Emaar The Economic City announces its Interim Financial Results for the Period Ending on 2023-03-31 ( Three Months )
| Element List | Current Quarter | Similar quarter for previous year | %Change | Previous Quarter | % Change |
|---|---|---|---|---|---|
| Sales/Revenue | 157 | 87 | 80.46 | 136 | 15.44 |
| Gross Profit (Loss) | 21 | -36 | - | -77 | - |
| Operational Profit (Loss) | -61 | -119 | -48.74 | -367 | -83.38 |
| Net Profit (Loss) after Zakat and Tax | -171 | -166 | 3.01 | -531 | -67.8 |
| Total Comprehensive Income | -173 | -166 | 4.22 | -521 | -66.79 |
| All figures are in (Millions) Saudi Arabia, Riyals | |||||
| Element List | Current Period | Similar period for previous year | %Change |
|---|---|---|---|
| Total Share Holders Equity (after Deducting Minority Equity) | 6,481 | 7,610 | -14.84 |
| Profit (Loss) per Share | -0.15 | -0.15 | |
| All figures are in (Millions) Saudi Arabia, Riyals | |||
| Element List | Explanation |
|---|---|
| The reason of the increase (decrease) in the net profit during the current quarter compared to the same quarter of the last year is | Net loss for Q1 2023 is SAR 171M as compared to the net loss of SAR 166M in the corresponding quarter. Key factors impacting the net results for the current quarter, are summarized below:
1) EEC Group has reported a gross profit of SAR 21M during Q1 2023 which represents a decrease in loss by SAR 57M (157%) as compared to the gross loss of SAR (36.4 M) for the corresponding quarter. The variance is mainly due to the followings:
a) Projects’ gross profit increased by SAR 60M, from gross loss of SAR (4.2M) (Q1 2022) to gross profit of SAR 56M (Q1 2023) mainly due to increase in order intake by 324M (including order intake of Rixos deal having Gross Profit impact of SAR 28M. The order intake in Q1 2023 is SAR 308M (2022: negative order intake of SAR 16M).
b) The above positive impact in Gross Profit was offset by increase in operation’s gross loss by SAR (3.3M) from gross loss of SAR (32.2M) (Q1 2022) to SAR (35.5M) (Q1 2023) mainly due to reduction in school revenue by SAR 5.2M due to transfer of school operation to third party operator.
2) Decrease in marketing cost by SAR 15M mainly due to reduction in additional discounts given to various customers during last quarter.
3) The above positive variance ware partially offset by the following:
• Increase in general and administrative expenses by SAR 8.8M mainly due to increase in professional fee and other expenses. • Increase in impairment loss by SAR 2.8M during the current quarter. 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.
• Increase in financial charges by SAR 45.7M is mainly due to increase in average markup rate.
• Decrease in share of results of equity accounted investees by SAR 13M mainly due to completion of bulk berth terminal of PDC resulted in increase in interest expense and depreciation charges.
• Decrease in other income is mainly due to decrease in gain on sale of investment properties.
• Increase in zakat charges by SAR 3.7M mainly due to anticipated changes in Zakat base for FY 2023 |
| The reason of the increase (decrease) in the net profit during the current quarter compared to the previous quarter of the current year is | Net loss for Q1 2023 is SAR 171M as compared to the net loss of SAR 531M in the previous quarter. Key factors impacting the net results for the current quarter, are summarized below:
1) EEC Group has reported a gross profit of SAR 20M during Q1 2023 which represents a decrease in loss by SAR 97M (127%) as compared to the gross loss of SAR (77M) for the corresponding quarter. The variance is mainly due to the followings:
• Projects’ gross profit increased by SAR 45M, from gross profit of SAR 10.8M (Q4 2022) to gross profit of SAR 56M (Q1 2023) mainly due to increase in order intake.
• The above positive impact in gross profit was offset by increase in operation’s gross loss by SAR 52M from gross loss of SAR 88M (Q4 2022) to SAR 35.5M (Q1 2023) mainly due to impairment recorded during Q4 2023 amounting to SAR 58M.
2) Decrease in general and administrative expenses by SAR 145M mainly due to recording of legal cases provision during Q4 2023 in accordance with assessment of open legal cases against the group.
3) Decrease in depreciation expense by SAR 12.9M mainly due to certain assets being fully depreciated prior to 2023.
4) Decrease in impairment on account receivable and unbilled revenue by SAR 23M during the current quarter. The impairment/ provision is calculated using Expected Credit Loss (ECL) model as required under “IFRS 9 Financial instruments”.
5) Decrease in zakat charges by SAR 55M mainly due to recording of additional provision in respect of open zakat assessments of prior years, amounting to SAR 56M recorded during Q4 2022. |
| Statement of the type of external auditor's report | Unmodified conclusion |
| Modification, Qualification or Emphasis of a Matter as Stated within the External Auditor Opinion | We draw attention to Note 1 to the accompanying condensed consolidated interim financial statements, which indicates that the Group incurred a loss of Saudi Riyals 171.3 million. In addition, the Group’s current liabilities exceeded its current assets by Saudi Riyals 7,238 million and it had accumulated losses amounting to Saudi Riyals 4,863.5 million as at that date. In addition, the Group has not complied with the requirements of covenants related to long-term borrowing facilities, resulting in borrowings with outstanding balance of Saudi Riyals 2,852.5 million as at 31 March 2023 being immediately due and payable on demand in accordance with the terms and conditions of the borrowing agreements. 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 condensed consolidated interim financial statements do not include the adjustments that would be necessary if the Group were unable to continue as a going concern. Our conclusion is not modified in respect of this matter. |
| Reclassification of Comparison Items | During the period, 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 March 2023, amounted to SAR 4,863 million, which is equivalent to 42.91% of the Company’s capital, amounting to SAR 11,333 million.
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 March 31, 2023.
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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