Madinet Nasr S Regulatory News (MNHD)

REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

TO THE Board of Directors OF

MADINET NASR FOR HOUSING & DEVELOPMENT- S.A.E.

We have reviewed the interim consolidated 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 consolidated 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 8 May 2018, we expressed an unqualified review conclusion, with an emphasis of matter regarding going concern for a subsidiary, on the interim consolidated financial statements for the period then ended, from which the attached summary consolidated financial statements are derived.

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

In order to obtain a comprehensive understanding of the company's interim consolidated 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 consolidated 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, 8 May 2018

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 March 2018

CONSOLIDATED STATEMENT OF FINANCIAL POSITION - Continued

At 31 March 2018

Auditor's report attached.

CONSOLIDATED STATEMENT OF INCOME

For the period ended 31 March 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 31 March 2018

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the period ended 31 March 2018

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended 31 March 2018

CONSOLIDATED STATEMENT OF CASH FLOWS - Continued

For the period ended 31 March 2018

NON-CASH TRANSACTIONS:

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

- An amount of L.E. 1,823,508 represents amount transferred from projects under construction to fixed assets during the period.

- An amount of L.E. 200,650,109 (2017: L.E. 192,332,965) represents bank accounts and deposits against liabilities for projects maintenance.

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 and was changed to Joint Stock Company according to Presidential Decree No 2908/1964, then became a subsidiary of Public Sector Authority for Housing by Presidential Decree No. 469/1983.

The company was converted under the provisions of Law No. 203 for 1991 issued on 30/06/1996 to an Egyptian joint stock company as a subsidiary to the Holding Company for Housing under the name of Madinet Nasr Housing and Development. The Extraordinary General Assembly of the company held on 30/06/1996 approved the change in the governing laws under which the company was operating from the provisions of Law No. 203 for 1991 to the provisions of Law No. 159 for 1981 and its executive regulations and published in company's journal on January 1997.

The Company was registered in the Commercial Registry under No. (300874) dated 23 December 1996 and Tax Registration 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, tourist, 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, Nasr City, Cairo, Egypt.

The Chairman is Eng. Mohamed Hazem Barakat.

The company's ordinary shares are listed on the Egyptian Exchange (EGX) and, as Global Depositary Receipts (GDRs),

The company Board of Directors has approved the Financial Statements for the period ended 31 March 2018 on 2 May 2018.

1. COMPANY BACKGROUND - Continued

1.5 Basis of consolidation

§ Subsidiaries are those enterprises controlled by the parent company. Control exists when the parent company has the power directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.

§ The consolidated financial statements include the financial statements of the company and its subsidiaries.

§ The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

§ All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognized as assets and liabilities, are eliminated in full.

§ Subsidiaries are fully consolidated from date of acquisition, being the date on which the group obtains control, and continue to be consolidated until the date such control ceases.

§ Non-controlling interests represent the portion of total comprehensive income and net assets not held by the group are presented separately in statement of income and within equity in consolidated balance sheet, separate from owners of parent's equity.

The following is a listing of subsidiaries:

2. USE OF ESTIMATES AND JUDGMENTS

The preparation of consolidated 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 assumptions 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.

2. USE OF ESTIMATES AND JUDGMENTS

The following are items on the financial statements that are effected by judgments, assumptions, and estimates:

- Depreciation of fixed assets

- Provisions

- Assets impairment

- Taxation

- Cost of sales and cost of completion of infrastructure liability

- Amortization of present value of notes receivable

Fixed assets expected useful lives are reviewed regularly.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of preparation of consolidated financial statements

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

The consolidated 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 consolidated financial statements are presented in Egyptian Pounds.

b) Fixed assets and depreciation

Fixed assets are recorded on purchase at cost and are presented in the balance sheet 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 labor 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.

 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.

 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

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) Projects Under Constructions

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

d) Available for sales investment

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.

e) Held to maturity investments

Held to maturity investments are carried at cost and amortized 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.

f) Investments in properties

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

g) 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 balance sheet 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.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

h) Inventories

Inventories are stated at the lower of cost or net realizable value. Costs include expenses incurred in bringing each product to its present location and condition. Cost of raw materials, packing materials, spare parts, fuel and oil is determined on an weighted average basis.

Net realizable value is based on estimated selling price less selling expenses. Provision is made for obsolete and slow moving items.

i) Housing & 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.

j) Cash flow statement

Consolidated cash flow statement 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), investments at fair value through profit or loss, bank current accounts, and short term highly liquid investments, which can be easily converted to cash, less overdrafts (credit banks) and pledged time deposits against letters of guarantee.

l) Trade receivables, notes receivables and other debit balances

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 are the value of the 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.

m) Assets impairment

Asset values are reviewed at the consolidated balance sheet 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 consolidated statement of income on the same date.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

n) Provisions

Provisions are recognized when there is a present obligation (legal or constructive) 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 consolidated statement of financial position date and adjusted (if unearned revenue, necessary) to present the best current estimate.

o) Unearned revenue, payables and other credit balances

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 statement of 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.

p) Treasury stocks

Treasury stocks are recorded at cost and deducted from shareholders equity. Gain or loss from sale of shares is included in the 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. Sales on installments

- 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.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

§ 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.

- Deferred installments profit and deferred interests on installments which related to sale of land and properties in prior years are recognized on the accrual 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 for construction of real estate

· Construction of the building

· Finishing of units; within a year

4. Co-development 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 revenue:

- Rent, time deposits interest and bonds revenue recorded on the accrual basis.

- Dividends revenue are recognized and recorded as income when they become legally payable by the investee companies and realized after acquisition date.

6. Contracting Revenue

Contacting revenue of the two subsidiary companies included value of contracts with customers, approved change orders, incentives, and other claims. Revenue from contracting is recognized following percentage-of-completion method.

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 housing and development projects inventory account. Cost of the completed units are comprises of land cost, cost of building constructed and other indirect costs.

t) Rent expenses

Rent expenses are recorded in the statement of income on a straight line method over the rent period.

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 consolidated financial statements.

The amount is determined using the tax rates applicable on the consolidated balance sheet date. Deferred tax assets are recognized for all temporary differences, unused deferred tax assets and losses brought forward, if taxable profit is highly probable 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.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

w) Earnings per share

Earnings per share are calculated by dividing the net profit for the year/period after deduct employees share in profit and Board of Directors share in profit by the weighted average number of shares outstanding during the year/period.

x) Borrowing cost

Borrowing costs directly attributable to the acquisition, construction or production of an asset, qualified for capitalization of borrowing cost, are charged 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.

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 consolidated balance sheet date are translated at the rate of exchange ruling at that date. Retranslation exchange profit and loss is taken to the consolidated statement of income.

4/1 FIXED ASSETS

(*) Land and buildings including land and buildings of the social club for Madinet Nasr for Housing & Development club by book value approximately L.E. 1.3 million and L.E. 4.5 million for land and buildings respectively, also the buildings and constructions of El Nasr for Utilities on a plot of land of 7,780 M2 by a usufruct right for the company with unlimited period and there are negotiation to purchase this land.

4/1 FIXED ASSETS - Continued

a) Fully depreciated assets and still operating are as follows:

b) Depreciation for the period is allocated as follows:

4/2 PROJECTS UNDER CONSTRUCTION

4/3 ASSETS HELD FOR SALE - Al Nasr Company for Civil Works

The land and building has been transferred from projects under construction to assets held for sale based on Board of Directors' decision to sell the building.

5. INVESTMENTS

5/1 Held to maturity investments

5/2 Available for sale investments

5/3 Investments in properties

Fair value of investment properties is not less than its book value.

(*) Rented buildings (Net)

5. INVESTMENTS - Continued

5/4 Investments at fair value through profit and loss

6. INVENTORIES

7. HOUSING & DEVELOPMENT PROJECTS

8. TRADE AND NOTES RECEIVABLE

9. TRADE PAYABLES - DEBIT BALANCES - NET

10. DEBTORS AND OTHER DEBIT BALANCES - NET

11. CASH AND BANK BALANCES

(*) Time deposit on 31 March 2018 included L.E. 66,747,182 (31/12/2017: L.E. 65,691,426) pledged time deposits against letters of guarantee.

12. UNEARNED REVENUES

13. PROVISIONS

14. PROJECT INFRASTRUCTURE COMPLETION LIABILITIES

15. DEFERRED PROFIT & INTEREST ON OUTSTANDING INSTALLMENTS

16. CREDITORS AND OTHER CREDIT BALANCES

17. 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:

18. NON-CONTROLLING INTEREST

19. TERM LOANS

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