International Petroleum Investment Company PJSC and its subsidiaries

Transcription

1 International Petroleum Investment Company PJSC and its subsidiaries INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2017 (UNAUDITED)

2 REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TO THE SHAREDHOLDER OF INTERNATIONAL PETROLEUM INVESTMENT COMPANY PJSC ( IPIC ) Introduction We have reviewed the accompanying interim condensed consolidated financial statements of International Petroleum Investment Company PJSC ( IPIC or the Company ) and its subsidiaries (together the Group ), as at 30 June 2017, comprising of the interim condensed consolidated statement of financial position as at 30 June 2017 and the related interim condensed consolidated statements of comprehensive income, changes in equity and cash flows for the six month period then ended and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting ( IAS 34 ). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34. Emphasis of matter We draw attention to notes 10 and 17 to the interim condensed consolidated financial statements which explain that, as at 30 June 2017, the Group has a gross receivable balance of AED 6,372,362 thousand (31 December 2016: AED 6,328,441 thousand) due from 1Malaysia Development Berhad ( 1MDB ) and/or the Ministry of Finance Inc, Malaysia ( MOF ). In addition, the Group has recognised a reimbursement asset receivable from 1MDB and/or MOF in the amount of AED 12,857,250 thousand (31 December 2016: AED 12,857,250 thousand) being the present value of probable future payments which could be made under the joint guarantees that the Company had provided to certain 1MDB subsidiaries in 2012 ( the Guarantees ). On 9 May 2017, the London Court of International Arbitration issued a Consent Award in respect of the settlement agreement dated 22 April 2017, wherein 1MDB and MOF jointly committed to settle AED 4,428,220 thousand of the receivable balance and related interest by the end of 2017 and have provided indemnity to the Company for any payments that could be made by the Company under the Guarantees. Subsequent to the reporting date, the Group has received AED 2,214,110 thousand and related interest from 1MDB. Our conclusion is not modified in respect of this matter.

3 REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TO THE SHAREDHOLDER OF INTERNATIONAL PETROLEUM INVESTMENT COMPANY PJSC ( IPIC ) continued Other matters The interim condensed consolidated financial statements of the Group for the period ended 30 June 201 were reviewed by another auditor, who expressed an unqualified conclusion, with emphases of matter paragraphs, on those interim condensed consolidated financial statements on 14 November The consolidated financial statements of the Group for the year ended 31 December 2016 were audited by another auditor, who expressed an unqualified opinion, with emphasis of matter paragraph, on those consolidated financial statements on 10 May For Ernst & Young Signed by: Anthony O Sullivan Partner Ernst & Young Registration No September 2017 Abu Dhabi

4 INTERIM CONSOLIDATED STATEMENT OF PROFIT OR LOSS For the six-month period ended CONTINUING OPERATIONS Six months ended 30 June Notes AED 000 AED 000 Sales 67,275,542 59,105,818 Cost of sales (55,711,431) (47,905,746) Gross profit 11,564,111 11,200,072 Share of post-tax profits of associates and joint ventures 1,045, ,180 Dividend income from equity investments 104, ,804 Other income (net) 491, ,798 Selling and marketing expenses (3,516,594) (3,567,655) Research and development expenses (512,314) (482,988) Other general and administrative expenses (3,938,737) (2,459,250) Profit before unrealised fair value changes, impairments, net finance expense and income tax 5,237,841 5,877,961 Gains (losses) from financial investments (net) 6 1,980,105 (3,480,395) Impairment on intangible assets 8 (410,635) - Profit before net finance expense and income tax 6,807,311 2,397,566 Finance income 346, ,713 Finance costs (1,575,417) (1,698,355) Net foreign exchange (losses) gains (1,085,240) 162,475 Net finance expense (2,313,912) (1,299,167) Profit for the period from continuing operations before income tax 4,493,399 1,098,399 Income tax expense (966,674) (1,400,320) Profit (loss) for the period from continuing operations 3,526,725 (301,921) DISCONTINUED OPERATIONS Loss after tax for the period from discontinued operations 4 - (31,206) PROFIT (LOSS) FOR THE PERIOD 3,526,725 (333,127) Profit (loss) for the period attributable to: Equity holder of the parent 2,671,644 (946,208) Non-controlling interests 855, ,081 3,526,725 (333,127) The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 3

5 INTERIM CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME For the six-month period ended Six months ended 30 June Notes AED 000 AED 000 PROFIT (LOSS) FOR THE PERIOD 3,526,725 (333,127) Other comprehensive income to be reclassified to profit or loss in subsequent periods: Exchange gains on translation of foreign operations 3,436,691 1,388,260 Net losses arising on hedge of net investments 13 (2,879,866) (983,605) Net gains arising on cash flow hedges 479,406 94,115 Net gains (losses) arising on changes in fair value of available-for-sale financial assets 320,693 (32,448) Share of other comprehensive income (loss) of associates and joint ventures 423,944 (176,306) Net other comprehensive income to be reclassified to profit or loss in subsequent periods 1,780, ,016 Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Net actuarial losses arising on defined benefit plans (194,115) (401,264) Net other comprehensive loss not to be reclassified to profit or loss in subsequent periods (194,115) (401,264) OTHER COMPREHENSIVE PROFIT (LOSS) FOR THE PERIOD 1,586,753 (111,248) TOTAL COMPREHENSIVE PROFIT (LOSS) FOR THE PERIOD 5,113,478 (444,375) Total comprehensive profit (loss) for the period attributable to: Equity holder of the parent 4,720,777 (1,253,493) Non-controlling interests 392, ,118 5,113,478 (444,375) The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 4

6 INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION At (Audited) 30 June 31 December Notes AED 000 AED 000 ASSETS Non-current assets Property, plant and equipment 7 48,292,626 49,971,825 Intangible assets 8 13,468,137 9,534,533 Investment properties 6,156,944 6,846,067 Investments in associates 31,544,183 30,194,517 Investments in joint ventures 2,270,102 1,971,395 Defined benefit plan asset 56, ,895 Deferred tax assets 4,151,918 4,009,096 Other financial investments 9 9,791,178 9,460,567 Loans receivable 4,487,658 5,116,866 Trade receivables 976, ,037 Other receivables and prepayments 10 18,351,315 16,975, ,547, ,154,957 Current assets Inventories 13,098,448 11,684,996 Other financial investments 9 9,372,616 5,104,960 Loans receivable 127,728 52,410 Trade receivables 19,615,755 18,561,442 Other receivables and prepayments 10 11,298,705 8,899,307 Cash and short term deposits 21,437,382 21,861,193 74,950,634 66,164,308 Assets classified as held for sale 4 91,893 91,893 75,042,527 66,256,201 TOTAL ASSETS 214,589, ,411,158 EQUITY AND LIABILITIES Equity attributable to equity holder of the parent Share capital 12,857,250 12,857,250 Shareholder loan 3,673,500 3,673,500 Retained earnings 31,663,465 29,059,641 Other reserves 11 (11,385,841) (13,436,480) 36,808,374 32,153,911 Non-controlling interests 11,280,286 11,123,461 Net equity 48,088,660 43,277,372 The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 5

7 INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION continued At (Audited) 30 June 31 December Notes AED 000 AED 000 EQUITY AND LIABILITIES continued Non-current liabilities Interest bearing borrowings 12 89,849,832 81,200,087 Defined benefit plan deficit 2,602,627 2,427,849 Deferred tax liabilities 5,918,409 5,724,746 Derivative financial liabilities 969, ,845 1MDB guarantees 17 12,857,250 12,857,250 Trade payables 390, ,520 Other liabilities 4,577,055 4,006, ,164, ,134,038 Current liabilities Trade payables 21,295,184 25,632,067 Interest bearing borrowings 12 12,090,693 13,127,443 Derivative financial liabilities 181, ,369 Other payables and accruals 15,769,564 11,855,869 49,336,511 50,999,748 Total liabilities 166,500, ,133,786 TOTAL EQUITY AND LIABILITIES 214,589, ,411,158 Chairman Homaid Abdulla Al Shimmari Group Chief Financial Officer Carlos Obeid The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 6

8 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Period ended Attributable to equity holder of the parent Non- Share Shareholder Retained Other controlling Total capital loan earnings reserves Total interests equity AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 Balance at 1 January ,857,250 3,673,500 31,965,151 (12,759,303) 35,736,598 12,087,042 47,823,640 (Loss) profit for the period - - (946,208) - (946,208) 613,081 (333,127) Other comprehensive (loss) income for the period (307,285) (307,285) 196,037 (111,248) Total comprehensive (loss) income for the period - - (946,208) (307,285) (1,253,493) 809,118 (444,375) Acquisition of additional interest in subsidiaries - - (8,060) - (8,060) (4,540) (12,600) Dividends paid to non-controlling shareholders (746,536) (746,536) Movement in other reserves (6,535) (6,359) 345 (6,014) Balance at 30 June ,857,250 3,673,500 31,011,059 (13,073,123) 34,468,686 12,145,429 46,614,115 Balance at 1 January ,857,250 3,673,500 29,059,641 (13,436,480) 32,153,911 11,123,461 43,277,372 Profit for the period - - 2,671,644-2,671, ,081 3,526,725 Other comprehensive income (loss) for the period ,049,133 2,049,133 (462,380) 1,586,753 Total comprehensive income for the period - - 2,671,644 2,049,133 4,720, ,701 5,113,478 Acquisition of additional interest in subsidiaries - - (16,183) - (16,183) (664) (16,847) Acquisition of non-controlling interest * (98,081) (98,081) 98,081 - Share capital increase in a subsidiary , ,211 Dividends paid to non-controlling shareholders (1,147,642) (1,147,642) Movement in other reserves ,444 1,506 47,950 (47,862) 88 Balance at 30 June ,857,250 3,673,500 31,663,465 (11,385,841) 36,808,374 11,280,286 48,088,660 *During the period ended 30 June 2017, Aabar acquired an additional 1.57% interest in Arabtec Holding PJSC for a total consideration of AED 96,095 thousand and recognised a loss of AED 98,081 thousand. The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 7

9 INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS Period ended Six months ended 30 June Notes AED 000 AED 000 OPERATING ACTIVITIES Profit before tax from continuing operations 4,493,399 1,098,399 Loss before tax from discontinued operations - (30,975) 4,493,399 1,067,424 Adjustments for: Depreciation and amortisation of fixed assets 2,926,924 3,186,956 Net impairment of fixed assets 8 444,479 36,096 (Gains) losses from financial investments (net) (1,980,105) 3,480,395 Finance income (346,745) (236,713) Other income (net) (308,886) (385,798) Dividend income from equity investments (104,460) (287,804) Finance costs 1,575,417 1,698,355 Unrealised foreign exchange difference 1,172,170 18,375 Share of post-tax profits of associates and joint ventures (1,045,052) (514,180) Reversal of previously recognised impairment losses in inventories - (1,390,607) Other non-cash adjustments 43, ,741 6,870,529 7,146,240 Working capital changes: Inventories (528,220) 512,001 Receivables, prepayments and other assets (2,294,031) (1,627,118) Payables, accruals and other liabilities (1,345,915) 459,298 2,702,363 6,490,421 Dividends received 755, ,594 Income tax paid (586,856) (415,135) Net cash from operating activities 2,870,885 6,749,880 INVESTING ACTIVITIES Purchase of financial investments (2,865,679) (358,839) Proceeds from disposal of financial investments 495,596 2,107,553 Acquisition of associates and joint ventures (200,746) (273,588) Purchase of fixed assets (3,497,723) (2,998,840) Interest received 337,980 86,390 Advance paid against non-current asset - (377,357) Net receipts against other assets 281, ,500 Net cash used in investing activities (5,449,556) (1,499,181) FINANCING ACTIVITIES Proceeds from borrowings 12 14,425,383 22,218,059 Proceeds from intercompany loans 12 4,311,422 - Contribution from non-controlling interest 862,211 - Repayments of borrowings 12 (14,730,078) (23,967,336) Interest paid (1,561,061) (1,632,584) Dividends paid to non-controlling shareholders (1,147,642) (746,536) Net cash from (used in) financing activities 2,160,235 (4,128,397) (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (418,436) 1,122,302 Net foreign exchange difference (5,375) (19,731) Cash and cash equivalents at 1 January 21,861,193 19,674,998 CASH AND CASH EQUIVALENTS AT 30 JUNE 21,437,382 20,777,569 The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 8

10 1 CORPORATE INFORMATION International Petroleum Investment Company PJSC (the Company ) is a public joint stock company established on 29 May 1984 in Abu Dhabi, United Arab Emirates ( UAE ) by Emiri Decree No 3/1984 (subsequently replaced by Emiri Decree No 2/1986). The Company is wholly owned by the Government of the Emirate of Abu Dhabi. The Company s registered head office is P O Box 7528, Abu Dhabi, UAE. The principal activity of the Company is to invest, on a long-term basis, in overseas energy and energy-related assets and to undertake infrastructure projects. Additionally the Company s subsidiary, Aabar Investments PJS ( Aabar ), a diversified investment company, with investments across a broad range of sectors including aerospace, construction, commodities, financial services and real estate. On 19 January 2017, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, as the Ruler of Abu Dhabi, issued a law creating Mubadala Investment Company, a company wholly owned by the Government of Abu Dhabi. Mubadala Investment Company will comprise both International Petroleum Investment Company ( IPIC ) and Mubadala Development Company ( MDC ) and their respective assets. This law formalises the 29 June 2016 announcement that IPIC and MDC would merge, a strategic decision intended to create an international investment powerhouse for Abu Dhabi. The immediate parent of the Company is Mubadala Investment Company PJSC ( Shareholder ) and the ultimate parent ( Ultimate parent ) is the Government of the Emirate of Abu Dhabi. The interim condensed consolidated financial statements for the six months ended 30 June 2017 were authorised for issue by the Board of Directors, on 25 September BASIS OF PREPARATION AND ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION The interim condensed consolidated financial statements for the six months ended 30 June 2017 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board ( IASB ). The interim condensed consolidated financial statements have been presented in United Arab Emirates Dirhams ( AED ). The functional currency of the Company is US Dollars ( US $ ) and the exchange rate used to translate the functional currency to AED was to To align with the presentation currency of the Shareholder, 31 December 2016 and 30 June 2016 US $ amounts have been presented to AED. All values are rounded to the nearest thousand (AED 000 ). 2.2 STATEMENT OF COMPLIANCE These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. It does not include all the information required for full annual consolidated financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2016, prepared in accordance with IFRS. 2.3 SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual consolidated financial statements for the year ended 31 December 2016, except for the adoption of the following new standards and interpretations effective as of 1 January 2017: Amendments to IAS 7 Statement of Cash Flows: Disclosures Initiative Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrecognised Losses Annual Improvements Cycle o Amendments to IFRS 12 Disclosures of Interests in Other Entities: Clarification of the scope of disclosures The Group has not early adopted any other standard, interpretation or amendment that has been issued but not yet effective. 9

11 2 BASIS OF PREPARATION AND ACCOUNTING POLICIES continued 2.4 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Group s interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods. In preparing these interim condensed consolidated financial statements the significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty and other key assumptions were the same as those applied to the consolidated financial statements as at and for the year ended 31 December SEASONALITY OF OPERATIONS No income of a seasonal nature was recorded in the interim condensed consolidated statement of profit or loss for the six months ended 30 June 2017 and 30 June ASSETS CLASSIFIED AS HELD FOR SALE Included in the consolidated statement of profit or loss: Six months ended 30 June AED 000 AED 000 Loss on Arabtec s operations in Kingdom of Saudi Arabia entities - (31,206) Included in the consolidated statement of financial position: (Audited) 30 June 31 December AED 000 AED 000 Asset of Al Yasat 91,893 91,893 Al Yasat The Group classified a vessel to be sold to a related party. The Group has received AED 99,353 thousand from the related party as advance on the sale of the vessel. 10

12 5 OPERATING SEGMENT REPORTING In order to maximise portfolio synergies and asset management as part of the merger, the Group reorganised some of its internal business units and asset reporting lines which has resulted in a change to the composition of certain reportable segments. Midstream, Power and Utilities investments segments has been split with Midstream moved to Petroleum and Petrochemicals segment and Power and Utilities moved to the Aerospace, Renewables and ICT segment. Upstream and Integrated, Midstream, Projects and Downstream segments were merged into Petroleum and Petrochemicals. Diversified investments segment and its respective assets, except certain aerospace asset moved to Aerospace, Renewables and ICT segment, was moved to Alternative Investments & Infrastructure. For the period ended 30 June 2017 Aerospace, Renewables and ICT Alternative Investments & Infrastructure Corporate Consolidated Upstream and Integrated Midstream Petrochemicals and Refining Petroleum and Petrochemicals AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Sales from external customers - 40,379,435-22,010,341 62,389,776 4,862,087 23,679 67,275,542 Profit / (loss) for the period Profit / (loss) for the period attributable to the Owner of the Parent At 30 June ,910 1,196,485 42,262 2,308,107 3,546,852 (22,614) (122,423) 3,526, ,910 1,174,671 42,262 1,449,523 2,666,454 2,703 (122,423) 2,671,644 Total assets 3,827,651 64,489,509 3,115,916 75,036, ,641,521 46,443,150 21,677, ,589,584 Total liabilities - 27,092,115 1,276,463 33,728,843 62,097,421 43,543,928 60,879, ,500,924 For the period ended 30 June 2016 Revenues from external customers - 33,404,520-21,073,555 54,478,075 4,576,968 50,775 59,105,818 Profit / (loss) for the period 192,374 1,214,308 38,638 3,508,314 4,761,260 (4,306,348) (980,413) (333,127) Profit / (loss) for the period attributable to the Owner of the Parent 192,374 1,194,086 38,638 2,647,627 3,880,351 (4,038,520) (980,413) (946,208) At 31 December 2016 (Audited) Total assets 3,662,197 62,124,318 3,451,213 65,233, ,809,008 44,086,177 22,853, ,411,158 Total liabilities - 28,045,600 1,663,162 24,436,424 54,145,186 42,877,856 61,110, ,133,786 11

13 6 GAINS (LOSSES) FROM FINANCIAL INVESTMENTS (net) Six months ended 30 June AED 000 AED 000 Impairment loss on available-for-sale financial instruments - (232,735) Fair value gains (losses) on non-derivative financial instruments at fair value through profit or loss (net) 1,873,533 (3,679,811) Fair value (losses) gains on derivative financial instruments (net) 58, ,367 Other gains (losses) on financial instruments (net) 48,134 (216) 7 PROPERTY, PLANT AND EQUIPMENT 1,980,105 (3,480,395) Additions to property, plant and equipment during the period ended 30 June 2017 amounted to AED 3,676,332 thousand (30 June 2016: AED 2,568,823 thousand). On 1 May 2017, the Company has assigned its rights and interests in its owned building to MDC General Services Holding Company LLC (a related party) for an amount of AED 1,109,584 thousand which is equal to the net carrying amount of the building at the inception date of the assignment agreement. Accordingly, the building was derecognised in these interim condensed consolidated financial statements. 8 INTANGIBLE ASSETS During the period ended 30 June 2017, the Group invested AED 716,648 thousand into intangible assets (30 June 2016: AED 537,668 thousand). In June 2017, CEPSA recorded an impairment of goodwill arising on the acquisition of Coastal Energy amounting to AED 410,503 thousand. 9 OTHER FINANCIAL INVESTMENTS (Audited) 30 June 31 December AED 000 AED 000 Non-derivative financial investments: Financial assets at fair value through profit or loss Held-for-trading 1,183,264 1,446,837 Designated on initial recognition 8,180,668 3,548,674 9,363,932 4,995,511 Held to maturity investments 36,900 20,270 Available-for-sale financial assets 9,489,102 9,089,083 18,889,934 14,104,864 Derivative financial investments 273, ,663 19,163,794 14,565,527 Non-current 9,791,178 9,460,567 Current 9,372,616 5,104,960 19,163,794 14,565,527 12

14 10 OTHER RECEIVABLES AND PREPAYMENTS Included in other receivables and prepayments is an amount receivable from 1Malaysia Development Berhad ( 1MDB ) and/or Minister of Finance, Inc. Malaysia ( MOF ) comprising of the following: a) Reimbursement asset of AED 12,857,250 thousand (US $ 3,500,000 thousand) recorded on the recognition of a provision for the present value of the future probable payments under the Guarantees (note 17.1); b) An amount of AED 2,214,110 thousand (US $ 602,725 thousand) receivable by 31 July 2017 (renegotiated to 31 August 2017) and a further amount of AED 2,214,110 thousand (US $ 602,725 thousand) by 31 December 2017 under the terms of a settlement agreed on 22 April 2017 (the Settlement ) and London Court of International Arbitration (to which disputes in relation to these matters had been submitted) made a Consent Award on 9 May 2017; and c) Interest receivable accrued to date. Further, under the Consent Award, 1MDB and/or MOF have indemnified the Company in respect of any further payments the Company may be called on to make under the Guarantees (see Note 17.2) 11 OTHER RESERVES Cumulative changes in fair value Foreign Reserve for of available currency Reserve for actuarial Share of for-sale translation cash flow gains reserves of investments reserve hedges and losses associates Total AED 000 AED 000 AED 000 AED 000 AED 000 AED Balance at 1 January ,999,590 (19,857,028) (200,378) (826,335) 124,848 (12,759,303) Other comprehensive (loss) income for the period (43,046) 162,706 70,138 (320,873) (176,210) (307,285) Movement in other reserves 1,087 (66) - (6,072) (1,484) (6,535) Balance at 30 June ,957,631 (19,694,388) (130,240) (1,153,280) (52,846) (13,073,123) 2017 Balance at 1 January ,909,200 (21,187,885) (270,998) (1,023,466) 136,669 (13,436,480) Other comprehensive (loss) income for the period 318,772 1,023, ,948 (194,196) 423,334 2,049,133 Movement in other reserves - 1, ,506 Balance at 30 June ,227,972 (20,163,104) 206,950 (1,217,662) 560,003 (11,385,841) 13

15 12 INTEREST BEARING BORROWINGS (Audited) 30 June 31 December AED 000 AED 000 Listed notes and other borrowing instruments 48,260,937 45,091,849 Unlisted borrowings 52,696,339 47,096,739 Overdrafts 970,252 2,125,105 Finance lease obligations 12,997 13, ,940,525 94,327,530 Non-current 89,849,832 81,200,087 Current 12,090,693 13,127, ,940,525 94,327,530 Borrowings as at the reporting date, analysed by each significant sub-group of companies, are as follows: (Audited) 30 June 31 December AED 000 AED 000 The Company 45,433,855 46,082,955 Aabar 28,247,301 25,967,986 NOVA 11,286,318 3,664,125 Borealis 5,185,972 5,459,012 CEPSA 11,787,079 13,153, ,940,525 94,327,530 Movement in borrowings during the period were as follows: (Audited) 30 June 31 December AED 000 AED 000 At the beginning of the period 94,327, ,304,778 Additions 18,736,805 27,022,755 Repayment (14,730,078) (31,928,008) Foreign exchange fluctuations and other movements 3,606,268 (2,071,995) At the end of the period 101,940,525 94,327,530 As of 30 June 2017 and 31 December 2016, the Company has not guaranteed the borrowings of any of the Group companies. However, the Company has provided joint guarantees with 1Malaysia Development Berhad ( 1MDB ), a strategic development company wholly-owned by the Government of Malaysia (see note 17 for further details) in relation to certain obligations (principal and associated interests) of subsidiaries of 1MDB. The principal amount of the obligations is AED 12,857,250 thousand. 14

16 13 DERIVATIVE FINANCIAL INSTRUMENTS Derivatives often involve at their inception only a mutual exchange of promises with little or no transfer of consideration. However, these instruments frequently involve a high degree of leverage and are volatile. A relatively small movement in the value of the asset, rate or index underlying a derivative contract may have a significant impact on the profit or loss of the Group. Over-the-counter derivatives may expose the Group to the risks associated with the absence of an exchange market on which to close out an open position. Aabar, NOVA, CEPSA and Borealis have their own financial risk management function, which aims to minimise the effects related to foreign exchange, interest rate, liquidity, credit, commodity price and refinancing risks. The Company operates within a centralised treasury and funding department of the shareholder. Hedge of net investments in foreign operations At 1 January 2017, a set of borrowings amounting to AED 19,908,342 thousand (EUR 5,153,036 thousand) and AED 6,304,000 thousand (EUR 1,631,715 thousand) had been designated as a hedge of the net investment in CEPSA and OMV, respectively. These borrowings were used to hedge the Group s exposure to EUR foreign exchange risk on this investment. Gains or losses on the retranslation of these borrowings amounting to AED 2,243,618 thousand were transferred to other comprehensive income to offset any gains or losses on translation of foreign operations. There was no ineffectiveness recorded as at 30 June At 1 January 2017, management designated the fixed to fixed US $ /EUR and GBP/EUR swap derivatives as hedging instruments against the hedge of net investments in Borealis (excluding Borouge) and OMV with the similar notional amounts of AED 4,903,827 thousand (EUR 1,269,297 thousand) and AED 2,482,336 thousand (EUR 642,523 thousand), respectively. Portion of the fair value gains or losses of the hedging instruments that relates to foreign exchange gains or losses amounting to AED 636,248 thousand were transferred to other comprehensive income to offset any gains or losses on translation of foreign operations. The difference between the fair value of the swaps derivatives and related foreign exchange difference of AED 192,802 thousand was recorded in the statement of profit or loss as at 30 June

17 14 FAIR VALUE DISCLOSURES The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December The fair value of the financial assets and liabilities is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values: The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward contracts and commodity forward contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and forward rate curves of the underlying commodity. As at 30 June 2017, the marked to market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value. Fair value of portfolio investments is derived from quoted market prices in active markets, if available. Fair value of unquoted portfolio investments is estimated using appropriate valuation techniques including discounted cash flow (DCF). In the DCF method, future cash flows are projected for a reasonable forecast period of time and adjusted for their time value. Fair value of cash and short-term deposits, short term trade receivables, other assets and other liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Fair value of fixed and variable rate borrowings also approximate their carrying amounts except for listed notes. Listed notes are fair valued at the quoted market price as at 30 June Long-term trade receivables and other assets are valued by the Group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer, and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 30 June 2017, the carrying amounts of such trade receivables and other assets, net of allowances, are not materially different from their calculated fair values. The fair value of certain non-current other assets as well as other non-current liabilities are estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. 16

18 14 FAIR VALUE DISCLOSURES continued The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy, which analyses financial instruments carried at fair value by valuation method. The different levels are defined as follows: Level 1: Level 2: Level 3: quoted (unadjusted) prices in active markets for identical assets or liabilities. other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. At 30 June 2017 Quoted price in Significant Significant active observable unobservable Carrying Fair markets inputs inputs amount value (Level 1) (Level 2) (Level 3) AED 000 AED 000 AED 000 AED 000 AED 000 Financial assets measured at fair value Derivative financial assets Currency 70,057 70,057-70,057 - Interest rate 11,608 11,608-11,608 - Commodity 113, , ,427 - Others 78,768 78,768-78,768 - Investments at fair value through profit or loss Held for trading 1,183,264 1,183,264 1,183, Designated on initial recognition 8,180,668 8,180,668 7,759, , ,717 Available-for-sale investments Quoted equity shares 8,791,452 8,791,452 8,791, Unquoted equity shares 595, , ,243 Quoted debt securities 102, , ,407 - Assets measured at fair value Investment properties 6,156,944 6,156, ,156,944 Assets for which fair values are disclosed Trade receivables* 20,591,955 20,591,955 Loans receivable 4,615,386 4,615,386 Other receivables and prepayments* 29,650,020 29,650,020 Cash and cash equivalents 21,437,382 21,437,382 Financial liabilities measured at fair value Derivative financial liabilities Interest rate 935, , ,982 - Currency 72,537 72,537-72,537 - Commodity 88,869 88,869-88,869 - Others 52,715 52,715-52,715 - Liabilities for which fair values are disclosed Trade payables* 21,685,391 21,685,391 Payables and accruals 15,769,564 15,769,564 Other liabilities* 4,577,055 4,577,055 Interest bearing borrowings 101,940, ,649,125 39,720,189 62,920,377 8,559 *Trade receivables and other receivables and prepayments includes non-financial assets of AED 1,753,942 thousand and AED 1,142,271 thousand, respectively while trade payables and other liabilities include non-financial liabilities of AED 1,958,762 thousand and AED 346,631 thousand, respectively. 17

19 14 FAIR VALUE DISCLOSURES continued At 31 December 2016 Quoted price in Significant Significant active observable unobservable Carrying Fair markets inputs inputs amount value (Level 1) (Level 2) (Level 3) AED 000 AED 000 AED 000 AED 000 AED 000 Financial assets measured at fair value Derivative financial assets Currency 5,797 5,797-5,797 - Equity 163, , ,585 - Commodity 143, , ,685 - Others 147, , ,594 - Investments at fair value through profit or loss Held for trading 1,446,837 1,446,837 1,314,084 47,337 85,416 Designated on initial recognition 3,548,675 3,548,675 3,329,610 89, ,087 Available-for-sale investments Quoted equity shares 8,252,554 8,252,554 8,252, Unquoted equity shares 570, , ,447 Quoted debt securities 154, , , Assets measured at fair value Investment properties 6,846,067 6,846, ,846,067 Assets for which fair values are disclosed Trade receivables* 19,465,479 19,465,479 Loans receivable 5,169,276 5,169,276 Other receivables and prepayments* 25,874,466 25,874,466 Cash and cash equivalents 21,861,193 21,861,193 Financial liabilities measured at fair value Derivative financial liabilities Interest rate 22,812 22,812-22,812 - Currency 205, , ,194 - Commodity 128, , ,304 - Others 560, , ,904 - Liabilities for which fair values are disclosed Trade payables* 26,016,587 26,016,587 Payables and accruals 11,855,869 11,855,869 Other liabilities* 4,006,741 4,006,741 Interest bearing borrowings 94,327,530 99,743,787 41,343,938 58,389,453 10,396 *Trade receivables and other receivables and prepayments includes non-financial assets of AED 1,155,283 thousand and AED 1,150,647 thousand, respectively while trade payables and other liabilities include non-financial liabilities of AED 1,834,285 thousand and AED 222,397 thousand, respectively. 18

20 14 FAIR VALUE DISCLOSURES continued Reconciliation of fair value measurements of Level 3 financial assets For fair value measurements in Level 3 of the fair value hierarchy, reconciliation from beginning balances to ending balances, disclosing separately changes during the year attributable, is as follows: Opening Disposals/ Fair value balance Additions Transfers gain (loss) Total AED 000 AED 000 AED 000 AED 000 AED 000 At 30 June 2017 Investment properties 6,846,067 91,441 (780,564) - 6,156,944 Investments at FVTPL Held for trading 85,416 - (85,416) - - Designated on initial recognition 129,087-85,416 (5,786) 208,717 Available-for-sale investments Unquoted equity shares 570,447 7,453-17, ,243 7,631,017 98,894 (780,564) 11,557 6,960,904 At 31 December 2016 Investment properties 7,139, ,402 (320,017) (340,710) 6,846,067 Investments at FVTPL Held for trading - 220, ,252 (291,026) 85,416 Designated on initial recognition 123,422 12,538 - (6,873) 129,087 Available-for-sale investments Unquoted equity shares 587,209 2,369 (19,279) ,447 7,850, ,499 (183,044) (638,461) 7,631,017-19

21 15 COMMITMENTS AND CONTINGENT LIABILITIES (Audited) 30 June 31 December AED 000 AED 000 Capital commitments Property, plant and equipment 5,543,448 3,962,278 Investment properties 2,457,675 2,483,866 Intangible assets 16,736 8,185 Investments in equity instruments 18,918 8,872 Loan commitments 74,959 85,398 Share of commitments in joint ventures 269, ,192 7,173,136 6,796,791 Contingent liabilities 19,937,948 18,317,151 27,079,315 25,113,942 Operating lease commitments Up to 1 year 1,006,602 1,104,985 1 to 5 years 5,151,229 2,851,260 Beyond 5 years 753,848 2,745,409 6,911,678 6,701,654 Fiduciary assets 278, ,557 A fiduciary asset is a placement made with another bank or loan granted to an institution in the name of Falcon Private Bank, but for the account and the risk of the customer of the bank. Assets held in fiduciary capacity are reported as off balance sheet items in the consolidated financial statements, as they are not the assets of the Group. 16 LITIGATIONS AND CONTINGENCIES The Group is involved in litigations from time-to-time in the ordinary course of business. Legal claims often involve highly complex issues, actual damages, and other matters. These issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimate of damages are often difficult to determine. The Group has recorded a provision for claims for which it is able to make an estimate of the expected loss or range of possible loss, but believe that the publication of this information on a case-by-case basis would seriously prejudice its position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, for these claims, the Group has disclosed information with respect to the nature of the claim, but not an estimate of the range of potential loss or any provision accrued. The Group believes that the aggregate provisions recorded for these matters are adequate based upon currently available information as of the statement of financial position date, which may be subject to ongoing revision of existing estimates. However, given the inherent uncertainties related to these claims, the Group could, in the future, incur judgments that could have a material adverse effect on its results of operations, liquidity, financial position or cash flows in any particular period. For contingent liabilities, the Group has disclosed the claims, but has not recorded a provision of the potential outcome of these claims and is unable to make an estimate of the expected financial effect that will result from ultimate resolution of the proceedings. 20

22 16 LITIGATIONS AND CONTINGENCIES continued Dow Litigations In 2005, The Dow Chemical Company ("Dow Chemical") filed suit against NOVA in the Federal District Court in Delaware alleging that certain grades of NOVA s SURPASS polyethylene film resins infringe two Dow Chemical patents. In 2010, a jury trial took place and a judgment of infringement against NOVA was entered on 18 June Dow Chemical was awarded certain amounts for damages and pre-judgment interest. In 2012, after unsuccessful appeals, NOVA paid Dow Chemical approximately US $ 77 million. A Supplemental Damages Bench Trial was held on 30 April 2013 and 1 May 2013 to determine any additional damages that should be awarded to Dow Chemical based on sales of certain grades of NOVA s SURPASS resin in the United States from January 1, 2010 through the expiration of the patents on 15 October The court issued a decision in March Approximately AED million was awarded to Dow Chemical for supplemental damages. In April 2014, NOVA appealed the validity of Dow Chemicals patents based on a change in U.S. law. Oral arguments in the appeal were heard by a panel of three judges of the Court of Appeals for the Federal Circuit ( CAFC ) in June In August 2015, CAFC panel held in a unanimous, precedential decision that the patents-in-suit are invalid as indefinite and reversed the lower court award of supplemental damages. In September 2015, Dow Chemical petitioned the CAFC for panel rehearing. The CAFC denied Dow Chemical s petition in a split decision. In March 2016, Dow Chemical filed a petition for certiorari (review) with the U.S. Supreme Court, which was denied in May 2016, securing NOVA s victory in the supplemental damages action. As a result, NOVA reversed the related provision of AED million (US $ 31 million) during In December 2010, Dow Chemical filed a Statement of Claim against NOVA in Federal Court in Canada alleging that certain grades of NOVA s SURPASS polyethylene film resins infringe a Dow Chemical Canadian patent, and in March 2011, NOVA filed its statement of defences and counterclaim. A trial on the infringement issue commenced in September 2013 and concluded in November In May 2014, the judge for the Federal Court issued an adverse judgment against NOVA. In August 2014, NOVA filed a Notice of Appeal with the Federal Court of Appeal. Oral arguments in the appeal were held in December In September 2016, the Federal Court of Appeal dismissed NOVA's appeal from the Federal Court decision. A subsequent trial to determine damages commenced in December 2016 and concluded in January In November 2016, NOVA filed an Application to the Supreme Court of Canada to review the decision of the Federal Court of Appeal which was dismissed in April On 20 April 2017, the Federal Court issued its Judgement and Reasons for the initial damages, providing assumptions and other considerations to be used in calculation of the amount of damages and pre-judgment interest. In May 2017, NOVA filed a Notice of Appeal with the Federal Court of Appeal regarding the damages calculation. On 29 June 2017, the Federal Court issued Confidential Supplemental Judgement and Reasons, awarding Dow Chemicals AED 1,840 million (US $ 501 million). On 6 July 2017, NOVA paid Dow Chemical AED 1,840 million (US $ 501 million) for the litigation award. On 28 July 2017, NOVA filed a Notice of Appeal with the Federal Court of Appeal regarding the Supplemental Judgement and Reasons. The Dow Chemical Canadian patent at issue expired in April At 30 June 2017, other payables and accruals reported in interim consolidated statement of financial position and other general and administrative expenses for the period reported in interim consolidated statement of profit or loss include an amount of AED 1,840 million (US $ 501 million) for the above patent infringement award. In 2006, a claim was filed against NOVA in the Court of Queen's Bench of Alberta by Dow Chemical Canada ULC and its European affiliate (collectively, "Dow Canada") concerning the jointly owned third ethylene plant at NOVA s Joffre site. Dow Canada has amended its initial statement of claim and has claimed for further losses and damages in an amount to be proven at trial of this action. In its most recent amendment, Dow Canada estimates its claim at an amount exceeding AED 2,939 million (US $ 800 million). NOVA initially counterclaimed in the same action. NOVA also amended its statement of defence and counterclaim. The amount of the counterclaim is estimated in NOVA s most recent amendment at approximately AED 184 million (US $ 50 million). A trial commenced in January 2015 and concluded in March During the trial, NOVA further reduced the amount of its counterclaim. 21

23 16 LITIGATION AND CONTINGENCIES continued Borealis Technology Oy Tax contingencies On 29 December 2014, Borealis Technology Oy ( TOY ), a Finnish subsidiary of Borealis AG, has received a reassessment decision by the Finnish Tax Authority (FTA) for the year 2008, regarding its polyolefin technology. Based on this re-assessment the taxable income of TOY has been increased by an amount of AED 2,937,867 thousand (Euro 700,000 thousand). This leads to a requested additional total payment of AED 1,182,479 thousand (Euro 281,747 thousand), comprising of taxes, late payment interest and penalties. On 9 June 2015, TOY received from the Finnish tax authority a second re-assessment decision, with regards to its catalyst technology, to pay an additional amount of AED 522,940 thousand (Euro 124,600 thousand) in taxes, penalties and interest related to the year The amount claimed for catalyst is based on assessing an additional taxable income of AED 1,426,964 thousand (Euro 340,000 thousand) in the year Borealis believes that both decisions are unfounded and has filed claims at the FTA s Board of Adjustment both for the re-assessment decisions concerning the polyolefin and catalyst technologies on 27 February 2015 and 13 November 2015, respectively. In January 2017, Borealis received the two decisions of the FTA s Board of Adjustment in regard to TOY. According to the re-assessment decision, the taxable income increases by AED 3,361,759 thousand (Euro 801,000 thousand), leading to an additional requested payment in total of AED 1,246,495 thousand (Euro 297,000 thousand), consisting of additional income taxes, penalties and interests. Borealis believes that this decision fails to properly apply Finnish and International tax law and does not adequately consider the relevant facts of the case. Borealis appealed this decision to the Helsinki Administrative Court on 6 March 2017 and has obtained a suspension of payment until the final decision. On 18 July 2017, Borealis made a collateral deposit amounting AED 629,543 thousand (Euro 150,000 thousand) to Helsinki Enforcement Authority, Finland. The deposit was made in relation to the 7 February 2017 issued prohibition of enforcement decision, following TOY appeal against the re-assessment decisions of the Finnish Board of Adjustment. The deposit is not a payment to the Finnish Tax Authority and it does not imply any agreement of Borealis with the re-assessment decisions (refer note 20). Borealis Polymers Oy Tax contingency On 31 December 2015, Borealis Polymers Oy ( BPOY ), a Finnish subsidiary of Borealis AG ( BAG ), received a re-assessment decision by the Finnish Tax Authority (FTA) for the year Based on this re-assessment decision, the taxable income of BPOY has been increased by an amount of AED 1,527,691 thousand (Euro 364,000 thousand) which relates to a license arrangement and other agreements entered into between BPOY and BAG and the tax treatment thereof. This leads to a requested additional total payment of AED 640,035 thousand (Euro 152,500 thousand), comprising of taxes, late payment interest and penalties. Borealis believes that this decision fails to properly apply Finnish and International tax law and does not adequately consider the relevant facts of the case. Borealis appealed the re-assessment decision to the FTA s Board of Adjustment in February The decision of the Board of Adjustment is expected in the second half of the 2017 calendar year. A suspension of payment has been obtained pending the decision. Further, several other companies within the Group are currently subject to routine tax audits performed by their respective tax authorities. In some of the audits, specific emphasis is put on business restructuring and transfer pricing. Managements opinions are that the companies are in compliance with all applicable regulations. Given the preliminary nature of the proceedings, potential impacts, if any, cannot be currently reliably estimated. 22