440 from investing activities (5,383,471) (38,140,967) (4,327,986) from financing activities 281,347 (29,723,826) Except for exchange differences arising on translating the foreign operations there are no other items of other comprehensive income Changes in the Group s ownership interests which have occurred during the year In 2017, the 30% interest in Garranah Group subsidiaries, was swapped into a 3% interest in the share capital of Royal for Investment & Touristic Development S.A.E., a consolidated subsidiary of the Group. In 2016, the Group has acquired a 100% stake in Mozn Investment & Tourism S.A.E. (refer to note 36 for further details). F-45

46 20 INVESTMENTS IN ASSOCIATES Details of the Group s associates at the end of the reporting period are as follows: Name of associate Place of incorporation/ business Proportion of ownership interest and voting power held by the Group Carrying value (CHF ) Andermatt Swiss Alps AG (i) Switzerland 49.00% 40,450,887 56,549,204 Orascom Housing Communities (ii) Cairo 35.25% 3,676,791 4,497,608 Jordan Company for Projects and Touristic Development (iii) Jordan 18.33% 14,136,976 15,820,535 Red Sea for Construction & Deveolpment (iv) Cairo 40.20% 2,557,646 1,683,764 Orascom for Housing and Establishments (v) Cairo 39.90% - - International Stock Company for Floating Hotels & Touristic Establishments (vi) Cairo 30.00% - - Mirotel for Floating Hotels Company (vi) Cairo 30.00% - - Tarot Garranah & Merotil for Floating Hotels (vi) Cairo 30.00% - - Tarot Tours Company (Garranah) S.A.E (vi) Cairo 30.00% - - Al Tarek for Tourist & Hotel Cruises (vi) Cairo 30.00% - - TOTAL 60,822,300 78,551,111 The Group measures all its associates using the equity method of accounting as described in policy 3.5 of the notes to the consolidated financial statements. None of the Group s equity-method investments are listed on Stock Exchanges and, accordingly, they do not have quoted market prices. Management considers ASA, OHC and JPTD as the only associate that are material to the Group. The Group did not receive any dividends during the current year from its material investments (2016: none). (i) Andermatt Swiss Alps AG On 25 June 2013, the Group lost control over Andermatt Swiss Alps AG ( ASA ) due to various capital increases in ASA in which the Group did not fully participate. With a remaining share of interest of 49% in ASA, the investment is classified as investment in associates. The fair value of ASA on initial recognition as investment in associates is based on a third-party valuation which supported the transaction price paid by Mr. Samih Sawiris. ASA is not subject to any restrictions on transferring funds to ODH whether resulting from regulatory requirements, borrowing arrangements or contractual arrangements between ASA and ODH. Summarised financial information in respect of ASA is set out below: Current assets 196,032, ,613,209 Non-current assets 345,963, ,235,099 Current liabilities (84,089,539) (73,194,325) Non-current liabilities (386,339,753) (295,142,870) Net assets 71,567, ,511,113 Revenue for the year 72,575,125 80,725,764 (Loss) for the year (32,853,708) (34,045,191) Other comprehensive income for the year - Total comprehensive income for the year (32,853,708) (34,045,191) Group s share of comprehensive income for the year (16,098,317) (16,682,144) F-46

47 Reconciliation of the above summarised financial information to the carrying amount of the interest in ASA recognised in the consolidated financial statements: Net assets of the associate over Group level 82,552, ,406,539 Proportion of the Group s ownership interest in ASA 49% 49% Carrying amount of the Group s interest in ASA 40,450,887 56,549,204 (ii) Orascom Housing Communities ( OHC ) In June 2014, the Group lost control over OHC as they did not participate in the capital increase of OHC. With a remaining share of interest of 35.25% in OHC, the investment is classified as investment in associates. The fair value of OHC on initial recognition as investment in associates is based on a fair value which has been determined by Fincorp, an accredited valuation specialist in Egypt, using a DCF model. With a remaining share of interest of 35.25% the fair value on initial recognition as at 30 June 2014 was CHF 14.6 million. Summarised financial information in respect of OHC is set out below: Current assets 23,644,459 14,441,830 Non-current assets 12,009,769 18,911,772 Current liabilities (42,566,574) (29,190,252) Non-current liabilities (1,646,628) (3,119,514) Net assets 8,558,974 1,043,836 Revenue for the year 3,117,983 5,878,339 Profit/(loss) for the year (2,039,700) (5,520,591) Other comprehensive income for the year - - Total comprehensive income for the year (2,039,700) (5,520,591) Group s share of comprehensive income for the year (718,902) (1,945,759) Reconciliation of the above summarised financial information to the carrying amount of the interest in OHC recognised in the consolidated financial statements: Net assets of the associate over Group level 10,430,613 12,759,173 Proportion of the Group s ownership interest in OHC 35.25% 35.25% Carrying amount of the Group s interest in OHC 3,676,791 4,497,608 F-47

48 (iii) Jordan Company for Projects and Touristic Development (JPTD) JPTD is investing in property, destination management and development in Aqaba in Jordon. Since 2008 the Group exercised significant influence with their two active board members out of eleven leading to changes in the JPTD s Executive Management and provision of essential technical information. Summarised financial information in respect of JPTD is set out below: Current assets 44,432,071 46,303,928 Non-current assets 126,104, ,416,736 Current liabilities (28,194,386) (29,382,174) Non-current liabilities (56,667,036) (59,054,335) Net assets 85,674,803 89,284,155 Group s share of net assets of associate 15,704,191 16,365,786 Revenue for the year 30,239,944 30,322,208 Profit/(loss) for the year (5,455,537) 1,740,317 Other comprehensive income for the year - - Total comprehensive income for the year (5,455,537) 1,740,317 Group s share of comprehensive income for the year (1,000,000) 319,054 Reconciliation of the above summarised financial information to the carrying amount of the interest in JPTD recognised in the consolidated financial statements: Net assets of the associate over Group level 77,124,801 86,309,520 Proportion of the Group s ownership interest in JPTD 18.33% 18.33% Carrying amount of the Group s interest in JPTD 14,136,976 15,820,535 (iv) Red Sea for Construction & Development ( RSCD ) During 2016, Red Sea for Construction & Development, of which the Group held a direct interest of 0.4% as well as an indirect interest of 14% through OHC, increased its share capital from EGP 25 million to EGP 50 million. Of these EGP 25 million, the Group invested EGP 20 million (CHF 2.2 million), resulting in a total interest of 40.20%. Hence, the investment is now classified as an associate. The investment in associates is initially recognised at the consideration paid for the capital increase with any previously acquired interests recognised at fair value. Summarised financial information in respect of RSCD is set out below: Current assets 41,795,236 18,591,781 Non-current assets 5,440,747 1,234,697 Current liabilities (42,527,348) (17,446,344) Non-current liabilities - - Net assets 4,708,635 2,380,134 Group s share of net assets of associate 2,221,534 1,122,914 Revenue for the year 51,243,357 55,482,195 Profit/(loss) for the year 2,254,919 2,139,111 Other comprehensive income for the year - - Total comprehensive income for the year 2,254,919 2,139,111 Group s share of comprehensive income for the year 906,478 1,009,203 F-48

49 Reconciliation of the above summarised financial information to the carrying amount of the interest in RSCD recognised in the consolidated financial statements: Net assets of the associate over Group level 6,362,301 3,568,809 Proportion of the Group s ownership interest in RSCD 40.20% 47.18% Carrying amount of the Group s interest in RSCD 2,557,645 1,683,764 (v) Orascom for Housing and Establishment The company develops real estate and housing projects located in Egypt for the low cost sector. The proportion of ownership interest held by the Group at 31 December 2017 is unchanged to prior year. In previous years, the investment was reduced to CHF nil as the losses in their last financial statements exceeded the carrying amount of the investment. (vi) ODH investments in Garranah Group subsidiaries The 30% interest in the share capital of these companies was swapped into a 3% interest in the share capital of Royal for Investment & Touristic Development S.A.E., a consolidated subsidiary of the Group. The swap of the previously fully impaired investments in associates as made without any further consideration paid. 21 NON-CURRENT RECEIVABLES Trade receivables 20,352,879 33,058,066 Notes receivable 17,725,351 9,392,034 TOTAL 38,078,230 42,450,100 Non-current receivables include long term receivables for land and real estate contracts, which will be collected over an average collecting period of 5.5 years (2016: 5.5 years). None of these non-current receivables is impaired and/or overdue. The decrease in non-current receivables is mainly due to reclassifications within the real estate segment as well as foreign currency exchange losses. Receivables with a carrying amount of CHF 13.4 million (2016: CHF 12.1 million) have been pledged to secure borrowings. 22 OTHER FINANCIAL ASSETS Details of the Group s other financial assets are as follows: CHF Current Non-current Financial assets carried at fair value through other comprehensive income (FVTOCI) Nasr City company for Housing & Development (N.C.H.R.) - - 2,548 2,545 Egyptian Resort Company (i) ,889,523 Reclaim Limited , ,604 Desert Cruise LLC , ,921 Camps and Lodges Company ,612 14,152 Palestine for Tourism Investment Company - - 9,483 9,696 El Koseir Company TOTAL ,388 3,516,633 (i) Egyptian Resort Company In September 2017, the Group sold its million shares in the listed Egyptian Resort Company, the Group s most significant financial asset within other financial assets for total proceeds of CHF 3.3 million. Accumulated losses of CHF 15.9 million, which were accumulated within reserves, were reclassified to retained earnings upon sale of the shares. Prior to the sale of the shares, a total of CHF 1.2 million was recorded in net losses on financial assets at FVTOCI within other comprehensive income in F-49

50 23 INVENTORIES Construction work in progress (i) 78,022,922 84,300,498 Land held for development under purchase agreements (ii) 25,443,635 24,695,522 Other inventories (iii) 24,116,606 15,963,993 TOTAL 127,583, ,960,013 (i) This amount includes real estate construction work under progress. The real estate units are sold off plan. The main reasons for the decrease in inventory compared to 31 December 2016 is a decrease in construction work in progress in Oman. This decrease was partly netted-off by the transfer of assets from property, plant and equipment of CHF 7.8 million (note 16). For further details on the net realisable value of construction work in progress refer to note (ii) In 2008, the finance leases between ODE and General Authority for Touristic and Development ( GATD ) in Egypt for development of land were terminated and replaced with purchase agreements with GATD. On May 2008, ODE signed a new purchase agreement with GATD to purchase a plot of land and paid a down payment of 27% and the remaining balance is payable in equal annual instalment commencing upon the expiry of the grace period of three years. In addition, ODE is required to pay an annual interest at the rate of 5% after the grace period with each instalment. The value of land shown above is for those plots of land assigned for development and not yet sold by ODE. (iii) This amount includes hotels inventory of CHF 15.2 million (2016: CHF 9.7 million) as well as completed but unsold units of CHF 8.9 million (2016: CHF 8.2 million) In 2017, no inventory was written down. In 2016, inventory of development projects was written down by CHF 13.5 million. 24 TRADE AND OTHER RECEIVABLES Trade receivables (i) 52,946,546 46,171,705 Notes receivable 33,627,466 28,003,613 Allowance for doubtful debts (see below) (17,692,833) (18,340,388) TOTAL 68,881,179 55,834,930 (i) Trade and other receivables increased by CHF 13.5 million due to reclassification from non-current receivables as well as due to increased operating activities. The increase was partly netted of by foreign currency translation losses due to the devaluation of the Egyptian Pound (note 29.6). The average credit period on sales of real-estate is 5.5 years. No contractual interest is charged on trade receivables arising from the sale of real estate units. Interest is only charged in case of customer s default. The Group has recognised an allowance for doubtful debts of 21% (2016: 25%) based on individual bad debts and allowances due to past due amounts. Allowances for doubtful debts are recognised against trade receivables based on estimated irrecoverable amounts determined by reference to past default experience of the counterparty and an analysis of the counterparty's current financial position. Movement in the allowance for doubtful debt: Balance at beginning of year (18,340,388) (20,959,808) Impairment losses recognised on receivables (786,435) (6,360,984) Amounts written off during the year as uncollectable 306, ,424 Impairment losses reversed (allowance no longer used) 365, ,181 Reclassified (from)/to assets held for sale 952,388 1,576,401 Foreign exchange translation gains and losses (190,206) 7,148,398 Balance at end of year (17,692,833) (18,340,388) Included in the Group s trade and other receivable balance are debtors with a carrying amount of CHF 37.5 million (2016: CHF 29.0 million) which are past due but not impaired at the reporting date. The Group has not built an allowance for impairment loss for the past due amounts reported below as there has not been a significant change in credit quality and the amounts are still considered recoverable (see note 38). F-50

51 Aging of receivables that are past due but not impaired: Less than 30 days 9,658,241 7,788,904 Between 30 to 60 days 5,201,801 4,195,001 Between 60 to 90 days 3,415,125 2,754,133 Between 90 to 120 days 2,592,139 1,687,209 More than 120 days 16,616,829 12,594,217 TOTAL 37,484,135 29,019, OTHER CURRENT ASSETS Advance to suppliers (i) 17,521,523 16,844,505 Deposit with others 6,341,227 5,471,972 Prepaid sales commissions related to uncompleted units 5,825,684 4,005,504 Withholding tax 5,390,628 3,629,337 Prepaid expenses 5,109,475 5,000,567 Other debit balances 3,270,349 3,496,691 Cash imprest 655, ,582 Accrued revenue 460, ,923 Letters of guarantee cash margin 340, ,201 Amounts due from employees and the management team (ii) 177, ,227 Down payments for investments - 16,247 TOTAL 45,093,158 40,055,756 (i) Advance to suppliers relates to advances paid in Oman, Egypt and Montenegro. The decrease is mainly due to a decrease in advances in Montenegro and Oman. (ii) This amount is due from employees and management team including executive board members as a result of receiving two million ODE shares in These shares were previously issued based on a general assembly resolution in ODE dated 13 February 2006 authorizing the company to issue 2 million shares at par to be used to allocate to employees and management team (see note 39). All shares were swapped at a rate of 1:10 for ODH shares in On one side payment of the share price was deferred and payback period was extended each year, on the other side employees and management were instructed not to sell their unpaid shares. As the share price decreased substantially since the allocation of the shares, provisions against these receivables were recognized in 2011 and In March 2013, the terms and conditions of the final settlement were ultimately determined by the Board of Directors based on the share price as at 31 December This resulted in a residual amount of CHF 177,893 (2016: 247,227) which is due from employees and management team including executive board members and a residual provision of CHF 177,893 (2016: CHF 247,227). All other amounts due were netted off. 26 CASH AND CASH EQUIVALENTS For the purposes of the consolidated cash flow statement, cash and cash equivalents include cash on hand, demand deposits and balances at banks. Cash equivalents are short-term, highly liquid investments of maturities of three months or less from the acquisition date, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents at year end as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows: Cash and cash equivalents 99,454,931 80,834,952 Cash and cash equivalents included in assets held for sale 4,216,702 1,337,360 Balance at the end of the year 103,671,633 82,172,312 F-51

52 26.1 Management s plans to manage liquidity shortages and related uncertainty The operational performance of the group largest subsidiary was enhanced during 2017 yet, still this operational enhancement was not hugely reflected in the Group s when being translated into CHF due to the 50.0% EGP devaluation against the CHF. However, Oman continued its positive contribution in terms of real estate sales and hotels operations. In addition, Montenegro has also contributed positively in terms of real estate sales and revenues. During 2016 our initial focus was on identifying our organizational challenges and development areas related to strategy, visibility and accountability. Accordingly, we started implementing on re-organizing the current segment structure to a destination based structure, pushing more authority and responsibility on the ground of each destination, to better increase operational efficiency, shorter the decision-making process and improve market transparency. We now have a clear view of where each destination is going to be over the short-term course 5 years and we have also indicated the needed sources of funding that we have been working on diligently to make sure the plan unfolds in the direction we want it to. The actions taken by the Group so far towards managing this situation are as follows: Commitment from Chairman In February 2017, the Chairman signed a letter of commitment in favour of the Group to avail up to CHF 60 million until end of December Of the committed amount CHF 27.8 million were drawn-down by the Group until end of December In April 2018, the Chairman signed a new letter of commitment to avail up to CHF 30 million until end of December Monetization plan, financing and loans The monetization initiatives that the management started since 2012 to generate cash to be injected into the business of the Group is continuing and has proved its success. Under this notion, in 2016 Tamweel Holding Group was identified as a non-core asset to the Group and has been put in the monetization list and assigned as an asset held for sale. By selling Tamweel to third parties including a related party we will be able to deconsolidate its debt from our books and the proceeds of its sale are earmarked to further reduce the debt balance (note 27). Further, refer to note 27 on the planned sale of Royal and Makadi. Moreover, ODE the largest subsidiary of ODH signed a CHF million debt refinancing package with its banks allowing the company to postpone its principal payments for the coming 3 years and its interest payments for financial year 2016 with an option to postpone the interest payments for financial year Thus, the balance sheet of the company will be strengthened and thereby lead to more flexibility to advancing its projects. Even though the refinancing package has successfully been concluded, we still plan to further reduce our debt balance to levels that we foresee as sustainable enough to be covered by the projected levels of operations. Please note, that the refinancing package is not yet effective. At the same time, Orascom Development will continue to seek an optimal balance sheet structure and will continue its plans to reduce and restructure the debt held at the Egyptian subsidiary level. For 2018 it is planned to reduce the balance through the sale of non-core assets and excess cash from operations. In 2018, Orascom Development will further advance its growth plans in Oman and Montenegro, building on the successful returns that were achieved last year and adding more hotel rooms and amenities in both destinations. We are currently finalizing the construction of the Chedi hotel, the Marina and retail outlets in Montenegro, all planned to be launched in the summer of We are also planning to add more rooms and a new hotel in Hawana Salalah, Oman. The financing of these planned expansions will be secured through different mid to long term financing instruments that are being evaluated at both the Group and the destination level. Accordingly, the Group will enter in discussions with certain financial intermediaries and capital providers regarding the potential issue of public or private fixed income financing instruments. Management believes that these plans are sufficient to substantially mitigate the liquidity risk. Given that there is a certain degree of uncertainty in major countries where the Group operates, especially Egypt, the loan from our Chairman as noted above is extended to support the company in the coming few months should such uncertainties prevail. However, management keeps monitoring the events as they unfold in case further immediate action is required. F-52

53 27 ASSETS HELD FOR SALE ASSETS HELD FOR SALE Related to Royal (i) 26,423,943 - Related to Makadi (i) 5,271,224 - Related to Tamweel (ii) 75,281,863 67,230,735 Total assets held for sale 106,977,030 67,230,735 LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE Related to Royal (i) (21,711,826) - Related to Makadi (i) (23,878) - Related to Tamweel (ii) (62,671,542) (54,118,893) Total liabilities associated with assets held for sale (84,407,246) (54,118,893) (i) Planned disposal of Royal and Makadi As part of the Group s strategy to enhance its balance sheet, management of ODH, in Q4 2017, decided to sell three hotels (Makadi Gardens ( Makadi ), Royal Azur and Club Azur ( Royal )) and a land plot in Makadi destination. The Board of Directors approved the sale of these assets in its meeting on in December In February 2018, ODH, through its largest subsidiary in Egypt, Orascom Development Egypt (ODE), signed a final offer for the sale of its stake in the three hotels and the land plot. All due diligence and related paperwork for the deal were finalized by end of February 2018 and the Company successfully got the approval of the ordinary General Assembly Meeting of its largest Egyptian subsidiary, ODE. Conclusion of the sale is only pending on the regulatory entity approvals in Egypt. The offer was signed with Meeting Point International Egypt, the Egyptian subsidiary of FTI (a related party of the Group). Royal and Makadi not qualify as discontinued operation as they are neither separate major lines of business nor geographical areas of operations. (ii) Planned disposal of Tamweel In the second half of 2016, the Board of Directors decided to sell its Tamweel Group companies ( Tamweel ) and management has engaged a third party as sell side advisor. The sale process has started in July 2016 after all necessary documentation had been prepared by the sell side advisor. So far, the Group received a binding offer from a third party which was accepted by management of the GroupThe subsidiary ODE signed a final binding offer and the sale is expected to be finalised in Therefore, even though the sale is taking more than 12 months since the reclassification as held for sale, the planned sale of Tamweel still qualifies as held for sale Tamweel does not qualify as discontinued operation as it is neither a separate major line of business nor a geographical area of operations. F-53

54 The non-current assets held for sale and the liabilities associated with non-current assets held for sale were reclassified from the following categories of assets and liabilities: CHF 31 December December 2016 Non-current assets Royal Makadi Tamweel Tamweel Property, plant and equipment , ,184 Investment property 22,685,089 5,271, Non-current receivables ,104,069 21,752,349 Finance lease receivables ,651,469 28,553,814 Current assets - Inventories , ,431 Trade and other receivables ,303,374 6,403,184 Finance lease receivables - - 8,627,401 7,254,695 Other financial assets ,499 1,047,635 Other currents assets 1,453,446-1,012, ,083 Cash and bank balances 2,285,408-1,931,294 1,337,360 Assets classified as assets held for sale 26,423,943 5,271,224 75,281,863 67,230,735 Non-current liabilities Non-current borrowings (11,266,012) - (42,244,751) (35,712,509) Deferred tax liabilities (4,917,902) (23,878) (265) (380) Current liabilities Trade and other payables (191,569) - (1,334) (1,440) Current borrowings (3,135,150) - (16,904,409) (16,441,930) Current tax liabilities - - (876,114) (651,419) Provisions - - (332,749) (267,638) Other current liabilities (2,201,193) - (2,311,920) (1,043,577) Liabilities associated with assets classified as assets held for sale (21,711,826) (23,878) (62,671,542) (54,118,893) Net assets classified as disposal group 4,712,117 5,247,346 12,610,321 13,111,842 The above amounts represent the carrying amounts on date of reclassification. No adjustments to fair value less costs to sell had to be made. 28 CAPITAL 28.1 Issued capital Par value per share CHF CHF Number of ordinary shares issued and fully paid 40,409,926 40,409,926 Issued capital 937,510, ,510, Fully paid ordinary shares There were no changes to the share capital in 2017 and F-54

55 28.3 Authorized capital The ordinary meeting of shareholders held on 18 May 2015 authorized the Board of Directors to increase the share capital of the Company by a maximum of CHF 278 million by issuing up to 12,000,000 fully paid-up registered shares with a par value of CHF each until 18 May Partial increases are permitted. Following an increase of the share capital out of the authorized share capital on 15 December 2015, the Board of Directors remains authorized to increase the capital of the Company by a maximum of CHF 3,090, by issuing of up to 133'221 fully paid-up registered shares with a par value of CHF each until 18 May As the authorized capital was not renewed in 2017, there is no such capital as at 31 December Conditional capital The share capital may be increased by a maximum amount of CHF million through the issuance of up to 6 million fully paid registered shares with a nominal value of CHF each a) up to the amount of CHF 23 million corresponding to 1 million fully paid registered shares through the exercise of option rights granted to the members of the Board and the management, further employees and / or advisors of the Parent Company or its subsidiaries. b) up to the amount of CHF 116 million corresponding to 5 million fully paid registered shares through the exercise of conversion rights and / or warrants granted in connection with the issuance of newly or already issued bonds or other financial instruments by the Parent Company or one of its group companies. The subscription rights of the shareholders shall be excluded. The Board of Directors may restrict or withdraw the right for advance subscription ( Vorwegzeichnungsrecht ) of the shareholders in connection with (i) the financing (refinancing inclusively) of acquisitions of enterprises or parts thereof, participations or other investment projects of the company and/or its subsidiaries or (ii) the placement of convertible bonds or financial instruments with conversion or option rights on the national or international capital market. At 31 December 2017, no option rights, conversion rights or warrants had been granted on that basis Significant shareholders The following significant shareholders are known to us CHF Number of shares % Number of shares % Samih Sawiris (i) 25,075, % 15,575, % Thursday Holding 2,316, % 7,807, % OS Holding 2,049, % 2,049, % SOS Holding 14, % 4,009, % Others 10,953, % 10,968, % TOTAL 40,409, % 40,409, % (i) The shares of Samih Sawiris are held directly and through his entities Thursday Holding, OS Holding and SOS Holding. 29 RESERVES (NET OF INCOME TAX) Share premium (note 29.1) 98,488,244 98,488,244 Treasury shares (note 29.2) (4,570,754) (26,797) Share-based payment reserve (note 29.3) 1,666, ,333 PP&E revaluation reserve (29.4) 9,978,470 - Investments revaluation reserve (note 29.5) (172,229) (17,256,259) General reserve (note 29.6) 4,916,868 4,916,868 Foreign currencies translation reserve (note 29.7) (356,520,727) (351,669,206) Reserve from common control transactions (note 29.8) (98,984,339) (98,692,949) Equity swap settlement (note 29.9) (2,114,229) (2,114,229) TOTAL (347,312,031) (365,520,995) F-55

56 29.1 Share premium Balance at beginning of year 98,488,244 98,570,244 Transaction costs in relation to delisting of EDRs in Egypt - (82,000) Balance at end of year 98,488,244 98,488, Treasury shares Balance at beginning of year (26,797) (3,268,681) Acquisition of treasury shares (i) (5,421,560) - Distribution of treasury shares (ii) 877,603 3,241,884 Balance at end of year (4,570,754) (26,797) As of 31 December 2017, the Company owned 785,234 own shares (31 December 2016: 516). (i) During 2017, ODH acquired a total of 935,486 treasury shares at a total amount of CHF 5.4 million (ii) During 2017, ODH transferred a total of 150,768 own shares to the members of the Board of Directors as part of their remuneration (CHF 0.9 million). The treasury shares reserve, which values the shares at original purchase price (CHF 0.9 million), has been reduced accordingly and the resulting difference has been recognized as gain directly through retained earnings (CHF 48,124). During 2016, ODH transferred a total of 62,361 own shares to the members of the Board of Directors as part of their remuneration (CHF 0.7 million). The treasury shares reserve, which values the shares at original purchase price (CHF 3.2 million), has been reduced accordingly and the resulting difference has been recognized as loss directly through retained earnings (CHF 2.5 million) Share-based payment reserve Balance at beginning of year 833,333 - Share-based payments (note 39) 833, ,333 Balance at end of year 1,666, , PP&E revaluation reserve Balance at beginning of year - - Revaluation gain on property reclassified from PP&E to investment property 9,978,470 - Balance at end of year 9,978,470 - On reclassification of property from property, plant and equipment to investment properties (see notes 16 and 17), the property was revalued at its fair value with the revaluation gain recognised through other comprehensive income. For the revaluation a DCF model was used using a 5-year cash flow plan. The cost of capital used was 21.87% of which the pre-tax risk free rate is 15.0% (post-tax risk free rate 12%) and the risk premium 8%. Further a beta of 1.23 as used 29.5 Investments revaluation reserve Balance at beginning of year (17,256,259) (14,590,160) Reclassification of accumulated losses to retained earnings on sale of investment 15,880,794 - Net gain/(loss) arising on revaluation of financial assets at FVTOCI 1,203,236 (2,666,099) Balance at end of year (172,229) (17,256,259) The investments revaluation reserve represents the cumulative gains and (losses) arising on the revaluation of financial assets at fair value through other comprehensive income ( FVTOCI ). F-56

57 29.6 General reserve Balance at beginning of year 4,916,868 4,916,868 Balance at end of year 4,916,868 4,916,868 On 3 December 2010, the Parent Company borrowed 1,286,353 ODH shares from Mr. Samih Sawiris free of charge under a securities lending agreement. These shares were intended to be used for the tender offer regarding the buy-out of the remaining shareholders of ODE, a company listed at the EGX. The borrowed ODH shares were not accounted for as treasury shares by the Group, as Mr. Samih Sawiris retained the significant rights, such as dividend and voting rights, during the borrowing period as per contractual provisions. Under the above-mentioned securities lending agreement the Parent Company has returned of the borrowed ODH shares to Mr. Samih Sawiris on 28 July 2011 by way of capital increase, which is further explained in note 40. All of the remaining 956,324 shares, which were not used during the above mentioned tender offer, were returned to Mr. Samih Sawiris by 31 December The difference between the balance, which was reported in equity as equity swap settlement, measured at the fair value of the share at the end of the tender offer, and the fair value amount of the capital increase was recognised as general reserve Foreign currencies translation reserve Balance at beginning of year (351,669,206) (275,993,824) Exchange differences arising on translating the foreign operations (4,851,521) (75,675,382) Balance at end of year (356,520,727) (351,669,206) Exchange differences relating to the translation of the results and net assets of the Group's foreign operations from their functional currencies to the Group's presentation currency (CHF) are recognized directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve in respect of translating the results and net assets of foreign operations are reclassified to profit or loss on the disposal and/or deemed loss of control of a foreign operation. In 2017, the Egyptian Pound dropped by 2% against the Swiss Franc. Compared to this significant devaluation, the decrease of the Swiss Franc against the US Dollar only had an insignificant positive impact. This resulted in a net loss for the year of CHF 8.2 million. The devaluation of the Egyptian Pound was initiated in the first half of 2016 by the decision of the Egypt Central Bank to devalue the Egyptian Pound against USD by approximately 14% compared to the foreign exchange rate as at 31 December 2015 resulting in a similar devaluation of the Egyptian Pound against the Swiss Franc. In 2016, the decision taken by the central bank of Egypt in November to float the Egyptian pound in an attempt to stabilize the economy has had a significant impact on many companies that operate in Egypt including the Group Reserve from common control transactions Balance at beginning of year (98,692,949) (98,692,949) Acquisition of non-controlling interests in subsidiary through swap of shares of investments in associates (291,390) - Balance at end of year (98,984,339) (98,692,949) The reserve from common control transactions mainly relates to the restructuring of the group and the set-up of a new holding company during May This new structure became effective by way of a share exchange between the shareholders of the initial holding company (ODE) and the new holding company (ODH). Following this acquisition through exchange of equity instruments, ODH became the parent of ODE with an ownership stake of 98.05%, later increased to 98.16% at 31 December Whereas the new holding company (ODH) is ultimately owned and controlled by the same major shareholders, management decided that this Group reorganisation was for the purpose of capital restructuring and it has been accounted for as a continuation of the financial statements of the initial holding Group (ODE) in the 2008 consolidated financial statements Management concluded that the above Group restructure is classified as a transaction under common control since the combining entities are ultimately controlled by the same parties both before and after the combination and that control is not transitory. However, since IFRS 3 Business Combinations excludes from its scope business combinations involving entities or businesses under common control (common control transactions), IAS 8 requires management to develop and apply an accounting policy that results in information that is relevant and reliable. Management used its judgment in developing and applying an accounting policy for common control transactions arising from the Group s capital restructuring as follows: Recognition of the assets acquired and liabilities assumed of the initial holding Group (ODE) at their previous carrying amounts; Recognition of the difference between purchase consideration and the previous carrying amount of net assets acquired as an adjustment to equity; Transaction costs, which were incurred in relation to the issuance of ODH shares, have been recognised as a reduction to the reserve from common control transaction. Amount included in the consolidated statement of changes in equity. F-57

58 29.9 Equity swap settlement Balance at beginning of year (2,114,229) (2,114,229) Balance at end of year (2,114,229) (2,114,229) The consolidated statement of changes in equity includes a balance of CHF 2.1 million outstanding at 31 December 2017 which has originally arisen from the Group s sale of the six percent stake in Garranah companies to the Garranah family during The unsettled consideration at 31 December 2012 amounted to CHF 10.6 million of which CHF 10.2 million were reported as a negative component in equity. The remaining balance arising from such sale of CHF 0.4 million was classified as trade and other receivables. On 12 November 2013, the Garranah family has settled part of the outstanding consideration by transferring 124,441 ODH shares. This led to a corresponding transfer of CHF 8.1 million from this reserve to treasury shares (note 29.2). The residual amount as at 31 December 2017 is due to EDRs which are held in an escrow account and remained unchanged since 31 December ACCUMULATED LOSSES Balance at beginning of year (120,782,194) 78,164,830 Loss attributable to owners of the Parent Company (41,361,129) (196,415,554) Remeasurement gain/(loss) on defined benefit obligation 249,430 (14,281) Reclassification of accumulated losses from investment revaluation reserve on sale of investment (15,880,794) - Distribution of treasury shares (note 29.2) 48,124 (2,517,189) Balance at end of year (177,726,563) (120,782,194) During 2016 and 2017 no dividends had been paid. In respect of the current year, the Board of Directors does not propose a dividend or a capital reduction to the shareholders at the Annual General Meeting. 31 NON-CONTROLLING INTERESTS Balance at beginning of year 140,467, ,127,614 Share of gain/(loss) for the year 305,714 (47,420,281) Revaluation gain on property reclassified from PP&E to investment property 5,576,101 - Exchange differences arising on translation of foreign operations (3,011,053) (49,114,705) Acquisition of non-controlling interests in subsidiary through swap of shares of investments in associates 274,409 - Other non-controlling interest share in equity of consolidated subsidiaries 5,523,474 4,874,609 Balance at end of year 149,135, ,467, BORROWINGS Current Non-current Secured - at amortized cost Credit facilities (i) 117,783,982 94,290, Bank loans (ii) 144,462, ,137, ,450, ,504,475 Finance lease 536, , ,659 1,126,538 TOTAL 262,782, ,937, ,966, ,631,013 F-58

59 32.1 Summary of borrowing arrangements The weighted average contractual effective interest rate for all credit facilities and loans are 8.75% (2016: 7.40%). It is calculated by dividing the forecasted contractual interest expense due next year by the total outstanding credit facilities and bank loans at the end of the current reporting period. For a breakdown of debts bearing variable and fixed interest see note (i) Credit facilities used by the group are revolving facilities used to finance working capital requirements and they are available in multiple currencies. The average interest rate for the credit facilities for year 2017 is 10.78% (2016: 9.13%). (ii) Bank loans are current and non-current loans and have in general variable interest rates including a mark-up. Property, plant and equipment with a carrying amount of CHF million (2016: CHF 88.3 million) and receivables with a carrying amount of CHF 13.4 million (2016: CHF 12.1 million) have been pledged to secure borrowings (see notes 16 and 21). In 2017, borrowings increased by CHF 3.5 million mainly due to new loan agreements in Egypt, Oman, UAE and Montenegro. The increase was partly set-off by the devaluation of the Egyptian Pound, the reclassification of Royal and Makadi hotels (note 27) and repayment of loans in Egypt and Oman Breach of loan agreement In Q4 2016, ODE, an Egyptian subsidiary, signed a syndication agreement with all its short-term lenders while subsequently signing a common terms and inter-creditor agreement (CTIA) with all lenders (including both the short-term lenders and exiting medium terms lenders). The syndication agreement groups all short-term lenders under one legal document and converts the debt from short term loans (overdraft lines) to one single medium-term loan with a door to door tenor of 8.5 years from the date of signing the CTIA. The CTIA is a document that governs the terms of all ODE loans (the newly signed syndication agreement and the various existing bilateral medium-term loans) so that terms are unified except for the collateral structure which is unique to each individual legal document. It is worth mentioning that the previously mentioned cash proceeds from the ODE relisting was used to pay down the bank debt balances of ODE on a pro-rata basis and that ODE rescheduled all its existing bilateral medium-term loans to loans with a door to door tenor of 7.5 years from the date of signing the CTIA. All ODE loans after the signed transaction were granted a 3-year grace period of loan principal repayment from 30 June 2016 and the ability to capitalize the interest expense for the full year 2016 as well as the option to capitalize the interest expense for the full year 2017 if ODE elects to, based on performance. ODE is still working with the lender s legal counsel to finalize the conditions required to effect the terms under both these loan agreements which is expected during H1 of the year It is also worth mentioning that in addition to the above, and until these loan agreements become effective, all covenant breaches were waived by every ODH lender for the year 2016 and Reconciliation of liabilities arising from financing activities CHF 1 January 2017 Financing Cash-flows FX Non-cash changes Accrued Interest Other 31 December 2017 Credit facilities 94,290,856 5,565,159 (2,267,111) 20,195, ,783,982 Bank loans and finance leases 275,277,643 3,226,107 (7,697,394) 1,855,138 (15,696,646) 256,964,848 Borrowings of disposal groups (note 27) 52,154,439 (648,780) (1,104,114) - 23,148,777 73,550,322 Shareholder s loan (note 35) 20,730,879 27,754,532 1,214,950 - (2,266,679) 47,433,682 TOTAL 442,453,817 35,897,018 (9,853,669) 22,050,216 5,185, ,732,834 Other non-cash changes mainly include reclassifications as disposal group. 33 TRADE AND OTHER PAYABLES Non-current trade payables 11,472,492 11,576,940 Current trade and other payables 39,574,361 24,690,585 TOTAL 51,046,853 36,267,525 Trade and other payables increased by CHF 13.8 million mainly due to increased operating activities. This increase was partly setoff by foreign currency exchange differences based on the devaluation of the Egyptian Pound (note 29.6). There were no other significant changes in F-59

60 34 PROVISIONS Current 65,558,335 68,626,934 Non-Current - - TOTAL 65,558,335 68,626,934 CHF Provision for infrastructure completion Provision for legal cases Provision for governmental fees Provision for employee benefits Other provisions (i) (ii) (iii) (iv) (v) Total Balance at 1 January ,637,620 20,400,754 2,581,926 5,872,156 26,134,478 68,626,934 Additional provisions recognized Reductions arising from payments - 1,249, ,599 1,073,471 2,256,888 4,711,399 (1,351,795) (1,591,550) (353,726) (201,633) (1,995,473) (5,494,177) Exchange differences (162,590) (854,854) (245,066) (258,358) (764,953) (2,285,821) Balance at 31 December ,123,235 19,203,791 2,114,733 6,485,636 25,630,940 65,558,335 (i) Provision for infrastructure completion relates to committed cash outflows for the development of the necessary infrastructure to make the project area that is usually located in remote regions, habitable and attractive. Such provisions are recorded for land and real estate sales on the date on which all the criteria for revenue recognition are met. (ii) Provision for legal cases consists of expected cash outflows for the settlement of pending litigations. The increase is primarily due to various new legal cases in Egypt and Oman. (iii) Provision for government fees relates to cash outflows for fees due on the sale of land and / or any profit thereon which were recorded during the current year. Such provision is calculated and recorded using the locally enacted fee structures. (iv) Provision for employee benefits partly relates to compulsory termination payments to foreign employees in Oman. The provision is based on their actual salaries. As the work permits for these employees are reconsidered by the Government on annual basis. (v) This provision mainly includes charges, services and consultancy fees for the Group's current year's operations which have not yet been finally negotiated as well as provisions in relation to various assets of the Group. In addition, it covers the Group s exposures to tax risks. Management annually reviews and adjusts these provisions based on the latest developments, discussions and agreements with the involved parties. F-60

61 35 OTHER CURRENT LIABILITIES Advances from customers (i) 69,771,218 61,945,102 Amounts due to shareholders (ii) 50,952,940 21,913,765 Other credit balances 17,028,412 20,041,084 Accrued expenses (iii) 16,744,504 19,262,811 Deposits from others 16,061,812 8,291,650 Taxes payable (other than income taxes) 7,482,690 6,478,813 Due to management companies 779, ,761 TOTAL 178,820, ,530,986 (i) Advances from customers include amounts received (progress payments) from buyers of real estate units between the time of the initial agreement and contractual completion. The increase related to advances from customers in Montenegro, Oman and Egypt was netted off by foreign currency exchange gains based on the devaluation of the Egyptian Pound (note 29.6). (ii) Amounts due to shareholders include amounts owed to Mr. Samih Sawiris in the total of CHF 47.7 million (2016: CHF 20.7 million) as well as amounts owed to other shareholders in the total of CHF 3.3 million (2016: 0.6 million). (iii) Accrued expenses mainly include operating costs for the hotel and destination management activities. The decrease is mainly due to foreign currency exchange gains based on the devaluation of the Egyptian Pound (note 29.6) 36 ACQUISITION OF A SUBSIDIARY 36.1 Description of transactions On 27 July 2016, based on the settlement agreement with Falcon, the full control and ownership of the entity owning the Citadel Azur hotel was transferred to ORH Investment Holding Company, a subsidiary of ODH, as compensation for the amount due from the settlement agreement of USD 60 million (CHF 58.2 million). For further details on the settlement agreement refer to note Consideration transferred The amount due from the settlement agreement with Falcon of USD 60 million (CHF 58.2 million), which was classified as other current asset in the balance sheet is the consideration transferred Analysis of assets acquired and liabilities recognised at the date of acquisition CHF 2016 Non-current assets Property, plant and equipment 54,544,821 Current assets Inventories 211,054 Trade and other receivables 2,185,062 Other currents assets 461,503 Cash and bank balances 2,516,016 Non-current liabilities Deferred tax liabilities (1,103,765) Current liabilities Trade and other payables (552,102) Provisions (831,200) Other current liabilities (86,977) Net assets acquired 57,344,412 F-61

62 36.4 Impairment of receivable amount due CHF 2016 Receivable amount due at acquisition (other current assets) 58,188,000 Less: Fair value of identifiable net assets (consideration received) (57,344,412) Impairment of receivable amount due 843, Net cash inflow on acquisition of the subsidiary CHF 2016 Cash and cash equivalent balances acquired 2,516,016 Less: consideration paid in cash - Net cash inflow on acquisition of subsidiary 2,516, Impact of acquisition on the results of the Group Included in the result for the year in 2016 is a profit of CHF 4.3 million attributable to the additional business generated in the acquired hotel business. 37 RETIREMENT BENEFIT PLANS 37.1 Defined benefit plans The Group operates fund defined benefit plans for qualifying employees in Switzerland. Under the plans, the employees are entitled to retirement benefits and risk insurance for death and disability. No other post-retirement benefits are provided to these employees. The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out on 31 December Swiss pension plans need to be administered by a separate pension fund that is legally separated from the entity. The law prescribes certain minimum benefits. The pension plans of the employees of the Swiss entities are carried out by collective funds with Allianz Suisse Lebensversicherungs- Gesellschaft. Under the pension plans, the employees are entitled to retirement benefits and risk insurance for death and disability. The boards of the various pension funds are composed of an equal number of representatives from both employers and employees. Due to the requirements of IAS 19 the above-mentioned pension plans are classified as defined benefit plans. The pension plans are described in detail in the corresponding statues and regulations. The contributions of employers and employees in general are defined in percentages of the insured salary. The retirement pension is calculated based on the old-age credit balance on retirement multiplied by the fixed conversion rate. The employee has the option to withdraw the capital at once. The death and disability pensions are defined as percentage of the insured salary. The assets are invested directly with the corresponding pension funds. The pension funds can change their financing system (contributions and future payments) at any time. Also, when there is a deficit which cannot be eliminated through other measures, the pension funds can oblige the entity to pay a restructuring contribution. For the pension funds of the Group such a deficit currently cannot occur as the plans are fully reinsured. However, the pension funds could cancel the contracts and the entities of the Group would have to join another pension fund. In the current and comparative period no plan amendments, curtailments or settlements occurred. The fully reinsured pension funds have concluded insurance contracts to cover the insurance and investment risk. The board of each pension fund is responsible for the investment of assets and the investment strategies are defined in a way that the benefits can be paid out on due date. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the Projected Unit Credit Method. Amounts recognised in profit or loss in respect of these defined benefit plans are as follows: Current service cost 203, ,116 Past service cost - (128,390) Net interest expense 2,803 6,202 Administration cost excl. cost for managing plan assets Expense recognised in profit or loss 207, ,677 F-62

63 Amounts recognised in other comprehensive income in respect of these defined benefit plans are as follows: Remeasurement (gain)/loss on defined benefit obligation (243,282) 15,864 Return on plan assets excl. interest income (6,148) (1,583) Expense recognised in other comprehensive income (249,430) 14,281 The amount included in the consolidated statement of financial position arising from the Group s obligation in respect of its defined benefit plans is as follows: CHF 31 December December 2016 Present value of funded defined benefit obligation 1,699,265 1,808,042 Fair value of plan assets (1,190,303) (1,160,810) Net liability arising from defined benefit obligation 508, ,232 Movements in the present value of the defined benefit obligation in the current year were as follows: Opening defined benefit obligation 1,808,042 1,497,229 Current service cost 203, ,116 Past service cost - (128,390) Interest expense on defined benefit obligation 7,484 15,308 Contributions from plan participants 96, ,519 Benefits (paid)/deposited (173,452) 53,647 Remeasurement (gain)/loss on defined benefit obligation (243,282) 15,864 Administration cost (excluding cost for managing plan assets) Closing defined benefit obligation 1,699,265 1,808,042 Movements in the present value of the plan assets in the current period were as follows: Opening fair value of plan assets 1,160, ,436 Interest income on plan assets 4,681 9,106 Return on plan assets excluding interest income 6,148 1,583 Contributions from the employer 96, ,519 Contributions from plan participants 96, ,519 Benefits (paid)/deposited (173,452) 53,647 Closing fair value of plan assets 1,190,303 1,160,810 The respective insurance company is providing reinsurance of these assets and bears all market risk on these assets. The actual return on plan assets was CHF 10,829 (2016: CHF 10,689). The principal assumptions used for the purposes of the actuarial valuations were as follows: Discount rates 0.70% 0.40% Expected rates of salary increase 1.00% 1.00% Expected pension increases 0.00% 0.00% Mortality table BVG2015 GT BVG2015 GT F-63

64 The following sensitivity analyses - based on the principal assumptions - have been determined based on reasonably possible changes to the assumptions occurring at the end of the reporting period: If the discount rate would be 25 basis points (0.25 percent) higher (lower), the defined benefit obligation would decrease by CHF 0.1 million (increase by CHF 0.1 million if all other assumptions were held constant If the expected salary growth would increase (decrease) by 0.25%, the defined benefit obligation would increase by CHF 0.0 million (decrease by CHF 0.0 million if all other assumptions were held constant If the life expectancy would increase (decrease) with one year for both men and women, the defined benefit obligation would increase by CHF 0.0 million (decrease by CHF 0.0 million if all other assumptions were held constant The average duration of the defined benefit obligation at the end of the reporting period is 19.8 years (2016: 19.5 years) The Group expects to make a contribution of CHF 91,694 to the defined benefit plans during the next financial year (2016: CHF 116,123). 38 FINANCIAL INSTRUMENTS 38.1 Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group s overall strategy remains unchanged since The capital structure of the Group consists of net debt (borrowings, as detailed in note 32, offset by cash and bank balances) and equity of the Group (comprising issued capital, share premium, reserves, retained earnings and non-controlling interests as detailed in notes 28 to 31). The Group is not subject to any externally imposed capital requirements. According to the Group s internal policies and procedures, the Executive Management reviews the capital structure on a regular basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. The Group has a target gearing ratio of 40% to 45% determined as the proportion of net debt to equity. The gearing ratio at 31 December 2017 of 61.36% (see below) increased due to the losses for the year and was above the target recommended by the committee. The gearing ratio at the end of the reporting period was as follows: Debt (i) 448,299, ,722,938 Cash and cash equivalents (note 26) (103,671,633) (82,172,312) Net debt 344,627, ,550,626 Equity (ii) 561,607, ,674,331 Net debt to equity ratio 61.36% 57.39% (i) Debt is defined as long- and short-term borrowings (excluding derivatives), as detailed in (note 32) as well as long- and shortterm borrowings included in disposal groups classified as held for sale (note 27). (ii) Equity includes all capital and reserves of the Group and non- controlling interests that are managed as capital excluding equity of disposal groups Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3.18 Financial instruments. F-64

65 38.3 Categories of financial instruments Financial assets Cash and bank balances 103,671,633 82,172,312 Fair value through other comprehensive income (FVTOCI) 677,388 3,516,633 Financial assets measured at amortised cost (i) 221,249, ,139,536 Financial liabilities At amortised cost (ii) 617,058, ,481,304 (i) Includes trade and other receivables, finance lease receivables as well as those other non- current and current assets that meet the definition of a financial asset. A total of CHF 28.5 million (2016: CHF 25.9 million) of other current assets does not meet the definition of a financial asset. (ii) Includes trade and other payables, borrowings, notes, other financial liabilities as well as other current liabilities that meet the definition of a financial liability. A total of CHF 69.8 million (2016: CHF 61.9 million) of other current liabilities does not meet the definition of a financial liability Financial risk management objectives In the course of its business, the Group is exposed to a number of financial risks. This note presents the Group s objectives, policies and processes for managing its financial risk and capital. The Group s Corporate Treasury function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. Other price risk includes equity price risk, settlement risk and commodity price risk. It is, and has been throughout 2017 and 2016, the Group s policy not to use derivatives without an underlying operational transaction or for trading (i.e. speculative) purposes. The Group seeks to minimise the effects of these risks mainly through operational and finance activities and, on occasional basis, using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group s internal policies and procedures approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Corporate Treasury function reports monthly to the Executive Management. The Group Treasury Director carries out risk management under the Group s guidelines Market risk The Group s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see note 38.6 below) and interest rates (see note 38.7 below). Driven by the need, the Group s policy is to enter into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk, including: forward foreign exchange contracts to hedge the exchange rate risk arising on sales in foreign currency to the tourism / real estate industry; interest rate swaps to mitigate the risk of rising interest rates 38.6 Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The currencies, in which these transactions primarily are denominated, are US Dollar (USD), Euro (EUR) and Egyptian Pound (EGP). Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. The Group s main foreign exchange risk arises from sales in foreign currency to the tourism / real estate industry, which generates a net foreign currency surplus for the Group. The Group has strong inflows in foreign currency, mainly US Dollar, Euro, Oman Rial and Egyptian Pound. Out of the total receivables on hand at the end of the reporting period, receivables in USD have accounted for 67% (2016: 71%), in EUR for 7% (2016: 3%), in EGP for 14% (2016: 12%), in OMR 9% (2016: 11%) and in AED 3% (2016: 3%) respectively. To mitigate the above risk exposures, where possible, the Group borrows in matching currencies to create a natural hedge. The following table shows the carrying amounts of borrowings, at the end of the reporting period, in the major currencies in which they are issued. F-65

66 Borrowing USD 200,676,030 54% 191,109,413 51% OMR 76,145,140 20% 84,462,594 23% EGP 47,042,502 13% 42,131,008 12% AED 26,636,000 7% 17,476,168 5% EUR 24,223,292 6% 34,268,406 9% CHF 25,866 0% 120,910 0% Total 374,748, % 369,568, % At the end of the reporting period, the carrying amounts of the Group s major foreign currency denominated monetary assets (mainly receivables) and monetary liabilities (mainly borrowings), at which the Group is exposed to currency rate risk, are as follows: CHF Liabilities Assets Currency-USD 200,676, ,109,413 71,153,696 67,493,643 Currency OMR 76,145,140 84,462,594 10,011,052 10,767,206 Currency-EGP 47,042,502 42,131,008 14,795,441 11,447,801 Currency-EUR 24,223,292 34,268,406 7,545,537 3,145,093 Residual foreign exchange exposure is managed by hedging through entering into foreign currency forward contracts if needed. Currency risk has also recently developed due to the Group s investments in different markets such as those in Egypt, UAE, Oman, Morocco and the UK. Again, the Group borrows in the local currency of the investment and uses the above-mentioned strategies to mitigate residual currency risk Foreign currency sensitivity analysis As discussed above, the Group is mainly exposed to the US Dollar (USD), Euro (EUR) and Egyptian Pound (EGP) arising from sales in these currencies to the tourism / real estate industry. The following table details the Group s sensitivity to a 5% increase and decrease in CHF against the relevant foreign currencies. The (5%) is the sensitivity rate used when reporting foreign currency risk internally to key management and represents management s assessment of the reasonably expected change in foreign exchange rates (excluding any one-off influences due to decisions by government or central banks). The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. The sensitivity analysis includes outstanding borrowings, impact of the changes in the fair value of derivative instruments designated as cash flow hedges and receivables in foreign currencies and, where appropriate, loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower. A positive number below indicates an increase in profit or equity where the CHF strengths 5% against the relevant currency. For a 5% weakening of the CHF against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be negative. CHF Currency USD Impact Currency EUR Impact Currency EGP Impact Currency OMR Impact Profit or loss 6,476,115 6,047, ,888 1,556,105 1,612,353 1,526,688 3,306,704 3,684,769 Equity The Group's sensitivity to foreign currency has changed in accordance with the changes in EGP, USD, EUR and OMR borrowings. F-66

67 38.7 Interest rate risk management The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied. The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. During 2017 and 2106 the Group did not hold any derivative financial instruments Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the end of reporting period was outstanding for the whole year. A 100 basis point (1%) increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher / lower and all other variables were held constant, the Group s profit for the year ended 31 December 2017 would decrease / increase by CHF 2.8 million (2016: decrease / increase by CHF 2.2 million). This is mainly attributable to the Group s exposure to interest rates on its variable rate borrowings Other price risks The Group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group credit risk arises from transactions with counterparties, mainly individual customers and corporations. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group s exposure to credit risk is, to great extent, influenced by the individual characteristics of each customer. Risk control assesses the credit quality of the customer, taking into account its financial position, past experience, other publicly available financial information, its own trading records and other factors, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group s exposure is continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade receivables consist of a large number of customers, spread across various industries and geographical areas. The Group does not have any significant credit risk exposure to any single counterparty or any Group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. The credit risk on sales of real estate is limited because the Group controls this risk through the property itself by registering the unit in the name of the customer only after receiving the entire amount due from the customer. Counterparty risk is also minimized by ensuring that 80% of derivative financial instruments, money market investments and current account deposits are placed with financial institutions whose credit standings are above Aa1 and 20% above BB+. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group s maximum exposure to credit risk without taking account of the value of any collateral obtained Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Regarding management s plans to manage liquidity shortages and related uncertainty please refer to note As of 31 December 2017, total un-drawn facilities, that the Group has at its disposal in order to further reduce liquidity risk, are CHF 26.7 million (31 December 2016: CHF 40.2 million). F-67

68 Liquidity and interest risk tables The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows. To the extent that interest cash flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Group may be required to pay. Maturities of non-derivative financial liabilities 2017 Weighted average effective CHF interest rate Less than 6 month 6 months to one year 1 5 years 5 + years Total Non-interest bearing - 152,222,479-11,830, ,053,144 Variable interest rate instruments 9.56% 126,799, ,467,173 33,527,731 9,015, ,809,824 Fixed interest rate instruments 6.76% 11,099,062 20,959,279 75,705,934 16,922, ,686,605 TOTAL 290,121, ,426, ,064,330 25,937, ,549, Weighted average effective CHF interest rate Less than 6 month 6 months to one year 1 5 years 5 + years Total Non-interest bearing - 102,136,409-11,576, ,713,349 Variable interest rate instruments 7.75% 103,760, ,552,453 61,136,151 1,425, ,874,129 Fixed interest rate instruments 6.51% 18,408,389 14,205,153 71,044,064 21,785, ,442,987 TOTAL 224,304, ,757, ,757,155 23,210, ,030,465 Counterparty Rating Credit limit Carrying amount Credit limit Carrying amount Bank 1 B- 63,363,373 74,186,175 26,324,162 12,115,917 * Bank 2-5,426,260 6,231,994 5,547,888 5,167,594 * Bank 3-23,431,289 25,092,410 34,511,370 24,256,533 Bank 4 AA- 10,335,780 11,946,049 24,252,196 10,254,875 * Bank 5 B- 11,184,740 11,204,658 11,605,276 10,903,908 * Outstanding amounts includes interest charged The amounts included above for variable interest rate instruments for liabilities is subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period Impairment losses on financial assets Impairment loss on trade receivables 786,435 7,204,572 TOTAL 786,435 7,204,572 F-68

69 38.12 Fair value measurement Fair value of financial instruments carried at amortised cost Except as detailed in the following table, management considers that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values. 31 December December 2016 CHF Carrying amount Fair value Carrying amount Fair value Financial liabilities Borrowings/bank loans 448,299, ,547, ,722, ,917, Valuation techniques and assumptions applied for the purposes of measuring fair value The fair values of financial assets and financial liabilities are determined as follows: The fair values of financial assets with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes unlisted and listed equity investments classified as at FVTPL and FVTOCI respectively). The Group receives the fair values of foreign currency forward contracts and interest rate swaps from the counterparty banks. Foreign currency forward contracts are usually measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts. Interest rate swaps are usually measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. The fair values of other financial assets and financial liabilities (excluding those described above) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. Specifically, significant assumptions used in determining the fair value of the following financial assets and liabilities are set out below Fair value measurements recognised in the consolidated statement of financial position The following table provides an analysis of financial and non-financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs) CHF Level 1 Level 2 Level 3 Total Financial assets at FVTOCI Listed and unlisted shares measured at FV 33, , ,388 Other assets at fair value 33, , ,388 Investment property 1) - - 7,500,868 7,500, ,500,868 7,500, CHF Level 1 Level 2 Level 3 Total Financial assets at FVTOCI Listed and unlisted shares measured at FV 2,892, ,566 3,516,633 Other assets at fair value 2,892, ,566 3,516,633 Investment property 1) - - 5,501,334 5,501, ,501,334 5,501,334 There were no transfers between Level 1 and 2 in the period. The financial assets at FVTOCI were measured at fair value based on a method that combined the earning and net equity book values of the companies. 1) The reconciliation for investment property is shown in note 17. F-69

70 Reconciliation of Level 3 fair value measurements of financial assets Unquoted equity securities Opening balance 624, ,085 Additions - 118,921 Total gains/(losses) recognized in other comprehensive income 52,822 (109,440) Closing balance 677, , SHARE-BASED PAYMENTS The Company has contractually granted a variable compensation amount to its new CEO, Khaled Bichara ( Contingent Compensation ). The compensation amount is due 6 years after the start date (1 January 2016) or earlier if an acceleration event occurs. In summary, the compensation amount is 10% of the share price increase above an annual average increase of 8% (based on the fixed spot share price of CHF 11.37). The Contingent Compensation will be paid in cash or, at ODH s discretion, in shares if the annual average increases in the share price are met. As of 9 May 2016, the General Assembly of ODH approved the abovementioned compensation plan. The calculated fair value of the Contingent Compensation as at grant date of CHF 5.0 million, which was calculated by an independent third-party valuation company, is recognised over the 6-year vesting period on a linear basis within profit or loss. The accumulated amount is shown as a separate share-based payment reserve within equity. The Group compensates the members of the Board with a fixed fee of CHF 1.o million (note 13.1) which is payable in unrestricted shares of the Parent Company based on the quoted market price at grant date as well as in cash. The amount has been recognized in the consolidated statement of comprehensive income as part of administrative expenses. It will be transferred to the members of the Board in RELATED PARTY TRANSACTIONS A party (a company or individual) is related to an entity if: a) directly, or indirectly through one or more intermediaries, the party: i. controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries); ii. has an interest in the entity that gives it significant influence over the entity; or iii. has joint control over the entity; b) the party is an associate of the entity or a joint venture in which the entity is a venturer (both defined in IAS 28 Investments in Associates and Joint Ventures); c) the party is a member of the key management personnel of the entity or its parent; d) the party is a close member family of any individual referred to in (a) or (b); e) the party is an entity that is controlled, jointly controlled or significantly influenced by, or which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (a) or (b); or f) the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is related party of the entity. Balances and transactions between the Group and its subsidiaries, which are related parties of the Group, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. During the year, the Group purchased services from companies in which members of the Board have a partnership or significant influence through ownership during the reporting period. These services related to the leasing of office space in Cairo. Compensation of key management personnel is disclosed in note 13. F-70

71 The following balances were outstanding at the end of the reporting period: Due from related parties Due to related parties Financial instruments Three Corners Company 5,299,826 4,439, Red Sea Company for Construction & Develop. 4,565,327 4,391, Orascom Housing Community 2,995,370 2,563, El Gouna Football Club 901, , Kingdom Co. 618, , Camps and lodges 518, , Iskan International Projects 6,599 42,336 2,691,572 14,206 Andermatt Swiss Alps 355, Other (balances less than CHF each) 515, ,766 66,943 38,499 Non-controlling shareholders Mirotel For Floating Hotels 185, , Tarot & Merotil Garranah for hotels 69,948 71, Tarot Garranah for touristic transportation 34,352 35, Tarot Tours Garanah 16,503 16, , ,235 Close family members Samih Sawiris (i) Close family companies Meeting Point Egypt 5,064,902 4,413, FTI 2,085, , Orascom for Touristic Establishments company (OTEC) 440, , TU Berline University 40,612 26, Orascom International Hotels & Development - 24, Total 23,715,470 19,930,353 3,598, ,940 Current 23,715,470 19,930,353 3,598, ,940 Non-current Total 23,715,470 19,930,353 3,598, ,940 (i) Current accounts due to Mr. Samih Sawiris are disclosed in note 35. Transactions involving Mr. Samih Sawiris, Chairman and major shareholder: Falcon During previous financial periods Orascom Development & Management Ltd ( ODM ), a Group s subsidiary, entered into a development agreement with Falcon for Hotels S.A.E. ( Falcon ), under which ODM was to undertake the development activities of the land bank owned by Falcon. Due to Falcon s non-compliance with the terms of the development agreement, ODM filed a legal claim against Falcon asking for remuneration for profits ODM missed out on as a result of the non-compliance with the said agreement. In June 2014 the final settlement agreement regarding all the litigation proceedings in relation to the securities purchase agreement and the development of the land bank as well as the proceeds from sale of Joud Funds was signed by both parties. The residual amount due from Falcon of USD 60 million (CHF 58.2 million) was due at 31 December 2015 but was extended until Q It was shown in the consolidated statement of financial position as other current assets (at amortised cost of CHF 58.0 million) and is secured by hotel property. In accordance with the settlement agreement both parties have opened an escrow account and placed in escrow the shares of the company that ultimately holds Citadel Azur hotel. As the 15 months period in which the payment should have been effected in cash or in kind, has lapsed subsequent to 30 June 2016 as the amount in cash was not settled, in accordance with the terms and conditions of the Settlement Agreement, the full ownership of the special purpose vehicle owning the Citadel Azur hotel has been transferred on 27 July 2016 to ORH Investment Holding Company, a subsidiary of ODH. F-71

72 Purchase of shares from ODE On 17 January 2007 ODE allocated to employees and the management team (including the chairman and the executive board members) an amount of 2 million shares for full consideration being the market price as of that day. Mr. Samih Sawiris acquired under this transaction 330,000 shares at the market price. Amounts due from Mr. Samih Sawiris under this transaction are included in Other assets as amounts due from employees and management team and amounted to CHF 0.2 million at 31 December 2017 (31 December 2016: CHF 0.3 million). There are no amounts due from executive board members under this transaction in 2017 and (see note 25(ii)). Taba Heights Company transactions One of the Group companies had been granted the right to acquire freehold title to the project's land by the Tourism Development Authority. Due to foreign ownership restrictions on the Sinai Peninsula becoming applicable in connection with the reorganization in 2008, the respective Group company had to be transferred to Mr. Samih Sawiris, major shareholder and of Egyptian nationality. Mr. Samih Sawiris entered into a binding agreement to retransfer these shares subject to approval of the competent authorities, and that until such retransfer, the Group would be put into a position as the full economic beneficiary of these shares. This entails, inter alia, an irrevocable assignment of dividends and the authorization to collect dividends, exercise voting rights related to these shares and cause the sale of shares with no additional rights of Mr. Samih Sawiris in any value received. Securities lending agreement For further details on this transaction refer to note Rental contract for office building in Cairo Orascom Hotel and Development, a major subsidiary of Orascom Development Holding AG, has rented part of its administrative headquarter in Nile City from a joint stock company owned by the major shareholders and others. FTI The Group has rented out 3 hotels at Makadi destination to FTI an entity owned by the main shareholder of the Company Mr. Samih Sawiris with an interest of 35 %. FTI is the fourth largest tour operator in Europe. The annual rent is fixed at EUR 3.3 million (CHF 3.6 million) for 3 years to be renewed with the agreement of both parties with a 5 % annual increase (note 16). The group has signed a final offer for the sale of 100% of its equity stake inroyal Azur and Club Azur as well as hotel of Makadi Gardens and piece of land. All due diligence and related paperwork for both deals have been finalized. General assembly meeting has approved the decision (note 27). All other related regulatory approvals are in process. Red Sea The total amount of construction work and services with Red Sea for Construction & Development S.A.E (note 20) reached EGP 279 million (CHF 15.4). 41 NON-CASH TRANSACTIONS During the current year, the Group entered into the following non-cash investing and financing activities which are not reflected in the consolidated statement of cash flow: Capitalization of interest of CHF 1.3 million over projects under constructions (note 11). Capitalization of interest of CHF 22.1 million on borrowings (note 32.3) Transfer of assets from property, plant and equipment to inventory of CHF 7.8 million (notes 16 and 23) Transfer of hotels and land from property, plant and equipment to investment property of CHF 7.8 million (notes 16 and 17) Transfer of treasury shares to Board of Directors as part of their remuneration of 2016 which was paid in 2017 (note 29.2) 42 OPERATING LEASE ARRANGEMENTS 42.1 The Group as lessee Leasing arrangements Operating leases relates to car lease with lease terms of between 2 to 4 years and office facilities with lease terms of 25 years. The Group (as a lessee) does not have an option to purchase these leased assets at the expiry of the lease periods Payments recognised as an expense in the period Minimum lease payments 485, ,061 TOTAL 485, ,061 F-72

73 Non-cancellable operating lease commitments Total of future minimum lease payments Not longer than 1 year 232, ,800 Longer than 1 year and not longer than 5 years 931, ,200 Longer than 5 years 2,560,800 2,793,600 TOTAL 3,724,800 3,957,600 In respect of non-cancellable operating leases, no liabilities have been recognised The Group as lessor Leasing arrangements Operating leases relate to the investment property owned by the Group with lease terms of between 1 and 4 years for premises in El Gouna (Egypt) and Makadi (Egypt). These lease contracts do not include a lease extension option and are subject to renegotiation at the end of the lease term. The lessee does not have an option to purchase the property at the expiry of the lease period. No material non-cancellable operating lease receivables exist as at 31 December Rental income earned by the Group from its investment properties and direct operating expenses arising on the investment properties for the year are set out in note COMMITMENTS FOR EXPENDITURE The following commitments for expenditure have been made for the future development of the respective projects: CHF 2017 Eco-Bos Development Limited (i) 4,234,005 (i) As per the property management agreement between Eco-Bos and Imerys (shareholder in Eco-Bos). Eco-Bos has the right but not the obligation (American call option maturing in 2030) to purchase part or all of 6.6 million square meters (divided on 7 independent plots), which is currently owned by Imerys Mineral Limited. An annual option premium is paid to retain the rights and the purchase price is calculated based on an agreed dynamic pricing formula. The trigger event of the option(s) is at the full discretion of Eco-Bos and shall only be exercised when building permits are attained. Currently Eco-Bos is in negotiations with the local authorities and other investors and is taking its time to optimize on the best alternatives for the development Minimum Building Obligations Beside the legally binding commitment for expenditure mentioned above the, following should be considered: One part of the Group s business is to acquire land for the development of tourism projects. Out of these business opportunities often no legally binding commitments are incurred. However, the Group has non-binding business opportunity commitments in relation to their projects. In particular, the Group has minimum building obligations ( MBOs ) which are included in their development agreements ( DAs ) with the relevant governments in Oman, Morocco and Montenegro. The contingent liabilities in relation to the MBOs in Montenegro, Oman and Morocco are assessed by the management of the Group as follows: Oman According to the DAs for Salalah and Sifah, the project companies, which are subsidiaries of the Group, shall use their best efforts to substantially complete a defined number of Hotels and Golf Courses within an indicative timeline. Based on this indicative timeline, the project companies have been initially granted an extension of time for the substantial completion (which is defined as the material elements of the specific MBOs) of the MBOs that elapses on 1 January Based on the right to request an extension of the completion date, which is included in the DAs, the Group has requested an extension for the time of completion of the residual MBOs until The Sifah and Salalah project companies engaged in exhaustive negotiations with the Omani Government. Finally, on 30 June 2015, the Group and the Omani Government signed the Addenda in which they officially agreed on the extension of the deadline for completion of the MBOs to be 1st January 2020 and 1st January 2018 for Sifah and Salalah respectively. Furthermore, the Parties agreed to amend certain elements of the MBOs. With regards to Sifah project, the Parties agreed that the Project Company shall deliver 500 hotel keys over three hotels instead of four hotels. The project company has so far finalized 68 rooms. Additionally, the project company shall be required to either develop an aquarium or a waterpark or increase the number of hotel keys by 60 rooms, at its sole discretion. F-73

74 Similarly, with regards to Salalah project, it was agreed in the Addendum that the project company would deliver 700 hotel keys and replace the 18-hole golf course with a waterpark while the remaining MBO requirements remain unchanged. The Salalah Addendum also stipulates that the project company shall grant, transfer and assign to the Omani Government an area of land amounting to two million square meters, while the Omani Government undertook to provide all pending licenses to the Project Company. To date, the project company in Salalah has completed 3 hotels with a total number of 904 keys. The Group has requested the Omani Government to merge the required minimum number of keys, and as such the Project Companies shall be required to complete a total number of 1200/1260 keys among both Sifah and Salalah projects. Moreover, the Group requested the Omani Government to reduce the required number of holes in the golf course contemplated in the Sifah project from 18 to 9. The said request was due to the anticipated shortage in the water resources in the area as suggested by the experts. In March 2017, the Omani government approved both requests and sent a letter to that effect to be finalized by January Morocco The DA of Morocco does not contemplate the concept of MBOs. However, it sets out a timeline for the performance of the essential elements of a development plan. These essential elements have no fixed dates but are rather governed by interconnected milestones that change the date automatically on the occurrence of an agreed milestone. In 2010, the project company obtained an exception entitling it to finalize three hotels in 2013 and the remaining two in Since then the project company has created the organisational structure for the creation of three hotels and the related infrastructure. However, further process by the project companies was delayed by various factors outside the control of the project companies and they therefore have solid grounds for requesting further extensions. In addition, the DA states that in the event the delay is for reasons outside of the control of the project company, this would be taken into consideration when assessing whether the project company has fulfilled its obligations or not. All infrastructures, hotels and real estate units constructions are in discussions to be postponed, taking into account the Moroccan Government s delay in issuing the necessary permits. Although, the Government has been receptive of the project company s several requests, the Moroccan Government has not communicated any official response to the project company to date. Montenegro In Montenegro, the investment obligations contemplated by the DAs span over three phases of development, namely the initial phase, second phase and third phase. The date of completion of the initial phase is due by The initial phase of the project entails the completion of a four-star hotel, in addition to a main mooring area, an 18-hole golf course and a club house, as well as a town centre with several facilities. However, due to the Government s delay in fulfilling its obligations specified in the DA and the Closing Protocol signed between the Government of Montenegro, Municipality of Tivat and the project company, the time for completing and finalizing the MBO shall be extended proportionally to the time consumed by the Government in fulfilling the said obligations. To that effect, the project company has notified the Government several times in writing with the delay of the Government in fulfilling its obligation. The notification included reference to the finalization of the infrastructure and undertaking the required action by the Government with regard to the land expropriations on the quarry area and the main hotel site in order to enable the project company to start the construction of the hotel as required under the abovementioned initial phase. It should be noted that, to date, no official response has been received from the Government. However, to prove its goodwill, the project company is currently developing a hotel, on a land adjacent to the quarry area, with a capacity of 111 rooms, which is expected to be finalized by July The main mooring area is also expected to be finalized by July As for the golf course, the heavy excavation is 100% completed and the project company started the rough shaping of 4 holes. Based on the foregoing, the project company shall be entitled to get a 4-years extension of the deadline of delivering the initial phase so long as the Government did not fulfil its obligations as detailed hereinabove. Accordingly, the remaining phases shall, also be, automatically extended. Risk assessment of contingent liability The Management has analysed the various MBOs and is comfortable with the current status of the MBOs and the minimum investment obligations. Albeit that certain delays have or may potentially occur, all such delays, as described herein, were well founded and are premised on legal grounds that would protect the Group from any exposure. The Group has exerted a great deal of negotiations in all destinations to ensure that any delays are communicated to the relevant local authorities and thereby working alongside each concerned government in rescheduling and extending the completion dates. Additionally, the Group has worked on securing finance schemes to accommodate the newly developed restructuring of the investment obligations, or in cases were completion dates are at risk, expending the necessary amounts to comply with the contractual obligations. 44 LITIGATION There were no significant open litigations at 31 December F-74

75 45 SUBSEQUENT EVENTS Sale of non-core assets As a part of the Group strategy to seek an optimal balance sheet structure, the Company successfully got the approval of the ordinary General Assembly Meeting of its largest Egyptian subsidiary, ODE, on 19 March 2018 on the sale of non-core assets to third parties including a related party, which included Royal Azur, Club Azur and Makadi Gardens Hotels (note 27 and note 40). ODE will only be selling its stake in Royal Azur and assets in hotel and land of Makadi, which will result in total cash proceeds of CHF 27.4 million. The sale will also result in the deconsolidation of CHF 14.4 million of debt. ESOP On 19 March 2018, the Extraordinary General Assembly Meeting of the Egyptian subsidiary ODE approved the five years ESOP program presented by management which includes the issuance of shares of up to 2.0% of the company s capital at the time of execution. There have been no other significant events subsequent to 31 December APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the directors and authorized for issue on 4 April F-75

76 Deloitte AG General-Guisan-Quai Zürich Schweiz Telefon: +41 (0) Fax: +41 (0) Statutory Auditor s Report To the General Meeting of ORASCOM DEVELOPMENT HOLDING AG, ALTDORF Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Orascom Development Holding AG and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statements of profit or loss and other comprehensive loss, statement of changes in equity, statement of cash flows and notes to the consolidated financial statements for the year then ended, including a summary of significant accounting policies. In our opinion the consolidated financial statements (pages F-3 to F-75) give a true and fair view of the consolidated financial position of the Group as at December 31, 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. Basis for Opinion We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. F-76

77 Orascom Development Holding AG Report of the Statutory Auditor for the Year Ended December 31, 2017 Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition Key audit matter As at 31 December 2017, the Group consolidated statement of comprehensive income included revenue of CHF million. The revenue is measured at the fair value of the consideration received, such revenue is reduced for rebates, estimated customer returns, and other similar allowances. Different policies for revenue recognition apply across the Group's business segments. The two major streams are revenue from services and revenue from agreements for constructions of real estate. Some terms of the sales arrangements within each of the Group s companies, including the timing of transfer of risk and rewards, the nature of discount and rebates arrangements and the measurement of the construction progress, generate complexity and judgment in determining occurrence and cut-off for revenues. The risk is, therefore, that revenue is not recognised in the correct period, or did not occur. Refer to Note 3.7 Revenue recognition, Note Revenue recognition Real estate sales, Note 6 Revenue, and Note 7 Segment information. How the scope of our audit responded to the key audit matter We tested the design and implementation of the Group s relevant controls in respect of revenue recognition. We evaluated whether the revenue recognition approach applied by the Group comply with IFRS requirements. More specifically, we evaluated each different revenue stream for its own. In addition to substantive analytical reviews to understand how the revenue has trended over the year, we performed a detailed testing on transactions through out to the year to address occurrence and on transaction specifically around the year-end to address cut-off, ensuring revenues were recognised in the correct accounting period. Further, our detail test for construction/real estate revenues included comparisons against the contractual terms. F-77

78 Orascom Development Holding AG Report of the Statutory Auditor for the Year Ended December 31, 2017 Impairments of property, plant and equipment Key audit matter How the scope of our audit responded to the key audit matter The Group s statement of financial positions includes CHF million of property, plant and equipment (PP&E), representing 56.8% of total Group assets. In accordance with IFRS, these balances are tested annually for impairment, if there are triggering events present. A deficit in recoverable value would result in impairment. The Group achieved to generate positive cash inflows from operations. However, the Group does still realizes a loss for the year. This prevailing condition is an indicator for impairments on the assets used to generate sufficient operating cash flows to realize a profit. Refer to Note 16 Property, plant and equipment. We tested the design and implementation of the Group s relevant controls in respect of the impairment process. Our audit procedures on the impairments, amongst others, included: corroborating impairment tests with management and members of the Board of Directors auditing the specific valuation for land auditing the valuations of the hotels and verify the value of the hotel is higher than the PP&E allocated to the respective hotel obtaining assistance from internal valuation specialists to evaluate valuation models for the significant locations Egypt, Oman, and Montenegro challenging the destinations under development with the current year s progress, its own plans and the outlook to generate positive cash-flows F-78

79 Orascom Development Holding AG Report of the Statutory Auditor for the Year Ended December 31, 2017 Impairment of receivables Key audit matter The Group s statement of financial positions includes CHF 38.1 million non-current receivables and CHF 68.9 trade and other receivables representing 7.9% of total Group assets. The Group records required allowance at each month-end. The Group needs to execute significant judgement in assessing the collectability of the receivables, because a material portion of the receivables are collected over an average collecting period of 5.5 years. The main markets of the Group have significant uncertainty around recoverability predictions for a such periods. Refer to Note 21 Non-current receivables, and Note 24 Trade and other receivables. How the scope of our audit responded to the key audit matter We tested the design and implementation of the Group s relevant controls in respect of the impairment process. Our audit procedures on the impairments, amongst others, included: corroborating allowance for doubtful accounts with management perform detail test for receivables assessing the counterparties credit risk based on publicly available information and historical information/experience for receivables obtaining appropriate evidence for any reversals of impairments F-79

80 Orascom Development Holding AG Report of the Statutory Auditor for the Year Ended December 31, 2017 Impairments of work in progress included in inventories Key audit matter How the scope of our audit responded to the key audit matter The Group s statement of financial positions includes CHF 78.0 million work in progress included in total inventory of CHF million representing 5.8% of total Group assets. In accordance with IFRS, these balances are tested annually for impairment, if there are triggering events present. The Group is not generating positive cash inflows from operations. This prevailing condition is a fundamental indicator for impairments on the assets used to generate operating cash flows. Further, the current market conditions in main markets indicate a significant risk for uncollectible receivable balances. Refer to Note 23 Inventories. We tested the design and implementation of the Group s relevant controls in respect of the impairment process. Our audit procedures on the impairments, amongst others, included: evaluating the work in progress balance whether it represents the non-sold projects only performing detail tests for work in progress requesting the test of net realizable value from the Group. obtaining a copy of the quantity survey reports (if market practice) or construction company progress billing with approval of consultant to assess work in progress is accounted correctly understanding year on year movements to assess if any projects have been put on hold and to evaluate potential effects on costs to date as well as the capitalization of interest F-80

81 Orascom Development Holding AG Report of the Statutory Auditor for the Year Ended December 31, 2017 Financing and Liquidity Key audit matter We identified that the most significant assumption in the assessment on its ability to continue as a going concern is liquidity within the Group, which is ensured by the commitment from the chairman to provide up to CHF 30 million in cash until December The calculations supporting the assessment require management to make judgments on estimated future cash-inflows and cash-outflows. The Group s cash projection is fundamental to assess the appropriateness of the basis adopted for the preparation of the financial statements and therefore represents a key audit matter. Refer to Note 26.1 Management s plans to manage liquidity shortages and related uncertainty. How the scope of our audit responded to the key audit matter We tested the design and implementation of the Group s relevant controls and assessed the appropriateness of the methodology applied for the cash projection that builds the basis for the Group s going concern conclusion. Our audit procedures on the cash projection underlying the going concern conclusion, amongst others, included: corroborating cash projection with management and members of the Board of Directors testing mechanical accuracy of the liquidity forecast critically assessing how the Group s assumptions tie back to the budget approved by the Board of Directors audit that the necessary waivers are obtained which support exclusion of cash-outflow for loan repayments and interest payments performing historical back testing to obtain an understanding of the past precision for the commitments from the chairman to identify potential management bias effects included in the cash projections F-81

82 Orascom Development Holding AG Report of the Statutory Auditor for the Year Ended December 31, 2017 Other Information in the Annual Report The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements of the Company and our auditor s reports thereon. The annual report is expected to be made available to us after the date of this auditor s report. Our opinion on the consolidated financial statements does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Responsibility of the Board of Directors for the Consolidated Financial Statements The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. F-82

83 Orascom Development Holding AG Report of the Statutory Auditor for the Year Ended December 31, 2017 Auditor s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: description forms part of our auditor s report. Report on Other Legal and Regulatory Requirements In accordance with article 728a paragraph 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. Deloitte AG Roland Mueller Licensed Audit Expert Auditor in Charge Adrian Kaeppeli Licensed Audit Expert Zurich, April 5, 2018 F-83

84 Orascom Development Holding AG Statutory financial statements together with auditor's report for the year ended 31 December 2017 F-84

85 Orascom Development Holding AG Income statement CHF Notes Gross revenue from services 158, ,954 Net proceeds from services 158, ,954 Staff costs (5,651,075) (4,452,683) Other operational costs (2,774,402) (3,423,285) Depreciation on fixed assets items (4,805) (3,801) Provisions (built)/released, net 3.4/3.8 (6,705,000) 24,056 Total operating expenditure (15,135,282) (7,855,713) Operating Loss (14,977,025) (7,698,759) Financial expenses 3.12 (486,929) (701,637) Financial income ,206,238 5,445,038 Total financial income / (expenses) 19,719,309 4,743,401 Annual gain/loss 4,742,284 (2,955,358) Khaled Bichara Group CEO Ashraf Nessim Group CFO F-85

86 Orascom Development Holding AG Statutory balance sheet CHF Notes 31 December December 2016 Assets Current assets Cash at bank 3.1 4,136,744 4,230,381 Other current receivables - Related parties 8,876 11,836 - Third parties , ,322 Total current assets 4,386,804 4,477,539 Non-current assets Other non-current receivables Affiliated Companies ,907, ,249,263 Investments in subsidiaries 3.4 1,463,297,834 1,193,546,736 Tangible fixed assets , ,937 Total non-current assets 1,475,298,169 1,464,920,936 Total assets 1,479,684,973 1,469,398,475 Liabilities and shareholders equity Current liabilities Trade creditors 87, ,535 Current interest-bearing liabilities - Shareholder ,746,695 20,730,879 Other current liabilities ,866 95,044 Provision and similar items required by law , ,383 Accrued expenses 2,654,050 3,587,348 Total current liabilities 46,091,515 25,507,189 Non-current liabilities Non-current interest-bearing liabilities Affiliated Companies 21,454,390 16,366,281 Other non-current liabilities - 25,866 Deferred currency translation gain 520,749 16,127,271 Total non-current liabilities 21,975,139 32,519,418 Total liabilities 68,066,654 58,026,607 Shareholders equity 3.9 Share capital ,510, ,510,283 Statutory capital reserves Capital contribution reserve (privileged) of which reserves from tax privileged capital 3.11 contributions 2,858,520,175 2,858,520,175 Statutory retained earnings 12,543,438 12,543,438 Accumulated losses (2,392,399,984) (2,397,193,303) Own shares (4,555,593) (8,725) Total shareholders' equity 1,411,618,319 1,411,371,868 Total liabilities and shareholders equity 1,479,684,973 1,469,398,475 Khaled Bichara Group CEO Ashraf Nessim Group CFO F-86

87 Notes to the financial statements 1 GENERAL INFORMATION Orascom Development Holding AG was established in Switzerland as Joint Stock Company and is domiciled in Altdorf, Uri. The purpose of the Company is the direct or indirect acquisition, durable management and disposal of participations in domestic or foreign enterprises, in particular in the field of real estate, tourism, hotels, construction, resort management, financing of real estate and related industries as well as the provision of related services. The accounts for the period from 1 January to 31 December 2017 were approved by the Board of Directors on 4 April The Company has an annual average of less than 10 full-time employees (previous year: less than 10 full-time employees). 2 KEY ACCOUNTING AND VALUATION PRINCIPLES 2.1 Principal of financial reporting The present accounts for Orascom Development Holding AG have been prepared in accordance with the requirements of the Swiss Financial Reporting Law. The main accounting and valuation principles used, which are not already specified by the Swiss Code of Obligations, are described as follows. 2.2 Estimates and Assumptions made by management Financial reporting under the Swiss Code of Obligations requires certain estimates and assumptions to be made by management. These are on-going and are based on past experience and other factors (e.g. expectations of future results for investments and budget). The result subsequently achieved may change from these estimates. Items in the accounts, which are based on the estimates and assumptions made by management, are as follows: Investments Direct taxes Tangible fixed assets Provisions 2.3 Foreign currency items The currency in which Orascom Development Holding AG operates is Swiss Francs (CHF). Transactions in foreign currencies are converted into the currency in which the company operates (CHF) at the exchange rate on the day of the transaction takes place. Monetary assets and liabilities in foreign currencies are converted into CHF at the exchange rate on the balance sheet date. Any profit or losses from the exchange are recorded in the income statement except net unrealized gain from non-current items, which are deferred in the balance sheet. Non-monetary assets and liabilities at historical costs are converted at the foreign exchange rate at the time of the transaction. 2.4 Related parties Related parties include subsidiary companies (affiliated companies), members of the Board of Directors and Orascom Development Holding AG shareholders. Transactions with related parties take place under proper market conditions (dealing at an arm s length). 2.5 Cash and cash equivalents and current assets with a stock exchange price The cash and current assets with a stock exchange price include cash holdings, bank deposits and short-term money market investments maturing in a maximum of 3 months. They are recorded at their nominal value. 2.6 Current assets with a stock exchange price and financial assets Current assets with a stock exchange price are valued at the stock exchange price on the balance sheet closing date. There is no provision for a fluctuation reserve. Financial assets include long-term securities without a stock exchange price or an observable market price. These are valued no higher than the acquisition cost less any value adjustment. F-87

88 2.7 Tangible Fixed Assets The straight-line depreciation method is used for tangible fixed assets according to their expected useful life. Useful life is established as follows and is revised each year: Machinery and Equipment 5 Years Office Equipment and Computers 3 Years Furniture and fixtures 3 Years 2.8 Own shares Own Shares are recorded at acquisition cost on the balance sheet as a deduction to equity. If they are resold at a later date, the profit or loss is recorded in retained earnings, respectively accumulated losses. 2.9 Shareholder rights and options Own shares are allocated to management and administrative bodies or to employees as shareholder rights or options. The difference between the acquisition value and any payments to counterparties during share allocation is shown as staff costs Leasing transactions Leasing and rental contracts are accounted for in accordance with legal ownership. Expenses as a lessee or tenant are recorded corresponding as expenditure in the relevant period Contingent compensation The company performs an assessment for their contingent compensation arrangement and disclose it as contingent liability as long as the compensation is not probable. If the assessment comes to the conclusion that the compensation is more likely than not, the company is recording an accrual for the estimated compensation. 3 INFORMATION RELATING TO ITEMS ON THE BALANCE SHEET AND INCOME STATEMENT 3.1 Cash and cash equivalents CHF 31 December December 2016 of which in CHF 215, ,750 of which in USD 1,288,698 3,347,297 of which in EUR 2,388, ,924 of which in GBP 13,768 13,447 of which in EGP 230, ,963 Total cash and cash equivalents 4,136,744 4,230, Other current receivables third parties Accounts receivables include a position in the amount of CHF 207,308 (31 December 2016: CHF 203,383), whose value was determined by the market value of ODH EDRs until delisting of EDRs. Since delisting of EDRs, this position is valued at lower of historical value as per delisting of the EDRs or of market value of the corresponding ODH shares. A provision is formed for the whole outstanding amount of CHF 207, Other non-current receivables affiliated companies The significant decrease compared to prior year is related to liability to equity conversion at ORH Investment Holding Ltd ( ORH ) in the amount of CHF 260 million. The Company converted their receivables due from ORH into equity, which increased the investment value of ORH. 3.4 Investments in subsidiaries Investments are valued at acquisition cost less adjustments for impairment. On a regular basis the Company s management reviews the recoverable value of the Company s investments in the various destinations, and accordingly reduces the carrying value by the amount of any impairment losses. F-88

89 The Egyptian revolution in 2011 has negatively affected the performance of the Company s Egyptian arm under Orascom Development Egypt S.A.E. ( ODE, formerly Orascom Hotels & Development S.A.E OHD ). ODE s different operating segments, especially real estate and hotels being the key revenue and value drivers of ODE, have been negatively affected by the deteriorated economic conditions that took place in Egypt. This is represented in downsized demand for real estate purchases and declined flow of tourists. The valuation model of the Company captures the different investments, whether greenfield projects, brownfield projects, or operating projects. The valuation model adopts various approaches depending on the category of the project: as for the greenfield projects and brownfield projects, the model keeps it at investment cost given the uncertainty of the future assumptions and the absence of track record for those projects. One of the major contributors to the investments value is land banks in Egypt, for which valuation depends very much on developments and sales that are achievable over a long-term period. Due to this long-term view and the current political and economic situation, there remains a significant uncertainty. For the operating projects, DCF valuation techniques applying a two-phase model for the hotels segment were used. The first phase is a 5-year period which shows the evolving status of the hotel segment indicated by being back to the operating standards of before the 2011 revolution. And the second phase is a 5-year period which shows the steady performance of the hotel operations. Major underlying assumptions are occupancy and average room rates for hotels and the number of real estate units to be sold. The various assumptions and future projections incorporate the various political, economic and operational facts prevailing at the time of preparing the valuations. Future developments may impact the value. In 2016, the Egyptian pound dropped by 55% against the Swiss Franc. The devaluation of the Egyptian pound was initiated in the first half of 2016 by the decision of the Egypt Central Bank to devalue the Egyptian Pound against the USD by approximately 14% compared to the foreign exchange rate as at 31 December 2015 resulting in a similar devaluation of the Egyptian Pound against the Swiss Franc. On 3 November 2016, the Central Bank of Egypt decided to float the Egyptian pound and allowed banks to deal in the foreign currencies with flexible rates, which led to a further devaluation of the Egyptian Pound. In addition, Central Bank of Egypt raised interest rate for deposits in EGP by approximately 3% to face the rise in prices a currency devaluation may bring. As at 31 December 2017, the Company directly holds the following investments: Company, domicile, purpose Ownership %* Share capital 31 December December 2016 Orascom Development Egypt S.A.E % 84.79% EGP 1,009,811,630 (previously: Orascom Hotels & Development S.A.E.), Egypt Real estate development, hotel management Arena for Hotels Company S.A.E., Egypt 99.85% 99.85% EGP 20,000,000 Hotel operation Orascom Development & Management Limited, Cyprus % % EUR 1,000 Management company ORH Investment Holding Ltd, BVI % % USD 385,000,000 International holding company Lustica Development AD, Montenegro 90.82% 90.82% EUR 11,025,000 Real estate development, hotel management Andermatt Swiss Alps AG, Switzerland (ASA) 49.00% 49.00% CHF 231,147,000 Real estate development Orascom Development International AG, Switzerland % % CHF 1,400,000 Real estate development Orascom Hotels Management AG, Switzerland % % CHF 13,000,000 Hotel Management * The voting rights are equal to the ownership percentage The share capital for the investments is unchanged except for ORH Investment Holding Ltd. and Orascom Hotels and Management AG (OHM). The increase of CHF 4 million in OHM s share capital is related to a capital contribution and the increase of USD 260 million is related to liability to equity conversion at ORH level. F-89

90 In 2017, the Company built a provision of CHF 7 million against the investment in OHM because it is unclear whether OHM will be able to generate sufficient future profits from revenue with Orascom Group to support its carrying value. 3.5 Tangible fixed assets CHF 31 December December 2016 Machinery and equipment 24, ,459 Office equipment and computers 5,672 10,478 Total tangible fixed assets 29, , Current interest-bearing liabilities shareholder The balance of Current interest-bearing liabilities Shareholder as at 31 December 2017 is due to Mr. Samih O. Sawiris in the amount of CHF 42,746,695 (31 December 2016: CHF 20,730,879). 3.7 Other current liabilities CHF 31 December December 2016 Third parties 25,866 95,044 Total other current liabilities 25,866 95, Provisions and similar items required by law CHF 31 December December 2016 Provision for disputes 370, ,000 Bad debt provision 207, ,383 Total provisions and similar items required by law 577, , Shareholders equity movements The following table shows the shareholders equity movement: CHF Balance at 01/01/2016 Distribution to Board Members and revaluation Loss for the period Balance at 31/12/2016 Balance at 01/01/2017 Acquisition of own shares Distribution to Board Members and revaluation Profit for the period Balance at 31/12/2017 Share capital Statutory capital reserves (tax privileged) Statutory retained earnings Accumulated losses Own shares Total 937,510,283 2,858,520,175 12,543,438 (2,393,941,791) (1,029,575) 1,413,602, (296,154) 1,020, , (2,955,358) - (2,955,358) 937,510,283 2,858,520,175 12,543,438 (2,397,193,303) (8,725) 1,411,371, ,510,283 2,858,520,175 12,543,438 (2,397,193,303) (8,725) 1,411,371, (5,421,560) (5,421,560) , , , ,742,284-4,742, ,510,283 2,858,520,175 12,543,438 (2,392,399,984) (4,555,593) 1,411,618,319 F-90

91 3.10. Share Capital As at 31 December 2017 the Company s share capital of CHF 937,510,283 (31 December 2016: CHF 937,510,283) was divided into 40,409,926 (31 December 2016: shares 40,409,926) registered shares with a par value of CHF each. The share capital is fully paid-in. The registered shares of the Company are listed on the Swiss Exchange (SIX). On 30 May 2017 Following the delisting approval issued by the Listing Committee of the Egyptian Exchange (EGX) on 24 May 2017, Orascom Development Holding (ODH) has successfully completed the previously announced delisting of the company's Egyptian Depositary Receipts (EDRs) from the EGX. The majority of the EDR holders have chosen to swap their EDRs into shares of ODH that had previously been underlying the EDRs and only 9.9% out of the 189,123,620 EDRs were tendered to the company for repurchase at a price of EGP 5.25 (CHF 0.29) per EDR or CHF 5.79 per ODH share (1 ODH share is underlying 20 EDRs) Statutory capital reserves from tax contributions As of 1 January 2011, Swiss tax authorities have introduced a regulation concerning capital contribution reserves. Distributions from such reserves are exempt from Swiss income and withholding tax. In order to reflect this regulation, capital contribution reserves have been classified separately in the balance sheet. The capital contribution reserves in the amount of CHF 2,999,972,181 have been approved by the tax authorities. An amount of CHF 141,452,006 out of this statutory capital reserves from tax contributions has been used in the capital increase through converting it in share capital, as the offering price was CHF 11.28, which was below the par value CHF Therefore, the capital contribution reserves from tax contributions decreased to CHF 2,858,520,175 as per 31 December Finance expenses Interest expense 486, ,637 Total finance expenses 486, , Finance income Interest income 2,559,663 3,523,020 Foreign exchange gain, net 17,646,575 1,922,018 Total finance income 20,206,238 5,445,038 4 OTHER INFORMATION, WHICH IS NOT ALREADY VISIBLE IN THE BALANCE SHEET OR INCOME STATEMENT 4.1 Residual amount of leasing liabilities Leasing liabilities, which will not expire and may not be terminated within twelve months, are subject to the following repayment structure: CHF 31 December December 2016 < 1 year 232, , years 931, ,200 > 5 years 2,560,800 2,793,600 Total 3,724,800 3,957,600 F-91

92 4.2 Total amount of assets pledged or assigned to secure own liabilities and assets under reservation of ownership Andermatt Swiss Alps (ASA) Andermatt Swiss Alps AG (ASA) has obligations towards the canton of Uri and the municipality of Andermatt. ASA is responsible for the construction of certain parts of the tourism resort Andermatt. Within certain periods or should the construction work be stopped for whatever reason, ASA has the obligation to rebuild the relevant plots of land to the original state. As at 31 December 2017, 36,985 ASA shares owned by the Company (31 December 2016: 36,985) with a net book value of CHF 957 each, amounting to a total book value of CHF 35,384,945 (31 December 2016: CHF 35,384,945), have been pledged as a security to the canton and municipality. Additionally, land with a value of CHF 1,000,000 has been pledged (31 December 2016: CHF 1,000,000). Orascom Development Egypt S.A.E. (ODE) As at 31 December 2017, 34,512,392 ODE shares owned by the Company (31 December 2016: 34,512,392) with a net book value of CHF 4.60 each, amounting to a total book value of CHF million (31 December 2016: CHF million), have been pledged as a security. Island Lastavica with fortress Mamula in Herceg Novi As at 31 January 2014, Orascom Development Holding submitted a bid pursuant to the invitation to tender issued by the tender committee for valorisation of tourism location for the purpose of long-term lease of the site island lastavica with fortress Mamula in Herceg Novi with an amount of EUR 300,000 and in April 2017 Orascom Development Holding submitted a Performance Bond for The Government of Montenegro for the purpose of long term lease by EUR 1,500,000 (10% of total investment commitment which is EUR ) in addition to 10% the bank margin so the pledged amount for the performance bond is Euro 1,650, Shareholder rights and options held by management and Board of Directors and information on allocation of shares and options to executive officers, directors and employees Shareholder Rights and Allocation of Shares to Board of Directors: The compensation of the members of the Board of Directors amounts to gross CHF for each member. In addition to this base compensation, the members (and chairmen) of the Audit Committee and of the Nomination and Compensation Committees receive an additional compensation of gross CHF 20,000. The Lead Director receives an additional compensation of gross CHF 40,000. For 2017, the base compensation and additional compensation for the Lead Director and committee members are fully paid in shares. The shares of the Company allocated to the members of the Board of Directors as compensation are, for that purpose and if not available to the Company already, purchased by the Company on the market and their valuation (for purposes of the calculation of the number of shares allocated to each member of the Board of Directors) is based 20% discount from the closing share price of the ODH share (ODHN) at SIX Swiss Exchange as March 29, 2018.The members of the Board of Directors do not have any specific further shareholder rights and do not participate in any additional share allocation plans. Shareholder Rights and Allocation of Shares to Members of the Executive Management: The bonus policy of the Group for members of the Executive Management includes a cash-bonus and a deferred share-bonus. 100% of the cash-bonus and 40% of the share-bonus are based on the member of the Executive Management s personal performance. 60% of the share-bonus is based on the (financial) performance of the Company. The cash-bonus can reach at maximum 25 % of the Executive Member s annual gross base salary. The share-bonus can reach at maximum 100 % of the Executive Member s annual gross base salary. The share price that is relevant to determine the number of ODH shares to be granted to the member of the Executive Management is the average share price of the ODH share (ODHN) at Zurich Stock Exchange during the last six months of the performance year (closing prices of all trading days between July 1 and December 31). The members of the Executive Management do not have any specific further shareholder rights and do not participate in any additional share allocation plans. 4.4 Liabilities towards staff pension schemes There are no liabilities as at 31 December 2017 (31 December 2016: CHF 0). 4.5 Joint liability in favour of third party The Company, together with certain Swiss subsidiaries, is part of a Swiss value added tax (VAT) group, resulting in a joint liability for taxation for VAT purposes. F-92

93 4.6 Contingent liability The Company has contractually granted a variable compensation amount to its new CEO, Khaled Bichara ( Contingent Compensation ). The Compensation amount is due 6 years after the start date (1 January 2016) or earlier if an acceleration event occurs. In summary, the compensation amount is 10% of the share price increase above an annual average increase of 8% (based on the fixed spot share price of CHF 11.37). The contingent Compensation will be paid in cash or, at ODH s discretion, in shares if the annual average increases in the share price are met. As of 9 May 2016, the General Assembly of ODH approved the abovementioned compensation plan. 4.7 Subsequent events There have been no significant events subsequent to 31 December F-93

94 Deloitte AG General-Guisan-Quai Zürich Schweiz Telefon: +41 (0) Fax: +41 (0) Statutory Auditor s Report To the General Meeting of ORASCOM DEVELOPMENT HOLDING AG, ALTDORF Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Orascom Development Holding AG, which comprise the balance sheet as at December 31, 2017 and the income statement and notes for the year then ended, including a summary of significant accounting policies. In our opinion the financial statements (pages F-85 to F-93) as at December 31, 2017 comply with Swiss law and the Company s articles of incorporation. Basis for Opinion We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. F-94

95 ORASCOM DEVELOPMENT HOLDING AG Statutory Auditor s Report for the Year Ended December 31, 2017 Investments in subsidiaries Key audit matter The statutory balance sheet presents investments in subsidiaries amounting to CHF 1,463.3 million as at December 31, 2017, which is further explained in Note 3.4 Investments in subsidiaries. There are triggering events present indicating that investments in subsidiaries are potentially impaired. Management s annual impairment test for investments in subsidiaries is considered to be judgmental, as the value investments in subsidiaries is depending on political and economic assumptions for middle east and especially Egypt, which are inherently uncertain. As the balance is material to the statutory financial statements as a whole, the impairment testing for investments in subsidiaries represents a key audit matter. How the scope of our audit responded to the key audit matter We tested the design and implementation of the Company s relevant controls. We assessed the appropriateness of management s accounting policies regarding the valuation of investments in subsidiaries. We challenged the impairment tests for investments in subsidiaries, and critically assessed whether the assumption are appropriate for the different valuations that support the value of investments in subsidiaries. We validated the appropriateness and completeness of the related disclosures in the financial statements. F-95

96 ORASCOM DEVELOPMENT HOLDING AG Statutory Auditor s Report for the Year Ended December 31, 2017 Liquidity and financing Key audit matter We identified that the most significant assumption in the Company s assessment of its ability to continue as a going concern is liquidity within the Group, which is ensured by the commitment from the chairman to provide up to CHF 30 million in cash until December The calculations supporting the assessment require management to make judgments on estimated future cash-inflows and cashoutflows. Liquidity cannot just be considered from a stand-alone perspective, it needs to be addressed for the whole Group, as if liquidity issues on subsidiaries level result in going concern issues for subsidiaries such going concern issues could trigger impairments on the Company s level (ultimate holding), which could impact the Company s going concern. The Group s cash projection is fundamental to assess the appropriateness of the basis adopted for the preparation of the financial statements and therefore represents a key audit matter. Refer to Note 26.1 of the Group s financial statements for the commitment and Note 3.6 Current interest-bearing liabilities - shareholder for the actual shareholder s loan from Chairman. How the scope of our audit responded to the key audit matter We tested the design and implementation of the relevant controls and assessed the appropriateness of the methodology applied for the cash projection that builds the basis for the Group s going concern conclusion and consequently also for the stand-alone conclusion. Our audit procedures on the cash projection underlying the going concern conclusion, amongst others, included: corroborating cash projection with management and members of the Board of Directors testing mechanical accuracy of the liquidity forecast critically assessing how the Group s assumptions tie back to the budget approved by the Board of Directors audit that the necessary waivers are obtained which support exclusion of cash-outflow for loan repayments and interest payments performing historical back testing to obtain an understanding of the past precision for the commitments from the chairman to identify potential management bias effects included in the cash projections Responsibility of the Board of Directors for the Financial Statements The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the Company s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. F-96

97 ORASCOM DEVELOPMENT HOLDING AG Statutory Auditor s Report for the Year Ended December 31, 2017 In preparing the financial statements, the Board of Directors is responsible for assessing the entity s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located at the website of EXPERTsuisse: description forms part of our auditor s report. Report on Other Legal and Regulatory Requirements In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We recommend that the financial statements submitted to you be approved. Furthermore, we draw attention to the fact that half of the share capital and legal reserves are no longer covered (article 725 paragraph 1 CO). Deloitte AG Roland Mueller Licensed Audit Expert Auditor in Charge Adrian Kaeppeli Licensed Audit Expert Zurich, April 5, 2018 F-97