Madinet Nasr S Regulatory News (MNHD)

Nasr City 9-2018E

REPORT OF THE INDEPENDENT AUDITOR ON THE

SUMMARY INTERIM SEPARATE FINANCIAL STATEMENTS

TO THE BOARD OF DIRECTORS OF

Madinet Nasr for Housing & Development S.A.E.

We have reviewed the interim separate financial statements of Madinet Nasr for Housing & Development S.A.E. for the period from 1 January 2018 to 30 September 2018, from which the attached summary interim separate financial statements are derived, in accordance with the Egyptian Standards on Auditing and the relevant laws and regulations. As stated in our Arabic review report dated 5 November 2018, we expressed an unqualified review conclusion on the interim separate financial statements for the period then ended, from which the attached summary interim separate financial statements are derived.

In our opinion, the attached summary interim separate financial statements are consistent in all material respects, with the interim separate financial statements for the period then ended.

In order to obtain a comprehensive understanding of the company's separate financial position as of 30 September 2018, the results of its operations for the period then ended and our scope of limited review, you should refer to the Arabic interim separate financial statements for the period then ended and our review report thereon.

Mohanad T. Khaled

Fellow of ACCA

Fellow of ESAA

R.A.A. 22444

FRA No. 375

Cairo, 5 November 2018

SEPARATE STATEMENT OF FINANCIAL POSITION

At 30 September 2018

Review report "attached".

SEPARATE STATEMENT OF INCOME

For the period from 1 January to 30 September 2018

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 January to 30 September 2018

SEPARATE STATEMENT OF CHANGES IN EQUITY

For the period from 1 January to 30 September 2018

SEPARATE STATEMENT OF CASH FLOWS

For the period from 1 January to 30 September 2018

NON-CASH TRANSACTIONS:

The statement of cash flows does not include the following non-cash transactions:

· An amount of L.E. 1,828,508 represents transfer from Projects under construction to fixed assets.

· An amount of L.E. 281,969,104 (2017: L.E. 192,332,965) represents bank accounts and deposits against management, operation, and maintenance projects' creditors.

· An amount of L.E. 202,899,611 (2017: L.E. 500,000,000) represents paid up capital increase by issuance free shares from retained earnings.

1. COMPANY BACKGROUND

1.1 Legal form of the company

Madinet Nasr for Housing & Development S.A.E. was incorporated in accordance with the Presidential Decree No. 815/1959 then changed to Joint Stock Company according to Presidential Decree No 2908/1964 under the umbrella of the Public Sector Authority for Housing by Presidential Decree No. 469/1983.

The company transferred to an Egyptian joint stock company under the provisions of Law No. 203 for 1991 issued on 19/06/1991 under the umbrella of the Holding Company for Housing under the name of Madinet Nasr Housing and Development. The Extraordinary General Assembly of the company held on 30/6/1996 approved the change to the provisions of Law No. 159 for 1981 and its executive regulations and published in company's journal on January 1997 rather than the provisions of Law No. 203 for 1991.

The company was registered in the Commercial Register No. 300874 on 23 December 1996 under tax card No. 200-009-095.

1.2 Activity

The company is engaged in all activities related to real estate development for lands, buildings and facilities including acquisition of land and real estate sale and rental, dividing it and providing all types of facilities necessary for reconstruction and connected to it in Nasr City and other areas nationwide, the purchase and development, utilization, leasing and sale of all buildings and land. The company can establish, manage and invest all residential, administrative, tourists, recreational and all projects necessary to achieve these purposes, and all real estate, financial, commercial and entertainment operations related to these purposes, as well as carrying out designs, and engineering consultancy and supervision of the execution to others. 

BIG Investment Group Limited - Egypt considered the main shareholder of the company.

1.3 Duration

The company's term is 50 years starting from the date of the registration in the commercial register and has been renewed for another 25 started from 23/12/1996 to 22/12/2021.

1.4 Location

The company's head office is located at 4, Youssef Abbass St., 2nd Area, Nasr City, Cairo, Egypt.

The Chairman is Eng. Mohamed Hazem Barakat.

The company is listed on Egyptian Stock Exchange and London Stock Exchange on GDR admission system.

The company Board of Directors has approved the separate financial statements for the period ended 30 September 2018 on 1 November 2018.

2. USE OF ESTIMATES AND JUDGMENTS

The preparation of separate financial statements in accordance with Egyptian Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumption are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities. Actual results may differ from those estimates.

The estimates and underlying assumptions are reviewed on a continuous basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the future periods if it affects future periods.

The following estimates and judgments that is affect on financial statements are as follows:

- Depreciation of fixed assets and Investment property

- Provisions

- Impairment of assets values

- Taxation

- Liabilities for utilities completion

- Amortization of the discount of present value for notes receivable

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of preparation of the summarized separate financial statements

The separate financial statements are prepared in accordance with the Egyptian Accounting Standards and relevant local laws and regulations.

The separate financial statements are prepared under the historical cost convention modified for measurement of available for sale investments, held to maturity investments and investment at fair value through profit and loss.

The separate financial statements are presented in Egyptian Pounds.

According to the Egyptian Accounting Standard No. 42 (Consolidated Financial Statements) and Article 188 of the Executive Regulations of the Companies Law No. 159 of 1981, the company prepares consolidated financial statements.

b) Fixed assets and depreciation

Fixed assets are recorded on purchase at cost and are presented in the statement of financial position net of accumulated depreciation and impairment losses. Historical costs include costs associated with the purchase of the asset. For assets constructed internally, the cost of the asset includes the cost of raw materials, direct labour and other direct costs incurred in bringing each asset to its location and the purpose for which it was acquired, as well as the costs of removal and rearrangement of the site, where the assets are located.

Components are accounted for on an item of fixed assets that have different useful lives as separate items within those fixed assets.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

The carrying amount of fixed assets includes the cost of replacing a part or component of such assets when it is expected to obtain future economic benefits as a result of spending that cost. Other costs allocated to the separate income statement as an expense when incurred.

Depreciation is provided on a straight line basis to write off the cost less estimated residual value of each asset - other than land - over its expected useful life.

c) Projects under construction

Projects under construction are recorded at cost which includes all the direct costs incurred on the assets to reach its final position. These are transferred to fixed assets or investment properties when the asset is complete and ready for its intended use. Projects under construction are recorded at cost less impairment, if any.

d) Investment in subsidiaries

A subsidiary is a company in which the company owns more than 50% of the share capital and the company exercises the right to control the investee when the company is exposed or entitled to variable returns through the company's contribution to the investee company and has the ability to affect those returns through its authority over the company. Therefore the company controls the investee company when the company has all the following:

· Power over the investee.

· Exposure or right to variable returns by contributing to the investee company.

· The ability to use the authority on the investee company to influence the amount of proceeds obtained from it.

Investments in subsidiaries are carried at cost less impairment losses, if any.

In case of impairment, the carrying amount of the impairment loss is reduced and charged to the separate statement of income for each investment. The impairment loss is reversed in prior periods so that the carrying amount of the investment does not exceed its original net worth before the impairment loss is recognized in value.

e) Available for sales investments

Available for sale investments are initially recorded at cost and are subsequently measured at fair value. Changes in fair value are reported as a separate component of other comprehensive income. Where available for sale investments could not be measured reliably, as the market for an investment is not active (and for unlisted securities), these are stated at cost less impairment losses, if any. Impairment loss is charged to the separate statement of income.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

f) Held to maturity investments

Held to maturity investments are carried at amortized cost using the effective interest method. Premiums or discounts (if any) are amortized using the effective interest rate. When the investment is impaired, the impairment loss is adjusted against book value and included in the separate statement of income.

g) Investment properties

Investment properties are measured at cost model and depreciation expense charged to the separate statement of income according to the straight-line method over the estimated useful life of all investment property except the land. In case of such assets are impaired, the loss is included in the separate income statement.

h) Investments at fair value through profit and loss (investment certificates)

Investments at fair value through profit and loss are initially recorded at cost and revaluated at the date of separate financial statements at fair value which represents the market price at the valuation date. Changes in fair value are charged to the separate statement of income.

i) Housing and Development projects

All cost incurred on housing and development projects are included in this account. At point of sale, this account is adjusted based on actual per meter cost of land or units sold. Housing and development projects are measured at the lower of cost and net realizable value. In case of decrease the net realizable value under the cost, the decrease is charged to the separate statement of income.

j) Separate statement of cash flows

The separate statement of cash flow is prepared according to the indirect method.

k) Cash and cash equivalents

Cash and cash equivalents include cash on hand, time deposits (due within 3 months), bank current accounts, and short term highly liquid investments, which can be easily converted to cash, less credit banks and pledged time deposits against letters of guarantee.

l) Receivables and other debtors

Trade accounts receivable stated at cost net of allowance for doubtful debts, which is estimated for amounts not expected to be collected in full. Other debtors stated at cost less any impairment. (If any)

The notes receivable are the value of post-dated checks (PDCs) obtained from the customers in payment of the remaining contractual values of the contracted real estate units. The initial recognition of the notes receivable is at fair value at the time the contract is entered into with the customers. At the date of preparation of the separate financial statements; notes receivable are re-measured at amortized cost; which is determined by discounting the future cash flows of the notes using the rate of return that discounts the nominal value of the instruments to the current cash price for selling the real estate units.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

m) Assets impairment

Non-Financial Assets

At the separate financial statements date, the company reviews the carrying amounts of its owned non financial assets to determine whether there is any indication that those assets may be impaired. If any such indication exists, the company estimates the recoverable amount for each asset separately in order to estimate the impairment losses. In case the recoverable amount of the asset cannot be properly estimated, the company estimates the recoverable amounts for the cash-generating unit which is related to the asset.

In case of using a reasonable and consistent basis for allocating of the assets to the cash generating units, the company's general assets would be also allocated to these units. If this is unattainable, the general assets of the company shall be allocated to the smallest group of the cash-generating units, which the company determined using logical and fixed bases.

The asset recoverable amount or the cash-generating unit is represented by the higher of the fair value (less the estimated selling costs) or the estimated amount from the usage of the asset (or the cash generating unit).

The estimated future cash flow from the usage of the assets, or the cash generating unit using a discount rate before tax is discounted in order to reach the present value for these flows which represents the estimated amount from using the asset (or the cash generating unit).

This rate reflects current market assessments of the time value of money and the risks specific to the asset, which were not taken into consideration when estimating the future cash flow generated from it. When the recoverable amount of the asset (cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash generating unit) is reduced to its recoverable amount with the impairment loss recognized immediately in the separate income statement.

In case the impairment on asset (or cash generating unit) decreases subsequently, and this decrease is related in a logical manner to one event or more taking place after the initial recognition of the impairment at the profit or losses, a reversal is done for the revised amount of losses (or a part of it)- which had been recognized previously- in the separate income statement, and the carrying amount for the asset is increased (or the cash generating unit) with the new estimated recoverable amount provided that the revised carrying amount of the asset after revising (or the cash generating unit) does not exceed the carrying amount determined for the asset, had the recognized losses resulting from impairment, not been recognized in previous years

Financial Assets

At the end of the reporting period, the company determines whether there is any indication that its financial assets may be impaired.

Financial assets are exposed to impairment when an objective evidence that the estimated future cash flow have been affected by the event or more established at a date subsequent to the initial recognition of the financial asset.

The carrying value of all financial assets is reduced directly with the impairment losses except those related to the reduction in the expected value of the collections from the customers debts and other debit balances, where a formed allowances for impairment loss is done on its value. When the debt of the clients or the owner of the debit balance is uncollectible, a written off discount is applied upon this account. All the changes in the book value relating to this account are recognized in the separate income statement.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

n) Provisions

Provisions are recognized when there is a present legal or constructive obligation as a result of a past event, it is probable an outflow of resources embodying economic benefits will be required to settle this obligation and a reliable estimate can be made for the obligation.

Provisions are reviewed at the separate financial position date and adjusted (if necessary) to present the best current estimate.

o) Unearned revenue, payables and other creditors

The value of unearned revenues on real estate units (villas, townhouses, twin houses, apartments and garages) contracted for sale and were not delivered to customers on the date of the separate financial position is recorded as a liability at the cash price of those units (after discounting the future contractual value of these units to reach the cash sale price). These balances are recognized as sales income in the separate statement of income on the date of delivery.

Liabilities are recognized for amounts to be paid in the future for goods received or services rendered to the company, whether billed or not billed by the supplier.

p) Treasury shares

Treasury shares are recorded at cost and deducted from shareholders equity. Gain or loss from sale of shares is included in retained earnings.

q) Dividends

Dividends are recorded as liability during the year when declared.

r) Revenue recognition

1. Cash sales

Sales of land & property is recoded after collection of the agreed upon price and delivery to the customer in accordance with the terms of the contract.

2. Installment Sales

Revenue on sales during the period are recorded when the related land and property is actually received by the customers or, where delay in receiving by customer is due to circumstances out of the company's control, according to the contractual terms as follows:

- Total sale of value of land and property is recorded as sales during the period after deduction of profit relating to deferred installments on those sales. Such deduction is recorded as a liability (profit from deferred installments) when all the following terms for sales are met as:

§ The risk and rewards of ownership of units sold is not transferred to the buyer until settlement of all installments due from the buyers and the transfer of ownership to buyer.

§ The company has the right of managerial intervention and supervision on units sold to guarantee that the buyer is a biding by the contractual terms.

§ According to the signed contracts with the customers, the company has the right to cancel the contracts if all installments due were not paid.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

- Interest on installments is recorded directly in credit balances (Deferred interests on installments) at the time of sale.

- Deferred installments profit and deferred interests on installments which related to sale of land and properties in prior years are recognized on the actual basis when the installments full due adjusting the profit margin by cost incurred on projects during the year.

3. Revenue from real estate contracts

The company is performing the activity of real estate and marketing to this activity through customers' contracts which give them the right to have real estate villa, ton house and unit over the period of the contract. Revenue recognized from sales agreements according to the stages included in the sales agreements according to the following:

· Development of land to construction of real estate

· Construction of the building

· Completion of Within a year

4. Joint arrangement

A joint arrangement is an arrangement in which two or more parties have joint control. It is either a joint operation or a joint venture. A joint arrangement is that the parties are bound by a contractual agreement granting joint control to two or more parties of the arrangement.

The classification of a joint arrangement as a joint operation or a joint venture depends on the rights and obligations (undertakings) of the parties to the arrangement. The joint operation becomes a joint arrangement when its parties have joint control over the rights over the assets and the obligations associated with the arrangement. These parties are called joint operators. A joint venture is a joint arrangement when its parties have joint control over the rights over the net assets associated with the arrangement. These parties are called shareholders in joint ventures. The entity shall apply the judgment in assessing whether the joint arrangement is a joint venture or a joint venture.

The joint operator shall account for assets, liabilities, income and expenses related to its share in the joint operation in accordance with the Egyptian Accounting Standards applicable to such assets, liabilities, revenues and expenses.

On 31 December 2015, the Company adopted a new strategy to execute a joint operation development contract based on a share in the revenue of the sales. The Company receives its share against the land provided for development by the other co-developer who will receive the rest of the sale revenue against incurring the development cost.

5. Other revenues

· Rental income is recognized on a time-apportioned basis. Interest income on deposits and bonds is recognized on a time basis and using the target rate of return on the financial asset.

· Dividend income is recognized in the separate statement of income when the right to receive dividends from the investee is established and is recognized after the date of acquisition.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

s) Direct and indirect cost

Direct and indirect costs incurred for the constructions of the real estate are accumulated in the inventor account for constructions. Cost of the completed contracts are comprises of land cost, cost of building constructed and other indirect costs.

t) Employees' benefits

The company contributes to the social insurance scheme for the benefit of its employees in accordance with the Social Insurance Law. Contributions of workers and employers are calculated at a fixed rate of wages. The company's commitment is represented in value of its contribution. The company's contributions are charged to the separate statement of income. The company gives employees who have reached retirement age, end of service gratuity up to a maximum of 50 thousand Egyptian pounds. The Company also applies an optional early retirement scheme. End of service benefits for employees benefiting from this system are charged to the separate income statement in the period in which they are approved for early retirement.

u) Taxation

Income tax

Taxation is accounted according to Egyptian laws and regulations.

Income tax expense that is calculated on the profits of the company represents the sum of the tax currently payable (calculated according to the applied laws and regulations and using the tax rates prevailing as of the separate financial statements date) and deferred tax. Current and deferred taxes are recognized as income or expenses and included in the profits or losses of the period except for instances that taxes are established from:

1. A transaction or event recognized, in the same period or other period, outside profit or loss either in other comprehensive income or directly in equity, or

2. Business combinations.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities according to the accounting basis used in the separate financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates that have been enacted or substantively enacted at the separate financial statements date.

Deferred tax liabilities are generally recognized (generated from taxable temporary differences in the future) while deferred tax assets recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

The carrying amount of deferred tax assets is reduced to the extent that it is no longer probable that sufficient taxable profits will be available in future years to allow all or part of the asset to be recovered. The balance sheet method is used in accounting for deferred assets and liabilities and they are recognized as non-current assets and liabilities.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

v) Earnings per share

Earnings per share are calculated by dividing the net profit for the period, after deducting employees share and Board of Directors remuneration, by the weighted average number of outstanding shares during the period.

w) Borrowing cost

Borrowing costs directly attributable to the acquisition, construction or production of a qualified asset for capitalization of cost of borrowing; are capitalized as part of the cost of the asset. Other borrowing costs are charged as an expense in the separate statement of income on a time-apportioned basis using the effective interest rate.

An asset eligible to bear the cost of borrowing necessarily requires a long period of time to process it for use for its intended purposes or to sell it. This applies to land and building facilities items as fixed assets under construction (under construction projects) and incomplete inventory of reconstruction and housing projects.

Capitalization of borrowing costs begins as part of the cost of the qualifying asset to bear the cost of borrowing when:

- Expenditure on the qualified asset.

- The Company incurs a borrowing cost.

- The activities required for the preparation of the asset for use for purposes specified for it or for its sale to others are currently under implementation.

Capitalization of borrowing costs is suspended during periods in which the effective construction of the asset is impaired. Capitalization is contingent upon the completion of all material activities necessary to prepare the qualifying asset to bear the borrowing cost for its intended use or to sell it to third parties.

x) Legal reserve

As required by the Companies Law No. 159 of 1981 and the company's Articles of Association, 5% of the profit for the year is transferred to the legal reserve. The company may resolve to discontinue such annual transfers when the reserve totals 50% of the issued share capital. The legal reserve cannot be distributed except in cases stated in the Law.

y) Foreign currency transactions

The company's functional currency is the Egyptian pound. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the financial position date are translated at the rate of exchange ruling at that date. Retranslation exchange profit and loss is taken to the separate statement of income.

z) Related parties' transactions

Related parties transactions carried out by the company within its normal course of business, are recognized pursuant to the conditions set out by the Board of Directors on an arm's length- basis.

4/1 FIXED ASSETS

(*) Land and buildings includes land and building of the social club and the playground rented for Madinet Nasr for Housing & Development Employees club, and the book value is approximately L.E. 1.3 million for land and L.E. 4.5 million for building. There are no guarantees or pledging on fixed assets at the date of the separate financial statements.

4/1 FIXED ASSETS - Continued

a) The fully depreciated assets and still working are as follows:

b) Depreciation for the period is allocated as follows:

4/2 PROJECTS UNDER CONSTRUCTION

5. INVESTMENTS

5/1 Investments in subsidiaries

(*) The impairment of Al Nasr Co. for Civil Works' investment represents the decline of shares' market price by cost which is listed in the financial statements for the year ended 31 December 2016, which the company accomplished significant improvement in current financial position compared with year 2016 which has been positively reflected on the market value of shares, consequently there is no indication for impairment in the cost of investment, and the impairment was reversed during the period.

5. INVESTMENTS - Continued

5/2 Held to maturities investments

5/3 Available for sale investments

Available for sale investments are not listed in active market (stock exchange), so we cannot determine its fair value, so it is recorded at historical cost.

5/4 Investment properties

The fair values of investment properties are not less than its book value.

(*) Rental buildings (Net)

5. INVESTMENTS - Continued

Cost of investment properties which are fully depreciated and still in use are as follows:

5/5 Investments at fair value through profit and loss

(*) United Bank Investment Fund (Rakhaa) includes restricted investment certificates by L.E. 8,888,556 against letters of guarantee as of separate financial statement date. (Note 18)

6. HOUSING & DEVELOPMENT PROJECTS

Housing and development projects has been recorded at cost which is not less than net realizable value as the separate financial statements date.

7. TRADE AND NOTES RECEIVABLES

8. TRADE PAYABLES

8/1 Trade payables - debit balances

(*) The movements in impairment of amounts due from related parties are as follows:

8/2 Trade payable - credit balances

9. DEBTORS AND OTHER DEBIT BALANCES

10. CASH AND BANK BALANCES

(*) Time deposits include L.E. 4,592,268 (2017: L.E. 4,592,268) as restricted time deposits against letters of guarantee. (Notes 18, 29)

11. UNEARNED REVENUE 

12. PROVISIONS

13. PROJECT INFRASTRUCTURE COMPLETION LIABILITIES

This balance represents estimated amounts to complete utilities for projects that have not been completely delivered.

14. DEFERRED PROFITS & INTERESTS ON OUTSTANDING INSTALLMENTS

15. CREDITORS AND OTHER CREDIT BALANCES

16. SHARE CAPITAL

Authorized capital:

The authorized capital is five billion Egyptian Pounds.

List of percentage of shares of issued and paid up capital for shareholders as of 30 September 2018 is as follows:

17. TERM LOANS

17. TERM LOANS - Continued

18. CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the separate statement of cash flows comprise the following separate financial position amounts:

Short term loan

19. CREDITORS OF PROJECT DEPOSITS FOR MAINTENANCE

The checks received from the customers for the project management, operation and maintenance account amounted to L.E. 1,008,912,763 (2017: L.E. 776,641,173). The sum of L.E. 281,969,104 (2017: L.E. 192,332,965) was collected and invested in deposits and interest-bearing bank accounts. The remaining balance amounting to L.E. 726,943,659 at 30 September 2018 (2017: L.E. 584,239,380) will be collected on maturity dates during the subsequent periods.

20. DEFERRED TAX

Unrecorded deferred tax assets