10 May 2010 07:00
First Quarter 2010 Earning Release
Egypt's Premier Developer Reports Strong Earnings Growth in First Quarter
Cairo, May 9, 2010 - Palm Hills Developments (PHDC.CA on the Egyptian Exchange), Egypt's premier real estate developer, reported a sharp 75% rise in net income to EGP 107.1 million (US$19.4 million) as it announced today its consolidated financial results for the first quarter of 2010.1 PHD recorded net sales of EGP 198.0 million (US$ 35.9 million) in the three months ending 31 March 2010, a rise of 52% year-on-year on the back of growing sales and newly recognized built-up areas.
Notably, PHD's Q1 2010 earnings also include a new recurring revenue contribution from hotel and tourism operator Macor, in which PHD acquired a majority stake in late February 2010.
"The acquisition of Macor was a key component of our drive to see 30% of our revenues derived from recurring sources in the medium term," said Palm Hills Developments Chief Executive Officer Yasseen Mansour, adding, "We expect further news on this front, including developments on our plans for the retail and education sectors, later this year. Also significant in the last quarter was the signing of our strategic partnership agreement with Burooj Properties, which will purchase 425 units of Village Garden Katameya and on-sell them to Egyptian expats living in the Gulf."
PHD reported a strong rise in reservations (quarter-on-quarter and year-on-year) in Q1 2010, while cancellations continued to decline, said Mansour. PHD's sales backlog as of 31 March 2010 stood at almost EGP 10 billion (US$ 1.8 billion), of which cumulative contracts accounted for EGP 7.7 billion (US$ 1.4 billion) while cumulative reservations accounted for EGP 2.3 billion (US$ 0.4 million).
"We are obviously very pleased with this quarter's results and are now confident that 2010 marks a clear break with the market-wide challenges of last year. Our emphasis going forward will continue to be on the rapid roll-out of new projects; the development of our sales force in Egypt, the Gulf and Europe; the leveraging of competitive advantages through our unrivaled balance sheet; and the continued diversification of our product range and client base," Mansour concluded.
Highlights of PHD's Q1 2010 results follow below, along with management's analysis of the company's performance and an update on operational developments. Full consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) are available for download on www.phdint.com.
1Palm Hills Developments issues its financials in Egyptian pounds (EGP) and advises that those seeking to convert to US dollars do so at a rate of USD 1 = EGP 5.518 for Q1 2010.
KEY HIGHLIGHTS
§ Total New Reservations in Q1 2010 stood at EGP 773.1 million (US$ 140.1 million), a 33% rise over Q4 2009 and an 86% increase over the same quarter last year.
§ Total New Contracts signed in Q1 2010 were valued at EGP 507.2 million (US$ 91.9 million), the sales effort for the quarter focused on growing reservations for Palm Hills Botanica. Sales at Botanica will only convert into contracts at a later date following completion of regulatory approvals.
§ Total Cancellations declined 70% year-on-year (and 36% quarter-on-quarter) in Q1 2010 to EGP 185.6 million (US$ 33.6 million), reaching back the normal quarterly cancelation values before the crisis.
§ PHD's Customer Base grew 6% to 6075 clients at the end of March 2010 on the back of management's strategy of attracting new customers through the diversification of products and the price ranges at which they were offered. New clients accounted for 77% of units sold in 1Q2010.
§ Net Sales in Q1 2010 stood at EGP 198.03 (US$ 36.0 million), a rise of 52% year-on-year. The dip in quarter-on-quarter sales owes to the standard variability of sales in the industry, with Q4 2009 having seen a strong emphasis on conversion of reservations into contracts at Golf Views, while in Q1 2010 the emphasis was on building reservations at Botanica.
§ Net Profit climbed 75% to EGP 107.1 million (US$ 19.4 million) in Q1 2010 compared with the same period last year, buoyed by nearly EGP 36.6 million (US$ 6.6 million) in other income related to the Macor transaction (and separate from the share of Macor profits consolidated).
§ Total Land Bank remained unchanged at 48.8 million square meters.
§ Ratio of Bank Debt to Equity2 rose slightly to 24.1% at the end of Q1 2010 from 21.6% at the end of the previous quarter as new bank debt in the amount of EGP 1.1 billion was largely offset by the successful conclusion of PHD's strongly over-subscribed rights issue, which saw the company's capital increase to EGP 2,096,640,000 from EGP 1,397,760,000.
2Calculated as (Bank Overdrafts + Term Loans) / Total Equity
http://www.rns-pdf.londonstockexchange.com/rns/5879L_1-2010-5-9.pdf
Operational Highlights of Q1 2010: Building Out a More Diverse Revenue Stream
Sales efforts in the first quarter of 2010 focused on building a strong reservation book for Botanica, where reservations will convert into contracts at a later date pending the finalization of the remaining standard regulatory approvals. Meanwhile, PHD focused in the first three months of 2010 on five key projects aimed at diversifying the company's revenue base; growing and diversifying its client base; and building a balance sheet to continue fueling long-term growth. These developments included:
1) The acquisition of 52%-of Macor for Securities Investments Company in a deal worth EGP 141 million (US$ 25.7 million). PHD subsequently raised its stake to 60% through the cancellation of treasury shares. Macor will become a core driver of PHD revenues from the promising hospitality and tourism segment as it grows its inventory of hotel rooms from approximately 800 today to a total of 1,150 within the coming two years. Macor has controlling and minority interests in the companies that own Novotel Sixth of October, Scarabee Floating Restaurants, Mercure Ismailia Hotel and Novotel Sharm El-Sheikh as well as hotel manager Accor Company Hotels. With a diverse and profitable portfolio and association with the global Accor brand, Macor and PHD will develop a new range of budget hotels in a highly under-served segment of the Egyptian market. Moreover, PHD will continue to pursue five-star hotel properties in partnership with Nikki Beach, Jumeriah, and Taj, thereby significantly enhancing the value of PHD's properties while generating recurring revenues.
2) The signing of an MoU with with Taj Hotels, Resorts and Palaces will see the luxury brand manage three hotels at PHD developments, one each on the North Coast, at the Red Sea resort of Ain Sokhna, and in the historic Upper Egyptian city of Aswan. The first Taj-managed property to open will be a 200-room luxury boutique hotel at Hacienda Bay on the North Coast. The property, set to receive its first guests in 2013, will overlook a Stanford-designed 18-hole championship golf course and include a state-of-the-art spa and wellness center.
3) PHD continues to explore Egypt's promising education and retail spaces as part of its drive to build recurring revenue streams. Management now believes it feasible to build a full-fledged, global-quality university in at least one of its larger developments (Botanica) and is exploring options for comprehensive schools offering international kindergarten through twelfth grade curricula. On the retail front, construction has begun at PHD's first shopping mall, which is located in East Cairo on a plot with a gross leasable area of 27,000 square meters. Management has also engaged an international consultant to guide development of a larger (>100,000 square meters of gross land area) commercial project for West Cairo.
4) Expansion of PHD's client base by targeting middle-income and upper-middle income Egyptian expatriates in the Gulf through a key MOU with Burooj, the real estate arm of Abu Dhabi Islamic Bank. Under the terms of the memorandum, Burooj will agree to purchase 425 units of Village Garden Katameya in East Cairo with a total net value of EGP 290 million (US$ 52.3 million),, after applying the 10% discount rate and without including the price of the parking slots for each unit which is estimated to be EGP 60,000 (US$ 10.9 thousands) and maintenance fees implying an average price of EGP 3,777 [US$ 684.5] per square meter). Fifteen percent of the value of the agreement will be due at signing, with the balance paid in quarterly installments over a five-year period. PHD and Burooj are studying other potential partnerships, and the MOU gives PHD the right to open a sales office in an ADIB branch of its choosing. ADIB will provide mortgage finance packages to potential buyers with interest rates lower than those offered in Egypt.
5) Successful conclusion of rights issue.The first phase of PHD's EGP 698.88 million (US$ 126.65 million) rights issue was nearly 99% subscribed. A second phase to cover the remaining 1% was more than 500-times oversubscribed, with the company's capital thereby rising to EGP 2,096,640,000 from EGP 1,397,760,000. While domestic financial institutions clearly see PHD as capable of taking on additional debt, management has set a ceiling debt:equity ratio of 40% for real estate development activities.
Financial Performance
The 52% increase in net sales in Q1 2010 to EGP 198.0 million (US$ 35.9 million) included, more than EGP 1.8 million (USD 0.33 million) in profits from Macor for the period 1-31 March 2010, and was backed by newly-recognized built-up areas (BUAs).
The largest contributor to sales in Q1 2010 was the Golf project (Sixth of October area) at EGP 80 million (a rise of 238% year-on-year), followed by Golf Extension project (Sixth of October area) at EGP 70 million (US$ 12.7 million) and Palm Hills Katameya at EGP 20.3 million (US$ 3.7 million). Notably, high land and construction overheads on Golf Views and Golf Extension as well as the naturally high construction costs associated with apartment units delivered from Bamboo saw a sharp increase in COGS, which rose 333% to nearly EGP 91.3 million (US$ 16.5 million).
The rise in COGS and a 44% increase in SG&A spending saw EBITDA ease 19% year-on-year to EGP 65.4 million (US$ 11.9 million). SG&A climbed on the back of increased salary and wage expenditures resulting from both new management depth added in the second and third quarters of 2009 (and thereby not reflected in the Q1 2009 comparative) and standard wage rises. Also included is the acceleration of advertising spending that began in the fourth quarter of last year with expansion of outdoor advertising and PHD's first regional television campaign.
Bottom-line growth was supported by EGP 36.6 million (US$ 6.6 million) in other income (derived from the Macor acquisition, but unrelated to the consolidation of PHD's share of Macor's profits), a 59% rise in interest income to EGP 51 million (US$ 9.2 million) (on the back of an increase in notes receivable and consequent rise in net present value [NPV] discount), and an 86% drop in income tax expenses as the majority of sales were from tax-exempt projects.
Land Bank
The size of the land bank remains unchanged at 48.8 million square meters in at the end of Q1 2010 compared with Q4 2009. PHD's focus in the first quarter, as it was in 2009, was on the execution of existing projects. Management's goal is to capitalize on current favorable cost-saving conditions, boosting EBITDA margins and decreasing construction costs on in-progress projects. Nonetheless, the company remains diligent regarding the pursuit of compelling land acquisition opportunities that complement its existing developments.
Management has contracted with leading global real estate consultancy CB Richard Ellis (CBRE) to periodically revalue Palm Hills Developments' land bank. After finding in October 2008 (results released in January of 2009) that PHD's land bank had increased in value by 70% to EGP 33.1 billion (US$ 6 billion), CBRE found in its October 2009 valuation (released 10 March 2010) that the market value of PHD's properties as at 31 October 2009 was EGP 38.1 billion (US$ 6.9 billion). This most recent revaluation showed a further increase of 15% in the value of the PHD's land bank. Both valuations were undertaken in accordance with the standards of the Royal Institute of Chartered Surveyors Valuation Standards, Sixth Edition.
Outlook
PHD maintains a very positive view of the Egyptian real estate market and believes strong Q1 2010 results underscore the strong prospects - barring exogenous shocks - of a sustained recovery in consumer sentiment in 2010.
Sales growth at new distribution points in Europe (London) and the GCC will be driven largely by economic developments in those markets, and management will continue to invest in expansion of those points of sale. Further targeting of middle-income Egyptian expats through arrangements such as that with Burooj would also be welcome developments, as being associated with Abu Dhabi Investment Bank (ADIB) will provide mortgage finance packages to potential buyers with interest rates lower than those offered in Egypt.
PHD's reach and penetration of new market segments is also underpinned by its unrivaled liquidity and strong cash flow, which has allowed it to announce in April that both the newly launched Palm Hills Katameya Extension and a new phase of Palm Parks will see payment terms extended to up to seven years.
Although Egypt's large, fast-growing population, expanding economy, and long-term fundamentals of the fast-developing infrastructure base make the country highly attractive going forward, management also continues to explore interesting opportunities outside Egypt that would allow it to exploit the strength of its balance sheet and of its operational know-how.
As noted above, the growth of recurring revenue streams in all markets and developments will continue to be a priority going forward.
| Table 1 - Q1 2010 vs. Q1 2009 Operating Results (EGP '000)3 | ||
|
| 3 Months Ended | |
|
| 31/03/2010 | 31/03/2009 |
| SALES (NET) | 198,029 | 130,296 |
| Cost of Sales | (91,253) | (21,087) |
| GROSS PROFIT | 106,776 | 109,209 |
| Margin% | 54% | 84% |
| Selling, General & Administrative Expenses | (41,358) | (28,670) |
| EBITDA | 65,418 | 80,539 |
| Margin% | 33% | 62% |
| Depreciation and Amortization | (4,026) | (2,695) |
| OPERATING PROFIT (EBIT) | 61,392 | 77,844 |
| Margin% | 31% | 60% |
| Other Income | 46,772 | 11,915 |
| Interest Income - Amortization of Discount | 51,489 | 32,434 |
| Finance Costs | (10,713) | (15,177) |
| Interest Exp. - Amortization of Discount | (40,532) | (8,661) |
| PROFIT BEFORE TAX | 108,407 | 98,354 |
| Income Tax Expense | (1,305) | (9,541) |
| PROFIT FOR THE YEAR | 107,103 | 88,814 |
| Minority Interest | 27 | (27,668) |
| NET PROFIT AFTER MINORITY | 107,130 | 61,146 |
| Margin% | 54% | 47% |
3Figures presented are prepared according to IFRS.
N.B
Palm Hills Developments recognizes its villas and town houses revenues from land upon signature of a contract while revenues from construction are recognized on a percentage of completion basis with a minimum threshold of 50%. Revenues from apartments and multi tenant buildings are recognized upon delivery. As a result, total revenues figure on the Income Statement during a period does not reflect neither reservations nor construction revenues from villas and town houses less than 50% completed or any revenues from apartments.
-----------------------------------------------
Yasseen Mansour
Chairman and Chief Executive Officer
PALM HILLS DEVELOPMENT CO.
S.A.E AND ITS SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
31 March 2010
REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TO THE BOARD OF DIRECTORS OF PALM HILLS DEVELOPMENT CO. S.A.E AND ITS SUBSIDIARIES
Introduction
We have reviewed the accompanying interim condensed consolidated financial statements of Palm Hills Development Company S.A.E and its Subsidiaries ('the Group') as at 31 March 2010, comprising of the interim consolidated statement of financial position as at 31 March 2010 and the related interim consolidated statements of comprehensive income, changes in equity and cash flows for the three-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.
The consolidated financial statements of Macor for Securities Investment Company S.A.E and its subsidiaries (Subsidiary), for the three-month period ended 31 March 2010 were reviewed by another auditor. The other auditor's review report dated 18 April 2010 was unqualified.
Macor for Securities Investment Company S.A.E and its subsidiaries (Subsidiary), included assets, liabilities and net profit before tax amounting to EGP 384,999,786, EGP 37,296,189 and EGP 3,313,065 respectively, of the related consolidated totals as at 31 March 2010.
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. Consequently, it 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.
Nabil Istanbouli
Partner
Date: 26 April 2010
Egypt
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For The Three Months Ended 31 March 2010
|
|
| For the three months ended 31 March | |
|
|
| 2010 | 2009 |
|
|
| (Unaudited) | |
|
|
| EGP | EGP |
| Sales |
| 196,134,744 | 130,296,250 |
| Cost of sales |
| (91,252,956) | (21,087,275) |
| Profit shares from hospitality activities |
| 1,894,682 | - |
|
|
| ─────── | ─────── |
| GROSS PROFIT |
| 106,776,470 | 109,208,975 |
|
|
|
|
|
| Selling and administrative expenses |
| (45,384,624) | (31,364,868) |
| Interest income |
| 52,566,078 | 38,943,074 |
| Finance costs |
| (51,245,401) | (23,838,220) |
| Other income |
| 45,694,768 | 5,405,253 |
|
|
| ─────── | ─────── |
| PROFIT BEFORE INCOME TAX |
| 108,407,291 | 98,354,214 |
|
|
|
|
|
| Income tax expense |
| (1,304,764) | (9,540,550) |
|
|
| ─────── | ─────── |
| PROFIT FOR THE PERIOD |
| 107,102,527 | 88,813,664 |
|
|
| ═══════ | ═══════ |
| Other comprehensive income |
| - | - |
|
|
| ─────── | ─────── |
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD |
| 107,102,527 | 88,813,664 |
|
|
| ═══════ | ═══════ |
| Profit attributable to: |
|
|
|
| Equity holders of the parent |
| 107,129,957 | 61,145,896 |
| Non-controlling interests |
| (27,430) | 27,667,768 |
|
|
| ─────── | ─────── |
|
|
| 107,102,527 | 88,813,664 |
|
|
| ═══════ | ═══════ |
|
|
|
|
|
| Basic and diluted earnings per share for profit attributable to the equity holders of the parent (expressed in EGP per share) |
|
0.15 |
0.09 |
|
|
| ═══════ | ═══════ |
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2010
|
|
| 31 March 2010 (Unaudited) | 31 December 2009 (Audited) |
|
|
| EGP | EGP |
| ASSETS |
|
| |
| Non-current assets |
|
|
|
| Investment property |
| 490,979,024 | 482,708,874 |
| Property and equipment |
| 283,931,715 | 90,015,330 |
| Advance payments for investments acquisition |
| 164,685,643 | 164,685,643 |
| Investment in an associate |
| 53,451,660 | 245,000 |
| Financial assets available-for-sale |
| 25,409,420 | - |
| Intangible assets |
| 42,620,803 | 42,400,000 |
| Notes receivable |
| 2,524,272,843 | 2,501,188,468 |
|
|
| ─────── | ─────── |
|
|
| 3,585,351,108 | 3,281,243,315 |
|
|
| ─────── | ─────── |
| Current assets |
|
|
|
| Notes receivable |
| 1,050,829,866 | 966,977,453 |
| Accounts receivable and prepayments |
| 670,582,308 | 547,178,797 |
| Bank balances and cash |
| 180,629,872 | 134,924,165 |
| Financial assets at fair value through profit or loss - Held for trading |
|
84,847,051 |
127,631,947 |
| Development properties |
| 5,455,002,933 | 5,473,529,413 |
|
|
| ─────── | ─────── |
|
|
| 7,441,892,030 | 7,250,241,775 |
|
|
| ─────── | ─────── |
| TOTAL ASSETS |
| 11,027,243,138 | 10,531,485,090 |
|
|
| ═══════ | ═══════ |
| EQUITY AND LIABILITIES |
|
|
|
| Equity |
|
|
|
| Share capital |
| 1,397,760,000 | 1,397,760,000 |
| Statutory reserve |
| 516,095,272 | 516,095,272 |
| Retained earnings |
| 1,355,652,219 | 1,248,522,262 |
|
|
| ─────── | ─────── |
| Equity attributable to equity holders of the parent |
| 3,269,507,491 | 3,162,377,534 |
| Non-controlling interests |
| 407,618,654 | 247,981,463 |
|
|
| ─────── | ─────── |
| Total equity |
| 3,677,126,145 | 3,410,358,997 |
|
|
| ─────── | ─────── |
| Non-current liabilities |
|
|
|
| Term loans |
| 447,213,684 | 354,708,225 |
| Land purchase liabilities |
| 738,963,177 | 871,964,874 |
| Notes payable |
| 1,881,827,361 | 1,947,622,838 |
| Other non-current liabilities |
| 440,113,803 | 253,061,500 |
| Deferred tax liability |
| 2,875,293 | 2,114,985 |
|
|
| ─────── | ─────── |
|
|
| 3,510,993,318 | 3,429,472,422 |
|
|
| ─────── | ─────── |
| Current liabilities |
|
|
|
| Bank overdrafts |
| 149,945,193 | 145,998,987 |
| Current portion of term loans |
| 290,211,800 | 234,780,818 |
| Current portion of land purchase liabilities |
| 441,319,975 | 319,473,282 |
| Accounts payable and accruals |
| 302,893,164 | 253,220,514 |
| Notes payable |
| 294,229,363 | 400,271,559 |
| Advances from customers |
| 332,820,004 | 328,108,629 |
| Billings in excess of costs |
| 1,989,973,463 | 1,969,898,759 |
| Income tax payable |
| 36,205,887 | 39,901,123 |
| Provisions |
| 1,524,826 | - |
|
|
| ─────── | ─────── |
|
|
| 3,839,123,675 | 3,691,653,671 |
|
|
| ─────── | ─────── |
| Total liabilities |
| 7,350,116,993 | 7,121,126,093 |
|
|
| ─────── | ─────── |
| TOTAL EQUITY AND LIABILITIES |
| 11,027,243,138 | 10,531,485,090 |
|
|
| ══════ | ══════ |
__________________ ________________
Ehab Swellem Yasseen Mansour
(Chief Financial Officer) (Chairman)
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| For The Three Months Ended 31 March 2010 (Unaudited) Attributable to equity holders of the parent |
| ||||||||||||||
|
| Share capital |
| Statutory Reserve | Retained earnings | Total | Non-controlling interests | Total |
| |||||||
|
|
|
|
|
|
|
|
|
| |||||||
|
| EGP |
| EGP | EGP | EGP | EGP | EGP |
| |||||||
| Balance as at 1 January 2010 | 1,397,760,000 |
| 516,095,272 | 1,248,522,262 | 3,162,377,534 | 247,981,463 | 3,410,358,997 |
| |||||||
| Comprehensive income |
|
|
|
|
|
|
|
| |||||||
| Profit for the period | - |
| - | 107,129,957 | 107,129,957 | (27,430) | 107,102,527 |
| |||||||
| Other comprehensive income | - |
| - | - | - | - | - |
| |||||||
|
| ___________ |
| ___________ | _________ | __________ | __________ | __________ |
| |||||||
| Total comprehensive income at 31 March 2010 | - |
| - | 107,129,957 | 107,129,957 | (27,430) | 107,102,527 |
| |||||||
| Non-controlling interests arising from business combination |
- |
|
- |
- |
- |
159,664,621 |
159,664,621 |
| |||||||
|
| ___________ |
| ___________ | _________ | __________ | __________ | __________ |
| |||||||
| Balance at 31 March 2010 | 1,397,760,000 |
| 516,095,272 | 1,355,652,219 | 3,269,507,491 | 407,618,654 | 3,677,126,145 |
| |||||||
|
| ══════ |
| ══════ | ══════ | ══════ | ══════ | ══════ |
| |||||||
| For The Three Months Ended 31 March 2009 (Unaudited)
|
Attributable to equity holders of the parent |
| |||||||||||||
|
| Share capital | Share premium | Statutory Reserve | Special Reserve | Retained earnings | Total | Non-controlling interests | Total | |||||||
|
|
|
|
|
|
|
|
|
| |||||||
|
| EGP | EGP | EGP | EGP | EGP | EGP | EGP | EGP | |||||||
| Balance as at 1 January 2009 | 931,840,000 | 890,538,204 | 13,635,814 | - | 851,375,963 | 2,687,389,981 | 144,810,439 | 2,832,200,420 | |||||||
| Comprehensive income |
|
|
|
|
|
|
|
| |||||||
| Profit for the period | - | - | - | - | 61,145,896 | 61,145,896 | 27,667,768 | 88,813,664 | |||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | |||||||
|
| __________ | ___________ | _________ | _________ | _________ | __________ | __________ | __________ | |||||||
| Total comprehensive income at 31 March 2009 | - | - | - | - | 61,145,896 | 61,145,896 | 27,667,768 | 88,813,664 | |||||||
| Transfer to reserves | - | (890,538,204) | 457,799,363 | 430,293,851 | 2,444,990 | - | - | - | |||||||
|
| ___________ | ___________ | ___________ | ___________ | _________ | __________ | __________ | __________ | |||||||
| Balance at 31 March 2009 | 931,840,000 | - | 471,435,177 | 430,293,851 | 914,966,849 | 2,748,535,877 | 172,478,207 | 2,921,014,084 | |||||||
|
| ══════ | ══════ | ══════ | ══════ | ══════ | ══════ | ══════ | ══════ | |||||||
| INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS For The Three Months Ended 31 March 2010
| ||
|
| For the three months ended 31 March | |
|
| 2010 | 2009 |
|
| (Unaudited) | |
|
| EGP | EGP |
| OPERATING ACTIVITIES |
|
|
| Profit before income tax | 108,407,291 | 98,354,214 |
| Depreciation of property and equipment | 4,026,317 | 2,694,974 |
| Amortization of intangible assets | 1,325,000 | 1,325,000 |
| Interest income | (52,566,078) | (38,943,074) |
| Finance cost | 51,245,401 | 23,838,220 |
|
| __________ | __________ |
|
| 112,437,931 | 87,269,334 |
| Working capital adjustments: |
|
|
| (Increase) in notes receivable | (55,448,082) | (106,828,710) |
| Decrease in financial assets at fair value through profit or loss - held for trading |
42,784,896 |
203,433,368 |
| (increase) in accounts receivable and prepayments | (132,403,511) | (490,659,848) |
| (Increase) in development properties | (32,767,877) | (29,884,536) |
| (Decrease) increase in notes payable | (172,230,483) | 7,717,957 |
| Increase in accounts payable and accruals | 51,197,476 | 173,143,074 |
| Increase (decrease) increase in advances from customers | 4,711,375 | (114,376,106) |
| Increase in billings in excess of costs | 20,074,704 | 126,761,306 |
| Increase in other non-current liabilities | 187,812,611 | 205,615,135 |
|
| __________ | __________ |
| Cash from operations | 35,169,040 | 62,190,974 |
| Interest paid | (10,713,238) | (15,177,469) |
| Tax paid | (5,000,000) | (4,980,009) |
|
| __________ | __________ |
| Net cash flows from operating activities | 19,455,802 | 42,033,496 |
|
| __________ | __________ |
| INVESTING ACTIVITIES |
|
|
| Purchase of properties and equipment | (197,942,702) | (9,048,645) |
| Purchase of investment properties | (8,270,150) | - |
| Purchase of investment in associates | (53,206,660) | - |
| Purchase of financial assets available-for-sale | (25,409,420) | - |
| Advance payments for investments acquisition | - | (16,330,998) |
| Purchase of intangible assets | (1,545,803) | - |
| Interest received | 1,077,372 | 6,509,432 |
|
| __________ | __________ |
| Net cash flows (used in) investing activities | (285,297,363) | (18,870,211) |
|
| __________ | __________ |
| FINANCING ACTIVITIES |
|
|
| Proceeds from borrowings | 228,826,098 | - |
| Repayments of borrowings | (80,889,657) | (55,358,122) |
| Non-controlling interests arising from business combination | 159,664,621 | - |
|
| ___________ | ___________ |
| Net cash flows from (used in) financing activities | 307,601,062 | (55,358,122) |
|
| ___________ | ___________ |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
41,759,501 |
(32,194,837) |
|
|
|
|
| Cash and cash equivalents at 1 January | (11,074,822) | 168,463,094 |
|
| ___________ | ___________ |
| CASH AND CASH EQUIVALENTS AT 31 MARCH | 30,684,679 | 136,268,257 |
|
| ═══════ | ═══════ |
NOTES TO THE INTERIM CONDENSEDS CONSOLIDATED FINANCIAL STATEMENTS
As at 31 March 2010
1 ACTIVITIES
Palm Hills for Development Company (S.A.E) was established according to the Investment Incentives and Guarantees Law No. (8) of 1997 and the Companies Law No.159 of 1981 and their executive regulations, taking into consideration the statutes of the Capital Market Law No. 95 of 1992 and its executive regulations. The company's headquarter is located in 6th of October City - 6th of October Governorate, where the main branch is located in Smart Village - 6th of October Governorate.
The company is registered in the Commercial Register under No. (6801) on 10 January 2005, and was listed in the unofficial schedule no. (2) Of the Cairo and Alexandria Stock Exchanges on 27 December 2006. The company got listed in the official schedule no. (1) Of the Cairo and Alexandria Stock Exchange on April 2008 and in London stock exchange on 8 May 2008.
The company was established to invest in real estate in the New Cities and New Urban Communities including building, constructing, possessing and managing residential compounds, resorts, villas and tourist villages, sale or lease as well as all the services, facilities, leasing and construction of integrated projects and managing the entertainment activities associated with the company's in activities. All such activities are subject to the approval of appropriate authorities.
All the company operations are located in Egypt; it has only two identifiable operating segments which are real estate development and investment in touristic activities.
The company participated in the capital of thirteen subsidiary companies as follows:
1-New Cairo for Real Estate Developments S.A.E
New Cairo for Real Estate Development S.A.E. is registered in Egypt under commercial registration number 12613 under the provisions of the Investment Guarantees and Incentives law No. 8 of 1997 and the Companies' Law No 159 of 1981 and the statutes of Capital Market Law No 95 of 1992. The company is located in plot 36 South investors' area in new Cairo. The company is engaged in construction, management, and the sale of hotels, motels, buildings and residential compounds and the purchase, development, dividing and sale of land.
The company's fiscal year ended 31 December of each year.
2-Royal Gardens for Real Estate Investment Company S.A.E
Royal Gardens for Real Estate Investment Company S.A.E. is registered in Cairo under commercial registration number 21574 under the provisions of under the provisions of the Investment Guarantees and Incentives law No. 8 of 1997 and the Companies' Law No 159 of 1981 and the statutes of Capital Market Law No 95 of 1992. The company is located in 11 El-Nakhil Street - Dokki-Giza. The company is engaged in real estate investment in cities and new urban communities and the set up, execution, acquisition, and management of urban communities, resorts, villas and tourist villages through sale or lease. The company is also involved in all other types of related services such as finance leasing and construction.
The company's fiscal year ended 31 December of each year.
3-Palm Hills Middle East Company for Real Estate Investment S.A.E and Its Subsidiary
Palm Hills Middle East Company for Real Estate Investment S.A.E and its subsidiary, Middle East Company for Real Estate and Touristic Investment S.A.E are engaged in real estate investment in new cities and urban communities, and also the construction, ownership and management of residential compounds, resorts, and villas. The company and its subsidiary are also involved in the sale and lease and other related services for managing integrated projects and entertainment activities.
The company is registered in Egypt under commercial registration number 21091. The company's subsidiary is registered in Egypt under commercial registration number 25016. Both companies are registered under the provisions of under the provisions of the Investment Guarantees and Incentives law No. 8 of 1997 and the Companies' Law No 159 of 1981 and the statutes of Capital Market Law No 95 of 1992.
The companies' fiscal year ended 31 December of each year.
4- Middle East for Development and Investment Touristic S.A.E
Middle East for Development and Investment Touristic S.A.E. is registered in Egypt under commercial registration number 25015 under the provisions of the Investment Guarantees and Incentives law No. 8 of 1997 and the Companies' Law No 159 of 1981 and the statutes of Capital Market Law No 95 of 1992. The company is located in 40 Lebanon Street - Mohandessin- Giza.
The company is engaged in real estate investment in cities and new urban communities and the set up, execution, acquisition, and management of urban communities, resorts, villas and tourist villages through sale or lease. The company is also involved in all other types or relevant services such as finance lease and construction of the company's projects or others'.
The company's fiscal year ended 31 December of each year.
5- Gamsha for Tourist Development S.A.E
Gamsha for Tourist Development S.A.E. is registered in Egypt under commercial registration number 23889 under the provisions of the Companies' Law No 159 of 1981. The company is located in 11 El Nakhil Street-Dokki-Giza. The company is engaged in real estate investments in new cities, urban communities, remote areas and regions outside the old valley.
The company's fiscal year ended 31 December of each year.
6- Nile Palm Al-Naeem for Real Estate Development S.A.E
Nile Palm Al-Naeem for Real estate Development S.A.E. is registered in Egypt under commercial registration number 27613 under the provisions of the Investment Guarantees and Incentives law No. 8 of 1997 and the Companies' Law No 159 of 1981 and the statutes of Capital Market Law No 95 of 1992. The company is located in 40 Lebanon Street - Mohandessin- Giza. The company is engaged in real estate investment in new cities and urban communities, and also in the construction, ownership and management of residential compounds, resorts, and villas.
The company's fiscal year ended 31 December of each year.
7- Saudi Urban Development Company S.A.E
Saudi Urban Development (Company) S.A.E. is registered in Egypt under commercial registration number 1971 under the provisions of the Companies' Law No 159 of 1981. The company is located in 72 Gamet El-Dewal El Arabia Street-Mohandeseen-Cairo. The company is engaged in the construction of advanced residential projects.
The company's fiscal year ended 31 December of each year.
8- Rakeen Egypt for Real Estate Investment S.A.E
Rakeem Egypt for Real Estate Investment S.A.E. is registered in Egypt under commercial registration number 22996 under the provisions of the Investment Guarantees and Incentives law No. 8 of 1997 and the Companies' Law No 159 of 1981 and the statutes of Capital Market Law No 95 of 1992. The company is located in 6th of October City. The company is engaged in leasing, construction and operation of hotels, motels, resorts and residential compounds, construction, generation of electricity, desalination of water, land acquisition, dividing and constructing villas, residential units and offices malls and the marketing thereof..
The company's fiscal year ended 31 December of each year.
9- Al Naeem for Hotels and Touristic Villages S.A.E
Al Naeem for Hotels and Touristic Villages S.A.E. is registered in Egypt under commercial registration number 32915 under the provisions of the Investment Guarantees and Incentives law No. 8 of 1997 and the Companies' Law No 159 of 1981 and the statutes of Capital Market Law No 95 of 1992. The company is located in 6th of October City. The company is engaged in construction and operation of hotels in Hamata.
The company's fiscal year ended 31 December of each year.
10- Gawda for Trade Services S.A.E
Gawda for Trade Services S.A.E. is registered in Egypt under commercial registration number 10242 under the provisions of the Companies' Law No 159 of 1981. The company is located in 66 Gamet El-Dewal El Arabia Street-Mohandeseen-Cairo. The company is engaged in real estate investments in new cities, urban communities, remote areas and regions.
The company's fiscal year ended 31 December of each year.
11- New East Cairo for Real Estate Development S.A.E
New East Cairo for Real Estate Development was established under the name of Kappci Company for Real Estate and touristic Development -S.A.E according to Law No. 159 of 1981 and its executive regulation and the company was registered under commercial registration No. 1429 of Ismailia at 20 March 2007.
The company's name was modified at 25 June 2008 to New East Cairo for Real Estate Development and the company's location was changed to 35 Abo Bakr El Sedik St., - Heliopolis and it registered at the commercial registration of Cairo at 13/11/2008.
The company is established to operate in all the fields of Real Estate investments, construction, and development of residential areas.
The company's fiscal year ended 31 December of each year.
12- City for Real Estate Development S.A.E
City for Real Estate Development -S.A.E. - was established at 2007 according to the laws applicable in Egypt under the provisions of the Companies' Law No 159 of 1981. At 23 October 2007 the company was registered in commercial registration no. 27962.
The company is engaged at the lands' construction development (at all governorates except North and South Sinai and North El Kantara needs the permission of the association) and provide these lands with all facilities and services.
The company's fiscal year ended 31 December of each year.
13- Macor for Securities Investment Company S.A.E
Macor for Securities Investment Company S.A.E. was established in Egypt on 8 March 2000 under the provisions of Capital Market law No. 95 of 1992. The objective of the Company is to contribute in establishment or investment in the companies' securities.
The company participated in the capital of three subsidiary companies and one associate company as follows:
79,95% of Six of October for Hotels and Touristic Services Company S.A.E
Six of October company for Hotels and Touristic Services Company S.A.E was established in Egypt on 15 December 1998 under the provisions of the Investment Guarantees and Incentives law No. 8 of 1997 for the purpose of Establish and operate a four stars Hotel in Six Of October City operated by Acor for Hotels.
99,80% of Hotels & Touristic Floating Restaurants Company S.A.E
Hotels and Touristic Floating Restaurants Company SAE was established in Egypt on 10 August 1988 under the provisions of the Companies' law No. 159 of 1981 for the purpose of Establish and operate the hotels and touristic units and provide all its facilities.
55,12% of Ismailia for Tourism Company S.A.E
Ismailia for Tourism Company S.A.E was established in Egypt on 1979 under the provisions of the Companies' law No. 159 of 1981 for the purpose of Establish and operate the hotels, motels and touristic units.
49,99% of El Nema for Touristic & Real Estate Company S.A.E
El Nema for Touristic & Real Estate Company S.A.E was established in Egypt on 2 May 1996 under the provisions of the Companies' law No. 159 of 1981 for the purpose of Constructing, Owning, Renting Managing and establishing hotels and participating in all hotel activities.
2.1 BASIS OF PREPARATION
Preparation of consolidated financial statements
The consolidated financial statements have been prepared on a historical cost basis, except for financial assets available-for-sale and financial assets at fair value through profit or loss that have been measured at fair value. The consolidated financial statements are presented in Egyptian Pound (EGP).
The interim condensed consolidated financial statements for the three-month ended 31 March 2010 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2009.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions changed. Management believes that the underlying assumptions are appropriate. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 2.4.
Statement of compliance
The consolidated financial statements of Palm Hills Developments S.A.E and its subsidiaries ('the group') have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Income and cash flow statements
The Group presents its income statement by nature of expense.
The Group reports cash flows from operating activities using the indirect method.
Cash flows from investing and financing activities are determined using the direct method.
Basis of consolidation
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.
Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
(b) Transactions and minority interests
The group applies a policy of treating transactions with minority interests as transactions with parties external to the group. Disposals to minority interests result in gains and losses for the group and are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.
(c) Associates
Associates are all entities over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The group's investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.
The group's share of its associates' post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealized gains on transactions between the group and its associates are eliminated to the extent of the group's interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. Dilution gains and losses arising in investments in associates are recognized in the income statement.
2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
The accounting policies adopted are consistent with those of the previous financial year.
In 2010, the Group did not early adopt any new or amended standards and do not plan to early adopt any of the standards issued not yet effective.
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Provided it is probable that the economic benefits will flow to the group and the revenue and costs can be measured reliably, revenue is recognised in the income statement as follows: -
Sale of plots
Revenue on sale of plots is recognised as and when all of the following conditions are met:
·; A sale is consummated and contracts are signed;
·; The Group's receivable is not subject to future subordination;
·; The Group has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property; and
·; If acquired on deferred terms, the buyer's investment, to the date of the financial statements, is adequate (at least 25%)
Construction of villas
Revenue on construction of villas is recognised based on percentage of completion as and when the buyer is able to specify the major structural elements of the design of the real estate before construction begins; and/or major structural changes once construction is in progress (whether it exercised that ability or not).
In contrast, if construction could take place independently of the agreement and buyers have only limited ability to influence the design of the real estate (e.g. to select a design from a range of options specified by the entity, or to specify only minor variations to the basic design), the agreement will be for the sale of goods. (see sale of apartments below).
Under percentage of completion method contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Variations in contract work, claims and incentive payments are included in contract revenue to the extent that they have been agreed with the customer and are capable of being reliably measured.
The group uses the 'percentage-of-completion method' to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the balance sheet date as a percentage of total estimated costs for each contract.
The group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. Progress billings not yet paid by customers and retention are included within notes receivable. The group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).
Sale of apartments and chalets
Revenue on sale of apartments and chalets are recognized upon delivery.
Profit shares from hospitality activities
Profit shares from hospitality activities represent the owner's profit share in the hospitality entities which recognized at each financial statement of these entities according to the management agreements between the owner and operator.
Interest
Interest income is recognised as the interest accrues using the effective interest method, under which the rate used exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
Cost of revenues
Cost of revenues includes the cost of land and development costs. Development costs include the cost of infrastructure and construction. The cost of revenues in respect of apartments and villas is based on the estimated proportion of the development cost incurred to date to the estimated total development costs for each project.
The cost of revenues in respect of land sales is based on the total estimated cost of the land site over the total usable land area in a particular development.
Borrowing cost
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily take a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Development properties
Properties acquired, constructed or in the course of construction for sale are classified as development properties. Development properties are stated at cost plus attributable profit/loss less progress billings or, if lower, net realisable value. The cost of development properties includes the cost of land and other related expenditure, which are capitalised as and when activities that are necessary to get the properties ready for sale are in progress. Net realisable value represents the estimated selling price less costs to be incurred in selling the property.
Income tax
Taxation is provided in accordance with Egyptian fiscal regulations.
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on laws that have been enacted at the balance sheet date.
Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation and any impairment in value. Land and projects under construction are not depreciated.
Depreciation is calculated on a straight-line basis using the following depreciation rates:
| Buildings | 5% |
| Tools and Equipment | 25% |
| Vehicles | 20 - 25% |
| Furniture and Fixtures | 25% |
Investment property
Investment property, which is property held to earn rentals and/or for capital appreciation (including property under construction for such purposes), is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and any impairment in value. Land and projects under construction are not depreciated.
Impairment of non- financial assets
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Whenever the carrying amount of these assets exceeds their recoverable amount, an impairment loss is recognised in the income statement. The recoverable amount is the higher of an asset's net selling price and the value in use. The net selling price is the amount obtainable from the sale of an asset in an arm's length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
Impairment and uncollectibility of financial assets
An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the income statement. Impairment is determined as follows:
·; For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the income statement;
·; For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset;
·; For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective interest rate.
Financial assets available-for-sale
Financial asset available-for-sale are initially recognized at fair value inclusive direct attributable expenses.
After initial measurement, Financial assets available-for-sale are measured at fair value with unrealized gains or losses recognized directly in equity until the asset is derecognized, at which time the cumulative gain or loss recorded in equity is recognized in the statement of income, or determined to be impaired, at which time the cumulative loss recorded in equity is recognized in the statement of income. If the fair value cannot be reliably measured, the asset is carried at cost. Dividend income from financial assets available-for-sale are recognised in the statement of income as part of other income when the group's right to receive payments is established.
Financial assets at fair value through profit or loss - Held for trading
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling or repurchasing in the near term. Assets in this category are classified as current assets. Regular waypurchases and sales of financial assets are recognised on the trade-date - the date on which the group commits to purchase or sell the asset. Financial assets carried at fair value through profit or losses are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the income statement within 'other (losses)/income - net' in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the group's right to receive payments is established.
Accounts receivable
Accounts receivable are stated at original invoice amount less a provision for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when there is no possibility of recovery.
Notes receivable
Notes receivable are recognized initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
Prepayments
Prepayments are carried at cost less any accumulated impairment losses.
Intangible assets
Intangible assets acquired separately are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
Cash and cash equivalents
For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash in hand, bank balances, and short-term deposits with an original maturity of three months or less, net of outstanding bank overdrafts.
Accounts payable and accruals
Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.
Land purchase liability
Land purchase liability is recognized initially at the fair value. Land purchase liability is subsequently stated at amortized cost using the effective interest method.
When a liability is incurred for the purchase of land. Liability is to be recorded at the fair market value of the land received or at an amount that reasonably approximates the market value of the liability, whichever is more clearly determinable. If the fair value of the land or liability is not determinable, the present value of the liability is determined using a market interest rate to discount all future payments. The Difference between present and face value of the liability, is recorded as a discount and amortized to interest expense using the effective interest method.
Borrowings
Borrowings are recognized initially at the fair value, net of transaction cost incurred. Borrowings are subsequently stated at amortized cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.
Provisions
Provisions for legal claims are recognized when the group has a present legal or constructive obligations as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.
Share capital
Shares are classified as equity when there is no obligation to transfer cash or other assets.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.
Dividends distribution
Dividend distribution to the Group's shareholders is recognized as a liability in the Group's financial statements in the period in which the dividends are approved.
2.4 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES
Judgments
In the process of applying the group's accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant impact on the amounts recognized in the financial statements.
Revenue recognition
The group has entered into a number of contracts with buyers for the sale of land and villas. Determining whether an agreement for the construction of real estate falls within the scope of IAS 11 or IAS 18 depends on the terms of the agreement and all the surrounding facts and circumstances, and judgment is made with respect to each agreement.
If the contract under consideration meets the definition of a 'construction contract' in IAS 11, then the accounting for the contract is determined in accordance with that Standard. An agreement for the construction of real estate meets the definition of a construction contract when the buyer is able to specify:
• the major structural elements of the design of the real estate before construction begins;
and/or
• major structural changes once construction is in progress (whether it exercises that ability
or not).
In contrast, if construction could take place independently of the agreement and buyers have only limited ability to influence the design of the real estate (e.g. to select a design from a range of options specified by the entity, or to specify only minor variations to the basic design), the agreement will be for the sale of goods and within the scope of IAS 18.
Estimation uncertainty
Cost of revenues
The cost of revenues in respect of land sales is based on the total estimated cost of the land site over the total usable land area in a particular development.
Costs to complete the projects
The group uses the percentage-of-completion method in accounting for its fixed-price contracts to construct villas and townhouses. Use of the percentage-of-completion method requires the group to estimate the construction executed to date as a proportion of the total construction to be executed. Were the proportion of construction executed to total construction to be executed to differ by 10% from management's estimates, the amount of revenue recognised in the year would be increased by EGP 2,203,400 if the proportion performed were increased, or would be decreased by EGP 2,203,400 if the proportion performed were decreased.
Income tax
Certain subsidiaries of the group are subject to income tax. Significant estimates are required in determining the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. The group recognizes liabilities for anticipated tax audit issues based on estimates whether additional tax will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Estimate of fair values of development properties acquired in a business combination
When acquiring subsidiaries whose primary asset is property it is assumed that the difference between the price paid and net tangible assets acquired relates to the value of the property.