Reem Investments PJSC CONSOLIDATED FINANCIAL STATEMENTS AND CHAIRMAN S REPORT

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS AND CHAIRMAN S REPORT 31 DECEMBER 2018

2 CHAIRMAN S REPORT 31 DECEMBER 2018

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4 AUDITOR S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2018

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10 CONSOLIDATED INCOME STATEMENT Year ended Notes AED 000 AED 000 Rental income 3 19,406 17,043 Direct costs (1,853) (1,718) GROSS PROFIT 17,553 15,325 Net gain on investments 4 325, ,760 Impairment loss on investments 10 (59,945) (8,414) Share of results of associates 11 - (37) Dividend income 106, ,530 Interest and other income 5 42,029 70,246 Gain (loss) on revaluation of investment properties, net 7 4,270 (5,828) 435,936 1,008,582 Administrative expenses (16,522) (23,952) Directors fees (2,650) (2,650) PROFIT FOR THE YEAR 6 416, ,980 BASIC AND DILUTED EARNINGS PER SHARE The attached notes 1 to 28 form part of these consolidated financial statements. 6

11 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended AED 000 AED 000 PROFIT FOR THE YEAR 416, ,980 Other comprehensive income Items that may be reclassified subsequently to the consolidated income statement Reclassification of net realised gain on de-recognition of available for sale investments - (827,881) Change in fair value of available for sale investments, net - (61,790) Other comprehensive income - (889,671) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 416,764 92,309 The attached notes 1 to 28 form part of these consolidated financial statements. 7

12 CONSOLIDATED STATEMENT OF FINANCIAL POSITION At Notes AED 000 AED 000 ASSETS Non-current assets Completed investment properties 7 246, ,678 Investment properties under development 8 651, ,648 Development properties 9 578, ,737 Investments 10 2,379,409 2,053,699 Investment in associates 11-2,037 Property and equipment 12 12,369 13,004 Accounts receivable and prepayments , ,643 4,242,455 3,627,446 Current assets Accounts receivable and prepayments 13 63,434 68,651 Inventories , ,872 Bank balances and cash ,165 1,001,344 1,560,438 1,804,867 TOTAL ASSETS 5,802,893 5,432,313 EQUITY AND LIABILITIES Equity Share capital , ,500 Statutory reserve , ,750 Retained earnings 4,317,477 3,961,682 Proposed dividends , ,850 Cumulative changes in fair values of available For sale investments - 44,337 5,592,577 5,281,119 Non-current liabilities Employees end of service benefits 19 1,570 1,228 Term loan 20 43,464 6,888 45,034 8,116 Current liabilities Accounts payable and accruals , ,369 Advances received from customers 11,709 11, , ,078 Total liabilities 210, ,194 TOTAL EQUITY AND LIABILITIES 5,802,893 5,432,313 CHAIRMAN OF THE BOARD MANAGING DIRECTOR The attached notes 1 to 28 form part of these consolidated financial statements. 8

13 CONSOLIDATED STATEMENT OF CASH FLOWS Year ended Notes AED 000 AED 000 OPERATING ACTIVITIES Profit for the year 416, ,980 Adjustments for: Share of results of associates Depreciation Net gain on investments (325,323) (826,760) Dividend income (106,706) (110,530) Gain (loss) on revaluation of completed investment properties, net 7 (4,270) 5,828 Interest income 5 (33,102) (48,137) Impairment loss on investments 59,945 8,414 Provision for employees end of service benefits Operating cash flow before working capital changes 8,290 11,703 Working capital changes: Accounts receivable and prepayments 5, ,815 Accounts payable and accruals 22,204 (36,594) Inventories (6,967) - Cash from operations 28, ,924 Employees end of service benefits paid 19 - (222) Net cash from operating activities 28, ,702 INVESTING ACTIVITIES Purchase of investments (139,636) (167,375) Proceeds from sale of investments 82,848 82,290 Purchase of property and equipment 12 (5) (28) Bank time deposits with original maturities in excess of three months 93,093 70,624 Increase in development properties 9 (4,059) (121,211) Proceeds from liquidation of investment in associate 11 2,037 - Increase in completed investment properties 7 (644) - Increase in investment properties under development 8 (282,998) - Interest income received 5 33,102 48,137 Dividend income received 106, ,530 Net cash (used in) generated from investing activities (109,556) 22,967 FINANCING ACTIVITIES Dividends paid (108,850) (108,850) Bank borrowings 36,576 6,888 Net cash used in financing activities (72,274) (101,962) (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (153,086) 124,707 Cash and cash equivalents at 1 January 242, ,991 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 15 89, ,698 Significant non-cash transactions, which have been excluded from the cash flow statement are as follows: Cumulative changes in fair value of available for sale investments - (61,790) The attached notes 1 to 28 form part of these consolidated financial statements. 9

14 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended Cumulative changes in fair value of available- Share Statutory Retained Proposed for-sale capital reserve earnings dividends investments Total Note AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 Balance at 1 January , ,750 3,088, , ,008 5,297,660 Total comprehensive income ,980 - (889,671) 92,309 Proposed cash dividends (108,850) 108, Dividend paid (108,850) - (108,850) Balance at 31 December , ,750 3,961, ,850 44,337 5,281,119 Balance at 1 January , ,750 3,961, ,850 44,337 5,281,119 Transition adjustment on adoption of IFRS 9 (note 2.2) ,881 - (44,337) 3,544 Balance at 1 January adjusted 777, ,750 4,009, ,850-5,284,663 Total comprehensive income , ,764 Proposed cash dividends (108,850) 108, Dividend paid (108,850) - (108,850) Balance at 777, ,750 4,317, ,850-5,592,577 The attached notes 1 to 28 form part of these consolidated financial statements. 10

15 1 ACTIVITIES ( Reem ) is a private joint stock company incorporated in Abu Dhabi, United Arab Emirates on 29 May 2005 under the UAE Federal Law No (8) of 1984 as amended. The Federal Law No. 2 of 2015, concerning Commercial Companies has come into effect from 1 July 2015, replacing the Federal Law No. 8 of On 30 September 2018, Reem has listed its ordinary shares on the secondary market of Abu Dhabi Securities Exchange (ADX). The principal activities of Reem and its subsidiaries (together referred to as the Company ) include real estate development and sale and investment in real estate and securities in UAE and abroad. The registered address of the Company is P O Box 37646, Abu Dhabi, United Arab Emirates. The consolidated financial statements of the Company for the year ended were authorised for issue in accordance with a resolution of the Board of Directors on 13 March BASIS OF PREPARATION The consolidated financial statements are prepared under the historical cost convention except for investments and completed investment properties which have been measured at fair value. The consolidated financial statements are presented in United Arab Emirates Dirhams ( AED ) which is the functional currency of the Company. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and applicable requirements of the UAE laws. Basis of consolidation The consolidated financial statements comprise the financial statements of the Reem and its following subsidiaries: Country of Percentage Subsidiary Activity incorporation of holding Reem Developers Sole Proprietorship LLC Real estate development United Arab Emirates 100% 100% Reem for Energy Investment Services Sole Proprietorship LLC Oil and gas projects United Arab Emirates 100% 100% Reem Investment Overseas Limited Investment holding Mauritius 100% 100% Reem Developers LLC was established on 29 May 2006 and its principal activities are the investment in and establishing and managing real estate, commercial and industrial projects. Reem for Energy Investment Services LLC was established on 23 January 2007 and its principal activities are the investment in and establishing and managing power and industrial projects. It commenced its effective commercial operations during Reem Investment Overseas Limited was established on 14 December 2006 and its principal activities was holding of investments. The company is in liquidation process with regulatory authorities of Mauritius. The financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. The Company exercises control over all of the subsidiaries listed above. 11

16 2.1 BASIS OF PREPARATION continued Basis of consolidation continued Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); Exposure, or rights, to variable returns from its involvement with the investee; and The ability to use its power over the investee to affect its returns. When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee; Rights arising from other contractual arrangements; and The Company s voting rights and potential voting rights. The Company re-assesses 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. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are consolidated from the date the Company gains control until the date the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Company s accounting policies. All intra-company assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Company are eliminated in full on consolidation. Non-controlling interests represent the portion of the profit and net assets in subsidiaries not held by the Company and are presented separately in the consolidated income statement and within equity in the consolidated statement of financial position, separately from the Company s shareholders equity. 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES The accounting policies adopted are consistent with those of the previous financial year except as noted below. During the year, the Company has adopted the following new standards / amendments to the standards effective for the annual period beginning on or after 1 January 2018: IFRS 9 Financial Instruments IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. Classification and measurement of financial assets Except for certain trade receivables, an entity initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. 12

17 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES continued IFRS 9 Financial Instruments continued Classification and measurement of financial assets continued Subsequent measurement of financial assets: All financial assets under scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value on the basis of the Company s business model for managing the financial assets and contractual cash flow characteristics of the financial assets. A financial asset is measured at amortised cost, if both the following conditions are met and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and 2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and profit on the principal amount outstanding. A financial instrument is measured at FVTOCI only if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and 2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and profit on the principal amount outstanding. On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis. All other financial assets are classified as measured at FVTPL. In addition, on initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Business model assessment: The Company makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management s strategy focuses on earning contractual revenue, maintaining a particular profit rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realizing cash flows through the sale of the assets; how the performance of the portfolio is evaluated and reported to the Company s management; the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; and the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about the future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Company s stated objective for managing the financial assets is achieved and how cash flows are realised. Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. 13

18 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES continued IFRS 9 Financial Instruments continued Business model assessment: continued The Company s existing financial assets at the date of the initial application of IFRS 9 on 1 January 2018 have been reviewed and assessed, and as a result: the Company s investments in financial instruments meeting the required criteria have been classified as financial assets at amortised cost; and the Company s remaining investments in equity instruments have been designated as fair value through the profit or loss (FVTPL). Classification and measurement of financial liabilities: Financial liabilities previously measured at amortised cost under IAS 39 have been classified and measured under IFRS 9 at amortised cost using the effective interest rate method. There have been no changes in the classification and measurement of financial liabilities on the adoption of IFRS 9. Impairment of financial assets The standard introduces a new single model for the measurement of impairment losses on all financial assets including financing and investments measured at amortized cost or at fair value through OCI. The IFRS 9 expected credit loss (ECL) model replaces the current incurred loss model of IAS 39. The ECL model applies to debt instruments accounted for at amortised cost or at FVTOCI, most loan commitments, financial guarantee contracts, contracts under IFRS 15 Revenue from Contracts with Customers and lease receivables under IAS 17 or IFRS 16 Leases. For contract assets and trade and other receivables, the Company has applied the standard s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Company has established a provision matrix that is based on the Company s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. For other financial assets, the ECL is based on the 12-month ECL. The ECL model contains a three stage approach which is based on the change in credit quality of financial assets since initial recognition. The ECL model is forward looking and requires the use of reasonable and supportable forecasts of future economic conditions in the determination of significant increases in credit risk and measurement of ECL. Hedge accounting Hedge effectiveness testing is prospective, without the 80% to 125% bright line test in IAS 39, and, depending on the hedge complexity, will often be qualitative. A risk component of a financial or non-financial instrument may be designated as the hedged item if the risk component is separately identifiable and reliably measureable. The time value of an option, any forward element of a forward contract and any foreign currency basis spread can be excluded from the hedging instrument designation and can be accounted for as costs of hedging. More designations of Companys of items as the hedged item are possible, including layer designations and some net positions. The application of IFRS 9 has had no impact on the hedge accounting as the Company does not have any hedge instruments. 14

19 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES continued IFRS 9 Financial Instruments continued Transition impact In line with IFRS 9 transition provisions, the Company has elected to record any adjustment to its opening 1 January 2018 retained earnings to reflect the application of the new requirements of classification and measurement and impairment at the date of adoption without restating comparative information. For classification and measurement, the combined application of the contractual cash flow characteristics and business model tests as at 1 January 2018 is expected to result in certain differences in the classification of financial assets when compared to our current classification under IAS 39. For impairment, the application of ECL model is expected to result in impairment loss as at 1 January The impact of the adoption on the opening retained earnings and cumulative changes in fair value reserve classified in equity at the beginning of the current year (1 January 2018) is as follows: Cumulative changes in Retained fair value earnings reserve AED 000 AED 000 Fair value movement of investments in quoted equities at AFS transferred to FVTPL 44,479 (44,479) Fair value movement of investment in AFS bonds transferred to investment at amortised cost Amortisation of premium / discount on bonds securities at amortised cost 9 - Fair value movement of investments in un-quoted equities previously stated at cost 22,380 - Allowance for credit loss on re-measurement under IFRS 9 (18,987) - 47,881 (44,337) The following table reconciles the closing balance of financial assets under IFRS 9 to the opening balance of financial assets on 1 January Re-measurement As at upon As at 31 December reclassification Re- 1 January 2017 of financial measurement 2018 (IAS 39) assets of impairment (IFRS 9) AED 000 AED 000 AED 000 AED 000 Non-current assets Investments 2,053,699 22,531 (18,848) 2,057,382 Investment in associates 2, ,037 Accounts receivable and prepayments 373, ,643 2,429,379 22,531 (18,848) 2,433,062 Current assets Accounts receivable and prepayments 68, ,651 Bank balances and cash 1,001,344 - (139) 1,001,205 1,069,995 - (139) 1,069,856 15

20 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES continued IFRS 15 Revenue from Contracts with Customers IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. Following an analysis of its various revenue arrangements, the Company concluded that the adoption of IFRS 15 did not have a material impact on its financial statements. Transition impact: In line with the IFRS 15 transition provisions, the Company utilized the modified retrospective method whereby any cumulative effect of initially applying IFRS 15 is recorded as an adjustment to its opening 1 January 2018 retained earnings without restating comparative information. As stated above, the adoption of IFRS 15 did not have any impact on the opening retained earnings of the Company. IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the date of the transactions for each payment or receipt of advance consideration. This Interpretation does not have any impact on the Company s consolidated financial statements. Amendments to IAS 40 Transfers of Investment Property The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that 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. A mere change in management s intentions for the use of a property does not provide evidence of a change in use. The required amendments have been appropriately considered in the Company s consolidated financial statements. Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The Company has no share-based payment transaction with net settlement features for withholding tax obligations and had not made any modifications to the terms and conditions of its share-based payment transaction. Therefore, these amendments do not have any impact on the Company s consolidated financial statements. 16

21 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES continued Amendments to IAS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice The amendments clarify that an entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. If an entity that is not itself an investment entity, has an interest in an associate or joint venture that is an investment entity, then it may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate s or joint venture s interests in subsidiaries. This election is made separately for each investment entity, associate or joint venture, at the later of the date on which: (a) the investment entity, associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity, associate or joint venture first becomes a parent. These amendments do not have any impact on the Company s consolidated financial statements. Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards - Deletion of short-term exemptions for first-time adopters Short-term exemptions in paragraphs E3 E7 of IFRS 1 were deleted because they have now served their intended purpose. These amendments do not have any impact on the Company s consolidated financial statements. 2.3 STANDARDS ISSUED BUT NOT YET EFFECTIVE Certain new standards, amendments to standards and interpretations are not yet effective for the year ended, with the Company not opting for early adoption. These have, therefore, not been applied in preparing these consolidated financial statements. IFRS 16 Leases IFRS 16 was issued in January 2016 and sets out the principles for the recognition, measurement, presentation and disclosure of leases. It introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. For lessor accounting, it substantially carries forward the requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. An entity shall apply this Standard for annual reporting periods beginning on or after 1 January Earlier application is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of this Standard. The Company plans to adopt IFRS 16 on the required effective date. The Company is currently in the process of assessing the potential impact of IFRS 16 on its consolidated financial statements. IFRS 17 Insurance Contracts In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by: A specific adaptation for contracts with direct participation features (the variable fee approach) A simplified approach (the premium allocation approach) mainly for short-duration contracts. IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Company. 17

22 2.3 STANDARDS ISSUED BUT NOT YET EFFECTIVE continued IFRIC Interpretation 23 Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: Whether an entity considers uncertain tax treatments separately The assumptions an entity makes about the examination of tax treatments by taxation authorities How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates How an entity considers changes in facts and circumstances An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Company does not expect any effect on its consolidated financial statements. Amendments to IFRS 9 Prepayment Features with Negative Compensation Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are solely payments of principal and interest on the principal amount outstanding (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of the event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract. The amendments should be applied retrospectively and are effective from 1 January 2019, with earlier application permitted. These amendments have no impact on the consolidated financial statements of the Company. Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. This standard is not applicable to the Company. Amendments to IAS 19 Plan Amendment, Curtailment or Settlement The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to: Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to remeasure that net defined benefit liability (asset). 18

23 2.3 STANDARDS ISSUED BUT NOT YET EFFECTIVE continued Amendments to IAS 19 Plan Amendment, Curtailment or Settlement continued The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognised in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognised in other comprehensive income. The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019, with early application permitted. These amendments have no impact on the consolidated financial statements of the Company. Amendments to IAS 28 Long-term interests in associates and joint ventures The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in IFRS 9 applies to such long-term interests. The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures. The amendments should be applied retrospectively and are effective from 1 January 2019, with early application permitted. Since the Company does not have such long-term interests in its associate and joint venture, the amendments will not have an impact on its consolidated financial statements. Annual Improvements cycle These improvements include: IFRS 3 Business Combinations The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments will apply on future business combinations of the Company. IFRS 11 Joint Arrangements A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured. An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. Since the Company does not have joint arrangements, the amendments will not have an impact on its consolidated financial statements. 19

24 2.3 STANDARDS ISSUED BUT NOT YET EFFECTIVE continued IAS 12 Income Taxes The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application is permitted. When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period. This standard is not applicable to the Company. IAS 23 Borrowing Costs The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. 2.4 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of consolidated financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Fair value measurement of financial instruments Where the fair values of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values. Such financial assets include private equity investments and funds which are valued using the latest available net asset value modified for fair value adjustments. Fair valuation of completed investment properties Completed investment properties are recorded at fair value on the basis of valuations made by third party valuer. These valuations are conducted using the investment and comparable methods. The valuer takes into account property-specific information such as the current tenancy agreements and apply assumptions for yields and estimated market rent, which are influenced by prevailing market yields and considers comparable market transactions, to arrive at the valuation. Accordingly, these valuations may change significantly in future periods. Impairment of development properties Development properties are stated at lower of cost or net realizable value (NRV). NRV represents the estimated selling price less costs to be incurred in selling the property. The calculation of estimated selling prices involves using comparable factors of development and sale of similar plots in nearby locations. The calculation of the estimated selling prices is performed by external valuer (the Valuer ). The Valuer has adopted comparable method of valuation and has therefore considered comparable market transactions to arrive at estimated selling prices. Management of the Company has assessed the net realizable value of its development properties for impairment as at. Based on the review, management has concluded that there is no impairment loss on its development properties for the year ended (2017: AED nil). 20

25 2.4 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS continued Estimation uncertainty continued Estimation of net realizable value of inventories Inventories are stated at the lower of cost and net realizable value (NRV). NRV represents the estimated selling price less costs to be incurred in selling the property. The calculation of estimated selling prices involves using comparable factors of development and sale of similar plots in nearby locations. The calculation of the estimated selling prices is performed by external valuer (the Valuer ). The Valuer has adopted comparable method of valuation and has therefore considered comparable market transactions to arrive at estimated selling prices. Impairment of property and equipment Property and equipment are assessed for impairment based on assessment of cash flows on individual cash generating units when there is indication of impairment. Cash flows are determined based on contractual agreements and estimations over the useful life of the assets and discounted using a range of discounting rates representing the rate of return on such cash generating units. The net present values are compared to the carrying amounts to assess any probable impairment. Useful lives and residual values of property and equipment The cost of property and equipment is depreciated over its estimated useful life, which is based on expected usage of the asset and expected physical wear and tear, which depends on operational factors. IFRS 9 considerations Changes to judgements made in applying accounting policies that have most significant effects on the amounts recognized in the consolidated financial statements for the year ended pertain to the changes introduced as a result of adoption of IFRS 9: Financial instruments which impact: Classification of financial assets: assessment of business model within which the assets are held and assessment of whether the contractual terms of the financial assets are solely payment of principal and interest of the principal amount outstanding. Judgement other than estimates In the process of applying the Company s accounting policies, management has made the following judgments which have the most significant effect on the amounts recognised in the consolidated financial statements: Classification of property The Company determines whether a property is classified as completed investment property, development property, property and equipment or inventories: Investment properties comprise land and villas (principally residential) which are not occupied substantially for use by, or in the operations of, the Company, nor for sale in the ordinary course of business, but are held primarily to earn rental income or capital appreciation or undetermined use; Development properties comprise lands that are held for sale in the ordinary course of business. Principally, these are lands that the Company develops (mainly infrastructure) and intends to sell before or on completion of development; Property and equipment comprise properties that are held for administrative purposes or supply of services; and Inventories comprise properties that are held for sale in the ordinary course of business. 21

26 2.4 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS continued Judgement other than estimates continued Satisfaction of performance obligations The Company is required to assess each of its contracts with customers to determine whether performance obligations are satisfied over time or at a point in time in order to determine the appropriate method for recognising revenue. The Company has assessed that based on the contracts entered into with customers and the provisions of relevant laws and regulations, the Company recognises revenue over time in the following circumstances: where contracts are entered into for development (sale of properties to customers), the Company does not create an asset with an alternative use to the Company and has an enforceable right to payment for performance completed to date; where contracts are entered into for construction (to construct an asset for the customer), the Company s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; and where contracts are entered into to provide services (property management and facility management), the customer simultaneously receives and consumes the benefits provided by the Company s performance as the Company performs. Where the above criteria are not met, revenue is recognised at a point in time. Where revenue is recognised at a point of time, the Company assesses each contract with customers to determine when the performance obligation of the Company under the contract is satisfied. Transfer of control in contracts with customers In cases where the Company determines that performance obligations are satisfied at a point in time, revenue is recognised when control over the assets is transferred to the customer or benefits of the services being provided is received and consumed by the customer. In the case of contracts to sell real estate assets this is generally when the consideration for the unit has been substantially received and there are no impediments in the handing over of the unit to the customer. 2.5 SIGNIFICANT ACCOUNTING POLICIES Revenue recognition Revenue from contracts with customers for sale of properties The Company recognises revenue from contracts with customers based on a five-step model as set out in IFRS 15. Step 1 Step 2 Step 3 Step 4 Step 5 Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met. Identify performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer. Determine the transaction price: The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the Company allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for satisfying each performance obligation. Recognise revenue when (or as) the Company satisfies a performance obligation. 22

27 2.5 SIGNIFICANT ACCOUNTING POLICIES continued Revenue recognition Revenue from contracts with customers for sale of properties The Company satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met: a) The Company s performance does not create an asset with an alternate use to the Company and the Company has an enforceable right to payment for performance completed to date. b) The Company s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. c) The customer simultaneously receives and consumes the benefits provided by the Company s performance as the Company performs. For performance obligations where one of the above conditions are not met, revenue is recognised at the point in time at which the performance obligation is satisfied. When the Company satisfies a performance obligation by delivering the promised goods or services it creates a contract based asset on the amount of consideration earned by the performance. Where the amount of consideration received from a customer exceeds the amount of revenue recognised this gives rise to a contract liability. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes and duty. The Company assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. Revenue is recognised to the extent it is probable that the economic benefits will flow to the Company and the revenue and costs, if applicable, can be measured reliably. Rental income Rental income from operating lease is recognised on a straight-line basis over the relevant lease. Interest income Interest income is recognised as the interest accrues using the effective interest method, under which the rate used exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Dividends Revenue is recognised when the right to receive the dividend is established. Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the Company receives non-monetary grants with no conditions attached thereto, the asset and grant are recorded at fair value and the grant is recognised in the income statement in the year in which it is received. In the case of other non-monetary grants, the grant is set up as deferred income at its fair value and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. 23