16 Mar 2009 07:00
Palm Hills Developments Announces FY 2008 Consolidated IFRS Results
EBIT Grows by 159% to EGP 730 million (US $135 million)*1
Cairo, March 16 2009 - Palm Hills Developments S.A.E. (PHD), a leading Egyptian real-estate developer specializing primarily in residential real-estate and resort projects, announced its financial results for the year ending December 31, 2008. PHD is listed on the Egyptian Stock Exchange (EGX) and on the London Stock Exchange (LSE).
HIGHLIGHTS
Strong Growth: Net sales increased to EGP 1,234 million (US $229 million), growth of 131% on 2007 (EGP 535 million / US $99 million)
Higher Reservations*2: Reservations were EGP 3,702 million (US $686 million), growth of 23% compared to last year (EGP 2,999 million / US $555 million)
Total Contract Values: Total contracts signed increased by 177% to EGP 3,032 million (US $561 million) compared with 2007 (EGP 1,093 million / US $202 million)
Excellent Margin Growth: EBIT margin grew from 53% in 2007 to 59% in 2008
EBIT Growth: Exceptional growth in EBIT to EGP 730 million (US $135 million) in 2008 up 159% in 2007 (EGP 281 million / US $52 million)
Net Profit: grew 234% Y-o-Y from EGP 197 million in 2007 (US $36 million) to EGP 658 million (US $122 million) in 2008
Land Bank Continues to Grow: total land bank reached 48.8 million sqm in 2008, up 29% Y-o-Y
Bank Debt: Equity*3: down 22% at 31/21/2008, from 59% at 2007 year-end.
*1 Based on EGP/US$5.4
* 2Gross reservations net of returns
*3 (Bank Overdrafts + Term Loans) / Total Equity
Operational Performance
During the year 2008, PHD's reservations amounted to EGP 3,702 million (US $686 million) (2665 units) compared to EGP 2,999 million (US $555 million) (2180 units) in 2007, recording a 23% increase Y-o-Y. The total value of contracted units surged a remarkable 177% Y-o-Y from EGP 1,093 million (US $202 million) (662 units) to EGP 3,032 million (US $561 million) (1851 units) in 2008, comprising a total of 532,4 thousand sqm of land and 584,4 thousand sqm of built-up area.
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On a cumulative basis, reservations value totaled EGP 8,343 million (US $1,545 million) at December 31, 2008 compared to EGP 4,641 (US $859 million) in 2007. This comprised 5515 units of which 2720 were contracted and 2795 were reserved compared to a total of 2850 units in 2007.
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PHD's remarkable growth in sales had been triggered by an all-encompassing strategic corporate focus on diversifying the customer base and penetrating the middle income market segment, offering a wide variety of products with novel designs, efficient spaces, and competitive prices. Thus, projects launched during the year have achieved outstanding reservation rates including: Ain Sokhna with a total of EGP 982,5 million (US $182 million) worth of reservations; Golf Extension with a total of EGP 840,2 million (US $156 million) worth of reservations; Village Extension with a total of EGP 312 million (US $58 million).
In addition to the corporate focus on diversifying the company's portfolio of products, PHD reinforced its concentration on project development and execution accumulating a total construction expenditure of EGP 718 million in 2008. PHD also secured an exclusive agreement with Allam's Sons, a leading private sector contractor in Egypt, to expedite its construction and guarantee its delivery dates to its clients. The agreement entailed the establishment of a joint venture, United Company for Construction and Development (UCC), to which a portion of PHD's construction operations would be designated on an annual basis. UCC has already commenced construction in Hacienda Bay and the Village projects. Construction of the Golf Extension and Village Extension projects, in addition to the Village Mall in New Cairo, will be assigned to the venture during 2009.
Financial Performance
During the year 2008, PHD achieved a net sales figure of EGP 1,234 million (US $229 million), compared to EGP 535 million (US $99 million) in 2007, realizing a remarkable 131% increase in net sales Y-o-Y. The total number of contracted units in 2008 reached 1851 units (EGP 3,032 million / US $561 million) compared with 662 units (EGP 1,093 million / US $202 million) in 2007. Of the aforementioned sum, 32% (EGP 959,3 million / US $178 million) stemmed from the Hacienda Bay project, 24% (EGP 736,9 million / US $136 million) from the Golf Views project, 12% (EGP 365,8 million / US $68 million) from the Palm Hills Katameya project, 9% (EGP 276,5 million / US $51 million) from the Bamboo Extension project, and the remainder from other projects.
PHD's boost in gross profit margins, reaching 76% representing EGP 941 million (US $174) in 2008, compared with 73% representing EGP 393 million (US $73 million) in 2007, was echoed by the large contributions of Hacienda Bay, EGP 338 million (US $63 million), Golf Views, EGP 328 million (US $61 million), Palm Hills Katameya, EGP 180 million (US $33 million), and Bamboo Extension, EGP 68 million (US $13 million).
Overall, PHD has delivered yet another set of record profits, with net profit after taxes and minority interest standing at EGP 658 million (US $122 million) with a 53% net profit margin at 31/12/2008 compared with EGP 197 million (US $36 million) with a 37% net profit margin at 31/12/2007, a remarkable 234% higher Y-o-Y.
Land Bank
During the year 2008, PHD was able to add a total of approximately 11 million sqm to its land bank both locally and regionally through both direct acquisition of land and/or through acquiring majority stakes of owning companies. PHD maintained the absolute advantage of the diversity of its land bank by acquiring 796 thousand sqm in New Cairo, 882 thousand sqm in 6th of October, 1,4 million sqm in the North Coast, 1,3 million sqm in the Red Sea and Aswan, in addition to 6,6 million sqm in Saudi Arabia, in both Riyadh and Jeddah, reaching a total land bank of 48,8 million sqm at 31/12/2008, achieving a 29% increase Y-o-Y.
In light of the increase of its land bank, PHD commissioned CB Richard Ellis (CBRE), the world's leading global real estate consultancy firm, to undertake the independent revaluation of its land bank. Following the revaluation, the market value of PHD's properties as at November, 9 2008, came to EGP 33.1 billion (US $6.0 billion) prior to adjustments for tax, minority interests, land repayment obligations and other liabilities. The valuation was undertaken in accordance with the standards of the Royal Institute of Chartered Surveyors Valuation Standards, Sixth Edition. The revaluation showed a significant increase of 70% over the previous valuation of EGP 19.5 billion (US $3.6 billion) as at March, 1 2008. The revaluation excluded PHD's land in Saudi Arabia and other plots totaling 8.8 million sqm, which were valued at acquisition cost.
Outlook
While the uncertainty in the global economy has clearly impacted investor sentiment in the Egyptian marketplace, the underlying, long term fundamentals of the real estate market remain intact. PHD is confident that the Group is well positioned to endure the challenging current conditions and firmly believes that the Group's experienced management team, diverse spread of operations and strong brands will underpin PHD's continued success.
It is also imperative to note that the real-estate industry in Egypt is highly fragmented with only 4 major developers in the market commanding a modest market share. Given the current market conditions, the less organized and smaller developers will be at a more significant disadvantage, allowing PHD and other more established developers to expand their share in the market. Furthermore, PHD is the only existing developer today that offers a highly diversified product mix that is spread over an equally diversified land bank, thereby addressing different market segments with varied purchasing powers assuring a sustainability of demand.
In order to sustain its competitive advantage in the aforementioned categories and maintain its stable position in the current financial downturn, PHD will focus on the following:
In compliance with the corporate strategy on serving various market segments, PHD will launch 3 new projects with an approximate 80% of the total number of units valued at less than EGP 1.5 million, including: the 49, located on the Cairo/Alexandria Desert Road, 190 Feddans, located in 6th of October, and Kapci in New Cairo.
Initiation of execution of obligations set in MOUs signed with international hotel chains through 2010: Nikki Beach Hotel in the North Coast to operate a 5 star, 160 bedroom hotel facility; the Ritz-Carlton Hotel in 6th of October to operate a 5-star, 160 bedroom hotel facility, to commence hotel operations in 2012.
Commencement of construction in the Village Mall in New Cairo, PHD's first commercial project of its kind, upon final completion of the project's masterplans and designs; the mall is expected to achieve significant liquidity and profit upon launch.
Focusing on liquidity and maintaining a robust funding structure, noting that PHD's ability to secure EGP 700 million (US $130 million) of bank debt to support purchasers puts it at an edge vis-à-vis competitors.
Concentrating on cost control and achieving maximum benefit from the recent drop in building materials prices in addition to the company's targeted drop in overall group overheads by over 25%.
The developments made by the business over the past 12 months in establishing alliances, acquiring a large, diversified land bank and attracting new customers means that PHD is well placed to weather the current financial/economic downturn.
Table 1 - FY 2008 Vs. FY 2007 Operating Results (EGP '000)*1
| 12 Months Ended | ||||
|
| 31/12/2008 | 31/12/2007 | ||
| SALES (NET) | 1,234,806 | 535,023 | ||
| Cost of sales | (293,340) | (142,403) | ||
| GROSS PROFIT | 941,466 | 392,620 | ||
| Margin% | 76.24% | 73.38% | ||
| Selling, General & Administrative Expenses | (211,405) | (110,788) | ||
| OPERATING PROFIT (EBIT) | 730,062 | 281,832 | ||
| Margin% | 59.12% | 52.68% | ||
| Other income | 24,593 | 5,352 | ||
| Interest income - Amortization of discount | 73,084 | 12,882 | ||
| Finance costs | (108,523) | (77,202) | ||
| PROFIT BEFORE TAX | 719,216 | 222,864 | ||
| Income tax expense | (59,172) | (30,495) | ||
| PROFIT FOR THE YEAR | 660,044 | 192,369 | ||
| Minority interest | (2,365) | 4,220 | ||
| NET PROFIT AFTER MINORITY | 657,678 | 196,589 | ||
| Margin% | 53.26% | 36.74% | ||
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.
Table 2 - Performance by Project
| Project | Sales Launch | Total Reservations1 | Total Contract Value | ||||||
| FY 2007 | FY 2008 | FY 2007 | FY 2008 | ||||||
| No. of units | Value (000) | No. of units | Value (000) | No. of units | Value (000) | No. of units | Value (000) | ||
| Cascade (6) | Mar-05 | 8 | 7,829 | - | - | 17 | 16,812 | - | - |
| Bamboo (7) | Jun-05 | 13 | 7,942 | - | - | 26 | 15,832 | - | - |
| Golden Palm (8) | Jun-05 | 18 | 40,608 | 7 | 13,729 | 16 | 30,203 | 21 | 64,834 |
| Golf Views | Jun-05 | 95 | 441,907 | 21 | 138,628 | 15 | 79,912 | 201 | 736,963 |
| Golf Extension | Jan-08 | - | - | 319 | 840,209 | - | - | - | - |
| Katameya | Jul-06 | 167 | 436,100 | 73 | 256,604 | 251 | 553,041 | 105 | 365,765 |
| Bamboo Extension | May-07 | 114 | 252,405 | 22 | 44,558 | - | - | 127 | 276,451 |
| Hacienda Bay | Jul-07 | 630 | 1,093,751 | 270 | 548,451 | 89 | 288,478 | 524 | 959,318 |
| Casa | Jun-07 | 732 | 473,188 | 84 | 84,522 | - | - | 521 | 371,087 |
| The Village | Nov-06 | 228 | 109,371 | 111 | 76,958 | 248 | 109,129 | 140 | 94,157 |
| Palm Park | Dec-07 | 175 | 136,223 | 453 | 404,158 | - | - | 139 | 105,225 |
| Ain Sokhna | Feb-08 | - | - | 893 | 982,472 | - | - | 1 | 3,000 |
| Village Gate | Jun-08 | - | - | 412 | 312,035 | - | - | 72 | 55,237 |
| Total | 2180 | 2,999,325 | 2665 | 3,702,325 | 662 | 1,093,407 | 1,851 | 3,032,037 | |
*1 Total Reservations during 2008 Net of Returns
PALM HILLS DEVELOPMENTS COMPANY
S.A.E AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2008
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF PALM HILLS DEVELOPMENTS COMPANY S.A.E
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Palm Hills Developments Company S.A.E and its subsidiaries ('the Group'), represented in the consolidated balance sheet as at 31 December 2008, and the related consolidated statements of income, consolidated changes in equity and consolidated cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards. Management responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. This responsibility also includes selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, and evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2008, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Other Legal and Regulatory Requirements
The Company maintains proper accounting records that comply with the laws and the Company's articles of association and the financial statements agree with the Company's records.
The financial information included in the Board of Directors' Report, prepared in accordance with Law No. 159 of 1981 and its executive regulation, is in agreement with the books of the Company insofar as such information is recorded therein.
Nabil Istanbouli
Partner
Date: 12 March 2009
Cairo
Palm Hills Developments Company S.A.E and its Subsidiaries
CONSOLIDATED INCOME STATEMENT
Years ended 31 December 2008
| 2008 | 2007 | ||
| Notes | EGP | EGP | |
| Restated | |||
| Sales | 3 | 1,234,805,955 | 535,022,603 |
| Cost of sales | 3 | (293,339,733) | (142,402,841) |
| ─────── | ─────── | ||
| GROSS PROFIT | 941,466,222 | 392,619,762 | |
| Selling and administrative expenses | 4 | (211,404,705) | (110,788,160) |
| Interest income | 5 | 73,084,467 | 12,882,200 |
| Finance costs | 6 | (108,523,476) | (77,202,102) |
| Other income | 7 | 24,593,422 | 5,352,369 |
| ─────── | ─────── | ||
| PROFIT BEFORE TAX | 719,215,930 | 222,864,069 | |
| Income tax expense | 8 | (59,172,013) | (30,494,985) |
| ─────── | ─────── | ||
| PROFIT FOR THE YEAR | 660,043,917 | 192,369,084 | |
| ═════ | ═════ | ||
| Attributable to: | |||
| Equity holders of the parent | 657,678,480 | 196,589,485 | |
| Minority interests | 2,365,437 | (4,220,401) | |
| ─────── | ─────── | ||
| 660,043,917 | 192,369,084 | ||
| ═════ | ═════ | ||
| Basic and diluted earnings per share attributable to the equity holders of the parent (expressed in EGP per share) | 29 | 1.482 | .692 |
| ═════ | ═════ |
The attached notes 1 to 36 from part of these consolidated financial statements.
Palm Hills Developments Company S.A.E and its Subsidiaries
CONSOLIDATED BALANCE SHEET
At 31 December 2008
| 2008 | 2007 | ||
| Notes | EGP | EGP | |
| ASSETS | |||
| Non-current assets | |||
| Property and equipment | 9 | 543,044,803 | 480,001,745 |
| Advance payments for investments acquisition | 10 | 470,675,012 | 108,371,833 |
| Investment in an associate | 11 | 245,000 | 245,000 |
| Intangible assets | 12 | 47,700,000 | - |
| Notes receivable | 14 | 1,658,430,196 | 626,227,375 |
| ─────── | ─────── | ||
| 2,720,095,011 | 1,214,845,953 | ||
| ─────── | ─────── | ||
| Current assets | |||
| Notes receivable | 14 | 683,086,670 | 269,318,930 |
| Accounts receivable and prepayments | 15 | 318,745,683 | 107,432,145 |
| Bank balances and cash | 16 | 279,712,833 | 386,446,575 |
| Financial assets at fair value through profit or loss - Held for trading | 17 | 203,433,368 | - |
| Development properties | 18 | 4,940,216,448 | 3,779,803,205 |
| ─────── | ─────── | ||
| 6,425,195,002 | 4,543,000,855 | ||
| ─────── | ─────── | ||
| TOTAL ASSETS | 9,145,290,013 | 5,757,846,808 | |
| ═════ | ═════ | ||
| EQUITY AND LIABILITIES | |||
| Attributable to equity holders of the parent | |||
| Share capital | 19 | 931,840,000 | 800,000,000 |
| Share premium | 19 | 890,538,204 | - |
| Statutory reserve | 20 | 13,635,814 | 13,635,814 |
| Retained earnings | 851,589,501 | 225,911,021 | |
| ─────── | ─────── | ||
| 2,687,603,519 | 1,039,456,835 | ||
| Minority interests | 144,596,901 | 103,457,918 | |
| ─────── | ─────── | ||
| Total equity | 2,832,200,420 | 1,143,004,753 | |
| ─────── | ─────── | ||
| Non-current liabilities | |||
| Term loans | 21 | 379,591,680 | 3,260,042 |
| Land purchase liabilities | 22 | 1,652,579,957 | 1,855,505,706 |
| Notes payable | 23 | 1,172,180,388 | 114,836,677 |
| Other non-current liabilities | 24 | 164,874,504 | 34,354,294 |
| Deferred tax liability | 8 | 2,124,436 | 547,860 |
| ─────── | ─────── | ||
| Total non-current liabilities | 3,371,350,965 | 2,008,504,579 | |
| ─────── | ─────── | ||
| Current liabilities | |||
| Bank overdrafts | 16 | 111,249,739 | 486,416,325 |
| Current portion of term loans | 21 | 136,405,712 | 182,930,278 |
| Current portion of land purchase liabilities | 22 | 298,545,082 | 413,012,763 |
| Accounts payable and accruals | 26 | 266,384,061 | 231,685,084 |
| Notes payable | 23 | 261,212,904 | 260,169,738 |
| Advances from customers | 27 | 573,596,662 | 534,362,792 |
| Billings in excess of costs | 28 | 1,236,749,032 | 466,131,609 |
| Income tax payable | 8 | 57,595,436 | 31,628,887 |
| ─────── | ─────── | ||
| 2,941,738,628 | 2,606,337,476 | ||
| ─────── | ─────── | ||
| Total liabilities | 6,313,089,593 | 4,614,842,055 | |
| ─────── | ─────── | ||
| TOTAL EQUITY AND LIABILITIES | 9,145,290,013 | 5,757,846,808 | |
| ═════ | ═════ |
__________________ ________________
Mohamed Fahmy Yasseen Mansour
(Chief Financial Controller) (Chairman)
Palm Hills Developments Company S.A.E and its Subsidiaries
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2008
| 2008 | 2007 | |
| EGP | EGP | |
| OPERATING ACTIVITIES | ||
| Profit before tax | 719,215,930 | 222,864,069 |
| Adjustments for: | ||
| Depreciation | 13,571,791 | 2,026,101 |
| Amortization of intangible asset | 5,300,000 | - |
| Interest income | (73,084,467) | (12,882,200) |
| Finance cost | 108,523,476 | 77,202,102 |
| Tax paid | (31,628,887) | - |
| __________ | __________ | |
| 741,897,843 | 289,210,072 | |
| Working capital changes: | ||
| Notes receivable | (1,445,970,561) | (757,970,638) |
| Financial assets at fair value through profit or loss - held for trading | (203,433,368) | - |
| Accounts receivable and prepayments | (211,313,538) | (54,516,983) |
| Development properties | (1,508,000,738) | (481,087,123) |
| Notes payable | 1,058,386,877 | 374,935,214 |
| Accounts payable and accruals | 34,698,976 | 125,385,024 |
| Advances from customers | 39,233,870 | 332,170,298 |
| Billings in excess of costs | 770,617,423 | 380,876,436 |
| Other non-current liabilities | 130,520,210 | - |
| Deferred tax liability | 1,576,576 | - |
| Income tax payable | 57,595,436 | - |
| __________ | __________ | |
| Cash from operations | (534,190,994 | 209,002,300 |
| Interest paid | (37,977,130) | (41,733,947) |
| __________ | __________ | |
| Net cash (used in) from operating activities | (572,168,124) | 167,268,353 |
| __________ | __________ | |
| INVESTING ACTIVITIES | ||
| Purchase of properties and equipment | (57,479,542) | (451,361,075) |
| Proceeds from sale of properties and equipment | - | 34,650 |
| Purchase of intangible assets (note12) | (53,000,000) | - |
| Acquisition of subsidiaries (note 13) | (79,514,396) | (727,218,939) |
| Advance payments for investments acquisition | (362,303,179) | (108,371,833) |
| Proceeds from sale of available for sale investment | - | 25,000,000 |
| Interest received | 33,942,909 | 8,019,688 |
| __________ | __________ | |
| Net cash used in investing activities | (518,354,208) | (1,253,897,509) |
| __________ | __________ | |
| FINANCING ACTIVITIES | ||
| Proceeds from shares issued | 990,378,204 | 493,000,000 |
| Proceeds from term loan | 376,331,638 | 182,048,307 |
| Payments for term loan | (46,524,566) | (685,720) |
| Amounts paid under capital increase by minorities | 11,453,750 | 34,764,000 |
| Minority share in the capital of subsidiaries | 38,380,875 | 61,909,688 |
| Acquisition of minority interests | (11,064,725) | (14,687,188) |
| ___________ | ___________ | |
| Net cash from financing activities | 1,358,955,176 | 756,349,087 |
| ___________ | ___________ | |
| NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS | 268,432,844 | (330,280,069) |
| Cash and cash equivalents at 1 January | (99,969,750) | 230,310,319 |
| ___________ | ___________ | |
| CASH AND CASH EQUIVALENTS AT 31 DECEMBER | 168,463,094 | (99,969,750) |
| ══════ | ══════ |
Palm Hills Developments Company S.A.E and its Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Years ended 31 December 2008
| Attributable to equity holders of the parent | |||||||
| Share capital | Share premium | Statutory Reserve | Retained earnings | Total | Minority interests | Total | |
| EGP | EGP | EGP | EGP | EGP | EGP | EGP | |
| Balance at 31 December 2007 | 307,000,000 | - | 2,160,706 | 40,796,644 | 349,957,350 | 25,691,819 | 375,649,169 |
| Proceeds from shares issued | 493,000,000 | - | - | - | 493,000,000 | - | 493,000,000 |
| Amounts paid under capital increase by minority | - | - | - | - | - | 34,764,000 | 34,764,000 |
| Minority share in capital of subsidiaries | - | - | - | - | - | 61,909,688 | 61,909,688 |
| Acquisition of minority interests | - | - | - | - | - | (14,687,188) | (14,687,188) |
| Profit for the year | - | - | - | 196,589,485 | 196,589,485 | (4,220,401) | 192,369,084 |
| ___________ | ___________- | ___________ | _________ | __________ | __________ | __________ | |
| 800,000,000 | - | 2,160,706 | 237,386,129 | 1,039,546,835 | 103,457,918 | 1,143,004,753 | |
| Transfer to statutory reserve | - | - | 11,475,108 | (11,475,108) | - | - | - |
| ___________ | ___________ | ___________ | _________ | __________ | __________ | __________ | |
| Balance at 31 December 2007 | 800,000,000 | - | 13,635,814 | 225,911,021 | 1,039,546,835 | 103,457,918 | 1,143,004,753 |
| Proceeds from shares issued | 131,840,000 | 890,538,204 | - | (32,000,000) | 990,378,204 | - | 990,378,204 |
| Amounts paid under capital increase by minority | - | - | - | - | - | 11,453,750 | 11,453,750 |
| Minority share in capital of subsidiaries | - | - | - | - | - | 38,380,875 | 38,380,875 |
| Acquisition of minority interests | - | - | - | - | - | (11,061,079) | (11,061,079) |
| Profit for the year | - | - | - | 657,678,480 | 657,678,480 | 2,365,437 | 660,043,917 |
| ___________ | ___________ | ___________ | _________ | __________ | __________ | __________ | |
| Transfer to statutory reserve | - | - | - | - | - | - | - |
| ___________ | ___________ | ___________ | _________ | __________ | __________ | __________ | |
| Balance at 31 December 2008 | 931,840,000 | 890,538,204 | 13,635,814 | 851,589,501 | 2,687,603,519 | 144,596,901 | 2,832,200,420 |
| ══════ | ══════ | ══════ | ═════ | ══════ | ══════ | ══════ | |
Palm Hills Developments Company S.A.E and its Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At 31 December 2008
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 in Giza Governorate, where the main branch is located in Smart Village.
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.
These group consolidated financial statements were authorised for issue by the board of directors on 15 March 2009.
All the company operations are located in Egypt; it has only one identifiable business segment which real estate development.
The company participated in the capital of eleven 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.
2 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented.
Basis of preparation
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 and presented in Egyptian Pounds (EGP)
(a) Interpretations effective in 2008 but not relevant
The following interpretation to published standards is mandatory for accounting periods beginning on or after 1 January 2008 but is not relevant to the group's operations:
-IFRIC 12, 'Service concession arrangements'. The amendment does not have an impact on the group's operations because the group does not have any concession arrangements.
-IFRIC 13, 'Customer loyalty programmes'. The amendment does not have an impact on the group's operations because the group does not have any customer loyalty programmes.
-IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. The amendment does not have an impact on the group's operations because the group does not have defined employees benefit plan.
-IFRIC 11, 'IFRS 2 - Group and treasury share transactions'. The amendment does not have an impact on the group's operations because the group does not have any group treasury shares transactions.
-IFRIC 16, 'Hedges of a net investment in a foreign operation'. The amendment does not have an impact on the group's operations because the group does not have investments in foreign operations.
(b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the group
The following standards and amendments to existing standards have been published and are mandatory for the group's accounting periods beginning on or after 1 January 2009 or later periods, but the group has not early adopted them:
IFRIC 15, 'Agreements for construction of real estates' (effective from 1 January 2009). The interpretation clarifies whether IAS 18, 'Revenue', or IAS 11, 'Construction contracts', should be applied to particular transactions. It is likely to result in IAS 18 being applied to a wider range of transactions. The group will apply IFRIC 15 retrospectively from 1 January 2009. There will be no effect on 2008 net profit, decrease of EGP 6,402,724, and decrease of EGP 17,834,924 in retained earning and billings in excess of costs and estimated earnings on uncompleted contracts respectively.
IAS 23 (Amendment), 'Borrowing costs' (effective from 1 January 2009). The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset.
The option of immediately expensing those borrowing costs will be removed. The group will apply IAS 23 (Amendment) retrospectively from 1 January 2009.
IAS 1 (Revised), 'Presentation of financial statements' (effective from 1 January 2009). The revised standard will prohibit the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they will be required to present a restated balance sheet as at the beginning comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. The group will apply IAS 1 (Revised) from 1 January 2009. It is likely that both the income statement and statement of comprehensive income will be presented as performance statements.
IAS 27 (Revised), 'Consolidated and separate financial statements', (effective from 1 July 2009). The revised standard requires the effects of all transactions with non controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. The group will apply IAS 27 (Revised) prospectively to transactions with non-controlling interests from 1 January 2010.
IFRS 3 (Revised), 'Business combinations' (effective from 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair vale or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed. The group will apply IFRS 3 (Revised) prospectively to all business combinations from 1 January 2010.
IAS 23 (Amendment), 'Borrowing costs' (effective from 1 January 2009). The amendment is part of the IASB's annual improvements project published in May 2008. The definition of borrowing costs has been amended so that interest expense is calculated using the effective interest method defined in IAS 39 'Financial instruments: Recognition and measurement'. This eliminates the inconsistency of terms between IAS 39 and IAS 23. The group will apply the IAS 23 (Amendment) prospectively to the capitalisation of borrowing costs on qualifying assets from 1 January 2009.
IAS 28 (Amendment), 'Investments in associates' (and consequential amendments to IAS 32, 'Financial Instruments: Presentation', and IFRS 7, 'Financial instruments: Disclosures') (effective from 1 January 2009). The amendment is part of the IASB's annual improvements project published in May 2008. An investment in associate is treated as a single asset for the purposes of impairment testing. Any impairment loss is not allocated to specific assets included within the investment, for example, goodwill. Reversals of impairment are recorded as an adjustment to the investment balance to the extent that the recoverable amount of the associate increases. The group will apply the IAS 28 (Amendment) to impairment tests related to investments in subsidiaries and any related impairment losses from 1 January 2009.
IAS 36 (Amendment), 'Impairment of assets' (effective from 1 January 2009). The amendment is part of the IASB's annual improvements project published in May 2008. Where fair value less costs to sell is calculated on the basis of discounted cash flows, disclosures equivalent to those for value-in-use calculation should be made. The group will apply the IAS 28 (Amendment) and provide the required disclosure where applicable for impairment tests from 1 January 2009.
IAS 1 (Amendment), 'Presentation of financial statements' (effective from 1 January 2009). The amendment is part of the IASB's annual improvements project published in May 2008. The amendment clarifies that some rather than all financial assets and liabilities classified as held for trading in accordance with IAS 39, 'Financial instruments: Recognition and measurement' are examples of current assets and liabilities respectively. The group will apply the IAS 39 (Amendment) from 1 January 2009. It is not expected to have an impact on the group's financial statements.
There are a number of minor amendments to IFRS 7, 'Financial instruments: Disclosures', IAS 8, 'Accounting policies, changes in accounting estimates and errors', IAS 10, 'Events after the reporting period', IAS 18,
'Revenue' and IAS 34, 'Interim financial reporting', which are part of the IASB's annual improvements project
published in May 2008 (not addressed above). These amendments are unlikely to have an impact on the group's accounts and have therefore not been analysed in detail.
(c) Interpretations and amendments to existing standards that are not yet effective and not relevant for the group's operations
The following interpretations and amendments to existing standards have been published and are mandatory for the group's accounting periods beginning on or after 1 January 2009 or later periods but are not relevant for the group's operations:
IAS 16 (Amendment), 'Property, plant and equipment' (and consequential amendment to IAS 7, 'Statement of cash flows') (effective from 1 January 2009). The amendment will not have an impact on the group's operations because none of the group's companies ordinary activities comprise renting and subsequently selling assets.
IAS 27 (Amendment), 'Consolidated and separate financial statements' (effective from 1 January 2009). The amendment will not have an impact on the group's operations because it is the group's policy for an investment in subsidiary to be recorded at cost in the standalone accounts of each entity.
IAS 28 (Amendment), 'Investments in associates' (and consequential amendments to IAS 32, 'Financial Instruments: Presentation' and IFRS 7, 'Financial instruments: Disclosures') (effective from 1 January 2009). The amendment will not have an impact on the group's operations because it is the group's policy for an investment in an associate to be equity accounted in the group's consolidated accounts.
IAS 29 (Amendment), 'Financial reporting in hyperinflationary economies' (effective from 1 January 2009). The amendment will not have an impact on the group's operations, as none of the group's subsidiaries or associates operate in hyperinflationary economies.
IAS 31 (Amendment), 'Interests in joint ventures' (and consequential amendments to IAS 32 and IFRS 7) (effective from 1 January 2009). The amendment will not have an impact on the group's operations as there are no interests held in joint ventures.
IAS 38 (Amendment), 'Intangible assets' (effective from 1 January 2009). The amendment will not have an impact on the group's operations, as all intangible assets are amortised using the straight-line method.
IAS 40 (Amendment), 'Investment property' (and consequential amendments to IAS 16) (effective from 1 January 2009). The amendment will not have an impact on the group's operations, as there are no investment properties are held by the group.
IAS 41 (Amendment), 'Agriculture' (effective from 1 January 2009). The amendment will not have an impact on the group's operations as no agricultural activities are undertaken.
IAS 20 (Amendment), 'Accounting for government grants and disclosure of government assistance' (effective from 1 January 2009). The amendment will not have an impact on the group's operations as there are no loans received or other grants from the government.
The minor amendments to IAS 20 'Accounting for government grants and disclosure of government assistance', and IAS 29, 'Financial reporting in hyperinflationary economies', IAS 40, 'Investment property', and IAS 41, 'Agriculture', which are part of the IASB's annual improvements project published in May 2008 (not addressed above). These amendments will not have an impact on the group's operations as described above.
IFRS 2 (Amendment), 'Share-based payment' (effective from 1 January 2009). The amendment will not have an impact on the group's operations as there are no share-based-payments made by the group.
IAS 32 (Amendment), 'Financial instruments: Presentation', and IAS 1 (Amendment), 'Presentation of financial statements' - 'Puttable financial instruments and obligations arising on liquidation' (effective from 1 January 2009). These amendments will not have an impact on the group's operations.
IFRS 1 (Amendment) 'First time adoption of IFRS', and IAS 27 'Consolidated and separate financial statements '(effective from 1 January 2009). These amendments will not have an impact on the group's operations.
IFRS 5 (Amendment), 'Non-current assets held-for-sale and discontinued operations' (and consequential amendment to IFRS 1, 'First-time adoption') (effective from 1 July 2009). These amendments will not have an impact on the group's operations.
IAS 38 (Amendment), 'Intangible assets'(effective from 1 January 2009). The amendment will not have an impact on the group's operations.
IAS 19 (Amendment), 'Employee benefits' (effective from 1 January 2009). The amendment will not have an impact on the group's operations.
IAS 39 (Amendment), 'Financial instruments: Recognition and measurement' (effective from 1 January 2009). The amendment will not have an impact on the group's operations.
IFRS 8, 'Operating segments', IFRS 8 replaces IAS 14, 'Segment reporting', The amendment will not have an impact on the group's operations as the group does not have identifiable business or geographical segments..
Basis of consolidation
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 consolidated financial statements comprise the financial statements of Palm Hills for Development Company (S.A.E) and its subsidiaries as at 31 December each year. 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, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
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. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. When the Group acquires a group of assets or net assets that does not constitute a business, it allocates the cost of the group of net assets between the individual identifiable assets and liabilities in the group of net assets based on their relative fair values at the acquisition date.
Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the income statement and within equity in the consolidated balance sheet, separately from parent shareholders' equity. The group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposal to minority interests results in gains and losses for the group and are recorded in the income statement. Purchases from minority interests results in goodwill being the difference between any consideration paid and the book value of the relevant share of acquired net assets of the subsidiary.
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 all of the following conditions are met:
Construction is beyond a preliminary stage. The engineering, design work, construction contract execution, site clearance and building foundation are finished; and
If payment for construction is on deferred terms payments to the date of the financial statements are at least 50%
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:
Revenue on sale of apartments is recognised upon delivery.
Interest
Interest revenue 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. 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 is defined as property (land or a building or part of a building or both) held by the group to earn rentals or for capital appreciation or both, rather than for: (a) use in the production of supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business.
Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is complete. At that time, it is reclassified and subsequently accounted for as investment property.
Impairment of non- financial assets
Property and equipment 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.
If this is the case the group calculates the amount of impairment as being the difference between the fair value of the associate and the acquisition cost and recognises the amount in profit or loss.
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:
Investment in associates
The company's investments in associates are accounted for under the equity method of accounting. These are entities over which the company exercises significant influence and which are neither subsidiaries nor joint ventures. Investments in associates are carried in the balance sheet at cost, plus post-acquisition changes in the company's share of net assets of the associate, less any impairment in value. The income statement reflects the Company's share of the results of its associates.
Unrealised profits and losses resulting from transactions between the Company and its associate are eliminated to the extent of the Company's interest in the associate.
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 in the near term. Assets in this category are classified as current assets. Regular way purchases 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.
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 the imputed interest rate. This rate is then used to establish the present value of the liability by discounting all future payments on the liability at this rate. 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.
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.
Fair values
The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar terms and risk characteristics.
For unquoted equity investments, fair value is determined by reference to the market value of a similar investment or is based on the expected discounted cash flows.
For quoted investment, fair value is determined by reference to market value.
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.
2.1 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.
Transfer of equitable interest in development properties
The group has entered into a number of contracts with buyers for the sale of land and villas. Management has determined that equitable interest in such assets and therefore risks and rewards of the ownership are transferred to the buyer once he is committed to complete the payment for the purchase.
This commitment is evidenced by a signed contract for the purchase of the property and payments of sufficient progress payments. Based on this, the group recognizes revenues and profits as the acts to complete the property are performed.
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 estimates the cost to complete the projects in order to determine the cost attributable to revenue being recognised. These estimates include the cost of providing infrastructure activities, potential claims by sub contractors and the cost of meeting other contractual obligations to the customers.
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 recognises 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.
3 SALES AND COST OF SALES
| 2008 | 2007 | |
| EGP | EGP | |
| Sales: | ||
| Sale of land attributable to villas and town houses | 1,234,805,955 | 517,187,679 |
| Revenue from construction contracts | - | 17,834,924 |
| ──────── | ──────── | |
| 1,234,805,955 | 535,022,603 | |
| ══════ | ══════ | |
| Cost of sales: | ||
| Cost of land attributable to villas and town houses | 293,339,733 | 130,970,641 |
| Cost of construction contracts | - | 11,432,200 |
| ──────── | ──────── | |
| 293,339,733 | 142,402,841 | |
| ══════ | ══════ |
4 SELLING AND ADMINISTRATIVE EXPENSES
| 2008 | 2007 | |
| EGP | EGP | |
| Consultancy expenses | - | 903,851 |
| Marketing and selling expenses | 78,444,103 | 44,673,327 |
| Salaries and wages | 84,656,584 | 20,680,009 |
| Social insurance | 454,994 | 764,353 |
| Professional fees | 6,751,005 | 3,510,054 |
| Search fees for real estate agents | 3,750,000 | 21,344,081 |
| Rent expenses | 3,626,743 | 695,772 |
| Travel | 2,695,552 | 496,896 |
| Bank charges | 1,383,669 | 2,936 |
| Other expenses | 19,376,195 | 16,566,888 |
| Late payments charged | - | 52,740 |
| Depreciation expenses | 4,965,860 | 1,097,253 |
| Amortization of intangible asset | 5,300,000 | - |
| ──────── | ──────── | |
| 211,404,705 | 110,788,160 | |
| ══════ | ══════ |
5 INTEREST INCOME
| 2008 | 2007 | |
| EGP | EGP | |
| Interest income - amortization of discount on long term notes receivable | 39,141,558 | 4,862,512 |
| Interest income on time deposits | 33,942,909 | 4,949,033 |
| Interest income on treasury bills | - | 3,070,655 |
| ──────── | ──────── | |
| 73,084,467 | 12,882,200 | |
| ══════ | ══════ |
6 FINANCE COSTS
| 2008 | 2007 | |
| EGP | EGP | |
| Interest on bank facilities | 37,977,130 | 41,733,947 |
| Interest on land purchase liabilities | 70,546,346 | 35,468,155 |
| ──────── | ──────── | |
| 108,523,476 | 77,202,102 | |
| ══════ | ══════ |
7 OTHER INCOME
| 2008 | 2007 | |
| EGP | EGP | |
| Fair value gain from Financial assets at fair value through profit or loss - held for trading | 9,237,470 | 3,084,420 |
| Units transferee charges | 11,679,980 | - |
| Revenue from the sale of scrap | - | 1,297,240 |
| Foreign exchange gain | 348,009 | 574,905 |
| Other income | 3,327,963 | 395,804 |
| ────────── | ────────── | |
| 24,593,422 | 5,352,369 | |
| ══════ | ══════ |
8 INCOME TAX
Income tax consists of:
| 2008 | 2007 | |
| EGP | EGP | |
| Current year | 57,595,436 | 30,421,520 |
| Deferred tax expense arising from the origination and reversal of temporary differences | 1,576,577 | 73,465 |
| ────────── | ────────── | |
| Charge for the year | 59,172,013 | 30,494,985 |
| ══════ | ══════ |
| The relationship between the tax expense and the accounting profit can be explained as follows: | 2008 | 2007 |
| EGP | EGP | |
| Accounting profit | 720,767,799 | 210,310,578 |
| Adjustments in determining taxable profit: | (432,790,619) | (58,202,982) |
| ────────── | ────────── | |
| Taxable profit | 287,977,180 | 152,107,596 |
| ────────── | ────────── | |
| Statutory income tax rate | 20% | 20% |
| Tax expense | 57,595,436 | 30,421,520 |
| ══════ | ══════ |
Movements in provision during the year
The movement in the current and deferred tax provisions for the year were as follows:
| 2008 EGP | 2007 EGP | 2008 EGP | 2007 EGP | |
| Current tax | Deferred tax | |||
| At beginning of the year | 31,628,887 | 1,207,367 | 547,860 | 474,395 |
| Utilized during the year | (31,628,887) | - | - | - |
| Provided during the year | 57,595,436 | 30,421,520 | 1,576,576 | 73,465 |
| ──────── | ──────── | ────── | ──────── | |
| At end of the year | 57,595,436 | 31,628,887 | 2,124,436 | 547,860 |
| ═════ | ═════ | ═════ | ════ | |
Tax Status of the Group
The tax situation of the group according to the group's tax advisor opinion was as follows:
Palm Hills Development Company S.A.E
The company enjoys a tax holiday from 1 January 2006 to 31 December 2015 on its revenues derived from its activities.
The company submitted its tax returns regularly.
The company has not received any notice from the Tax Authority regarding its tax inspection.
The company pays stamp duty taxes on advertising on due dates
New Cairo for Real Estate Developments S.A.E
The company enjoys a tax holiday from 13 June 2007 to 31 December 2017 on its revenues derived from its activities.
The company submitted its tax returns regularly.
The company has not received any notice from the Tax Authority regarding its tax inspection.
Royal Gardens for Real Estate Investment Company S.A.E
The company submit its tax return for fiscal year of the company ended on 31 December 2008.
The company has not received any notice from the Tax Authority regarding its tax inspection.
Palm Hills Middle East Company for Real Estate Investment S.A.E
The company submit its tax return for fiscal year of the company ended on 31 December 2008.
The company has not received any notice from the Tax Authority regarding its tax inspection.
Middle East Company for Real Estate and Touristic Investment S.A.E
The company did not submit any tax return as the first financial year of the company ended on 31 December 2008 and will submit the tax return by 30 April 2009.
Middle East for Development and Investment Touristic S.A.E
The company did not submit any tax return as the first financial year of the company ended on 31December 2008 and will submit the tax return by 30 April 2009.
Gamsha for Tourist Development S.A.E
The company did not submit any tax return as the first financial year of the company ended on 31 December 2008 and will submit the tax return by 30 April 2009.
Nile Palm Al-Naeem for Real Estate Development S.A.E
The company did not submit any tax return as the first financial year of the company ended on 31 December 2008 and will submit the tax return by 30 April 2009.
Saudi Urban Development company S.A.E
The tax authority has inspected the company, no tax claims were received until 31 December 2008.
Rakeen Egypt for Real Estate Investment S.A.E
The company did not submit any tax return as the first financial year of the company end on 31 December 2008 and will submit the tax return by 30 April 2009.
Gawda for trade services S.A.E
The company enjoys a tax holiday starting from 31 December 2008 revenues derived from its activities.
The company has not received any notice from the Tax Authority regarding its tax inspection.
Al Naeem for the hotels and touristic Villages S.A.E
The company did not submit any tax return as the first financial year of the company end on 31 December 2008 and will submit the tax return by 30 April 2009.
9 PROPERTY AND EQUIPMENT
2008
| Buildings | Tools & Equipment | Vehicles | Furniture & Fixtures | Construction in progress | Total | |
| EGP | EGP | EGP | EGP | EGP | EGP | |
| Cost: | ||||||
| At 1 January 2008 | 15,378,772 | 6,969,015 | 4,917,551 | 5,928,489 | 449,378,102 | 482,571,929 |
| Additions | - | 42,147,938 | 6,660,295 | 25,155,451 | 2,651,165 | 76,614,849 |
| ──────── | ──────── | ──────── | ──────── | ──────── | ──────── | |
| At 31 December 2008 | 15,378,772 | 49,116,953 | 11,577,846 | 31,083,940 | 452,029,267 | 559,186,778 |
| ──────── | ──────── | ──────── | ──────── | ──────── | ──────── | |
| Depreciation: | ||||||
| At 1 January 2008 | 497,712 | 683,039 | 669,296 | 720,137 | - | 2,570,184 |
| Depreciation charge for the year | 757,500 | 6,316,466 | 1,900,536 | 4,597,289 | - | 13,571,791 |
| ──────── | ──────── | ──────── | ──────── | ──────── | ──────── | |
| At 31 December 2008 | 1,255,212 | 6,999,505 | 2,569,832 | 5,317,426 | - | 16,141,975 |
| ──────── | ──────── | ──────── | ──────── | ──────── | ──────── | |
| Net carrying amount: | ||||||
| At 31 December 2008 | 14,123,560 | 42,117,448 | 9,008,014 | 25,766,514 | 452,029,267 | 543,044,803 |
| ═════ | ═════ | ═════ | ═════ | ══════ | ══════ |
2007
| Buildings | Tools & Equipment | Vehicles | Furniture & Fixtures | Construction in progress | Total | |
| EGP | EGP | EGP | EGP | EGP | EGP | |
| Cost: | ||||||
| At 1 January 2007 | 6,190,700 | 816,340 | 810,750 | 319,602 | 22,896,000 | 31,033,392 |
| Additions | 9,188,072 | 6,192,275 | 4,106,801 | 5,608,887 | 426,482,102 | 451,578,137 |
| Disposals | - | (39,600) | - | - | - | (39,600) |
| ──────── | ──────── | ──────── | ──────── | ──────── | ──────── | |
| At 31 December 2007 | 15,378,772 | 6,969,015 | 4,917,551 | 5,928,489 | 449,378,102 | 482,571,929 |
| ──────── | ──────── | ──────── | ──────── | ──────── | ──────── | |
| Depreciation: | ||||||
| At 1 January 2007 | 509 | 141,519 | 139,786 | 50,157 | - | 331,971 |
| Depreciation charge for the year | 497,203 | 546,470 | 529,510 | 669,980 | - | 2,243,163 |
| Relating to disposals | - | (4,950) | - | - | - | (4,950) |
| ──────── | ──────── | ──────── | ──────── | ──────── | ──────── | |
| At 31 December 2007 | 497,712 | 683,039 | 669,296 | 720,137 | - | 2,570,184 |
| ──────── | ──────── | ──────── | ──────── | ──────── | ──────── | |
| Net carrying amount: | ||||||
| At 31 December 2007 | 14,881,060 | 6,285,976 | 4,248,255 | 5,208,352 | 449,378,102 | 480,001,745 |
| ═════ | ═════ | ═════ | ═════ | ══════ | ══════ |
- A building with a net book value of EGP 6,150,000 is collateralized against term loan (note 21).
- Construction in progress represents property that is being constructed or developed for future use as investment property. These are classified as property until construction or development is complete, at which time the property becomes investment property.
- The depreciation charge has been allocated in the income statement as follows:
| 2008 | 2007 | |
| EGP | EGP | |
| Cost of sales | - | 928,848 |
| Administrative expenses | 4,965,860 | 1,097,253 |
| Development properties | 8,605,931 | 217,062 |
| ──────── | ──────── | |
| 13,571,791 | 2,243,163 | |
| ══════ | ══════ |
10 ADVANCE PAYMENTS FOR INVESTMENT ACQUISITION
| 2008 | 2007 | |
| EGP | EGP | |
| Al Naeem For Hotels and Touristic Villages S.A.E | - | 10,920,768 |
| Villamora For Real Estate Development Company | 17,477,600 | |
| Saultan Company - Saudi | 135,121,743 | - |
| New Cairo For Development Company. | 48,000 | - |
| Gamsha For Touristic Development Company. | 4,010,000 | - |
| New East Cairo For Real Estate Development. | 285,473,216 | |
| Citi For Real Estate Development | 27,294,453 | |
| United Group For Real Estate Development | 1,250,000 | |
| Gawda For Trade Services S.A.E. | - | 97,451,065 |
| ──────── | ──────── | |
| 470,675,012 | 108,371,833 | |
| ══════ | ═════ |
The above mentioned advance payments for investments acquisition represents amounts paid by the company to acquire 65% of Villamora for Real Estate Development Company SAE, 51% of Saultan Company - Saudi, ,89% of New East Cairo for Real Estate Development, 51% Citi for real estate development SAE and 49% United group for real estate development all of which were still under incorporation with the legal formalities not being complete as at 31 December 2008. Legal formalities was not completed as at 31 December 2008 for the increase in the Group's share in net assets of New Cairo for Development Company up to 99.99% and up to 60% of Gamsha for Touristic Development Company
11 INVESTMENT IN AN ASSOCIATE
Palm Hills Developments Company ('the company') has the following investments in associates:
| Country of Incorporation | Ownership | |||
| 2008 | 2007 | 2006 | ||
| Coldwell Banker - Palm Hills for Real Estate Investments - S.A.E | Egypt | 49% | 49% | 49% |
- The group's share of aggregated assets and liabilities is as follows:
| 2008 | 2007 | |
| EGP | EGP | |
| Share of associates' balance sheets: | ||
| Current assets | 143,277 | 143,277 |
| Non- current assets | 117,129 | 117,129 |
| Current liabilities | (15,406) | (15,406) |
| Non-current liabilities | - | - |
| ──────── | ──────── | |
| Net assets | 245,000 | 245,000 |
| ═════ | ═════ |
- The associated company, which is unlisted, did not start its operation as of 31 December 2008.
12 INTANGIBLE ASSETS
The company holds the right of using the trademark of Coldwell Banker. The sub-license agreement has been made on 1 July 2007. The agreement is valid for 10 years starting 1 June 2008 to 1 May 2018.The Company started utilized the right starting 1 January 2008. The Contract value amounted to EGP 6,000,000 annually for the first three years of the agreement and EGP 5,000,000 annually from the fourth year till the tenth year.
| 2008 | 2007 | |
| EGP | EGP | |
| Intangible assets | 53,000,000 | - |
| Amortization charged during the year | (5,300,000) | - |
| ──────── | ──────── | |
| Net carring amount | 47,700,000 | - |
| ═════ | ═════ |
13 BUSINESS COMBINATIONS
During the year ended 31 December 2007, Palm Hills Developments Company S.A.E. ('the Company') acquired 51 %, 50%, 97% , and 59% of Saudi for Urban Company developments- SAE, Nile Palm Al Naeem Company - SAE, Rakeen Egypt for Real estate Investment and Gamsha Company for Touristic Development respectively.
On 1 January 2008, Palm Hills Developments Company S.A.E. ('the company') acquired 99.98% and 60 % of Gawda for Trading Services S.A.E and Al Naeem for Hotels and Touristic Villages S.A.E respectively.
The assets and liabilities as of the date of acquisition arising from the acquisition are as follows:
| 2008 | 2007 | 2007 | ||||
| Fair value recognised on acquisition EGP | Acquirees' carrying amount | Fair value recognised on acquisition | Acquirees' carrying amount | |||
| Gawda for Trading Services | Al Naeem for Hotels and Touristic Villages | Total EGP | EGP | EGP | EGP | |
| Development properties | 60,474,509 | 69,266,054 | 129,740,563 | 55,715,926 | 1,316,179,521 | 410,036,261 |
| Notes receivable | - | - | - | - | 6,458,400 | 6,458,400 |
| Accounts receivable and prepayments | 10,182 | 2,500,000 | 2,510,182 | 2,510,182 | 11,897,670 | 11,897,670 |
| Cash and cash equivalents | 1,010,241 | - | 1,010,241 | 1,010,241 | 102,505,928 | 102,505,928 |
| __________ | __________ | __________ | __________ | __________ | __________ | |
| Total assets | 61,494,932 | 71,766,054 | 133,260,986 | 59,236,349 | 1,437,041,519 | 530,898,259 |
| __________ | __________ | __________ | __________ | __________ | __________ | |
| Land purchase liability | - | (23,859,852) | (23,859,852) | (23,859,852) | (152,888,669) | (152,888,669) |
| Current portion of land purchase liability | - | - | - | - | (67,609,259) | (67,609,259) |
| Accounts payable and accruals | (19,430,805) | (8,393,884) | (27,824,689) | (27,824,689) | (100,664,474) | (100,664,474) |
| Notes payable | - | - | - | - | (7,803,000) | (7,803,000) |
| Advance from customers | - | - | - | - | (14,575,000) | (14,575,000) |
| Equity minority interests | (51,808) | (1,000,000) | (1,051,808) | (1,051,808) | (263,776,250) | (93,587,357) |
| __________ | __________ | __________ | __________ | __________ | __________ | |
| (19,482,613) | (33,253,736) | (52,736,349) | (52,736,349) | (607,316,652) | (437,127,759) | |
| __________ | __________ | __________ | __________ | __________ | __________ | |
| Net assets acquired | 42,012,319 | 38,512,318 | 80,524,637 | 6,500,000 | 829,724,867 | 93,770,500 |
| Total purchase consideration | 42,012,319 | 38,512,318 | 80,524,637 | - | 829,724,867 | - |
| ═════ | ══════ | ══════ | ═════ | ══════ | ══════ | |
| 2008 | 2007 | |
| EGP | EGP | |
| Purchase consideration settled in cash | 80,524,637 | 829,724,867 |
| Cash and cash equivalents in subsidiaries acquired | (1,010,241) | (102,505,928) |
| ──────── | ──────── | |
| Cash outflow on acquisition | 79,514,396 | 727,218,939 |
| ═════ | ═════ |
14 NOTES RECEIVABLE
| 2008 | 2007 | |
| EGP | EGP | |
| Less than one year | 811,522,045 | 308,460,487 |
| Unamortized discount | (128,435,375) | (39,141,557) |
| ──────── | ──────── | |
| 683,086,670 | 269,318,930 | |
| ──────── | ──────── | |
| More than one year | 1,971,100,040 | 738,734,095 |
| Unamortized discount | (312,669,844) | (112,506,720) |
| ──────── | ──────── | |
| 1,658,430,196 | 626,227,375 | |
| ──────── | ──────── | |
| 2,341,516,866 | 895,546,305 | |
| ═════ | ========== | |
- Although the notes are not rated and generally to individuals, they are secured on the underlying properties and accordingly are thought to be recoverable in full.
15 ACCOUNTS RECEIVABLE AND PREPAYMENTS
| 2008 | 2007 | |
| EGP | EGP | |
| Accounts receivable | 169,337,349 | 17,612,204 |
| Unamortized discount | (20,275,675) | - |
| ──────── | ──────── | |
| 149,061,674 | 17,612,204 | |
| Due from related parties (note 30) | 55,880,213 | 8,038,044 |
| Advance to suppliers | 26,441,036 | 8,344,061 |
| Advance payment for land purchase | 2,689,000 | 7,000,000 |
| Deposits with others | 1,987,773 | 835,185 |
| Prepaid expenses | 20,260,790 | 12,038,040 |
| Other receivables | 62,425,197 | 53,564,611 |
| ──────── | ──────── | |
| 318,745,683 | 107,432,145 | |
| ═════ | ═════ |
- Neither of the group's accounts receivable is past due nor impaired. The management consider receivables to be to be fully recoverable
- The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The group does not hold any collateral as security.
16 CASH AND CASH EQUIVALENTS
| 2008 | 2007 | |
| EGP | EGP | |
| Cash at banks | 279,025,964 | 386,422,058 |
| Cash on hand | 686,869 | 24,517 |
| ──────── | ──────── | |
| 279,712,833 | 386,446,575 | |
| Bank overdrafts (note 25) | (111,249,739) | (486,416,325) |
| ──────── | ──────── | |
| Cash and cash equivalents | 168,463,094 | (99,969,750) |
| ═════ | ═════ |
17 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS - HELD FOR TRADING
Represents investments in mutual funds in Egyptian pounds. The fair value is based on their current redemption prices in an active market.
Financial assets at fair value through profit or loss are presented within 'operating activities' as part of changes in working capital in the cash flow statement. Changes in fair values of financial assets at fair value through profit or loss are recorded in 'other income' in the income statement (note 7).
18 DEVELOPMENT PROPERTIES
| 2008 | 2007 | |
| EGP | EGP | |
| Land acquisition cost | 5,254,441,648 | 3,924,104,326 |
| Less Cost of sales | (293,339,733) | (130,970,641) |
| ──────── | ──────── | |
| Land acquisition cost ending balance | 4,961,101,915 | 3,793,133,685 |
| ──────── | ──────── | |
| Less cost transferred to project under construction in progress | (20,885,467) | (13,330,480) |
| ──────── | ──────── | |
| 4,940,216,448 | 3,779,803,205 | |
| ══════ | ═════ |
- At 31 December 2008 development properties with a carrying amount of EGP 4,869,144,333 (2007 EGP 1,636,924,985) are subject to a register debenture to secure the land purchase liability (note 22) according to the land purchase agreement the ownership of the land will not be transferred to the company until the full settlement of the purchase liability.
- The acquired land includes 103 faddans represent land acquired without legal title from the Alreaf Al Orobi amounting to EGP 14,157,941.
- Borrowing cost capitalised on the development properties is EGP 33,928,133 (2007: EGP nil). The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 12.5%.
19 SHARE CAPITAL
| Date | Authorised | No. of shares | Par value | Issued and fully paid |
| Establishment date | 350,000,000 | 1,215,000 | 100 | 121,500,000 |
| 20 December 2006 | 350,000,000 | 3,070,000 | 100 | 307,000,000 |
| 13 May 2007 | 1,500,000,000 | 4,000,000 | 100 | 400,000,000 |
| 15 May 2007 | 1,500,000,000 | 6,000,000 | 100 | 600,000,000 |
| 6 November 2007 | 1,500,000,000 | 8,000,000 | 100 | 800,000,000 |
| 27 March 2008 | 3,500,000,000 | 416,000,000 | 2 | 832,000,000 |
| 8 May 2008 | 3,500,000,000 | 465,920,000 | 2 | 931,840,000 |
The Company's issued share capital was increased by EGP 32.0 million from profits carried forward to EGP 832.0 million, following the Extraordinary General Meeting held on 27 March 2008 and approval of the CMA on 23 April 2008, the same Extraordinary General Meeting approved a stock split, increasing the number of Shares outstanding from 8 million to 416 million and decreasing the nominal value of each Share from EGP 100 to EGP 2. Approval of CMA was obtained on that splitting on 17 April 2008.
On 10 April 2008, the Extraordinary General Meeting approved the Closed Subscription and the issuance of the New Shares by 49,920,000 shares with nominal value of EGP 2 and Share Offer Price of EGP 21.75 with share premium of EGP 985.9 million.
The Company's issued and paid share capital was increased from EGP 832 million to EGP 931.8 million after the new issuance of shares.
20 STATUTORY RESERVE
As required by the Egyptian company law and Group's Articles of Association 5% of the net profit for the year has to be transferred to statutory reserve. The Group may resolve to discontinue such annual transfers when the reserve totals 10% of the issued capital.
21 TERM LOANS
| 2008 | 2007 | |
| EGP | EGP | |
| Less than one year | 136,405,712 | 182,930,278 |
| Between one and five years | 379,591,680 | 3,260,042 |
| ──────── | ──────── | |
| 515,997,392 | 186,190,320 | |
| ═════ | ═════ |
Analysed as follows:
| 2008 | 2007 | |
| EGP | EGP | |
| Loan 1 | 3,827,070 | 4,364,042 |
| Loan 2 | 330,000,000 | - |
| Loan 3 | 182,170,322 | 181,826,278 |
| ──────── | ──────── | |
| 515,997,392 | 186,190,320 | |
| ═════ | ═════ |
Loan 1:
The term loan is secured over three floors of Diar Plaza building with net book value of EGP 6,150,000 (note 9). It carries interest at a fixed rate of 14.5% and is repayable on 28 quarterly instalments of EGP 276,000. The instalments due in 2009 are shown as current liability.
Loan 2:
The term loan is a syndicated loan secured over notes receivables and bears an interest of a floating rate of the average corporate deposit rate for 6 months subtracted (1-reserve percentage announced from central bank of Egypt) + 2.5% annually.
Loan 3:
The term loan is secured by the assignment of projects' cash flow and bears an interest rate of 2.5% above deposit corridor rate and is repayable on 14 quarterly instalments of EGP 12,860,000. The instalments due in 2009 are shown as a current liability.
22 LAND PURCHASE LIABILITIES
| 2008 | 2007 | |
| EGP | EGP | |
| Gross land purchase liabilities: | ||
| Less than one year | 338,715,137 | 439,563,533 |
| Between one and five years | 1,849,274,778 | 2,171,336,146 |
| ──────── | ──────── | |
| 2,187,989,915 | 2,610,899,679 | |
| Unamortized discount | (236,864,876) | (342,381,210) |
| ──────── | ──────── | |
| Present value of land purchase liabilities | 1,951,125,039 | 2,268,518,469 |
| ═════ | ═════ | |
| The present value of the land purchase liability is as follows: | ||
| Less than one year | 298,545,082 | 413,012,763 |
| Between one and five years | 1,652,579,957 | 1,855,505,706 |
| ──────── | ──────── | |
| 1,951,125,039 | 2,268,518,469 | |
| ═════ | ═════ |
- Land purchase liability is secured over development properties with a carrying amount of EGP 4,869,144,333 (2007 EGP 1,636,924,985) (note 18). According to the land purchase agreement the ownership of the land will not be transferred to the company until the full settlement of the purchase liability.
- The effective interest rate used on land purchased liabilities is 10%.
23 NOTES PAYABLE
| 2008 | 2007 | |
| EGP | EGP | |
| Less than one year | 262,893,477 | 262,662,720 |
| Unamortized discount | (1,680,573) | (2,492,982) |
| ──────── | ──────── | |
| 261,212,904 | 260,169,738 | |
| ──────── | ──────── | |
| More than one year | 1,639,724,047 | 116,473,658 |
| Unamortized discount | (467,543,659) | (1,636,981) |
| ──────── | ──────── | |
| 1,172,180,388 | 114,836,677 | |
| ──────── | ──────── | |
| 1,433,393,292 | 375,006,415 | |
| ═════ | ═════ |
24 OTHER NON - CURRENT LIABILITIES
Those comprise deposits from unit owners representing amounts received from units' owners to finance the maintenance, security, and other running expenses related to Palm Hills compound management.
25 BANK OVERDRAFTS
Bank overdrafts are secured by personal guarantees of the chairman of Palm Hills Development Company S.A.E., and bear market interest rates.
26 ACCOUNTS PAYABLE AND ACCRUALS
| 2007 | 2007 | |
| EGP | EGP | |
| Due to related parties (note 30) | 56,543,163 | 118,206,667 |
| Suppliers - contractors | 30,400,546 | 820,201 |
| Tax authority - withholding tax | 2,171,116 | 496,913 |
| Tax authority - Others | 5,833,019 | - |
| Kappci | 64,225,000 | - |
| Customers credit balances - (a) | 42,542,442 | - |
| Accrued expenses | 4,390,546 | 669,812 |
| Credit balances under settlement - BAMBOO Extension - (b) | - | 38,176,283 |
| Social Insurance Authority | 6,644,468 | 1,632,251 |
| Other payables | 53,633,761 | 71,675,679 |
| ──────── | ──────── | |
| 266,384,061 | 231,685,084 | |
| ──────── | ──────── |
(a) Customer credit balances represent customers payment for un contracted units (still in process) and unidentified client payment till settled subsequently to customers accounts.
(b) Credit balances under settlement - BAMBOO Extension represent payment collected for Bambo and
includes all the customer advances collected in behalf Gawda for Trade Services S.A.E as it was still under incorporation. The company gave power of attorney to Palm Hills Developments Company S.A.E ('the company') to run the project, accept down payments and notes receivables. This year all the balance had been transferred to Gawda for Trade Services S.A.E.
27 ADVANCES FROM CUSTOMERS
| 2008 | 2007 | |
| EGP | EGP | |
| CASCADE Palm - Sixth Phase | 12,090,940 | 12,098,608 |
| Golden Areca Palm - Eighth Phase | 3,354,110 | 11,473,239 |
| Al Golf customers | 205,768,283 | 216,456,085 |
| Al Katamaya customers | 4,568,184 | 24,002,244 |
| BAMBOO customers | 5,178,495 | 29,166 |
| Advances from customers - club subscriptions | 41,424,528 | 28,276,007 |
| New Cairo Company for Real Estate Development S.A.E customers | 2,594,500 | 5,538,530 |
| Rakeen phase (A-B-C-D) | 43,471,487 | 14,575,100 |
| Royal Garden customers | 86,399,831 | 123,968,703 |
| Palm Hills Middle East customers | 47,601,031 | 97,945,110 |
| Al Naeem for Hotels customers | 95,669,568 | - |
| Saudi for urban development customers | 25,475,705 | - |
| ──────── | ──────── | |
| 573,596,662 | 534,362,792 | |
| ========== | ═════ |
28 BILLINGS IN EXCESS OF COSTS
| 2008 | 2007 | |
| EGP | EGP | |
| Construction cost to date | 751,205,022 | 84,846,348 |
| Add attributable profit | - | 6,402,724 |
| Less progress billings | (1,987,954,054) | (557,380,681) |
| ──────── | ──────── | |
| Billings in excess of costs and estimated earnings on uncompleted contracts | 1,236,749,032 | 466,131,609 |
| ═════ | ═════ |
29 EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
| 2008 | 2007 | |
| EGP | EGP | |
| Net profit attributable to ordinary equity holders of the parent | 657,678,480 | 196,589,485 |
| Weighted average number of ordinary shares outstanding during the year | 443,946,667 | 284,500,000 |
| ──────── | ──────── | |
| 1.482 | .692 | |
| ═════ | ═════ |
- No figure for dilutive earnings per share has been given as the company has not issued any instruments that might be potentially diluted.
- This year the company split the shares 1:50 which affected weighted average number for last year.
30 RELATED PARTY TRANSACTIONS
The following are the details of major related party transactions during the year and the related balances at the year end:
| Related party | Nature of transaction | Amount of transaction | Balance | ||||
| 2008 | 2007 | 2008 | 2007 | ||||
| EGP | EGP | EGP | EGP | ||||
| Affiliates | Purchase of Palm Hills club, stores and Al Reaf Al orobi | - | 327,528,206 | - | |||
| Current account - payable | 9,921,972 | - | (212,498) | 3,402,408 | |||
| Current accounts - receivable | - | 7,980,398 | |||||
| Investment acquisitions | 517,027,832 | - | - | - | |||
| Purchase Palm Hills Club * | - | 79,955,036 | - | ||||
| Directors and senior management | Sale of villas and town houses | 55,532,207 | 55,224,135 | - | - | ||
| Management compensation | 5,504,681 | - | - | - | |||
| Shareholders | Sale of villas and town houses | - | 101,604,470 | - | - | ||
| Current accounts - receivable | 6,605,760 | - | 9,058,193 | 4,635,636 | |||
| Current account - payable | - | (12,073,919) | (43,487,217) | ||||
| Payments for capital increase | 990,378,204 | - | 38,841,622 | - | |||
| Creditors investments acquisitions ** | - | (44,256,746) | (74,719,450) | ||||
| ──────── | ──────── | ||||||
| Due from related parties (note 15) | 55,880,213 | 8,038,044 | |||||
| Due to related parties (note 26) | (56,543,163) | (118,206,667) | |||||
* These amount represents the cost of purchasing palm hills club located in 6th of October city, which was previously owned by El Ethadia for Real Estate Investments S.A.E.
** Creditors investment acquisition represents payments by the shareholders of Palm Hills Developments Company ("the Company") on its behalf to finance the acquisition of Saudi Urban Developments Company S.A.E.
31 RISK MANAGEMENT
The group's activities expose it to a variety of financial risks; price risks, credit risk, liquidity risk and interest rate risk.
Risk management is carried out by a central treasury department (Group Treasury) under policies approved by the Board of Directors. Group Treasury identifies and evaluates financial risks in close co-operation with the company's operating units. The Board provides written principles for overall risk management as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of non derivative financial instruments and investing excess liquidity.
Market risk
Foreign exchange risk
The group operates locally and therefore is not exposed to significant foreign exchange that might arise from various currency exposures.
Price risk
The group is exposed to property price risk. Factors that apply generally to the real estate development industry, many of which are macroeconomic in nature and beyond the control of Palm Hills, may affect the economic performance and value of Palm Hills' properties, some of which may include:
- National, regional and local economic climate;
- cyclical nature of the real estate market;
- oversupply of similar properties or a reduction in demand for the properties;
- changes in interest rates and inflation and the limited availability of financing;
- governmental laws, rules and regulations, including in relation to financing, environmental usage, tax and insurance; and
- acts of nature that may damage the properties.
Any negative change in one or more of these general factors listed above, as well as in the factors described in further detail below, could adversely affect Palm Hills' business, results of operations and financial condition.
Credit risk
The group has no significant concentration of credit risk. It has policies to ensure that contracts are made with customers with an appropriate credit history. Cash transactions are limited to high-credit-quality financial institutions. The group has policies that limit the amount of credit exposure to any financial institution. The Company sells its products to a large number of customers. Its 5 largest customers account for 10% of outstanding accounts receivable at 31 December 2008 amounting to EGP 285,682,653(2007: 7%). The Group's exposure to credit risk is not materially different from the carrying amounts of its financial assets
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash, and the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying business, Group Treasury aims to maintain flexibility in funding by keeping committed credit lines available.
31 RISK MANAGEMENT - continued
The table below summarises the maturities of the company's undiscounted financial liabilities at 31 December, based on contractual payment dates and current market interest rates.
| 2008 | |||
| Year ended 31 December 2008 | 3 to 12 months | 1 to 5 Years | |
| Total | |||
| EGP | EGP | EGP | |
| Accounts payables | 370,206,392 | - | 370,206,392 |
| Bank overdrafts | 111,249,739 | - | 111,249,739 |
| Term loans | 136,405,712 | 379,591,680 | 515,997,392 |
| Notes payable | 262,893,477 | 1,639,724,047 | 1,902,617,524 |
| Interest on term loans | 73,255,000 | 71,276,000 | 144,531,000 |
| Land purchase liabilities | 338,715,137 | 1,849,274,778 | 2,187,989,915 |
|
| ──────── | ──────── | ──────── |
| Total | 1,292,725,457 | 3,939,866,505 | 5,232,591,962 |
|
| ══════ | ══════ | ══════ |
| 2007 | |||
| Year ended 31 December 2007 | 3 to 12 months | 1 to 5 Years | Total |
| EGP | EGP | EGP | |
| Accounts payables | 267,089,442 | - | 267,089,442 |
| Bank overdrafts | 486,416,325 | - | 486,416,325 |
| Term loans | 182,930,278 | 3,260,042 | 186,190,320 |
| Notes payable | 262,662,720 | 116,473,658 | 379,136,378 |
| Interest on term loans | 21,975,664 | 1,649,305 | 23,624,969 |
| Land purchase liabilities | 439,563,533 | 2,171,336,146 | 2,610,899,679 |
|
| ──────── | ──────── | ──────── |
| Total | 1,660,637,962 | 2,292,719,151 | 3,953,357,113 |
|
| ═════ | ═════ | ═════ |
Interest rate risk
The impacts of interest rate changes on post-tax profit are negligible
Capital Management
The primary objective of the group's capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value.
The Company manages its capital structure and makes adjustments to it in light of changes in business conditions. No changes were made in the objectives, policies or processes during the years ended 31 December 2007, 31 December 2006 and 2005. Capital comprises share capital, retained earnings and minority interest, and is measured at EGP 2,832,192,725 as at 31 December 2008 (2007: EGP 1,130,451,262)
32 CAPITAL COMMITMENTS
Estimated capital expenditure contracted for at the balance sheet date but not provided for represent the following:
| 2008 EGP | 2007 EGP | |
| Capital Increase in subsidiaries | 230,850,000 | - |
| Land acquisition | 47,355,000 | 261,003,188 |
| ──────── | ─────── | |
| 278,205,000 | 261,003,188 | |
| ═════ | ═════ |
The above commitments are expected to be settled between one and five years.
33 FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments comprise financial assets and liabilities.
Financial assets consist of cash and bank balances, financial assets at fair value through profit or loss, notes and accounts receivable. Financial liabilities consist of term loans, bank overdrafts, notes and accounts payable.
The fair values of financial instruments are not materially different from their carrying values.
34 GROUP ENTITIES
| 2008 | 2007 | |
| % | % | |
| New Cairo for Real Estate Developments S.A.E | 99.87% | 74.9% |
| Royal Gardens for Real Estate Investment Company S.A.E | 51% | 51% |
| 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 | 99.95% 87.5% | 99.95% 87.5% |
| Middle East for Development and Investment Touristic S.A.E | 58.75% | 58.75% |
| Gamsha for Tourist Development S.A.E | 59% | 59% |
| Nile Palm Al-Naeem for Real Estate Development S.A.E | 51% | 50% |
| Saudi Urban Development Company S.A.E | 51% | 51% |
| Rakeen Egypt for Real Estate Investment S.A.E | 97% | 97% |
| Al Naeem for the hotels and touristic Villages SAE | 60% | - |
| Gawda for trade services SAE | 99.98% | - |
| New East Cairo for Real Estate Development. SAE | 89% | - |
| Saultan Company - Saudi SAE | 51% | - |
| Villamora for Real Estate Development Company SAE | 65% | - |
| Citi for real estate development SAE | 51% | - |
| Coldwell Banker - Palm Hills for Real Estate Investments - S.A.E | 49% | - |
| United group for real estate development SAE | 49% | - |
35 RESTATMENT FIGURES
Certain comparative figures for the year 2007 have been reclassified due to restatement of income statement, balance sheet and statement of changes in equity as follows:
| Comparative | Adjustment | Restated comparative | Nature of prior year adjustments | |
| Finance cost | 88,705,529 | 11,503,427 | 77,208,102 | Correction of an error |
| Selling and administrative expenses | 111,838,224 | 1,050,064 | 110,788,160 | Correction of an error |
| Accounts payable and accruals | 232,835,148 | 1,050,064 | 231,685,084 | Correction of an error |
| Attributable profit to : | ||||
| equity holders of the parent | 188,851,844 | 7,737,641 | 196,589,485 | Parent portion of adjustments |
| Minority interest | (9,036,251) | 4,815,850 | (4,220,401) | Minority portion of adjustment |
| Development properties | 3,768,299,778 | 11,503,427 | 3,779,803,205 | Correction of an error |
| Retained earnings | 218,173,380 | 7,737,641 | 225,911,021 | Parent portion of adjustments |
36 COMPARATIVE FIGURES
Certain comparative figures for the year 2007 have been reclassified to conform with the current year's presentation as follows:
| Comparative | Reclassification | Current year balance | |
| Accounts payable and accruals "Deposits from unit owners" | 34,354,294 | (34,354,294) | - |
| Other non - current liabilities | - | 34,354,294 | 34,354,294 |
| Number of shares | 5.690,000 | 278,810,000 | 284,500,000 |
| Deferred revenue | 98,627,724 | (98,627,724) | - |
| Billings in excess of costs | 367,503,885 | 98,627,724 | 466,131,609 |
| Earning per share | 33.19 | 32.497 | .692 |