Emaar The Economic City reports interim financial results for the period ending 30-09-2021 (nine months)
The reason for the increase (decrease) in net profit in the current quarter compared to the previous period in the current year is
Total comprehensive loss decreased by SAR 19.8m in the current quarter compared to the previous quarter, mainly for the following reasons:
â¢ The decrease in the gross loss of SAR 14.8 million is mainly due to the increase in income from operating assets and the change in the real estate sales mix during the third quarter of 2021.
â¢ Decrease in the impairment loss on debit balances related to rental, utility and service fee income of 12.6 M SAR calculated according to the expected credit loss (ECL) model as required by “IFRS 9” .
The above mentioned impact of the decrease in total overall loss was partially offset by:
â¢ Increase in general, administrative and marketing expenses of -7.2 M SAR, mainly due to the increase in marketing activities such as branding, advertising and discounts offered to customers during the third quarter of 2021 .
â¢ Increase in other elements of SAR -0.4 M during the current period.
The reason for the increase (decrease) in net profit during the current period compared to the same period last year is
The total aggregate loss decreased by SAR 168M during the reporting period compared to the corresponding period mainly for the following reasons:
â¢ The decrease in general and administrative and marketing expenses of SAR 46M is mainly due to various cost optimization measures, including reduction of personnel costs.
â¢ A depreciation on operating assets in the amount of SAR 21.3 M recorded during the corresponding period while no depreciation was recorded during the current period.
â¢ Decrease in financial charges of SAR 52 M during the current period mainly due to the fall in the overall rates of SAIBOR.
â¢ Increase in the Group’s share in the results of the entity held, Port Development Company (PDC) for an amount of SAR 16.3 million as well as positive changes in the revaluation of the interest rate swap agreements entered into by PDC for an amount of SAR 40 million.
â¢ Decrease in depreciation, zakat and other items by SAR 22.4 million during the current period.
The impact of the decrease in comprehensive income mentioned above was partially offset by the increase in gross loss amounting to -30 million SAR, mainly due to a significant reduction in business order intake. real estate during the current period.
Modification, reservation or emphasis of a matter as stated in the opinion of the external auditor
As described in Note 15 to the accompanying condensed interim consolidated financial statements, the impact of the fair value of the shares issued, at their nominal value, for a debt-to-share swap transaction executed at the market price. period has not been recognized as management is in the process of determining the fair value of the shares issued at the date of the Swap. We were unable to determine whether any adjustments should be made to the statement of financial position as at September 30, 2021, the statements of net income and other comprehensive income and the statement of changes in equity. for the period ended on that date
in relation to the exchange transaction.
We draw attention to note 3 of the condensed consolidated interim financial statements, which indicates that the Group incurred a net loss of SR 516.8 million during the period ended September 30, 2021 and, as of that date, the The Group’s current liabilities exceeded its current assets by RS 3,763 million. These events or conditions, as well as other elements as set out therein, indicate that there is a significant uncertainty likely to cast significant doubt on the Group’s ability to continue operating. Our conclusion is not altered in this regard.
ACCUMULATED LOSSES EXCEED 20% OF THE SHARE CAPITAL:
The cumulative losses, as of September 30, 2021, amounted to SR 3.187 billion, which is equivalent to 28.1% of the Company’s capital, or SR 11.3 billion.
The main causes of these cumulative losses are as follows:
Under the accounting framework of the Saudi Organization of Chartered Accountants (SOCPA), the EEC had a positive retained earnings balance of Rs 16.8 million as at December 31, 2015. In 2017, SOCPA required listed companies to adopt international financial reporting standards (IFRS). retrospectively with effect from January 1, 2016. Due to the transition from the SOCPA accounting framework to IFRS, positive retained earnings were converted into cumulative losses of SR 1.4B as of January 1, 2016, mainly due to the change in impairment testing methodology operating assets and change in revenue recognition policy. However, part of the cumulative losses relating to the recognition of turnover was taken back during subsequent periods as the projects progressed.
In addition to this, in 2019, the IFRS Interpretation Committee published a decision on the agenda âTime transfer of the constructed asset – Borrowing costs IAS 23â which states that the inventories of real estate in under construction are not eligible assets for capitalization of borrowing costs as they are ready for its intended sale in its current state. As a result, the capitalized borrowing costs relating to properties under development (inventories), amounting to SR 252M, as at December 31, 2019, had been discharged and charged to the accumulated losses. In addition, the current COVID 19 situation has resulted in depreciation of buildings under development and operating assets, in the amount of SR 138m and SR 178m respectively, which had been recorded in the books of account as of December 31, 2020. In addition to this, the financial charges relating to outstanding loans, losses related to operating assets being in infancy and the depreciation, operation and maintenance of infrastructure. the city are other major contributors to the cumulative losses of the company as of September 30, 2021.
The company will apply the procedures and instructions issued by the Capital Market Authority for companies listed on the Saudi Stock Exchange, whose cumulative losses amount to more than 20% of its share capital.
The main reasons that led to these losses:
EEC is a city economic development company that requires a substantial investment in the development of city infrastructure such as roads, bridges, substations, water and sewer plants, telecommunications infrastructure, etc. and the Company is involved in the development and maintenance of essential elements of the city such as education, health care, hospitality, recreation to meet the growing needs of the city’s population. This naturally results in a considerable amount of depreciation as well as the initial operating losses associated with these assets which affect the profitability of the Company in the shorter term, but these investments have made it possible to achieve the strategic objectives of KAEC as a large catalyst for socio-economic transformation in Saudi Arabia.
From a value point of view, the company has invested in the development of King Abdullah Economic City about SR 18 billion in equity and financing since its inception, which created approx. 8x the value of investment properties as disclosed in the audited financial statements for the year ended December 31, 2020. This value will be unlocked through additional investments in strategic projects by both the Company and third party developers, to create jobs and footfall, up to a point beyond which KAEC will grow organically and thus generate large returns long awaited for its shareholders.
From a liquidity management perspective, the company is actively pursuing the rescheduling of its outstanding debts (which mature within one year of September 30, 2021) with its lenders. In addition to this, the request to increase the share capital of the Company by converting debts in the amount of RS 2,833 million was approved by the Capital Market Authority (CMA) on August 1, 2021. In In addition, on September 26, 2021, the shareholders meeting in extraordinary general meeting approved the increase of the share capital of the Company from 8,500 million SR to 11,333 million SAR. As a result, PIF became a shareholder of the Company by issuing 283,333,334 new shares, at the nominal value of SR 10 per share, against the debt amount of SR 2,833 million.
In addition to the above-mentioned measures to reduce the accumulated losses, the Company has recently engaged with several mortgage and finance companies to improve the affordability of housing in the economic city of King Abdullah and increase its profitability and its generation of cash flow.