Emaar The Economic City announces its Annual Financial Results for the Period Ending on 2022-12-31
| Element List | Current Year | Previous Year | %Change | ||
|---|---|---|---|---|---|
| Sales/Revenue | 363 | 372 | -2.42 | ||
| Gross Profit (Loss) | -218 | -237 | -8.02 | ||
| Operational Profit (Loss) | -795 | -609 | 30.54 | ||
| Net Profit (Loss) after Zakat and Tax | -1,157 | -837 | 38.23 | ||
| Total Comprehensive Income | -1,122 | -788 | 42.38 | ||
| Total Share Holders Equity (after Deducting Minority Equity) | 6,655 | 7,776 | -14.42 | ||
| Profit (Loss) per Share | -1.02 | -0.9 | |||
| All figures are in (Millions) Saudi Arabia, Riyals | |||||
| Element List | Explanation |
|---|---|
| The reason of the increase (decrease) in the net profit during the current year compared to the last year is | Total comprehensive loss for FY-2022 is SAR 1,122M as compared to the total comprehensive loss of SAR 788M in the corresponding year. Key factors impacting the net results for the current year, are summarized below:
1) EEC Group has reported a gross loss of SAR 217.5M during 2022 which represents decrease in gross loss by SAR 19.5M (8.2%) as compared to the gross loss of SAR 237M for the corresponding year. The variance is mainly due to the following:
a) Decrease in Significant Financing Component “SFC” by SAR 15M mainly due to cancellation order intake. b) There was an impairment of SAR 38M in previous year, whereas there is no significant impairment during current year on development properties. c) The above positive impacts as a result of SFC and reduction in impairment on development properties are partially offset by variance in order intake of SAR 264M (Net order intake 2022: SAR 306M vs 2021: SAR 42M), having negative impact of SAR 32.7M.
2) Increase in general and administrative expenses by SAR 172M mainly due to certain provisions.
3) Decrease in marketing cost by SAR 17M mainly due to reduction in additional discounts given to various customers during last year.
4) Decrease in amortization expense by SAR 6.7M mainly due to certain assets being fully amortised prior to 2022.
5) Decrease in impairment loss by SAR 7.5M due to the following reasons:
• During the year, the Group recorded an impairment loss amounting to SAR Nil whereas during 2021 an impairment of SAR 16M was recorded.
• Increase in impairment loss on account receivable and unbilled revenue by SAR 7.5M during the current year. The impairment/ provision is calculated using Expected Credit Loss (ECL) model as required under “IFRS 9” against receivable balances of leasing, utilities and service charges.
6) Increase in financial charges by SAR 60M is mainly due to increase in SAIBOR and increase in credit spread due to restructuring of outstanding long-term loans, however, the increase is partially offset by conversion of part of MOF loan into equity during 2021 resulting in reduction in finance charges by SAR 13M (with effect from date of conversion, i.e. 26 September 2021).
7) Decrease in share of results of equity accounted investees by SAR 21M mainly due to completion of bulk berth terminal of PDC resulted in increase in interest expense and depreciation charges.
8) Decrease in other income by SAR 65M mainly due to the following:
• Reduction in donation income during the year from Lockheed Martin (LM) against MBSC losses by SAR 35M, due to exhaustion of the LM donation pool during 2021. • Reduction in amortization of significant financing component “SFC” by SAR 37.5M mainly due to reduction of SFC due to cancellation and decrease in amortization of SFC during the year. • The above reduction in other income was partially offset by increase in gain on sale of investment properties by SAR7.7M.
9) Decrease in share of other comprehensive income from equity accounted investees (Port Development Company (PDC)) by SAR 12.7M mainly arising from revaluation of interest rate swap arrangements made by PDC.
10) Increase in zakat provision by SAR 68.5M as contingency in case necessary.
11) The remaining net increase of SAR 0.5M is due to variances appearing in respect of other various items. |
| Statement of the type of external auditor's report | Unmodified opinion |
| Modification, Qualification or Emphasis of a Matter as Stated within the External Auditor Opinion | We draw attention to Note 1 to the accompanying consolidated financial statements, which indicates that the Group incurred a loss of Saudi Riyals 1,157.3 million and had negative operating cash flows amounting to Saudi Riyals 227.4 million for the year ended 31 December 2022. In addition, the Group’s current liabilities exceeded its current assets by Saudi Riyals 6,914.2 million and it had accumulated losses amounting to Saudi Riyals 4,690.1 as at that date. In addition, the Group has not complied with the requirements of covenants related to long-term borrowing facilities, resulting in the borrowings with outstanding balance of Saudi Riyals 2,777.5 million as at 31 December 2022 being immediately due and payable on demand in accordance with the terms and conditions of the borrowings. The Group’s ability to meet its obligations as they fall due and to continue its operations without significant curtailment is therefore highly dependent on the successful execution of management’s plans including debt restructuring, obtaining additional funding from shareholders and the sale of properties to generate sufficient cash flows. These events and conditions, along with other matters set forth in Note 1, indicate the existence of a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. The accompanying consolidated financial statements do not include the adjustments that would be necessary if the Group were unable to continue as a going concern.
Our opinion is not modified in respect of this matter. |
| Reclassification of Comparison Items | During the year, the Group restated certain amounts and balances included in the prior year financial statements in order to reflect appropriate accounting and classification to ensure compliance with IFRS. |
| Additional Information | The accumulated losses, as of 31 December 2022, amounted to SAR 4.7 billion, which is equivalent to 41.38% of the Company’s capital, amounting to SAR 11.3 billion.
The main causes of these accumulated losses are as follows:
Under Saudi Organization for Certified Public Accountants (SOCPA) accounting framework, EEC had a positive retained earning balance of SAR 16.8M as at 31 Dec 2015. During 2017, SOCPA made it mandatory for listed companies to adopt the International Financial Reporting Standards (IFRS) retrospectively with effect from 01 Jan 2016. Due to the switch from SOCPA accounting framework to IFRS, positive retained earnings got converted into accumulated losses of SAR 1.4B as of 01 Jan 2016, mainly due to change in impairment testing methodology of operating assets and change in revenue recognition policy. However, part of the accumulated losses pertaining to revenue recognition were reversed in subsequent periods in line with the projects progress.
In addition to this, during 2019, the IFRS Interpretation committee published an agenda decision “Over Time Transfer of Constructed Good - IAS 23 Borrowing Costs” which states that under construction inventories of real estate properties are not qualifying assets for capitalization of borrowing costs as these are ready for its intended sale in its current condition. Accordingly, capitalized borrowing costs pertaining to development properties (inventories), amounting to SAR 252M, as of 31 December 2019, had been offloaded and charged to accumulated losses. Furthermore, the prevailing COVID 19 situation has resulted in impairment of development properties and operating assets, amounting to SAR 177M and SAR 187M respectively, which had been recognized in the books of accounts.
In addition to this, financial charges pertaining to outstanding loans, losses related to operating assets being at infancy stage and depreciation, operations and maintenance of city infrastructure are other major contributors to the accumulated losses of the company as at December 31, 2022.
In order to mitigate these accumulated losses, the following measures and initiatives have been implemented by the Company:
• Pursuing critical initiatives and deals in the pipeline, which are expected to be realized in due course. These deals are vital for the development of the city and are also in line with Kingdom’s Vision 2030 to create a more diversified and sustainable economic development.
• For assets already developed, partnering with specialized asset operators to bring enhanced efficiency in operations. This measure will potentially lead to an improvement in the operating result of the Company, and will bring specialized operators on board to operate these assets, enabling the Company reallocate internal resources to create value in its real estate business as a Master developer. • Continuously working on cost optimization initiatives that will potentially improve the results of the Company.
Procedures and instructions applicable on companies listed in Saudi Capital Market whose accumulated losses reached 35% or more and less than 50% out of the capital thereof will be applied |
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