1) EEC Group has reported a gross profit of SAR 237M during Q2 2023 against a loss of SAR (51M) when compared with a similar quarter of last year which represents an increase in gross margin by SAR 288M. The variance is mainly due to the following:

• Projects’ gross profit increased by SAR 278M, from a gross loss of SAR (2M) (Q2 2022) to a gross profit of SAR 276M (Q2 2023) driven by an increase in sales of real estate assets mainly related to sale of an industrial plot for development and another land sold to an investor in the touristic area.

• Gross loss generated by the Group’s operating assets decreased by SAR 10M mainly driven by the rationalization of operating expenses

2) General and administrative expense for the current period is SAR 80M compared with an expense of SAR 106M in the corresponding quarter of last year. The SAR 26M decrease is mainly due to lower provisioning with respect of legal and Zakat cases, however, the impact was partially offset by an increase in professional charges.

3) A decrease in impairment loss is due to lower provision required under the Expected Credit Loss (ECL) model resulting from a reduction in the account receivable balance. The impairment/ provision is calculated using the Expected Credit Loss (ECL) model as required under “IFRS 9 Financial instruments”.

4) The increase in financial charges by SAR 52M is mainly due to an increase in SAIBOR compared to the corresponding quarter of last year.

1) EEC Group has reported a gross profit of SAR 237M during Q2 2023 against a gross profit of SAR 21M when compared with the previous quarter of the current year which represents an increase of SAR 216M. The variance is mainly due to the following:

• Projects’ gross profit increased by SAR 219M, from a gross profit of SAR 56M (Q1 2023) to a gross profit of SAR 275M (Q2 2023) driven by the increase in sales of real estate assets mainly related to sale of an industrial plot for development and another land sold to an investor in the touristic area.

• The above positive impact in GP was offset as the gross loss generated by the operating assets increased by SAR 3M to SAR 38M in Q2 2023.

2) The Group’s general and administrative expenses increased by SAR 24M mainly due to increase in professional charges.

3) Financial charges increased by SAR 15M mainly due to an increase in SAIBOR and slight increase in outstanding loan balances.

4) Decrease in impairment loss (reversal) is due to lower provision required under the ECL resulting from a reduction in account receivable balances.

5) Increase in other income is mainly due to Donation Income of SAR 37.5M received from the endowment fund related to a subsidiary and reversal of a SAR 19M provision no longer required.

Comparative Information

We draw attention to Note 20 to the condensed consolidated interim financial statements, which indicates that the comparative information presented for the three-month and six-month periods ended 30 June 2022 has been restated. Our conclusion is not modified in respect of this matter.

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 the infancy stage, and depreciation, operations, and maintenance of city infrastructure are other major contributors to the accumulated losses of the company as of June 30, 2023.

The company will apply the procedures and instructions issued by the Capital Market Authority for companies listed on the Saudi Stock Exchange, whose accumulated losses amounted to more than 20% of its share capital.