Madinet Nasr S Regulatory News (MNHD)

REPORT OF THE INDEPENDENT AUDITOR ON THE

SUMMARY 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 31 March 2018, from which the attached summary separate financial statements are derived, in accordance with the Egyptian Standards on Auditing and the relevant laws and regulations. As sated in our Arabic review report dated 3 May 2018, we expressed an unqualified review conclusion on the separate financial statements for the period then ended, from which the attached summary separate financial statements are derived.

In our opinion, the attached summary 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 31 March 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, 3 May 2018

SEPARATE STATEMENT OF FINANCIAL POSITION

At 31 March 2018

Review report "attached".

SEPARATE STATEMENT OF INCOME

For the period ended 31 March 2018

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

For the period ended 31 March 2018

SEPARATE STATEMENT OF CHANGES IN EQUITY

For the period ended 31 March 2018

SEPARATE STATEMENT OF CASH FLOWS

For the period ended 31 March 2018

NON-CASH TRANSACTIONS:

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

· An amount of L.E. 1,823,508 represents transfer from projects in progress to fixed assets

· An amount of L.E. 200,650,109 (2017: L.E. 192,332,965) represents bank accounts and deposits maintained against facility management, operation, and maintenance liabilities.

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 development of land and 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 in all residential, administrative, tourists, recreational and all projects necessary to achieve these purposes, and all real estate operations, financial, commercial and entertainment related to these purposes, as well as carrying out design, and engineering consultancy, and supervision of the execution by others. 

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 31 March 2018 on 2 May 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

- Provisions

- Impairment of assets values

- Taxation

- Liabilities for utilities completion

- Discount of present value for notes receivable consumption

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 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 as follows:

c) Construction in progress

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

d) Investment in subsidiaries

Investment in subsidiaries is accounted for using the cost method of accounting, whereby if there is an indication of impairment, such impairment loss is charged to the statement of income for each individual investment. Where an impairment loss subsequently reverses, the increased carrying amount of such investment does not exceed the carrying amount that would have been determined had no impairment loss been recognized.

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 statement of income.

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 method. When the investment is impaired, the impairment loss is adjusted against book value and included in the statement of income.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

g) Investment properties

Investment properties are measured at cost and when such assets are impaired, the loss is included in the income statement.

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

Investment certificates are measured at fair value which represents the sale value, determined in line with the recoverable amount at the financial position date.

Investments classified as investment at fair value through profit and loss and the associated costs of these investments and differences charges are recorded in the statement of income.

i) Spare parts and supplies inventories

The spare parts inventory is stated at the lower of cost or net realizable value. Cost is determined using weighted average. Net realized value is based on estimated selling prices less selling expenses.

j) 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.

k) Cash flows statement

The cash flows statement is prepared according to the indirect method.

l) Cash and cash equivalents

Cash and cash equivalents include cash on hand, time deposits, 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.

m) 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.

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 financial statements; notes 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 goods or providing the services.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

n) Assets impairment

Asset values are reviewed at the financial position date to determine if there is any indication of impairment. In case of such an indication, an estimate is made of the recoverable amount and compared to the book value. Impairment loss, being the excess of book value over its recoverable amount, is taken to the statement of income on the same date.

o) 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 financial position date and adjusted (if necessary) to present the best current estimate.

p) 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 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 statement of income on the date of delivery of the units sold to customers.

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.

q) 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.

r) Dividends

Dividends are recorded as liability during the year when declared.

s) 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. Sales on installments

Revenue on sales during the year 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:

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

- Total sale of value of land and property is recorded as sales during the year after deduction of profit relating to deferred installments on those sales. Such deduction is recorded as a liability (profit from deferred installments) 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.

- 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 projects:

On 31 December 2015, the Company adopted a new strategy to execute a joint venture 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 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

t) 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.

u) 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 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 income statement in the period in which they are approved for early retirement.

v) Taxation

Income tax

Income tax on profit for the current and previous periods that have not been paid and need to be recognized are recorded as a liability. Provision is made for income tax liability for previous years based on the assessment of tax claims.

Deferred tax

Deferred tax is recognized under the liability method for temporary timing differences between assets and liabilities valued on the tax basis and the related amounts in the separate financial statements.

The amount is determined using the tax rates applicable on the financial position date. Deferred tax assets are recognized for all temporary differences, unused deferred tax assets and losses brought forward, if taxable profit are expected and the assets can be used in the future. Deferred tax assets are reviewed and reduced by the amount which is not expected to be used in the foreseeable future.

w) Earnings per share

Earnings per share are calculated by dividing the net profit for the year by the weighted average number of shares outstanding during the year.

x) 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 statement of income on a time-apportioned basis using the effective interest rate.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

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 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.

y) 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.

z) 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 statement of income.

4/1 FIXED ASSETS

(*) Land and buildings include land and building of the social club and playground for Madinet Nasr for Housing & Development Employees club, the book value is approximately L.E. 1.3 million for land and L.E. 4.5 million for building.

4/1 FIXED ASSETS - Continued

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

b) Depreciation for the period/year is allocated as follows:

4/2 PROJECTS UNDER CONSTRUCTION

5. INVESTMENTS

5/1 Investments in subsidiaries

5. INVESTMENTS - Continued

5/2 Held to maturities investments

5/3 Available for sale investments

Available for sale investments are not listed, so we cannot determine its fair value, so it is recorded at historical cost.

5/4 Investment properties

(*) Rental buildings (Net)

5. INVESTMENTS - Continued

5/5 Investments at fair value through profit and loss

6. HOUSING & DEVELOPMENT PROJECTS

7. TRADE AND NOTES RECEIVABLES

7. TRADE AND NOTES RECEIVABLES - Continued

8. TRADE PAYABLES - DEBIT BALANCES

9. DEBTORS AND OTHER DEBIT BALANCES

10. CASH AND BANK BALANCES

(*) Time deposits include L.E. 4,592,268 (2016: L.E. 4,592,268) as pledged time deposits against letters of guarantee.

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.

Following are a list of percentage of shares of issued and paid up capital for shareholders as of 31 March 2018:

17. LOANS

 18. CASH AND CASH EQUIVALENTS

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

Short term loan

19. PROJECT MAINTENANCE DEPOSITS AND LIABILITIES

The checks received from the customers for the project management, operation and maintenance account amounted to L.E. 856,402,053. The sum of LE 200,650,109 was collected and invested in deposits and interest-bearing bank accounts. The remaining balance amounting to LE 655,751,944 at 31 December 2017 will be collected on maturity dates during the following periods.

20. DEFERRED TAX

20. DEFERRED TAX - Continued

Deferred tax assets have not included the balances of litigation provision, as there is no expected future benefit for using the deferred tax in the future.

21. RECONCILIATIONS TO CALCULATE THE EFFECTIVE INCOME TAX RATE

22. REVENUES AND COST OF REVENUES

22-a Net revenues

22. REVENUES AND COST OF REVENUES - Continued

22-b Cost of revenues